The Fed Has Crossed The "Hard Landing" Rubicon So How High Will It Hike? One Bank Crunches The Numbers One month ago, a SocGen strategist calculated something remarkable: at a time when the Fed is warning of multiple 50bps hikes in coming FOMC meetings and Powell is threatening to take fed funds above neutral - somewhere in the great unknown zone between 2.0% and 4.5% - and even the gradually fading market consensus still expects just under 8 hikes this cycle... ... quant Solomon Tadesse calculated that according to his analysis, if the Fed i focused on preserving growth (at the expense of higher inflation), then Fed Funds will peak at just around 1.0%, which combined with a QT programme to the tune of about $1.8tn, means the Fed will very soon be forced to reverse. Furthermore, as Tadesse has since pointed out, with the Fed’s recent bold 50bp hike, "there does not seem much room left for manoeuvring for the desired soft-landing." He then echoes what we have been saying in recent weeks, namely that the "type of week-long market meltdown witnessed since the recent hike often precedes a policy about-face in line with our projection." Ok but what if having decided to push the US into a recession, growth be damned, the Fed is now focusing only and entirely on inflation?  After all, current rates are far, far below the prevailing CPI which is around 8%, and while many argue whether CPI has peaked, there is a significant possibility CPI could hit double digits in the coming months. This is the question that Tadesse addresses in his latest must-read note (available to pro subs in the usual place), in which he writes that "an inflation-fighting impulse is currently in the air, begging the question of what it could take to stamp out the current trend for good, even at the cost of a hard landing." According to the SocGen quant, given the rising inflation prints and accompanying political pressure, if the pro-growth tightening threshold is breached - which it likely will be as soon as the next FOMC meeting, making a hard landing inevitable, and unleashing the Fed in favor of a single-minded inflation-fighting policy stance, Tadesse's analysis suggests that it "could take overall monetary tightening of as much as 9.25% to arrest inflation, with the policy rate going up to 4.5% and the balance coming from QT of about $3.9tn, which would slash the current Fed balance sheet by about half." Here is some more detail from the SocGen quant on this potential "alternative" in which the Fed single-mindedly pursues inflation containment, going Volcker-style with accelerated rate hikes reminiscent of the 1970s and early 1980s, when the average MTE (tightening to easing) ratio was about 1.5x (left-hand chart below).: Such aggressive monetary tightening with a focus solely on inflation containment, even at the cost of inducing recession, according to our analysis, would require overall monetary tightening of about 11.6%. Given that rates have already been tightened by 2.5%, another 9.25% of monetary tightening might be expected via policy rate hikes and an aggressive QT program. The policy rate could go up by as much as 4.5%, with the remainder coming from QT (right-hand chart above). These projections are all before the 4 May rate hike of 50bp, which lowers the balance proportionately. At a rate of 12bp per $100bn of QT, this also amounts to a QT program of about $3.9tn, roughly equivalent to the net growth in the Fed’s balance sheet during the pandemic. An important caveat in the analysis is the presumption that current inflation levels resemble those of the late 1970s through the 1980s. As recent inflation prints are the highest in 40 years, this might be a reasonable assumption, particularly in reference to the rates seen in the early 1980s. In addition, in interpretating the results, there is an implicit assumption that the current inflation prints are persistent and demand driven. However, as our earlier analysis shows, the current inflation dynamics are driven both by transitory supply-related disruptions and demand-driven price pressures. Should the supply bottlenecks ease over time, the degree of monetary tightening needed to contain inflation through demand destruction could turn out to be lower. The above-left chart shows monetary policy frontiers (MPF). These are all the policy-rate hike and QT combinations that could generate the inflation-containing overall tightening of upwards of 9pp and the growth-conscious overall tightening discussed earlier, with the most likely outcomes of policy combinations identified with stars. Thus, our analysis suggests that while it might only take another 25-50bp for growth-conscious tightening to peak before a hard landing, an aggressive inflation-containing policy could mean additional policy rate hikes of up to 4.0pp. As noted earlier, the above analysis assumes that the Fed is resigned to a hard-landing. Does it mean that a soft-landing is now inevitable? Pretty much. Here is Tadasse again: In an earlier research note, we argued that if current monetary policy follows a pro-growth impulse, as has been the case over the past four decades, the current tightening phase could peak with only 0.75-1pp of rate hikes, combined with a QT program to the tune of about $1.8tn. After the Fed’s recent bold 50bp hike, there now does not seem to be much room left for manoeuvring toward a soft landing. Moreover, the type of week-long market meltdown witnessed since the hike has often preceded a policy about-face, which is what we expect. Summarizing the above, the SocGen quant writes that "monetary policy is thus at a crossroads, with a stark choice between a ‘growth’ conscious, albeit inflationary, rate-hike cycle, peaking after 300bp of tightening (with a mix of QT and FFR) or an inflation-containing, albeit recessionary, rate-hike cycle, peaking at about a 925bp of overall tightening (with a mix of 450bp in policy rate and the balance from QT)." And while there could be possibilities in between these two extremes, the middle ground may not, in general, be an admissible rational strategy. Such an intermediate path, plausible due to political pressure or a mid-course reversal in policy priorities between price stability and full employment, would likely fail to accomplish either mandate and could damage central bank credibility. What does this mean for traders? Nothing good - as Tadesse concludes, equity strategies do not fare well in scenarios of high inflation and declining growth (i.e. stagflation), as companies struggle with falling revenues and rising costs, lower growth causes lower earnings, and higher rates combined with an increase in the equity-risk premium negatively impact valuations. And while SocGen notes, that "cash flow and balance-sheet strength would matter for relative performance here", we would add that the real question is how fast does the market expect inflation to shrink back to the 2-3% range. The answer to that question will determine most investing strategies for the next year or so. For those unable or unwilling to answer, a simple heuristic is that strategies that pay high dividends at cheap valuations (such as quality income) should do well in this environment. So should equity strategies dominated by firms with pricing power, such as those in the upstream of the production chain, as should defensive equity strategies with stable cash flows and relative pricing power (such as utilities, the quality and quality income factors). Pair trades can use these as the long legs, offset with shorts among cyclical and aggressive growth strategies. The full note quantifying how high Powell will raise rates is available to pro subs. Tyler Durden Thu, 05/19/2022 - 22:00.....»»

China In Talks To Buy Cheap Russian Oil For Strategic Reserves China is in talks with Russia to buy its cheap oil to replenish strategic reserves, in the latest indicator of deepened energy ties between the two large powers and rivals to the United States. It's also the latest sign that a mulled EU Russian oil embargo may in the end be blunted before it ever gets off the ground, amid continuing inter-EU resistance led by Hungary. Bloomberg reports Thursday that "The crude would be used to fill China’s strategic petroleum reserves, and talks are being conducted at a government level with little direct involvement from oil companies, said a person with knowledge of the plan." Novokuibyshevsk oil refinery plant in Russia, via Chron.com Currently the EU is negotiating toward a phased embargo, seeking to find compromise with those central and eastern European members which are heavily dependent on Russian energy. The prior US ban on imports of Russian oil, which came early in the invasion of Ukraine, has already served to push more Russian oil tankers east towards Asia, diverting from Western markets. India too has reportedly been taking advantage of the comparatively cheaper prices. A source privy to the talks said they aren't close enough that a deal is guaranteed to be signed, nor is an estimated volume of crude Beijing is reportedly seeking known at this point. "There is still room to replenish stocks and it would be a good opportunity for them to do so, if they can be sourced on commercially attractive terms," a senior oil analyst at industry firm Kpler, Jane Xie, told Bloomberg. The report cites the data analytics firm to estimate that China's "overall stockpiles are at 926.1 million barrels, up from 869 million barrels in mid-March -- but still 6% lower than a record in September 2020." And by way of comparison, "the US Strategic Petroleum Reserve has a capacity of 714 million barrels. It currently holds about 538 million barrels." Chart via Reuters China remains the world's single biggest buyer of Russian oil, with official Chinese government figures for 2021 showing it imported almost 1.6 million barrels per day of Russian crude that year. But the immediate impact of Western punitive action targeting Moscow has seen more shipments sent to Asia. "China is now clearly buying more Ural cargoes. Ural exports to China have more than tripled. This is despite a weakening of Chinese imports," said Homayoun Falakshahi, senior analyst at Kpler, as cited in Reuters Tyler Durden Thu, 05/19/2022 - 22:20.....»»

