WTI Extends Losses After API Reports Unexpected Crude Build

WTI ended April on a down-note (closing lower on the month, as opposed to Brent which saw its fourth straight monthly gain) as hopes for cease-fire talks between Israel and Hamas dampened fears of a wider conflict that could threaten crude supplies.

The recent declines come as a "relief to both central bankers and consumers alike," Stephen Innes, managing partner at SPI Asset Management, told MarketWatch.

There's been a notable decrease in speculation about the possibility of U.S. benchmark WTI surpassing the $100-a-barrel threshold, at least for now, he said. This shift in sentiment can be attributed, in part, to "reduced concerns about disruptions to Iranian production, following Israel's measured response to previous drone attacks."

Meanwhile, "attention should also be directed towards peace talks, as progress in this area could further contribute to a decrease in oil prices," said Innes.

But, after last week's big crude draw, analysts expect another drawdown in stocks this week.

API

• Crude +4.91mm (-1.5mm exp)

• Cushing +1.48mm

• Gasoline -1.48mm (-1.2mm exp)

• Distillates -2.19mm (+400k exp)

Crude stocks unexpectedly rose almost 5mm barrels last week while distillates inventories declined notably...

Source: Bloomberg

WTI was hovering around $81.65 ahead of the API print and extended losses modestly after...

Despite the reprieve in oil prices, crude-oil markets are expected to remain volatile, said Innes, partly due to uncertainty surrounding the pace of global oil demand growth, the rise in non-OPEC+ and U.S. oil production, the potential for supply disruptions in regions like Russia and the Middle East and, critically, OPEC+'s future production strategy.

"These dynamics underscore the ongoing challenges and complexities within the oil market landscape," Innes said.

Tyler Durden Tue, 04/30/2024 - 16:38

Amazon Swings Wildly After Reporting Blowout AWS Results But Revenue Guidance Disappoints

Heading into Amazon's Q1 earnings, we said earlier that the investment thesis is driven by i) ecommerce share, ii) margin expansion and iii) the potential for AWS growth recovery through the year. We also noted that the key bogeys for this extremely popular - among hedge funds - position were the following:

• Q1 Total Sales: high end of guide $138-$143.5 bn
• Q2 Total Sales: $150 bn high end
• Q1 AWS Growth: 15%-16%+
• Q1 EBIT: $13 bn
• Q2 EBIT: $14 bn high end

So with that in mind here is what Amazon - whose stock first tumbled then spiked after hours, reported moments ago:

• EPS 98c vs $1 q/q, and beating estimates of 83c
• Net sales $143.31 billion, +13% y/y, beating estimate of $142.59 billion
  • Online stores net sales $54.7 billion, +7% y/y, in line with estimates of $54.77 billion
  • Physical Stores net sales $5.20 billion, +6.3% y/y, beating estimate $5.08 billion
  • Third-Party Seller Services net sales $34.60 billion, +16% y/y, missing estimate $34.63 billion
  • AWS net sales $25.04 billion, +17% y/y, blowing away estimate $24.11 billion
  • North America net sales $86.34 billion, +12% y/y, beating estimates $85.55 billion
  • International net sales $31.94 billion, +9.7% y/y, missing estimates $32.47 billion
• Amazon Web Services net sales excluding F/X +17% vs. +16% y/y, beating estimate +14.5%
• Third-party seller services net sales excluding F/X +16% vs. +20% y/y, beating estimate +15.8%

Turning to operating results we get an even stronger tally:

• Operating income $15.31 billion vs. $4.77 billion y/y, smashing estimates of $10.95 billion
• Operating margin 10.7% vs. 3.7% y/y, beating estimates of 7.63%
• North America operating margin +5.8% vs. +1.2% y/y, beating estimates of +4.92%
• International operating margin 2.8% vs. -4.3% y/y, beating estimates of -1.85%

The operating margin has to be seen to be believed: at 10.7%, it appears to be the highest in AMZN history.

As for expenses, these were generally in line with estimates:

• Fulfillment expense $22.32 billion, +6.8% y/y, below estimate $22.4 billion
• Seller unit mix 61% vs. 59% y/y, beating estimates of 59.5%

Of the above, the most notable highlight was AWS which not only grew revenue by a whopping 17% (ex. FX) and 16% including FX, both of which handily beat estimates of 14.5%, and were the strongest growth in a a year, but whose Q1 operating income of $9.42BN on revenue of $25.04BN, meant that margin surged to 37.6%, which was the highest AWS margin in history!