NY Governor Announces New Gun Control Plans After Buffalo Shooting, Signs Order On Domestic Terrorism Authored by Mimi Nguyen Ly via The Epoch Times, New York Gov. Kathy Hochul on Wednesday proposed new measures and signed an executive order to “strengthen and close loopholes” in the state’s gun laws in the wake of the deadly shooting in Buffalo, New York. New York Gov. Kathy Hochul speaks to guests during an event with President Joe Biden and several family members of victims of the Tops market shooting at the Delavan Grider Community Center in Buffalo, New York, on May 17, 2022. (Scott Olson/Getty Images) The governor also signed a separate executive order to “combat the steady rise in domestic terrorism and violent extremism” and “crack down on social media platforms that host and amplify content that promotes and broadcasts violent, lawless acts,” according to a press release from her office. Payton Gendron, 18, is accused of having opened fire at a supermarket in Buffalo on May 14, killing 10 people and injuring three others. He surrendered to police who confronted him at the site. Gendron was arraigned on a first-degree murder charge to which he has pleaded not guilty. As of May 19, he is jailed under a suicide watch. Buffalo supermarket shooting suspect Payton Gendron in a jail booking photograph. (Erie County District Attorney’s Office via AP) Gun Control Proposals Hochul said her office will work with legislators to propose a package of laws that will strengthen current gun control measures and tighten any loopholes in the state. The suspected shooter had legally bought his weapon, a Bushmaster XM-15 rifle, and later modified it with an extended magazine, which is illegal to own in New York. “The gun the individual purchased in our state was legal,” Hochul told reporters. “But what happened was, is that you can go literally across the border to Pennsylvania and buy a magazine with 30 bullets in it. And that’s what happened. You can get the base gun here legally in the state of New York, go buy a high capacity magazine, and just attach it. That’s what happened.” “So, we have to deal with this. And we will, we will. We have announced there is a package of gun laws that we’re going to be proposing. We have more guns to deal with.” As part of a slew of measures, Hochul said her office will address “AOW” or “any other weapons,” which refers to a new category of weapons with characteristics that fall between rifles, shotguns, and pistols. Such weapons were “specifically designed to fall outside the realm of regulation, so they’re not subject to [New York] laws,” Hochul said. “We are introducing legislation that revises the definition of a firearm to include those weapons, which means we’ll be able to charge and prosecute people accordingly,” she said. Hochul also said New York’s red flag law needs to be strengthened. Red flag laws allow law enforcement to confiscate guns from those who are believed to pose a danger to themselves or others. “People are wondering how you had the right to acquire the weapon in the first place when you are this individual. We have red flag laws in place to prevent exactly this situation,” Hochul said. The governor issued an executive order to require the New York State Police to file an extreme-risk order of protection under New York’s red flag law when they have probable cause to believe that an individual is a threat to themselves or others. “Previously, current law, it’s an option to do so. And now, it’ll be a requirement,” Hochul noted. Gendron was able to purchase his weapon in part because he was never reported under New York’s red flag law, which would have prevented the store from selling him the weapon. Officials said on May 15 that last year, Gendron had made a reference to a murder-suicide in a paper he submitted at his high school, after which New York State Police took him into custody and had him undergo a mental health evaluation in June 2021. He was released about a day-and-a-half later, and was not charged criminally. According to a 180-page manifesto posted online that is alleged but not confirmed to have been written by Gendron, the Buffalo area was chosen as the target of the shooting because of strict laws governing gun ownership there and because it has a large black population. The Epoch Times has not been able to independently verify whether the manifesto was written by Gendron. The Erie County DA’s office told The Epoch Times that they are investigating the manifesto. Police stand in front of a Tops Grocery store in Buffalo, New York, on May 15, 2022, the day after a mass shooting inside the supermarket left 10 people dead and three wounded. (Usman Khan/AFP via Getty Images) Domestic Terrorism The author of the manifesto had identified themselves as a white supremacist. Authorities said Gendron live-streamed the shooting online. Police have called the shooting a “hate crime and racially motivated violent extremism.” Hochul told reporters on Wednesday that the suspect shooter was “radicalized by white supremacists and white nationalist beliefs.” She said such messages and racist philosophies are “easily accessible on social media platforms.” The incident was “white supremacy in this nation at its worst,” Hochul said, adding, “The most serious threat we face as a nation is from within … It’s white supremacism.” Hochul is signing another executive order to “fight the troubling surge in domestic terrorism and violent extremism frequently inspired by, planned on, and posted about on social media platforms and Internet forums,” her office said. The order will establish a unit within the Office of Counter-Terrorism at the Department of Homeland Security and Emergency Service to focus exclusively on domestic terrorism. “First time ever. They’ll develop the best practices for law enforcement, for mental health professionals, for school officials to address the rise in homegrown extremism. And we’ll make sure that they’re trained to know how it occurs, where it occurs, and how to stop it,” Hochul said. She said a “Threat Assessment Management Program” will be launched that will include multi-disciplinary teams in counties throughout New York State that will identify and assess the domestic terrorism threats. “This coordination is critical, it does not exist now,” Hochul said. “It does not exist, that these stakeholders need to be communicating and sharing information … Who heard what, who saw something? And then you get the law enforcement, and the mental health professionals, in some cases, school professionals, actually communicating about what they’re seeing. We have a much better opportunity to be in the prevention business, instead of just the cleanup business.” People participate in a vigil to honor the 10 people killed in the May 14, 2022 shooting at Tops market in Buffalo, New York, on May 17, 2022. (Scott Olson/Getty Images) Social Media Hochul said the executive order she’s signing will also establish a dedicated domestic terrorism unit in the New York State Intelligence Center to track domestic violent extremism through social media. “We’re going to ensure that we have the best-in-the-nation cybersecurity teams to monitor the places where radicalization occurs,” Hochul said. She said the suspected shooter’s live-stream of the shooting had “created an opportunity for people to see this and share what he was doing,” after which people would “create platforms so they can share their demented ideas with each other in the hopes that this continues to spread, the virus spreads,” thereby “radicalizing more.” The governor said that algorithms on some social media platforms can serve to “elevate hateful incendiary speech.” “There’s algorithms in place that ramp up and share this [hateful speech] even more, with higher frequency than other messages. So this incendiary content is pushed out to more people in 2022,” she said. “That’s how radicalization is occurring, through the social media echo chamber. … These social media platforms have to take responsibility. They must be more vigilant in monitoring the content, and they must be held accountable for favoring engagement over public safety.” Hochul said she has requested New York State Attorney General Letitia James’s office to investigate the social media platforms that broadcast the attack and that “promote and elevate hate speech.” James announced on Twitter on Wednesday: “My office is launching investigations into the social media companies that the Buffalo shooter used to plan, promote, and stream his terror attack. We are investigating Twitch, 4chan, 8chan, and Discord, among others, all platforms that the shooter used to amplify this attack.” Zachary Stieber contributed to this report. Tyler Durden Thu, 05/19/2022 - 22:40.....»»

Maersk & Goldman Warns China Restart Will Spark Renewed Supply Chain Congestion A.P. Møller – Maersk A/S, the world's largest container shipping company by capacity, and Goldman Sachs' supply chain congestion analysis (in separate reports) indicate if China restarts, renewed supply chain congestion will be seen worldwide.  Maersk told its Asia-Pacific customers that China's zero COVID policy to lockdown Shanghai, the world's largest port and China's financial hub, for nearly two months, will "have an effect all over the world in the coming months."  For seven weeks, a massive parking lot of vessels has been building outside Shanghai ports as operations came to a crawl because of the lockdown of 26 million residents.  Since the lockdown began in late March, Goldman Sachs' weekly congestion index has slid as US West and East Coast port congestion plunged. This is because the trans-Atlantic volume of vessels from China to the US declined as port capacity was restricted due to lockdowns.  Maersk told clients, "statically speaking, the virus is under control," and this could soon indicate Chinese port capacity may expand and sailings could increase to the US, which will only complicate things down the line for US West Coast ports as a backlog of goods will flood US ports.  Goldman also agrees and warns: "We could see a resurgence of ship bottlenecks if sudden restarts in China lead to renewed sailings all at once." A forward leading indicator of Chinese port activity and if a resurgence of bottlenecks is ahead for the US are global container freight rates.  Weekly changes of the World Container Index show that when China went into lockdown, container rates for 40-foot boxes dropped.  By shipping lane, if there's a tick-up in freight rates between China and the US West Coast, then it would be safe to assume China is restarting.  If China restarts and container rates begin to rise, the countdown will be about 1-2 months until a massive backlog hits US ports, renewing port congestion right before midterm elections.  Tyler Durden Thu, 05/19/2022 - 23:00.....»»

California To Spend $5.2 Billion On 'Electricity Reserve' To Avoid Blackouts Authored by Julianne Geiger via OilPrice.com, California has proposed spending $5.2 billion on creating a "strategic electricity reliability reserve" that would help the state avoid blackouts when its electric grid is stressed, a 2022-2023 budget revision document showed on Friday according to Bloomberg. California has weathered a fair amount of criticism over its electric grid, which contributed to rolling blackouts as recently as 2020. California warned last week that it could run into electricity shortages this summer with drought, heatwaves, and wildfires continuing to stress the grid. But renewables and California's electricity exports have also stressed the grid. The Reserve will be developed using existing generation capacity that was scheduled to retire, new generation, new storage projects, clean backup generation projects, customer side load reduction capacity that is visible to and dispatchable by CAISO during grid emergencies, and diesel and natural gas backup generation projects - which the budget document stressed would have emission controls and all required permits. Of note were two items in that list: "existing generation capacity that was scheduled to retire" and "diesel and natural gas backup generation projects". California is set to retire 6,000 MW of nuclear and gas-fired energy production. The Reserve will be capable of providing up to 5,000 MW that will be available whenever the grid is stressed. The new budget would also earmark $8 billion over five years to increase the state's system reliability and provide relief to consumers as electricity rates rise. The budget now calls for $22.5 billion in funds for the purpose of "climate resilience and integrated climate, equity, and economic opportunity across the state's budget to mobilize a coordinated all-of-government response to the climate crisis. Tyler Durden Thu, 05/19/2022 - 23:20.....»»

Hamptons Pool Craze Has Some Homeowners Waiting Years For A Dip  Hamptons, New York's summer playground for Wall Street execs and Hollywood celebrities, has an extremely tight housing inventory -- following two years of city-dwellers fleeing cities for the cozy beach town. During the pandemic, residents expanded backyards and many desired luxury pools. There has been a backlog of pool building, with some residents waiting at least one year or more for their backyard oasis.  Pools and spas are in high demand that has inundated pool builders in the Hamptons. The pool industry has never had this much demand in the area, mainly due to the work-at-home lifestyle and influx of new residents.  Greg Darvin, the owner of East Hampton, New York-based company, Pristine Pools, told Bloomberg that massive backlogs and long waitlists would persist for the next few years. "If you haven't planned your 2023 pool yet, you're too late," he said.  Before the pandemic, Darvin said clients wouldn't commit until they were ready for a new pool. "Now we book one year ahead, and we immediately go into hard contract," he added.  Supply chain shortages and soaring material costs have also been an issue. "Now we buy anything we can find and store it," he added.  The high-end pool market hasn't slowed down (yet) and could remain robust through 2023. With so much pool building demand pulled forward in the last few years, the question remains what happens after 2024.  Tyler Durden Thu, 05/19/2022 - 23:40.....»»

Diesel Price Drop, Rising Inventories Suggest East Coast Relief Possible By John Kingston of FreightWaves Diesel consumers on the East Coast received some news Wednesday that may suggest an easing of the tight physical market squeeze in the region. There have been head fakes suggesting a softening of markets in the weeks since the East Coast diesel market ran away from the rest of the country. But they proved short-lived, as the weekly national average retail diesel price published Monday by the Energy Information Administration was $5.613 a gallon. The East Coast price was 33.1 cents more than that after a three-week increase that took the spread from 4.9 cents on April 25 up to 19.2 cents the following week and 28.4 cents a week later before the latest jump. Historically, the spread moved up and down over zero enough that it’s accurate to say there’s little difference between the two. The recent spread is an anomaly, albeit one that is costing drivers on the East Coast a lot of money. But among the data in the latest weekly report of the EIA released Wednesday, there were several numbers that suggest there is reason to think the squeeze might have become less severe. The key driver in the squeeze has been inventory levels on the East Coast. But the latest report shows inventories turning up. Inventories of ultra low sulfur diesel in what the EIA calls PADD 1 — the East Coast — rose 1.21 million barrels last week to 20.4 million barrels. PADD 1 inventories of ULSD on the East Coast had declined in 13 of the 15 previous weeks and had dropped six weeks in a row before the increase the EIA posted Wednesday. Inventories remain well below historic norms. If the bloated figures from 2020 are not counted, the average size of PADD 1 ULSD inventories in the second weekly report of May over the past five years is 36.8 million barrels. That means that even after the latest increase, East Coast ULSD inventories were just 55.4% of that five-year average. Prices in spot and futures markets also may be providing a glimmer of hope for consumers. ULSD settled Monday at $3.6681 a gallon, down 13.12 cents on the day. It’s the lowest settlement since April 12, and since the start of May, ULSD is down more than 53 cents, including a decline of more than 25 cents in just the past three trading days.  The decline also was notable because it outpaced the performance of crude and RBOB, an unfinished gasoline blendstock that is used as a proxy for gasoline trade. That trend has been in place for most of May. On the first trading day of the month, the value of a barrel of ULSD was about $69 more than the value of a barrel of Brent crude. That spread is down to about $47.65. The weekly data report had other figures that could signal the worst on the East Coast might be over, even if it has a long way to climb back toward some semblance of normalcy. U.S. refineries ran at 91.8% of capacity. It’s the highest level since August 2021. The nameplate figure for capacity used by the EIA has been reduced over the years, but it’s only down about 1% since last August. On the East Coast, refineries ran at a rate of 95%. East Coast refineries have not run at 95% or above since May 2018, and instances of it in general are rare. But it’s a very different world on the East Coast: Operable capacity back in 2018 was 1.224 million barrels a day. It is now listed as 818,000. Stocks of all distillates, which includes diesel but does not include jet fuel, rose to 105.3 million barrels, up from 104 million barrels nationwide a week earlier. Inventories of ULSD nationwide rose to 95.2 million barrels from 94.6 million, though with PADD 1 up more than 1 million barrels, math on the overall national increase means the country outside of PADD 1 declined. The total distillate in inventories rose even as the country was consuming more product. Products supplied in distillates — which is mostly diesel but includes some other products, such as heating oil — increased to 3.816 million barrels a day from 3.777 million a week earlier. It’s still down 243,000 barrels per day from a year ago, approximately 5.9%, though jet fuel, which pulls from the same pool of distillate feedstocks as diesel, has seen its consumption increase 439,000 barrels a day, a 37% jump. The total amount of distillate molecules being demanded across various applications is rising, and the rising inventory balances this week suggest those needs were met without a significant pull on stocks. Exports of distillates fell. Exports in the EIA weekly report are not broken out by specific product, such as ULSD. But exports of diesel have been cited as a cause of the East Coast squeeze. Total non-jet distillate exports fell to just over 1 million barrels per day last week. It’s the lowest export figure in the last eight weekly reports, where exports a month ago got up to 1.74 million barrels a day. Partly offsetting that, however, is that imports of ULSD — specific import figures are available by category of product, unlike exports — were at the fourth-lowest weekly level they’ve seen all year. “Distillate exports were strong up until this week and refinery runs are up,” Stephen Jones of Argus Media said. Despite speculation about demand destruction, Jones noted that demand figures in the EIA report were up about 1% from the prior week.  Jones said that in addition to higher refinery runs in the U.S., European refinery runs are running about 1.5 million to 2 million barrels a day more than they were in March and April. The runs are being raised as the region deals with the impact of lost Russian oil because of sanctions, including the reduction in diesel exports from Russia. “They’re going to make more diesel and gasoline, and the sanctions may fall short and not have as big an impact on the loss of supply,” Jones said. “We could end up with significantly excess gasoline for the European market, and a well-supplied [European] distillate market.” In physical markets, the premium of East Coast diesel relative to Gulf Coast diesel narrowed for the second day in a row. According to benchmark administrator General Index, its assessment for ULSD in New York Harbor was roughly 22.25 cents more than the price in the Gulf Coast. A day earlier, it was 35.75 cents, which on the surface would suggest East Coast supplies easing relative to the Gulf Coast. However, that market last week did narrow for a few days before blowing back out. It opened the week at approximately a 66-cent spread in favor of the East Coast, per the General Index assessments, came in as tight as 33.5 cents and then blew back out to 76 cents Monday. The reversal has cut the spread by roughly 53 cents.  The various signs pointing downward in the diesel market have not yet made it to the pump. The DTS.USA data series in FreightWaves SONAR shows the national retail average rising to $5.621 a gallon Wednesday, up from $5.577 a week ago. But wholesale prices do react quickly to movements in the spot market for diesel. The national average wholesale diesel price reflected in the ULSDR.USA data series in SONAR was $4.234 per gallon Wednesday. It was $4.404 a gallon just two days earlier and was as high as $4.718 a gallon on May 3.  Retailers have been slow to move prices down, possibly because they have been so whipsawed by rapidly rising and falling prices that they are reluctant to follow all downward movements in wholesale prices. The end results, though, are strong retail margins, as evidenced in SONAR’s FUELS.USA data series, which at $1.387 a gallon Wednesday is significantly higher than normal rates near $1 to $1.05 a gallon. FUELS.USA represents a straight difference between wholesale and retail prices.  Tyler Durden Thu, 05/19/2022 - 11:25.....»»