Sales growth at the cloud unit slowed to a record low last year as businesses cut back on technology spending and sought to curb computing bills that ballooned during the pandemic. Investors have been banking on a rebound this year, particularly after strong results last week from Microsoft and Google, Amazon’s two main rivals in the business of renting computing power and data storage. And, in the case od AMZN, they were right to do so.

The results are the first since Amazon introduced video advertising to the Prime Video streaming service, creating a new revenue source. Advertising revenue rose 24% to $11.8 billion.

Looking ahead, the company's guidance which was soft on the top line but disappointed on earnings:

• Revenues expected to be between $144.0 billion and $149.0 billion, or grow between 7% and 11% YoY, below the consensus estimate of $150 billion.
• Operating income is expected to be between $10.0 billion and $14.0 billion, vs $7.7 billion in Q2 2023 and in line with estimates of $12.56 billion.

If accurate, that would mean Q2 revenue will grow at the slowest pace sine Dec 2022.

So turning the abovementioned bogeys, this is how AMZN did:

• Q1 Total Sales: $143.3 billion, just below the upper end of the guide $138-$143.5 bn
• Q2 Total Sales: $147 billion range midline, below the $150bn high end estimate
• Q1 AWS Growth: 17%, well above the 15%-16% bogey
• Q1 EBIT: $15.31BN, blowing away the $13 bn bogey
• Q2 EBIT: range of $10-$14BN, matching the $14 bn high end

CEO Andy Jassy has been cutting costs in recent years as he refocused on profitability in Amazon’s central retail business, laying off thousands of people and touting a more efficient warehouse network. At the same time, he’s backed big investments in artificial intelligence services that Amazon expects to generate tens of billions in revenue in the coming years.

"The combination of companies renewing their infrastructure modernization efforts and the appeal of AWS’s AI capabilities is reaccelerating AWS’s growth rate (now at a $100 billion annual revenue run rate),” Jassy said in the statement.

The results are also the first since Amazon introduced video advertising to the Prime Video streaming service, creating a new revenue source. Advertising revenue rose 24% to $11.8 billion.

The stock initially tumbled, only to rebound sharply and then fade, closing roughly unchanged with where it was for much of the day around $180.

Tyler Durden Tue, 04/30/2024 - 16:37

"There Is No Crime": Dershowitz Says Bragg’s Case Against Trump Will Fail

Authored by Tom Ozimek via The Epoch Times (emphasis ours),

Retired Harvard law professor Alan Dershowitz said on April 28 that he believes that Manhattan District Attorney Alvin Bragg’s case against former President Donald Trump could fail because prosecutors have charged the former president with fake crimes.

Alan Dershowitz and former President Donald Trump in file photos. (Mario Tama/Getty Images; Michael M. Santiago/Getty Images)

“There is no crime,” Mr. Dershowitz said during an interview on Fox News on April 28, referring to the case in which Mr. Bragg’s office has charged the former president with 34 counts of falsifying business records to hide so-called hush money payments that prosecutors allege amounted to a criminal conspiracy to influence the 2016 presidential election.

Mr. Dershowitz argued that making nondisclosure payments is not a crime and that neither is paying for the non-publication of potentially embarrassing stories (the so-called catch-and-kill dimension of the case), both of which prosecutors have alleged were part of a conspiracy to sway voters.

The retired law professor argued that Mr. Bragg’s office is in danger of having the case thrown out on grounds similar to those on which the conviction of Harvey Weinstein was recently overturned, namely that prosecutors prejudiced the case by a number of “egregious” improper rulings, including allowing testimony that was unrelated to what Mr. Weinstein was charged with.

“They ought to be very careful about this because the Supreme Court of the Appellate Court in Albany just reversed Harvey Weinstein’s conviction on the ground that they put in too much information that wasn’t really relevant to the case,” Mr. Dershowitz said, adding that this is “what’s happening” in the trial against President Trump.

“There is no crime in Manhattan. You cannot figure out what the crime is. That’s why they’re putting on all this evidence of non-crimes,” Mr. Dershowitz said.

“Trying to persuade the jury that ‘catch-and-kill’ is a crime—it’s not. Paying hush money is a crime—it’s not. Putting a corporate statement is a misdemeanor barred by the statute of limitations. You can’t suddenly resurrect that and turn that into a crime by invoking a federal statute which the federal government refused to invoke—the Federal Election Commission refused to invoke.”