Market Rout Extends With Futures Tumbling To Verge Of Bear Market US stock futures slumped again, extending yesterday’s brutal selloff that erased $1.5 trillion in market value on concerns about everything from slowing growth, to Chinese lockdowns, to soaring inflation and tightening monetary policy. Contracts on the S&P 500 were down 1.2% 7:30 a.m. in New York, having earlier dropped to 3,856, one point away sliding 20% from January's all time highs, and triggering a bear market. The underlying index tumbled 4% on Wednesday, the most since June 2020, as consumer shares cratered after Target slashed its profit forecast due to a surge in costs. Nasdaq 100 futures were down 1.2%. 10Y TSY Yields slumped about 7bps, dropping to 2.833, while the dollar also dropped after yesterday's surge; bitcoin was flat around $29K. The retail rout continued on Thursday: shares of US retailers again tumbled in premarket trading amid growing worries over the impact of rising inflation and the ability of companies to pass on higher costs to consumers; with Bath & Body Works becoming the latest retailer to cut its guidance. Major technology and internet stocks were also down, pointing to further losses in major technology and internet stocks a day after the tech-heavy Nasdaq slumped to its lowest since November 2020. Apple (AAPL US) -1.2%, Microsoft (MSFT US) -1.2%, Meta Platforms (FB US) -1.1%, Netflix (NFLX US) -0.9% and Nvidia (NVDA US) -2.2% in premarket trading. US rail stocks may be in focus as Citi cuts ratings on Norfolk Southern (NSC US), Union Pacific (UNP US) and US Xpress Enterprises (USX US) to neutral from buy, while lowering 2023 estimates “across the board.”Here are some other notable movers: Cisco Systems (CSCO US) plunged 13% in premarket trading after the network-gear maker spooked investors with a warning that Chinese lockdowns and other supply disruptions would wipe out sales growth in the current quarter. Shares of networking equipment makers drop after Cisco cuts outlook, with Broadcom (AVGO US) -3.6% and Juniper Networks (JNPR US) -5.9% in premarket trading. Synopsys (SNPS US) rises 3.8% in premarket trading after the supplier of software used to design semiconductors boosted its profit and revenue guidance for the full year. Target (TGT US) shares fall 2.2% in premarket trading, Walmart (WMT US) -0.3%; Kohl’s (KSS US) is in focus after two senior executives depart Under Armour (UAA US) shares dropped as much as 6% in US premarket trading, with analysts saying that the departure of the sportswear maker’s CEO Patrik Frisk is a surprise and adds uncertainty. Bath & Body Works’s (BBWI US) outlook cut was a little greater than expected, though analysts noted that it was due to higher costs and investment. The company’s shares fell almost 4% in premarket trading. United Wholesale Mortgage (UWMC US) will struggle to main its 1Q earnings level in coming quarters, Piper Sandler says in a note downgrading the stock to underweight from neutral. Shares drop as much as 7% in US premarket trading. The S&P 500 is on track for its longest weekly losing streak since 2001 as traders flee risk assets over fears that the Federal Reserve will push the economy into a recession as it tries to curb inflation. The benchmark is close to falling into a bear market, after dropping 18% from a record high in January. "The US selloff was rather orderly and the market isn’t oversold, yet. That tells us that we are likely not at the bottom yet,” said Joachim Klement, head of strategy, accounting and sustainability at Liberum Capital. “Consumer sentiment remains depressed and we are seeing consumers retrenching on some discretionary spending.”  Speaking on Tuesday in his most hawkish remarks to date, Fed Chair Jerome Powell said the US central bank will keep raising interest rates until there is “clear and convincing” evidence that inflation is in retreat. JPMorgan's Marko Kolanovic, meanwhile, said - what else - that things can get better for US stocks. “There will be no recession this year, some summer increase in consumer activity on the back of reopening, China increasing monetary and fiscal measures,” he said.  Bolstering his opinion is a conviction that US inflation has probably peaked, or is about to do so, paving the way for a pullback in price pressures that will eventually allow the Federal Reserve to moderate the pace of monetary tightening.  "Since we are pricing in a growth scare but not yet a recession, we could see further downside in the coming weeks, but we are starting to price in a very negative picture already, suggesting we should, at some point, be closer to the bottom,” said Esty Dwek, chief investment officer at Flowbank SA. US stock investors are pricing in stronger odds of a recession than are evident from positive macroeconomic indicators, according to Goldman Sachs strategists. "A recession is not inevitable,” Goldman strategists led by David J. Kostin wrote in a note. “Rotations within the US equity market indicate that investors are pricing elevated odds of a downturn compared with the strength of recent economic data.” Bets that robust earnings can help investors weather this year’s turbulence were thrown in doubt after US consumer titans signaled growing impact of high inflation on margins and consumer spending. Meanwhile, Federal Reserve officials reaffirmed that tighter monetary policy lies ahead, and investors fretted over stagflation risks. “We are pricing in a growth scare,” Lori Calvasina, the head of US equity strategy at RBC Capital Markets, told Bloomberg TV. “There is a lot of uncertainty in this market right now about whether or not that recession is going to come through or if it’s going to be another near-death experience.” There was some more good news on the China covid lockdown front: Shanghai Vice Mayor said Shanghai port throughput recovered to around 90% of the levels a year ago and that Shanghai will expand work resumption in areas with no COVID risk in early June. Furthermore, Shanghai is to gradually restore inter-district public transport from May 22nd and will require residents to show negative PCR tests taken within 48 hours before using public transport, while an economy official said Shanghai will reduce rents for small and medium-sized enterprises by more than CNY 10bln and the city extended CNY 72.3bln of loans to over 10,000 firms since March, according to Reuters. In Europe, the Stoxx 600 retreated 1.8%, after sliding more than 2% earlier, with all industry sectors in the red and personal care and financial services leading the decline as Wednesday’s retailer trouble in the U.S. spills over into Europe. FTSE 100 lags regional peers, dropping 2%. Here are some of the biggest European movers today: HomeServe shares jump as much as 12% after Brookfield agrees to buy the home emergency and repair services company for GBP4.1b. Societe Generale shares rise as much as 1.5%, as it was raised to outperform from market perform at KBW, with the broker saying the sale of Russian activities removes a key overhang for the bank and should result in a re-rating. Generali shares rose as much as 1.4% after 1Q profit beats analyst estimates as EU136m impairments on Russian investments were more than offset by higher operating income. PGNiG shares rise as much as 6.2% after reporting 1Q results that, according to analysts, support Polish gas company’s outlook. Nestle shares drop as much as 5.3% after Bernstein downgraded the stock to market perform from outperform, saying the shares will “struggle” if market sentiment improves and investors exit havens. Royal Mail shares fall as much as 14% after the postal group’s FY results slightly missed estimates and analysts said its outlook is “disappointing.” National Grid shares fall as much as 2.5%, erasing gains from yesterday’s record high, after the utility company reported full-year results. Earlier in the session, shares of Asian retailers follow their US counterparts lower after Target became the second big retailer in two days to trim its profit forecast. Australia: JB Hi-Fi retreats 6.6%, Wesfarmers -7.8%, Harvey Norman -5.5%, Woolworths -5.6% South Korea: E-Mart - 3.4%; apparel makers Hansae -9.4%, F&F -4.2%, Youngone -8.2% Japan: Fast Retailing - 3.1%, MatsukiyoCocokara -1.4%, Ryohin Keikaku -1.7%, Nitori -3% Singapore: Grocery chain operator Sheng Siong slips as much as 1.3% Hong Kong: Sun Art Retail down as much as 4.1% In China, Tencent Holdings Ltd. plunged 6.6% after warning it will take time for Beijing to act on promises to prop up the Chinese tech sector. Cisco Systems Inc. slid in extended US trading on a disappointing revenue outlook. Japan's Nikkei 225 suffered firm losses amid reports the ruling coalition is considering increasing the corporate tax rate and after several data releases in which Machinery Orders topped estimates but Exports missed as China-bound exports declined by the fastest pace since March 2020. Indian stocks declined to a ten-month low, tracking a sell-off across Asia, on concerns the US Fed’s hawkish stance on inflation may cool economic activity and hurt consumer demand.  The S&P BSE Sensex plunged 2.6% to 52,792.23, its lowest level since July 30, in Mumbai, while the NSE Nifty 50 Index slipped 2.7% to 15,809.40  Software exporter Infosys Ltd. fell 5.4% to a 11-month low and was the biggest drag on the Sensex, which had 27 of 30 member stocks trading lower. All 19 sector indexes compiled by BSE Ltd. declined, led by S&P BSE Information Technology index, that dropped the most in over two years.   “Deteriorating macro sentiment such as soaring inflation, recession fears, and the prospect of the Federal Reserve getting even more hawkish will continue to keep benchmarks on the edge,” Prashanth Tapse, an analyst at Mehta Equities Ltd., wrote in a note.  In earnings, of the 36 Nifty 50 firms that have announced results so far, 21 have either met or exceeded analyst estimates, while 15 have missed forecasts. In Australia, the S&P/ASX 200 index fell 1.7% to close at 7,064.50, tumbling with global shares as concerns over inflation, interest-rate hikes and Ukraine piled up. All sectors dropped, except for health. Consumer shares were among the worst performers, following their US peers lower after Target became the second big retailer in two days to trim its profit forecast. Aristocrat rose after it released its 1H results and unveiled buyback plans. In New Zealand, the S&P/NZX 50 index fell 0.5% to 11,206.93 And in emerging markets, Sri Lanka fell into default for the first time in its history as the government struggles to halt an economic meltdown that prompted mass protests and a political crisis. An index of developing-nation stocks slumped more than 2%. In FX, the Bloomberg dollar spot index declines, with all G-10 majors rising against the greenback. CHF is the strongest G-10 performer with USD/CHF snapping lower on to a 0.97 handle and EUR/CHF slumping below 1.03. The Swiss franc diverged from Japanese yen and dollar after hawkish comments from SNB’s Thomas Jordan Wednesday, which assured traders CHF rates could follow EUR higher. Options trades may also be behind the latest move in the spot market. In rates, Treasury yields dropped about seven basis points as investors sought insurance against further declines in risk assets. Treasury yields richer by up to 6bp across belly of the curve, richening the 2s5s30s fly by 2.2bp on the day; 10-year yields around 2.83% with German 10-year outperforming by 2.5bps. Treasuries extended Wednesday’s rally as stocks resume slide with S&P 500 futures dropping under 3,900 to lowest level in a year; on the curve, the belly led the advance while bunds outperform in a more aggressive bull-flattening move as European stocks tumble. US session highlights include 10-year TIPS reopening at 1pm ET. Flurry of block trades during London session follows a spate of trades Wednesday; five blocks worth a combined cash-equivalent $1.2m/DV01 between 3:38am and 5:35am similarly entailed price action consistent with sales. Most European bonds also gained, with the yield on German 10-year securities falling more than basis points.  German yield curve bull-flattens: 30-year yield drops ~9bps before stalling near 1.05% which has acted as support for much of May so far. The Dollar issuance slate empty so far; eight borrowers priced $8.5b Wednesday, and new issue activity is expected to be muted during remainder of the week. Three-month dollar Libor +2.69bp to 1.50486%. Economic data slate includes May Philadelphia Fed business outlook and initial jobless claims (8:30am), April existing homes sales and leading index (10am). In commodities, crude oil extended declines, while most industrial metals were in the red as global growth fears damped the demand outlook. WTI reverses Asia’s gains, dropping back below $110 but holding above Wednesday’s lows. Spot gold is comparatively quiet, holding above $1,810/oz. Most base metals trade in the green; LME tin rises 2.1%, outperforming peers while copper held near a seven-month low and zinc extended losses. Bitcoin is modestly softer in a relatively contained range that lies just shy of the USD 30k mark. Crypto exchange FTX to start rollout of new stock-trading service on Thursday, WSJ reports; will not accept payment for order flow on stock trades. Looking to the day ahead now, and data releases from the US include the weekly initial jobless claims, along with April’s existing home sales and the Philadelphia Fed’s business outlook survey for May. Central bank speakers include ECB Vice President de Guindos, the ECB’s Holzmann and the Fed’s Kashkari. Finally, the ECB will be publishing the minutes from their April meeting. Market Snapshot S&P 500 futures down 1.1% to 3,879.25 STOXX Europe 600 down 1.7% to 426.41 MXAP down 1.8% to 161.60 MXAPJ down 2.2% to 527.30 Nikkei down 1.9% to 26,402.84 Topix down 1.3% to 1,860.08 Hang Seng Index down 2.5% to 20,120.68 Shanghai Composite up 0.4% to 3,096.97 Sensex down 2.4% to 52,926.71 Australia S&P/ASX 200 down 1.6% to 7,064.46 Kospi down 1.3% to 2,592.34 Gold spot down 0.1% to $1,814.49 U.S. Dollar Index down 0.28% to 103.52 German 10Y yield little changed at 0.96% Euro up 0.3% to $1.0496 Brent Futures down 0.1% to $109.00/bbl Top Overnight News from Bloomberg President Joe Biden is set to meet on Thursday with Finland’s President Sauli Niinisto and Swedish Prime Minister Magdalena Andersson at the White House to discuss the Nordic nations’ NATO bids. China’s top diplomat again warned the US over its increased support for Taiwan, showing the island democracy remains a major sticking point between the world’s biggest economies as Beijing sent more military aircraft toward the island Sri Lanka fell into default for the first time in its history as the government struggles to halt an economic meltdown that prompted mass protests and a political crisis The yuan’s outlook is finally looking more balanced after a 6.5% dive versus its major trading partner currencies since March. A more detailed look at global markets courtesy of Newsquawk Asia-Pac stocks were pressured on spillover selling after the worst day on Wall St in almost two years. ASX 200 was led lower by consumer staples following the retailer woes stateside and mixed Australian jobs data. Nikkei 225 suffered firm losses amid reports the ruling coalition is considering increasing the corporate tax rate and after several data releases in which Machinery Orders topped estimates but Exports missed as China-bound exports declined by the fastest pace since March 2020. Hang Seng and Shanghai Comp initially weakened with the Hong Kong benchmark dragged lower by heavy losses in tech after Tencent’s profit declined by more than 50% and with the mainland pressured as Beijing conducts a fresh round of mass COVID testing, although the mainland bourse recovered most of its losses after Shanghai announced a further gradual easing of restrictions. Xiaomi (1810 HK) Q1 adj. net profit CNY 2.859bln (vs 6.069bln Y/Y), Q1 revenue CNY 73.4bln (vs. 76.9bln Y/Y); global smartphone shipments -10.5% Y/Y at 38.5mln units. Top Asian News Shanghai Vice Mayor said Shanghai port throughput recovered to around 90% of the levels a year ago and that Shanghai will expand work resumption in areas with no COVID risk in early June. Furthermore, Shanghai is to gradually restore inter-district public transport from May 22nd and will require residents to show negative PCR tests taken within 48 hours before using public transport, while an economy official said Shanghai will reduce rents for small and medium-sized enterprises by more than CNY 10bln and the city extended CNY 72.3bln of loans to over 10,000 firms since March, according to Reuters. Japanese MOF official said China's COVID curbs are among the factors that caused a decline in China-bound exports from Japan which fell by the fastest pace since March 2020, while Japan's April imports reached the largest amount on record, according to Reuters. Japan's ruling coalition is reportedly considering increasing the corporate tax rate, according to Jiji. New Zealand sees 2021/22 OBEGAL at NZD -18.98bln (prev. forecast -20.44bln), 2021/22 net debt at 36.9% of GDP (prev. forecast 37.6%) and Cash Balance at NZD -31.78bln (prev. forecast -34.10bln), while Finance Minister Robertson said the economy is expected to be robust in the near term and they see a return to OBEGAL surplus in 2024/25, according to Reuters. European bourses are pressured across the board in a broader risk-off moves after yesterday's Wall St. sell off, as European players look past the brief respite seen overnight on Shanghai's reopening; Euro Stoxx 50 -2.3%. Stateside, the magnitude of the downside is somewhat more contained given newsflow has been limited since Wednesday's downside commenced, ES -1.2%. Top European News EU is reportedly considering a targeted trade war on troublesome Brexiteer MPs and Tory ministers to force UK PM Johnson to do a U-turn on the Northern Ireland protocol, according to The Telegraph. Top UK Economist Defends BOE’s Handling of Inflation Crisis EasyJet Bookings Pick Up Ahead of Uncertain Summer Season Apax-Owned Rodenstock Acquires Spanish Rival Indo European Gas Slips With LNG Imports Helping Boost Stockpiles In FX Franc resurgence and re-emergence as a safe haven currency continues; USD/CHF touches 0.9750 vs 1.0060+ peak on Monday, EUR/CHF sub-1.0250 vs circa 1.0500 at one stage only yesterday. Dollar loses momentum as US Treasury yields retreat further and curve re-flattens amidst ongoing risk rout, DXY ducks under 103.500 after peaking just shy of 104.000 on Wednesday. Kiwi and Aussie find positives via fiscal and fundamental factors to evade aversion; NZD/USD back above 0.6300 after NZ budget and AUD/USD hovering around 0.7000 post- Aussie jobs data. Yen retains underlying bid irrespective of mixed Japanese data, USD/JPY below 128.00 again. Euro firmer beyond EUR/CHF cross ahead of ECB minutes and Sterling off UK inflation data lows awaiting retail sales on Friday, EUR/USD retains sight of 1.0500 and Cable near 1.2400. Rand meandering ahead of SARB in anticipation of 50 bp rate hike, USD/ZAR around 16.0000, irrespective of Gold taking firmer hold of USD 1800/oz handle. Fixed Income Debt resumes safe-haven rally as market mood continues to sour. Bunds top 154.00, Gilts get close to 120.00 and 10 year T-note even nearer the same psychological level. BTPs lag amidst the ongoing aversion to risk, while OATs and Bonos reflect on somewhat mixed auction results. Commodities WTI and Brent are pressured in-fitting with broader sentiment as initial resilience on demand-side positives re. China/COVID were overpowered by the risk move. However, the benchmarks are around USD 1.00/bbl off lows of USD 104.36/bbl and USD 106.76/bbl respectively, following reports that China is discussing the purchase of Russian crude. China is said to be in talks with Russia to purchase oil for strategic reserves, according to Bloomberg sources; detailed on terms and volume reportedly not decided yet Qatar Energy was reportedly selling July Al-Shaheen crude at premiums of USD 5.80-6.40/bbl above Dubai quotes which is the highest in 2 months, according to Reuters sources. Spot gold is bid as it draws haven allure, with the yellow metal marginally surpassing USD 1830/oz. US Event Calendar 08:30: May Initial Jobless Claims, est. 200,000, prior 203,000; Continuing Claims, est. 1.32m, prior 1.34m 08:30: May Philadelphia Fed Business Outl, est. 15.0, prior 17.6 10:00: April Existing Home Sales MoM, est. -2.2%, prior -2.7%; Home Resales with Condos, est. 5.64m, prior 5.77m 10:00: April Leading Index, est. 0%, prior 0.3% DB's Jim Reid concludes the overnight wrap Today is my last day at work this week before I head up to Cambridge tomorrow for my Masters’ graduation. Before you send in a flood of congratulations though, I didn’t actually do any work for this qualification, with not even a single hour of revision. Now at this point you’re probably thinking I’m either a genius or guilty of some serious academic malpractice. I’m hoping the former. But the truth is that I’m benefiting from a quirky tradition that somehow means Cambridge, Oxford and Dublin will upgrade your Bachelors into a Masters after a few years. With the wedding two months away, it appears as though I’m losing all my bachelor status at once. Markets seem ready for a holiday too after the last 24 hours, with the selloff resuming at pace after the brief respite on Tuesday. In fact it was nothing short of a rout with the S&P 500 ending the day down -4.04%, marking its worst daily performance since June 2020, and leaving the index at a fresh one-year low. There wasn’t a single catalyst behind the slump, but weak housing data out of the US along with Target’s move to cut its profit outlook helped feed investor concern that the consumer might not be in as strong a position as previously thought. And that’s on top of all the other worries of late that the global economy is heading in a stagflationary direction amidst various supply-chain issues, alongside the prospect that tighter central bank policy is going to further dent growth and risks tipping various economies into recession. In terms of the specific moves, the S&P 500 gradually tumbled as the day went on, with its -4.04% decline more than reversing its +2.02% bounceback on Tuesday. The decline was an incredibly broad-based one, with just 8 constituents in the index ending the day higher, which is the lowest number since November. That earnings report we mentioned at the top meant that Target (-24.93%) saw the worst performance in the entire S&P 500, after saying they now expected their full-year operating income margin rate to be around 6%. That follows a disappointing report from Walmart the previous day, and meant that consumer staples (-6.38%) and consumer discretionary (-6.60%) were the worst-performing sectors in the S&P yesterday. The latest declines also mean that the S&P is back on track for a 7th consecutive weekly decline, having shed -2.49% since the start of the week, and S&P 500 futures are only up by +0.18% this morning. If the S&P 500 does see a 7th week in negative territory, then that would be the longest run of weekly declines for the index since 2001. Other indices lost ground too given the risk-off move, with the Dow Jones (-3.57%), the NASDAQ (-4.73%), and the small-cap Russell 2000 (-3.56%) all experiencing sizeable declines of their own. European indices had a better performance after closing before the worst of the US declines, and the STOXX 600 was “only” down -1.14% to just remain in positive territory for the week. With recessionary concerns back in focus, sovereign bonds rallied on both sides of the Atlantic as investors sought out safe havens. Yields on 10yr US Treasuries fell by -10.2bps to 2.88%, with the decline mostly led by a -9.6bps move lower in real yields, and nominal yields are only back up +2.5bps this morning. The yield curve also continued to flatten and the 2s10s slope (-6.9ps) fell to its lowest in over two weeks, at 21.0bps, although it’s been over 6 weeks now since the curve last traded in inversion territory. We did get some Fedspeak but to be honest there weren’t any major headlines relative to what we already knew, with Chicago Fed President Evans saying it was “quite likely” the Fed would be at a neutral setting by year-end, whilst Philadelphia Fed President Harker was making the case for more gradual rate hikes after the next few 50bp hikes are delivered. More important for the outlook was the release of various housing data yesterday, where housing starts fell to an annualised rate of 1.724m in April (vs. 1.756m expected), and that was from a downwardly revised 1.728m in March. That comes against the backdrop of rising mortgage rates, and the MBA reported that mortgage purchase applications fell -11.9% in the week ending May 13, leaving them at their lowest levels since May 2020 when the numbers were still recovering from the pandemic slump. Over in Europe, sovereign bond curves also became flatter as investors became increasingly aggressive on the near-term ECB rate path. Indeed the amount of ECB rate hikes priced in by the December meeting hit a fresh high of 108bps, or equivalent to at least four rate hikes of 25bps by year-end. That came amidst further ECB speakers over the last 24 hours, including Finnish central bank governor Rehn, who had already endorsed a July hike and said yesterday that the initial hike was “likely to take place in the summer”. Furthermore, he said that it seemed “necessary that in our policy rates we move relatively quickly out of negative territory”. We also heard from Estonian central bank governor Muller, who also endorsed a July hike and said he “wouldn’t be surprised” if the deposit rate were in positive territory by year-end. However, Spanish central bank governor De Cos said that rate hikes should be gradual as he called for APP purchases to end at the start of Q3, with rate hikes to follow shortly afterwards. Those growing expectations of tighter policy saw shorter-dated yields move higher in Europe once again, with 2yr German yields hitting their highest level since 2011 despite only a marginal +0.1bps move to 0.36%. However, the broader risk-off tone meant it was a different story for their longer-dated counterparts, and yields on 10yr bunds (-1.6bps) and OATs (-2.2bps) both moved lower on the day. Peripheral spreads widened as well, whilst iTraxx Crossover neared its recent highs with a +26.2bps move to 468bps. In terms of the fight against inflation, there was a potential boost on the trade side yesterday as US Treasury Secretary Yellen confirmed ahead of a meeting of G7 finance ministers and central bank governments that the she favoured removing some tariffs on goods that are not considered strategic. Separately the risk-off move also saw oil prices move lower for a 2nd day running yesterday, with Brent crude down -2.52%, although it’s since taken back a decent chunk of that loss this morning with a +1.51% move higher to $110.76/bbl. Over in Asia, equity markets have tracked those steep overnight losses on Wall Street to move sharply lower this morning. Among the key indices, the Hang Seng (-2.25%) is the largest underperformer amidst a broad weakness in tech stocks as the Hang Seng Tech index fell by an even larger -3.40%. Mainland Chinese stocks have performed relatively better however, even if the Shanghai Composite (-0.08%) and CSI (-0.25%) have both moved slightly lower, while the Nikkei (-1.91%) and the Kospi (-1.29%) have seen more substantial losses. Finally there was some important employment data out of Australia this morning ahead of their election on Saturday, with the unemployment rate falling to its lowest since 1974, at 3.9%. The employment gain was a bit softer than expected with just a +4.0k gain (vs. +30.0k expected), but that included a +92.4k gain in full-time employment, offset by a -88.4k decline in part-time employment. Elsewhere on the data side, there were fresh signs of inflationary pressure in the UK after CPI inflation rose to a 40-year high of +9.0% in April. But in spite of the 40-year high, that was actually slightly beneath the +9.1% reading expected by the consensus, which marked the first time in over 6 months that the reading hasn’t been higher than expected. Gilts outperformed following the release as it was also beneath the BoE’s staff projection of +9.1%, and 10yr gilt yields closed down -1.6bps on the day, whilst sterling underperformed the other major currencies leave it -1.28% weaker against the US Dollar. To the day ahead now, and data releases from the US include the weekly initial jobless claims, along with April’s existing home sales and the Philadelphia Fed’s business outlook survey for May. Central bank speakers include ECB Vice President de Guindos, the ECB’s Holzmann and the Fed’s Kashkari. Finally, the ECB will be publishing the minutes from their April meeting. Tyler Durden Thu, 05/19/2022 - 08:02.....»»

Tesla's Situation In Shanghai Is An "Epic Disaster" For Its June Quarter, Wedbush's Dan Ives Says As Elon Musk continues to publicly melt down on Twitter about his proposed buyout offer and the left's "dirty tricks" and political attacks that he is expecting, Tesla stock has been plunging. The automaker's stock came under pressure weeks ago, ostensibly after some investors started to do the math behind Musk's proposed buyout offer of Twitter. This morning, it's under pressure again thanks to a price target cut by Wedbush's Dan Ives, who has cited Shanghai's lockdowns as his reasoning.  Ives called the situation in China "an epic disaster" for Tesla's coming June quarter and said he expects to see "modest delivery softness", according to a Bloomberg note out Thursday morning. Ives also said he is expecting a "slower growth trajectory" in China into the second half of the year and called the headwinds out of Asia "hard to ignore". He also commented that the ongoing Twitter drama "may be a distraction" for Musk at a time when his attention should be focused on dealing with Tesla's issues.  Recall, we noted days ago that "no vehicles were sold in Shanghai last month" as a result of the lockdown, according to an auto-seller association in the city.  We also noted that Tesla's plans to restart Shanghai to its pre-pandemic production levels had been pushed back another week. Citing an internal memo, Reuters wrote just three days ago that Tesla is still planning on just one shift for its plant this week and a daily output of about 1,200 units. Tesla is aiming for 2,600 units per day by May 23.  Additionally, it was reported Monday that Tesla would be recalling over 100,000 vehicles in China. 107,293 vehicles in China will be recalled "due to safety risks", according to the China People's Daily.  The recall, which relates to a defect in the central touchscreen during fast charging, "involves Model 3 and Model Y vehicles produced in the country between Oct 19, 2021, and April 26, 2022," the report says.  Tyler Durden Thu, 05/19/2022 - 08:26.....»»

Initial Jobless Claims Surge To 4 Month High, Philly Fed Plunges It appears the 'strongest labor market ever' is showing signs of stress as the number of Americans seeking first time jobless benefits surged to 218k last week - its highest since mid-January... Source: Bloomberg This is the biggest 8-week rise in jobless claims since the growth scare in Dec 2020/Jan 2021... and no this is not seasonal... Kentucky, California, and Pennsylvania dominated the rise in jobless claims... This labor market pain echoes weakness seen in recent survey data - such as ISM Manufacturing and Empire Fed and this morning we saw Philly Fed's Business Outlook  survey plunge from 17.6 to 2.6 (massively missing expectations of 15.0). That is the weakest since June 2020... with Employment and the outlook sliding... May prices paid fell to 78.9 vs 84.6 New orders rose to 22.1 vs 17.8 Employment fell to 25.5 vs 41.4 Shipments rose to 35.3 vs 19.1 Delivery time fell to 17.5 vs 17.9 Inventories fell to 3.2 vs 11.9 Prices received fell to 51.7 vs 55.0 Unfilled orders rose to 17.9 vs 5.7 Average workweek fell to 16.1 vs 20.8 Six-month outlook fell to 2.5 vs 8.2 Six-month outlook for capex fell to 9.6 vs 19.9 So sentiment is slumping, financial conditions are tightening (at their tightest since Dec 2018's flip-flop), and now the jobs market is floundering. And The Fed has 10 more rate-hikes to go this year?!   Tyler Durden Thu, 05/19/2022 - 08:41.....»»