The former Harvard law professor has repeatedly criticized Mr. Bragg for elevating the charges against President Trump from misdemeanors to felonies on what Mr. Dershowitz has argued was an invalid legal premise because the Manhattan district attorney invoked federal statutes over which New York has no jurisdiction.

Republicans have accused Mr. Bragg of bringing the case against the former president for political reasons.

Mr. Bragg’s office did not respond to a request for comment.

‘Destruction of America’s Rule of Law’

Mr. Bragg indicted President Trump on 34 counts of allegedly falsifying business records in order to conceal $130,000 in payments to adult film actress Stormy Daniels in exchange for keeping quiet about her allegations of an affair she had with President Trump.

President Trump has maintained his innocence and has denied the affair.

“There is no case here. This is just a political witch hunt,” the former president said before court in brief comments to reporters on April 25.

Under New York state law, falsifying business records is a misdemeanor. However, if the records fraud was used to cover up or commit another crime, the charge could be elevated to a felony, though a number of legal experts—including Mr. Dershowitz—have challenged the way that has been done in this case.

“In order to turn the state statute into a felony, you have to borrow a federal statute,” Mr. Dershowitz told The Epoch Times in March 2023. He said that this combining of laws “seems to raise real serious legal questions.”

“In Bragg’s case, what they’re trying to do is add one and one and come up with 11,” Mr. Dershowitz said. “No rational person would look at these two statutes and say that Trump violated them.”

The prosecution’s first witness in the case was former National Enquirer publisher David Pecker. Prosecutors alleged that he participated in a catch-and-kill scheme to suppress unflattering stories about President Trump and help him get elected.

President Trump’s attorney, Todd Blanche, said in court that the catch-and-kill that the jury heard about from prosecutors was not part of the charges against the former president because it was not illegal and happens regularly.

“The reality is that there is nothing illegal about what happened,” Mr. Blanche argued. He added that testimony would be about things from 2015 to 2017 and asked the jury to “think about whether it rings true and whether what they’re saying is accurate.”

“Use your common sense. We’re New Yorkers; that’s why we’re here. You told the court you would put aside whatever view you have about President Trump, the fact that he’s running,” he said. “If you do that, there will be a very swift non-guilty verdict.”

Mr. Dershowitz has said in the past that he believes that New York prosecutors are violating voters’ rights with the case, alleging that the law is being “abused for partisan political purposes and to constitute election interference.”

The former law professor went further in his remarks on Fox News on April 28, arguing that the case is about whether basic civil liberties are protected or undercut.

“If it’s Donald Trump today, they can go after you tomorrow, and your relatives tomorrow, for something that isn’t a crime,” he said.

“That’s why every American, whether you’re a Democrat or Republican, should be opposed to what’s going on in that Manhattan courtroom.

“It’s a scandal and it’s a destruction of America’s rule of law.”

Tyler Durden Tue, 04/30/2024 - 16:20

Gold Flowers Amid April 'Stagflation' Showers; Stocks, Bonds, & Crypto Crushed

The final day of April was really ugly: ECI way hotter than expected (spooked markets), Case-Shiller home prices soared far more than expected (spooked markets more), Chicago PMI puked (while prices paid increased), Consumer Confidence crashed, and Dallas Fed Services slumped... all of which left stocks, bonds, gold, crude oil, and bitcoin all languishing into month-end while the dollar rallied.

Stocks puked into the month-end close today ahead of AMZN earnings...

April was a disaster from a macro perspective...

Source: Bloomberg

...with soft survey data collapsing while 'hard' data limped modestly higher...

Source: Bloomberg

...and worse still growth surprises slumped as inflation surprises soared - screaming stagflation so loud no one could ignore it...

Source: Bloomberg

Against the backdrop of US 10Y yields up ~45 bps in the month of April...

Source: Bloomberg

... and the market taking another rate-cut off the board...

Source: Bloomberg

...price action in April is perhaps not overly surprising with Equities broadly lower, albeit, with NDX / Quality / Mag7 continuing to outperform.

Source: Bloomberg

Goldman's Peter Callahan notes that since 2006, the S&P 500 has fallen by an avg of 4% when real yields rose by more than 2 stdev in a month.

April was the first down-month for stocks since The Fed Pivot (Oct 2023). This was the worst month for The Dow since Sept 2022. Nasdaq suffered its worst month since Sept 2023.

Interestingly, while US majors and sectors were red (broadly speaking) in April, Chinese Internet stocks soared back to life (+9.5% vs US MegaCap -2%)...