The Judder Moment Just Crashed Markets Authored by Bill Blain via MorningPorridge.com, “I love the smell of burning Napalm in the morning…” Did you feel the Earth shake and judder? When dull, boring, predictable retail giants crash 25% intra-day, time to take notice. Boom/Bust is back – and this time its serious. Anyone for the last few choc-ice? Ouch. This won’t help, but I’m going to keep it short this morning, because I am delighted to report waking up this morning with a proper “everything’s-back-to-normal” hangover! Yesterday I had a “proper” lunch with clients in the City, followed by a few hours pretending to work in our fantastic new offices (where we are adapting to hot-desking (new people to speak to everyday), and working from home when able), before myself and some colleagues snuck out to try out the posh wine bar around the corner (excellent Alberino). Then it all went deliciously wrong at the first Shard post-pandemic party. Not sure what I was drinking, but it was all Julian’s fault! She-who-is-Mrs-Blain picked me up late from the train station, and hazarded the observation I was a tad squiffy. She won a NSS award for her observational candour. Blain is available for lunches whenever… Life is back to normal. Unfortunately.. markets are not.. Just as I start to enjoy London again, we’ve got 9% UK Inflation, a developing currency crisis, and to cap it all.. Markets just had a cardiac event. Did you feel the Earth shake and shudder as US retail numbers confirmed everything we feared about recession, inflation and consumer confidence? It’s time to pay the bill for the exuberant excesses of the 2009-2021 bull market. As the music slows, the world is spinning into a proper, full-on, consumer led recession. On Tuesday it was Walmart’s disappointing numbers, and yesterday Target’s precipitous 25% drop on the back of retail misses sent the pictures dropping off the wall. This morning, the tumbles are continuing across Occidental markets after Tencent released equally shocking numbers as covid, lockdowns, and cost of living concerns hammer spending. When solid, dull, boring and predictable retail businesses like Target are crashing 25% intraday… that’s as good a time as any to worry. The scale of the market crash is being magnified by the number of folk who’ve been expecting it, but also algo/computer led sell programmes kicking in as the market down-spikes. Brace, Brace, Brace… I feel a Terrible Thursday coming on… and, to be blunt.. I’d rather have a nice quiet day and a couple of aspirins… Not going to happen. I have a whole round of “told-you-so” calls to make! Did I not write a few weeks ago that Musk would try to wriggle out his Twitter deal? Oh, yes I did… (And Telsa just got booted off the S&P ESG index..) Frankly… I am surprised the market was “surprised” by supply chain disruptions, rising fuel and freight costs, inflation outstripping wages, and crashing consumer confidence impacting numbers at leading retailers.. Who would have thought.. eh? Recessions are a normal feature of the business cycle.. Whatever Gordon Brown ill-advisedly once said about the Boom and Bust cycle being over, it clearly isn’t. But what we are seeing now is different – central bank monetary experimentation has been delaying and putting this off for over a decade.. Think of it as the coiled spring of markets has been tensioned, and storing up a decade of distortion – well… it just sprung.. (Oh dear.. its going to be a morning of bad metaphors…) On Monday I warned readers this weeks was going to be heavy on Central Banks – and sure enough.. they are all I’ve really written about. But they are what is driving these manic markets – the unravelling of the last 14 years of Central Bank monetary distortion. In the normal business cycle the booms and bust come with the inevitability of the rising/falling tide. The wonderful sand-castles built on the beach of consumer spending is washed away… and you rebuild it tomorrow.. bigger and better.. This is different. We’ve been putting this off for too long. This is a tidal wave that threatens the very beach itself. Yesterday I highlighted how a decade of central bank monetary distortion has changed the way capitalism works – I explained one of the reasons Boeing has gone from great to terrible company was the distorting effects of easy liquidity changing a brilliant engineering company to a terrible financial slash and burner. The same kind of distorting behaviours are going to become apparent across the business landscape in coming months. Normally a global crash exposes which investors are swimming in threadbare underwear.. This time, it’s going to expose a raft of companies struggling to cope with higher rates and discovering underinvestment and too much squandered on stock buybacks has left them fatally vulnerable.. It’s going to be felt particularly in the corporate bond markets.. Whatever the rating agencies say about healthy corporate balance sheets, I’ve heard that BS before. Defaults are going to spike.. which is an opportunity in itself. What we now know is central banks tinkering with markets, keeping rates artificially low to drive growth (which never really happened because all the liquidity went into financial assets), has consequences. Now they will try to calm activity and drive down inflation by rising rates… but we’re passed all that now. This is entering a chaotic phase. Excellent. Chaos spells opportunity! Stagflation is on the near horizon. Global stocks are being hammered and the bond market will be next.. It’s likely to get very messy indeed, and whatever markets hope for in terms of renewed central bank interventions to stop chaotic markets making a bad recession into a worse global depression… it’s just not likely to happen… Someone switch off Jim Morrison and the Door’s album spinning on the record deck… This is the end….  Now.. in the meantime… I want to buy Lithium – if anyone is a seller, let me know. And, do I have a deal for you in the Petchem sector… I was speaking to a major oil figure yesterday who told me.. “I’m confident we’ll be shipping more oil products in 2050 than we are today.” If you like that tale, drop me a line… Tyler Durden Thu, 05/19/2022 - 08:50.....»»

Erdogan To Sweden: Don't Expect Us To Approve NATO Bid Without First Returning 'Terrorists' Turkey is demanding that Sweden must hand over and extradite "terrorists" in its midst before seeking to join the NATO alliance. In fresh televised remarks on Thursday, President Recep Tayyip Erdogan said that Swedish and Finnish diplomats shouldn't even bother trying to dispatch delegations to Turkey if they aren't willing to stop supporting Kurdish PKK 'terrorists'. "We have told our relevant friends we would say 'no' to Finland and Sweden’s entry into NATO, and we will continue on our path like this," Erdogan stressed in the remarks coming a day after Turkey blocked a fast-tracked effort to speedily process submission of the Scandinavian countries' Wednesday applications. Turkish Foreign Minister Mevlut Cavusoglu and Secretary of State Antony Blinken met at the UN on Wednesday, via AP. He also ripped Sweden in particular of being "a focus of terror, home to terror" - given it remains home to a huge community of Kurds from Syria, Iraq, and Turkey - many of which are said to be sympathetic to the anti-Turkey PKK and Syrian YPG. It's unclear whether the Turkish leader had specific individuals in mind, or if he was speaking broadly of PKK supporters and sympathizers abroad: President Tayyip Erdogan said on Wednesday Sweden should not expect Turkey to approve its NATO bid without returning "terrorists," and Swedish and Finnish delegations should not come to Turkey to convince it to back their NATO bids. He delivered a similar address in separate remarks to MPs belonging to his ruling AK Party in parliament. "We have such a sensitivity as protecting our borders from attacks by terrorists organizations," he said. "NATO expansion is only meaningful for us in proportion to the respect that will be shown to our sensitivities." Meanwhile, as expected the scramble has been on among Western governments to convince Ankara to soften its position, with Erdogan's office saying it held phone calls with Finland, Germany, Sweden, the United Kingdom and United States. On Wednesday, Turkish Foreign Minister Mevlut Cavusoglu maintained a firm line during a meeting with his US counterpart Secretary of State Antony Blinken at the United Nations. "Turkey has been supporting the open-door policy of NATO even before this war," Cavusoglu said in the meeting. "But with regard to these candidate countries, we have also legitimate security concerns that they have been supporting terrorist organizations and there are also export restrictions on defense products." This is in reference to EU arms export restrictions targeting Turkey in response to its 2019 cross-border operations against Syrian Kurdish militias, in particular the West-backed YPG. Erdogan says he will block Sweden's entry into NATO because it's a "nest" of Kurdish terrorists. But Turkey plays host to Hamas and Erdogan meets its leaders regularly. Here he is in 2020 with Saleh al-Arouri, who is on US most wanted list and has a $5m US bounty on his head. pic.twitter.com/FyNHpRuAe5 — Raf Sanchez (@rafsanchez) May 19, 2022 "We understand their security concerns but Turkey’s security concerns should be also met and this is one issue that we should continue discussing with friends and allies, including the United States," Cavusoglu added. Blinken for his part remained mum on Turkey's specific challenges to Finland and Sweden. "Today we had Finland and Sweden submit their applications and this, of course, is a process and we will work through that process as allies and partners," he said, while a State Department spokesperson later responded when pressed, "it is not for us to speak for the Turkish government" concerning its stance. Tyler Durden Thu, 05/19/2022 - 09:09.....»»

Soaring Fuel Prices Leave Owner-Operators With Tough Choices By Mark Solomon of FreightWaves Avery Vise, vice president, trucking for transport consultancy FTR, has some advice for owner-operators struggling with a massive spike in diesel fuel prices and plunging spot market rates: “There are good reasons to sell your truck and become a company driver,” Vise said. Will pump pain cause owner-operators to exit the business? Under the circumstances, it wouldn’t be surprising if some of the 350,000 registered owner-operator drivers seek the protection of company driving, or lease their independent services to a fleet, the latter of which 44% of members of the Owner-Operator Independent Drivers Association (OOIDA) already do. “It’s not happening yet, but it’s coming,” said William “Lewie” Pugh, an OOIDA executive vice president who worked as a leased owner-operator for 24 years, said of free-agent independent drivers either leaving the business or deciding to change the way they operate. For owner-operators, the fat city of the past two years has lost some weight. As of this past Monday, on-highway diesel pump prices were at $5.61 a gallon nationwide, according to weekly data from the Energy Information Administration (EIA). That was down a penny a gallon from the prior week, but still at near record levels. Diesel prices in the New England and mid-Atlantic regions, which are experiencing acute shortages of diesel, continued their climb. Prices in New England hit $6.43 a gallon, according to EIA data. Prices in the mid-Atlantic were reported at $6.38 a gallon. (EIA next updates its tables late on Monday.)  Meanwhile, spot prices for dry van services have collapsed, falling an eye-popping $1 per mile year-to-date, as concerns rise that the pace of the pandemic-driven pull-through of consumer buying is leveling off. According to data published Monday by KeyBanc Capital Markets, dry van spot rates, ex-fuel, are down 30% from their late 2021 peak, off 25% year-over-year and are at a 15% discount to contract rates, which typically lag spot moves by 3 to 6 months.  KeyBanc Transportation Analyst Todd Fowler said spot rates could fall another 15% to 20% before reaching breakeven operating costs consistent with declines in prior cycles.  The triple whammy of flattening demand, lower spot rates and spiking fuel prices means that owner-operators face a challenge not experienced since 2014, the last time U.S. oil prices, as measured by the West Texas Intermediate (WTI) energy complex, breached the $100-a-barrel level. Drivers have four options: Go on a carrier’s payroll and avoid the fuel mess, negotiate leased-driver arrangements that include fuel surcharge pass-throughs, tough it out in the hope that oil prices quickly turn south, or exit the business. The last option is becoming more commonplace. In March, net motor carrier authority revocations — the number of revoked certificates minus the number of reinstatements — hit their highest levels ever, surpassing a record set in January, according to FTR data. Net revocations in April were slightly lower than in March and January but were the highest since the fall of 2005 when Hurricanes Katrina and Rita shut down swaths of the American economy and sent diesel prices soaring. Ironically, in March, when diesel prices spiked by about $1.15 a gallon in just two weeks, federal government approvals of new motor carrier authority applications hit an all-time monthly record of about 11,000, FTR data show. Vise said the March activity reflected decisions made by carrier applicants weeks earlier and under different market conditions. About 9,500 applications were approved in April, according to FTR estimates. Pugh, who has lived through multiple peaks and valleys, said the impending driver attrition could be seen coming a mile away. The post-pandemic boom spawned a surge in new applications for authority, he said. Some owner-operators then decided to add trucks and drivers to build micro-fleets. With the current gold rush coming to an end, operators who found themselves overextended have begun undercutting each other on rates, he said. OOIDA is fielding a lot more calls lately from members complaining about everything from tight-fisted freight brokers to fuel prices and insurance premiums to vehicle operating costs, Pugh said. To him, that’s a sure sign that the worm has turned.  “It’s been a trucker’s market for 18 months. Now it’s a shippers and brokers market,” Pugh said. It will be especially tough on recent new entrants who don’t have the same opportunity as those in the market since 2020 to build war chests adequate enough to get them through the valley, he said. Mondo Cardona, a Charlotte, North Carolina-based owner-operator who drives mostly in the flatbed segment, said he’s been running on his own for 9 years and will stay the course for now. Yet the “idea crossed his mind” to change direction in the wake of current conditions. Cardona said his rig has been parked for 3 weeks: One week for vacation, a second for maintenance and a third because the “market just wasn’t there.” Cardona has an advantage in that flatbed demand remains strong, reflecting gains in industrial activity. Another tailwind is that his truck is paid for. But the higher costs of everything is taking its toll, and the higher fuel costs is draining his cash cushion much faster than would otherwise be the case. Hoping for the best Hoping that oil and fuel prices may soon fall could be akin to whistling past the graveyard. Diesel prices are currently priced at such an enormous premium that the notion of the market returning to the rock-bottom pricing of the 2015-2020 period are far-fetched, said Matt Muenster, chief economist of Breakthrough LLC, a transport management solutions provider. On Jan. 3, California was the only state where wholesale diesel prices exceeded the EIA’s weekly retail measures, according to Breakthrough data. Today, 11 states have wholesale diesel prices above EIA’s price levels, according to the firm. In an example of the geographic breadth of the price spikes, New York, New Jersey and Vermont have higher wholesale prices than California, which always has the nation’s highest diesel price due to an array of taxes and user fees, and longer shipping distances from Gulf Coast source points. The current fuel pricing climate could last well into 2023, Muenster said. Short-term wild cards include the seasonal increases in summer produce and beverage demand and the annual three-day International Roadcheck conducted by the Commercial Vehicle Safety Alliance, which starts Tuesday, that will take some capacity out of service, albeit for a short time. Longer-term variables include the duration of the Russia-Ukraine conflict as well as an end to the COVID-19 lockdowns in China, which may occur next week. Ironically, the lockdowns may be acting as a suppressant to fuel prices as less demand translates into less fuel consumption. “Outside of the energy industry, there isn’t an appreciation for how long this can last,” Muenster said, referring to elevated diesel prices.  The good news, said Muenster, is that the big truck stop operators appear to be well supplied and are developing contingency plans to bring diesel in from other regions to supply the stretched Northeast. As for those owner-operators exposed to the spot market, “for now, they’re hanging on,” he said. A free-fall in consumer spending could create the demand destruction needed to drive down diesel prices. That doesn’t appear likely. A for-hire trucking ton-mile index recently produced by Michigan State University’s Eli Broad College of Business hit records in March, rising 3.5% over year-earlier levels.  MSU economists including Jason Miller, associate professor of logistics, said March’s growth was spurred by “gangbuster sales, even when you remove inflation, in parts of wholesaling including furniture, metals and paper, in addition to strong manufacturing output.” In a LinkedIn post last week, Miller said that dry van spot rates are falling because capacity is rising by as much as, if not more than, demand, and because contract rates are starting to catch up. “I have yet to see a data point from a representative sample that should give trucking companies cause for concern that volumes are going to quickly plunge,” he said. Staying the course A reasonably healthy consumer may convince owner-operators to stay the course. Another factor may be that spot rates remain historically elevated. Ben Cubitt, senior vice president. of consulting for third-party logistics provider Transplace, spot rates so far this month are averaging $2.36 a mile across the provider’s 200-lane basket. That is the second-highest monthly level ever, and well above the average of between $1.60 to $1.80 per mile for this time of year, Cubitt said. Checks with Transplace’s carrier partners have found that owner-operators are not fleeing to fleets in droves, Cubitt said. Elevated spot rates are one factor. Another is that drivers have built enough of a financial buffer over the months to withstand the downturn. A third is that drivers were caught so off-guard by the swiftness of the spot rate declines and fuel price spikes that they haven’t had any time or thought to make a move. The calculus could easily change should spot rates and volumes stay low and fuel prices high, he said. The overarching issue is whether the current situation has a lasting effect on the number of owner-operators and micro-carriers, thousands of whom entered the market in the past two years. While there might be some attrition in the months ahead, it will not make a major dent in the driver pool, according to Vise of FTR. Of the approximately 200,000 drivers who received operating authority since July 2020, more than 150,000 are driving for firms that operate tractors and not just straight trucks or cargo vans, he said. “I believe some of the shift of capacity from the large carriers to small, new ones is permanent and will be ongoing” due in large part to the growth and maturation of digital freight platforms, Vise said. “Even among large truckload carriers, I think some of the shift of surge capacity from leased owner-operators to operators working for carriers’ logistics arms is permanent. I anticipate the number of new carriers will decline due to ongoing spot rate and fuel cost trends, but I believe the floor for new entrants is significantly higher than it was before the pandemic.” Tyler Durden Thu, 05/19/2022 - 09:30.....»»

US Confirms Monkeypox Virus In Massachusetts After UK, Spain, Portugal Cases In Men Authored by Caden Pearson via The Epoch Times (emphasis ours), A single case of the rare but serious monkeypox virus has been confirmed in Massachusetts in a man. Recent cases in the United Kingdom, Spain, and Portugal have been linked to men who have sex with other men. A general view of the Centers for Disease Control headquarters in Atlanta, Ga., on April 23, 2020. (Tami Chappell/AFP via Getty Images) The U.S. Centers for Disease Control and Prevention (CDC) confirmed the U.S. case on Wednesday, after initial testing completed late Tuesday at the State Public Health Laboratory in Jamaica Plain. The man poses no risk to the public and is in hospital in good condition, the Massachusetts Department of Public Health (DPH) said in its release. Contact tracing efforts are underway between Massachusetts DPH, the CDC, relevant local health officials, and the man’s health care providers. The United Kingdom has confirmed nine cases of monkeypox since early May. The first of these cases had recently traveled to Nigeria. None of the other cases reported recent travel. Five cases were also confirmed in Portugal on Wednesday in young men, with 15 cases under investigation. Health authorities in Spain said late on Wednesday that they were also assessing 23 possible cases of monkeypox, mostly in men who have sex with men. The Epoch Times contacted Massachusetts DPH for further relevant information regarding the U.S. case. Monkeypox symptoms typically begin with flu-like illness and swelling of the lymph nodes. It progresses to a rash on the face and body. Most infections last two to four weeks. The virus does not easily spread between people, according to Massachusetts DPH. Transmission can occur through contact with body fluids, monkeypox sores, items such as clothing or bedding contaminated with fluids or sores, or through respiratory droplets following prolonged face-to-face contact. Massachusetts DPH is advising clinicians to consider a diagnosis of monkeypox in people who present with an otherwise unexplained rash, have had recent overseas travel in the last 30 days to places with confirmed or suspected cases, have had contact with confirmed or suspected cases, or is a man who reports sexual contact with other men. The advice is based on the findings of the U.S. case and recent UK cases, and is in line with recommendations from UK health officials and U.S. federal health officials. Health care providers are being told that monkeypox illness could be clinically confused with a sexually transmitted infection syphilis or herpes, or with varicella zoster virus. Patients may present with early flu-like symptoms and progress to lesions that may begin on one site on the body and spread to other parts. It is very rare for the disease to occur in the United States, with most cases linked to international travel or importing animals from places where the disease is common, such as central and west Africa, according to the CDC. In central and west Africa, people can be exposed through bites or scratches from rodents and small mammals, preparing wild game, or having contact with an infected animal or possible animal products. A Texas man who traveled to Nigeria was confirmed to have monkeypox in July 2021. [ZH: For a deeper dive on monkeypox John Campbell gives an excellent rundown] Tyler Durden Thu, 05/19/2022 - 09:44.....»»

Stablecoin Tether Hikes US TSY Reserves, Cuts Risky CP Exposure So-called 'stablecoins' have been making the mainstream media headlines for all the wrong reasons lately, but this morning there is some potentially good news for what some consider the liquidity backstop for the entire crypto ecosystem. As a reminder, as we detailed here, we can classify stablecoins into three broad categories: fiat-backed, crypto-backed, and algorithmic. TerraUSD, which suffered a hyperinflationary collapse last week, is an example of a (failed) algorithmic stablecoin. Tether - a fiat-backed stablecoin - suffered $7bn in redemptions last week in a short span of time and for a brief while lost its peg... ...and confidence in these assets faltered. However, this morning Tether Holdings made available its latest quarterly assurance opinion revealing significant reductions in (riskier) commercial paper investments and an overall increase in (safer) U.S. treasury bills, thus overall increasing the strength and liquidity of its reserves backing the peg. In the report today, they show consolidated total assets amount to at least US$82,424,821,101. They show a further approximately 17% decrease in its commercial paper holdings over the prior quarter from $24.2B to $19.9B; an action Tether has continued with a further 20% reduction since April 1 2022 and which will be reflected in the Q2 2022 report. Additionally, the average rating of CP/CD has gone up from A-2 to A-1. Secured loans have also gone down by $1B. The latest report also shows an increase in the group’s investments in money market funds and U.S. treasury bills, which have gone up from $34.5B to $39.2B, an increase of over 13%. Paolo Ardoino, Tether CTO, said (emphasis ours): “This past week is a clear example of the strength and resilience of Tether. Tether has maintained its stability through multiple black swan events and highly volatile market conditions and, even in its darkest days, Tether has never once failed to honor a redemption request from any of its verified customers. This latest attestation further highlights that Tether is fully backed and that the composition of its reserves is strong, conservative, and liquid. As promised, it demonstrates a commitment by the company to reduce its commercial paper investments and in doing so, led to a rise in its holdings in U.S. Treasury Bills. In fact, since April 1 2022, Tether has seen a further reduction of 20% in commercial paper which we will reflect in the Q2 2022 report. As Tether's growth in the market continues to validate the business, we are pleased to share attestations now, and in the future, as part of our ongoing commitment to transparency.” This is good news as stablecoins provide a useful service within the digital asset ecosystem: users need a less volatile base asset in these markets - ideally without converting back to fiat currency and the traditional banking system, given the frictions and transaction costs involved - and stablecoins have filled this need. With a fiat-backed stablecoin the size of Tether now backed by more 'stable' assets, the FUD of systemic liquidity risks are reduced, even if the increase in more liquid reserves could be viewed as anticipating more redemptions.   Tyler Durden Thu, 05/19/2022 - 09:51.....»»