Source: Bloomberg

Sectors were very mixed in April with Energy and Utilities outperforming (the latter on AI energy use, since its typical relationship to rates decoupled) and Real Estate lagged (along with Tech)...

Source: Bloomberg

The basket of Magnificent 7 stocks saw red in April for its first monthly loss since October and worst monthly loss since September. The last week has been tempestuous to say the least as TSLA (win), META (lose), MSFT and GOOGL (win) all hit...

Source: Bloomberg

Still, stocks have a long way to catch down to the new reality priced into the short-end of the bond market...

Source: Bloomberg

As we noted above, the TSY curve was up relatively uniformly on the month, but perhaps most notably was the 2Y yield which tested 5.00% numerous times and broke out today...

Source: Bloomberg

One more notable event in April was the tightening of financial conditions (admittedly only marginally), but definitely more what The Fed wants relative to the extreme 'easiness' that had been priced in after Powell's pivot...

Source: Bloomberg

The dollar rallied for the fourth month in a row with the big gains coming mid-month....

Source: Bloomberg

Despite taking a battering today, Gold managed solid gains on the month, topping $2400 at its record highs...

Source: Bloomberg

Oil prices ended the month marginally lower, thanks to today's selloff...

Source: Bloomberg

Copper was the outstanding commodity in April, soaring around 14% to two year highs with practically no drawdown as the reflation trade came back to life (on the back of AI demand)...

Source: Bloomberg

Bitcoin had an ugly month, down 15% after seven straight months of gains...

Source: Bloomberg

As BTC ETF flows started to ebb  - Net Flows (including GBTC): April -$183mm, March +$4.62bn, February +$6.03bn, January +1.47bn...

Source: Bloomberg

Finally, the ultimate analog remains in play...

Source: Bloomberg

...with NVDA bouncing back, just like CSCO did.

And bear in mind, as Goldman's Peter Oppenheimer points out, US equity market valuation is currently at an extreme level relative to history...

...also a condition that typically means higher rates weigh more heavily on stocks.

And while April showers are over...

The S&P 500's vol term structure suggests the storm is not over yet.

 

Tyler Durden Tue, 04/30/2024 - 16:00

What To Look For When Amazon Reports

After the solid results from Microsoft - the world's largest company whose market cap is now flirting with $3 trillion - investors have been incrementally more positive on the Amazon's AWS cloud setup into today's earnings, with the investment thesis driven by ecommerce share, margin expansion and the potential for AWS growth recovery through the year.

Of course, since everyone is well-aware of this thesis, UBS trader Kelsey Perselay notes that "the amount of debate/dialogue has really died down."

Not surprisingly, everyone and their kitchen sink, is long the stock: according to Goldman, client positioning is a 9 on the bank's 1-10 scale, and "most investors feel relaxed/confident into this quarter."

Goldman thinks that people expect a beat and further acceleration on AWS (vs cons ~13% y/y and ~13% y/y last qtr), a slight beat on online sales (vs cons 7%) and a solid beat on EBIT vs cons ~$11bn (for ref, AMZN been beating by $2-4bn last few qtrs). Looking ahead, investors looking for high-end of guide to land near street numbers for Revs (cons ~$150 bn) / OI (~$12.5 bn).

Summarized, here are the top bogeys for the quarter:

• Q1 Total Sales: high end of guide $138-$143.5 bn

• Q2 Total Sales: $150 bn high end

• Q1 AWS Growth: 15%-16%+

• Q1 EBIT: $13 bn

• Q2 EBIT: $14 bn high end

Key questions for the 1Q call include:

1. overall EBIT for 2Q as they are expected to show ongoing efficiency this year;

2. cadence of enterprise cloud optimization efforts and signs of growth acceleration for AWS in 2Q;

3. pace of retail margin improvement and medium-term targets for retail;

4. capex outlook for 1Q and for 2024;

5. impact of Amazon Bedrock and any disclosures around growth contribution from GenAI workloads;

6. margin improvements from regionalization of fulfilment operations and broader cost control efforts;

7. the outlook and incremental margins associated with video advertising in Prime content and advertising more generally; and

8. competitive dynamics from Shein, Temu, TikTok, etc.

Catch-Up or Catch-Down...

 

Tyler Durden Tue, 04/30/2024 - 15:00

Cannabis Bears Squeezed On Report DEA Is Preparing To Reclassify Marijuana

The Associated Press has learned the US Drug Enforcement Administration is moving to reclassify marijuana to a less dangerous drug category. Shares of cannabis-related companies erupted on the news. 

Here's more from AP news: 

The DEA's proposal, which still must be reviewed by the White House Office of Management and Budget, would recognize the medical uses of cannabis and acknowledge it has less potential for abuse than some of the nation's most dangerous drugs. However, it would not legalize marijuana outright for recreational use. 

The agency's move, confirmed to the AP on Tuesday by five people familiar with the matter who spoke on the condition of anonymity to discuss the sensitive regulatory review, clears the last significant regulatory hurdle before the agency's biggest policy change in more than 50 years can take effect. 

Once OMB signs off, the DEA will take public comment on the plan to move marijuana from its current classification as a Schedule I drug, alongside heroin and LSD. It moves pot to Schedule III, alongside ketamine and some anabolic steroids, following a recommendation from the federal Health and Human Services Department. After the public-comment period the agency would publish the final rule.

Following the news, Tilray Brands Inc. shares jumped 22%, while Canopy Growth Corp shares are up 26%. 

Tilray's float is about 15% short, equivalent to about 118 million shares short. 

Canopy's float is 12% short, equivalent to 9 million shares short. 

Meanwhile, AdvisorShares Pure US Cannabis ETF and Amplify Alternative Harvest ETF are broadly higher and appear to be rounding a multi-year bottom. 

It's an election year, and the Biden administration is getting desperate. 

Tyler Durden Tue, 04/30/2024 - 14:40

Want To Know What Is Really Going On In Biden's Economy, Read This

One can listen to, and believe, the government's lies about the miraculous growth of the economy and the stellar job that Bidenomics is doing... or one can listen to the truth straight from the countless small companies that make up the economy. We prefer the latter, which is why we love the monthly responses to the Dallas Fed survey, where unlike the other regional Feds, the respondents actually get a fair forum.

So without further ado, here are all the comments in the April Dallas Fed Service Sector Outlook Survey presented unedited and without commentary. Trust us, none is needed (but the highlights are ours).

Truck transportation

• We repair long-haul trucks. The volume just keeps going down, which means everyone is holding back on repairs, so we have no work. Inflation keeps driving our costs up. It's not looking pretty for trucking.

Support activities for transportation

• We are seeing an uptick in rates and activity. The excess capacity slowly bleeding out of the market is causing this.

Publishing industries (except internet)

• Momentum is still based on intuitive smarter software revisions. Commercial interest is also finally increasing with better relationship contacts to speed credible traction and interest for adoption going forward. We are more focused now on marketing and sales.
• The impact of the higher rate environment seems to be catching up, with general purchase intent among customers flattening out. At the same time, budget cuts and political uncertainty have impacted our public sector business as well, creating additional uncertainty across our business.

Credit intermediation and related activities

• The stress of an election year adds to the concern citizens have about the direction of our economy.
• We recently renegotiated our $600 million debt facility. Our cost of funds went from 9 percent to 14 percent—that's a pretty big hit to our bottom line and resulted in us increasing prices to our customers.  Our business focus has been on forecasted easing; however, the reality of rates staying higher longer is creating uncertainty.
• Commercial real estate transactions are down by 70-80 percent according to the brokers we talk to, and our loan origination volume reflects that as well. Borrowers are concerned about future business prospects. We recently had a client decide not to take a loan to refinance a warehouse used in their business because they were concerned about their future business prospects. At the same time, the cost of everything we buy, from paper to electricity, is rising.
• The Federal Reserve signaling it will hold the rate at the current level for longer has affected our outlook negatively. One of our biggest issues with inflation is the cost of housing. These high rates do not help that, and prices of everything else are not declining or remaining stable.

Securities, commodity contracts and other financial investments and related activities

• Recent movement in long-term rates, combined with the Fed holding rates longer, have delayed the expected value of investment recovery until 2025 or later.

Insurance carriers and related activities

• We are recruiting experienced insurance professionals, and there is a small pool to draw from, unfortunately. We will keep looking.
• Property insurance and affordability are slowing our growth opportunities.

Real estate

• The increase in treasury yields since last fall has negatively impacted deal-making activity in the income property industry
• We are a real estate broker company and we have about 350 agents. They are independent agents not salaried employees. Our business slows during election years, and high interest rates have hurt first-time buyers.
• Cost of capital is weighing on our customers and decreasing volume.

Rental and leasing services

• We are a construction machinery and material handling dealership. Our business in the first quarter of 2024 was down 2 percent, and the industry was down 12.3 percent. Our manufacturing clients seem almost on the verge of panic, and there is stuff in inventory. We need a guest-worker program to meet our skilled-labor needs long term.