US Existing Home Sales Slump To 2-Year Lows, NAR Warns "More Declines Imminent" Soaring mortgage rates, plunging mortgage applications, housing starts and permits slumping, homebuilder sentiment hammered, and now labor market stress... it is no surprise that analysts expected another monthly drop in existing home sales in April. US existing home sales fell 2.4% MoM (worse than the 2.3% MoM drop expected), Worse still, this drop was from a revised-lower 3.0% MoM drop in March (from -2.7% MoM) Source: Bloomberg This is the 3rd straight monthly decline in existing home sales and the total SAAR is the lowest since June 2020... First-time buyers accounted for 28% of sales last month, down from 30% in March, and underscoring the affordability challenges that have been pricing many Americans out of the market. “Higher home prices and sharply higher mortgage rates have reduced buyer activity,” Lawrence Yun, NAR’s chief economist, said in a statement. “It looks like more declines are imminent in the upcoming months, and we’ll likely return to the pre-pandemic home sales activity after the remarkable surge over the past two years.” The median selling price rose 14.8% from a year earlier, to a record $391,200 in April, led by gains in the South. Cash sales represented 26% of all transactions in April, down slightly from the prior month but still elevated. Investors, who typically buy in cash and are therefore less sensitive to mortgage rates, made up 17% of the market. Yun also noted the rare state of the current marketplace. "The market is quite unusual as sales are coming down, but listed homes are still selling swiftly, and home prices are much higher than a year ago," said Yun. "Moreover, an increasing number of buyers with short tenure expectations could opt for 5-year adjustable-rate mortgages, thereby assuring fixed payments over five years because of the rate reset," he added. "The cash buyers, not impacted by mortgage rate changes, remain elevated." The number of homes for sale climbed from March but was down 10.4% from a year ago. At the current pace it would take 2.2 months to sell all the homes on the market, up from 1.9 in the prior month. Realtors see anything below five months of supply as a sign of a tight market. "Housing supply has started to improve, albeit at an extremely sluggish pace," said Yun. Sales dropped in the South and West from the prior month, though rose in the Northeast and Midwest. For the eighth consecutive month, the South recorded the highest pace of price appreciation in comparison to the other three regions. Additionally, the South is the only region to report year-over-year double-digit price gains. Judging by the surge in mortgage rates, this slump in existing home sales is far from over... If the chart is correct, Deutsche Bank's Jim Reid warns that "it will be a very painful few months ahead" for homeowners. So, as Reid concludes rhetorically, will the Fed need to lift rates such that mortgages are far above levels most home buyers have grown accustomed to, ultimately slowing blistering price growth? Or will the cracks appear much sooner (spoiler alert: yes). Is the housing crash starting? Tyler Durden Thu, 05/19/2022 - 10:07.....»»

Rabobank: If You Thought People Were Angry In 2016, Just Wait... By Michael Every of Rabobank Everything Is Awesome In the final part of my ‘Every “Everything” series’ of Daily titles, I am obviously being sarcastic. Everything is obviously not awesome. My ‘bond yields AND commodities’ matrix was spot on again yesterday: stocks collapsed (S&P -4%, NASDAQ – 4.7%) as US retail giants spoke about the impact of inflation on consumers, and China saw worse sales of mobile phones than had been feared; US 2-year Treasury yields tumbled from an intra-day peak of 2.73% to close at 2.67%, and 10-years from 3.01% to 2.88%, bull flattening the curve; AND oil and most major commodities tumbled. Bitcoin ‘only’ came off around 3%, while the US dollar was on the back foot --wrongly-- because if you think the US is in trouble, allow me to introduce you to *everyone else*!   All this as the Fed threatened to raise rates “beyond neutral”: and yet if it doesn’t act to follow, commodities and stocks will go back up again, and we rinse and repeat. I want to make two points today. First, that so many mainstream market forecasters started the year by saying that everything was awesome. (My early January 2022 theme was “Unravelling,” and that, “Whatever your forecast is, it’s already wrong.”) Most ignored the obvious threat of war in Ukraine, and even after it started soon shifted back into default mode: “What happens in Donbas, stays in Donbas,” said one voice recently. ‘Ah, but this is the Fed, not Ukraine!’, some might retort. Except that the supply-side issues exacerbated by the latter are what the former openly says it is now forced to respond to on the demand side. Even many of those who correctly predicted an ‘unawesome’ year in 2022 are arguably not grasping what the “demand destruction” implied in lower bond yields, lower stocks, and lower prices of *inelastic* commodities, really means. It surely means a deep, not a shallow recession; a surge in unemployment; an asset-price crash in asset-driven economies; and further humiliation of “experts” and the “consensus view” of how things should be done. Worse, it means being cold this winter, because one cannot afford to heat one’s home, and businesses closing because they cannot pass on higher energy costs. Worst of all it means hunger: a report shows one in four Britons are skipping meals due to inflation already. Now fire lots of them too to bring prices down, eh? You thought people were angry in 2016? You thought they were angry during ‘science-based’ Covid lockdowns and restrictions? You thought they were angry when *nobody* built *anything* back better anywhere afterwards? Or when they were censored on social media? Or when a major war started and upended things? Try making everyone --even billionaires!-- much poorer all at once too, because that is what is happening. I saw a comment yesterday that inflation may shut down talk of fiscal stimulus for years, as it will be blamed. Perhaps in the circle of “experts” who led us here, yes. Yet in that case we sink deeper into neo-Dickensian socio-economic/political instability. To my mind, it is more likely that we see massive new populism. First of all, towards emergency stimulus that at least echoes what was done in 2020. The Daily Mail flags ‘Ministers prepare plan to help three million of the lowest paid, offer relief on energy bills and announce pledge to ease burden on business’: that is from people who think you can eat a meal for 30p. Other countries will be far more generous – or their societies will be far more rancorous. That’s in the rich West - try emerging markets where food and fuel are a far higher share of the day-to-day consumption basket – which sometimes still is literally a basket. We are talking malnutrition and starvation to bring the “demand destruction” implied in lower bond yields. You think that will happen quietly? Yes, it will be ‘risk off’ in a big way, so again supports lower bond yields in core markets, but that does not capture what that actually implies geopolitically. So, as EM governments wait for the likes of the “very concerned about global hunger” Janet Yellen to come up with a plan that actually addresses these issues, they will have to step in, whether they can afford it or not: hungry people are not known for their patience. That means more commodity export bans. It means more subsidies. Both are inflationary. Moreover, Bloomberg today has an article floating the idea of the PBOC dropping ‘helicopter money’ into citizens’ bank accounts using the new eRMB. That is the polar opposite of all Chinese supply-side-pretending-to-be-demand-side stimulus to date. If it happens, everything changes everywhere all at once. It means higher Chinese growth; but it means higher inflation too; and far higher GLOBAL inflation against a supply-side shock, which would require more of a Fed rates response; and if such local spending also pushes China towards a trade deficit, it also then collapses their currency as the Fed hikes.     Relatedly, my second point is that while one can blame fiscal expenditure for part of the current inflation, there is a far stronger argument to be made for rising populism to be channelled towards mercantilism and industrial policy than 1980’s style neoliberalism and belt-tightening. Where fiscal stimulus went wrong, and we *all* went wrong, was focusing on the DEMAND side when everything is about the *SUPPLY* side. Let’s go back to basics. I don’t mean Say’s Law and supply creating its own demand, which is not always true, but rather that almost every politician is guided by an economist, who is guided by their training, which focuses on how to keep GDP growing; and that GDP is DEMAND side, which is mostly driven by consumption in the West, and even many emerging markets. If you work in markets ask yourself honestly, when was the last GDP print you looked at from the SUPPLY side, other than in an emerging market that, annoyingly, ‘doesn’t have good demand-side data’? Do you even know the detailed breakdown of what the economy you cover actually supplies? How much oil, gas, coal, or green energy compared to local needs? How much food, and of what kinds? How many tonnes of minerals or metals? How many low, medium, and high tech goods? How many services? How can one cover an economy and not know this in depth?! Easy! Because the market is only interested in keeping up consumption, and the answer is always found via rates (usually lower, creating asset bubbles and matching debt we ignore until we can’t – and then do it all again), or fiscal policy (which was just shown to work too well when it doesn’t involve top-income tax cuts), or, rarely, regulatory reforms. In markets, we don’t care about who actually makes things, because energy, food, goods, and services all just arrive by magic from somewhere, like home-cooked meals delivered to a teenager’s bedroom door, or a food delivery service to a trading floor busily bidding up the price of the staple commodities we all need to live because they can’t make a high enough return from government bond yields. All we have to do is to focus on how to keep people spending,… right? Wrong! We *all* need to be doing more of what China has been doing – to focus on the SUPPLY SIDE. Which, given their Marxist (for those who have read him, and understand the difference between ‘productive’ and ‘fictitious’ capital) and state-capitalist (for those who have read Hamilton) bent, is what they do best, and we do worst. Guess what? We can do it too when in a pinch – but not before, sadly. Yesterday, US President Biden signed an executive order using the 1950’s-era Defence Production Act to compel US firms to increase the supply of infant formula, and allowing the use of Department of Defence planes to ensure delivery as soon as possible. Well done. Really. Now do the same for all of the key components demanded by the US economy. You can use fiscal spending to do it: just not on anything on the demand side. There is clearly a desperate need for more energy supply – but no more oil to be had, and no more refineries even if there were. Why not use the DPA to build more refineries? Regrettably, even if it happens, it will take years to see results. That will keep the Fed looking at the demand side ahead – and so markets under pressure. Of course, Biden is trying to push a Green New Deal and so is the EU, which yesterday announced plans for a ‘massive’ increase in green energy to help end reliance on Russia. Welcome to the supply side of GDP! However, too late. It is just sinking in in Brussels (and the US) that solar panels --besides being very un-green to make-- are made in China; which is where most rare earths are processed; and most of the mineral supply-chains for electric vehicles lead there, with existing supply sewn up. Today China is talking about maintaining its subsidies for EV production, which were to end this year: so, it maintains economies of scale AND physical supply chains, while Europe and the US are left with PowerPoint presentations and catchy phrases like ‘Green Transition’ and ‘Build Back Better’(?) As an early American populist proclaimed, “You shall not press down upon the brow of labour this crown of thorns, you shall not crucify mankind upon a cross of gold." Which was all about loose vs. tight fiscal and monetary policy, which is always political. Now we see monetary-policy tightening as people go cold and hungry, and a technocratic reference to “demand destruction” via the supply vs. demand cross if fiscal policy does nothing – and yet worse inflation if it does anything. Someone is going to have to spend a whole lot more, not less, and on a whole lot more supply, not demand --and in a whole new trading network-- if they want to ensure that stocks, bond yields, and commodities don’t go down together as angry mobs rise up. Counterintuitively to some, as all this transpires the US dollar alone will remain bid - even if it is merely just the least dirty shirt in the dirty laundry basket. I now leave most market forecasters to return to their focus on GDP by demand while predicting a weaker US dollar, rapid recoveries in asset prices, no deglobalisation, and of course no angry populism, while they wait for someone to deliver their lunch – after someone else sweated to grow it, process it, package it, and rush to get it to them for very low wages. Isn’t it awesome? Tyler Durden Thu, 05/19/2022 - 10:15.....»»

Harley Davidson Shares Slump More Than 10% After Company Suspends Production For 2 Weeks The chaos in the automotive sector continues... Shares of motorcycle manufacturer Harley-Davidson are set to plunge more than 10% on Thursday morning, after the company announced it would be suspending vehicle assembly and shipments for two weeks. The decision to suspend assembly was "taken out of an abundance of caution", the company stated. A third party supplier to the company warned Harley-Davidson of a "regulatory compliance matter relating to the supplier's component part," the company said in a Thursday morning press release.  Though it isn't immediately clear whether or not the suspension has a chance of becoming longer-term, it is yet another wrench in the gears of the automotive supply chain, coming at the worst possible time, with markets on edge thanks to hawkish Fed policy. Recall, just hours ago, we noted that European auto sales continued their crash, falling for the 10th straight month. Domestic auto companies like Tesla and GM have also been stung by both Covid lockdowns in Asia, raw material cost increases and - like Harley Davidson - supply chain SNAFUs.  This story is developing and we will add information as it becomes available. Tyler Durden Thu, 05/19/2022 - 10:30.....»»

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Biden"s "Disinfo" Board Paused As "Scary Poppins" Resigns.....»»