Professional, scientific, and technical services

• Persistent inflation and the Fed potentially delaying rate cuts are causing uncertainty for the second half of 2024.
• We are still worried about the election causing uncertainty in our clients and prompting a slowdown later this year. Some clients are still worried about inflation and are stalling projects because of the volatility in the supply market. Overall, it is tough to make any forecast right now. Our backlog is strong for the next couple of months, but not as far in the future as we would like.
• The market was slower in the first quarter, but it is now in recovery.
• We are increasingly seeing small professional firms shrinking or simply closing up shop. The labor shortage is a major reason for giving up the fight. There's plenty of demand for professional services, but there is not enough trained staff. Retaining staff is a major headache. Owners nearing retirement are giving it up sooner rather than later.
• Burdensome federal regulations are increasing the cost to do business, such as the so-called "Corporate Transparency Act" and minimum wage increases that just continue to drive inflation.
• General outlook has improved primarily due to our increased investment in marketing and an increase in general business activity.
• We see a slight uptick in transactional matters.
• Trying to factor in how remote-work scheduling impacts the need for space and resources is challenging.
• Competitive labor market remains; it’s harder to recruit great talent; health insurance is increasing.
• We have not been this slow since the Great Recession. This includes Covid. We cannot understate how terrible the prospective real estate market is. People are not filing zoning cases, meaning in two years there will not be construction. Volumes have gone down in the automotive industry. It seems they are beginning to turn around, so we're hoping.
• This real estate market is hard to figure out. With the 10-year rate still moving in the wrong direction, and the likelihood of a rate cut not coming this year due to inflation and the strength of the economy, we just can't see the market improving until next year.
• The Fed is now unlikely to cut interest rates; concerns over recession continue.

Management of companies and enterprises

• Overregulation takes away a lot of time and money.

Administrative and support services

• Continued high interest rates, inflation and general economic malaise has caused employers to be very reluctant to hire professional level talent. They may replace talent if they have attrition, but in general, they are very slow to make any new hire decisions.
• There has been a marked decline in requests for quotes for the month. This decline does not fit in our normal seasonal changes.
• The intensity of international conflict and increasing long-term rates certainly raise concerns.
• Geopolitical tensions are creating an uncertain environment. Also, upcoming elections and how this may affect the Fed’s monetary policy is a concern.
• High interest rates have drastically hindered our ability to grow our business, and it looks like a rate cut is not likely happening in 2024.

Texas Retail Outlook Survey

Accommodation

• Between increasing inflation, high interest rates and instability in the Middle East, we are growing more concerned that the upcoming summer travel season will be depressed compared to prior years.
• March 2024 is viewed as a contradiction in that we had several areas perform at or close to expectations and others that were far below. That seems to be the same in April. Difficult to understand what is happening.

Food services and drinking places

• The stalled return to office and the decline of weekday business travel to downtown remain drags on revenue. We see a softening in other meal periods, and we believe it is due to the increase in menu prices. Hiring experienced staff with knowledge remains very difficult. Where did seasoned workers go? Cost of goods sold continues to increase.
• We are still hanging on by a thread after closing one business last month.
• The energy sector continues to be strong, which positively affects my business. Midland continues to attract a younger population.

Motor vehicle and parts dealers

• The margin on new vehicles sold per unit declined 50 percent year over year in March 2024, which was a direct benefit to the consumer.
• We are continuing to see labor shortages in the workforce and a lack of effort to pursue the positions available from those applicants responding to open positions.

Electronics and appliance stores

• Building activity is down still and looks to be getting worse.

Tyler Durden Tue, 04/30/2024 - 14:25

China Threatens To Retaliate Against US Over Taiwan Aid And TikTok Ban

Authored by Eric Lundrum via American Greatness,

On Monday, the Chinese government threatened to retaliate against the United States after a $95 billion foreign aid package was signed into law, which included aid for Taiwan and a provision to ban the Chinese social media app TikTok.

As reported by Fox News, the bill signed into law by Biden on Wednesday included $2 billion to restock American weapons provided to Taiwan and other allies in the Indo-Pacific, in a direct attempt to deter Chinese aggression in the region. Additionally, the law demands that TikTok’s parent company ByteDance sell the popular app to another company within nine months, or else the app will be banned from use in the United States.

“China firmly rejects the U.S. passing and signing into law the military aid package containing negative content on China,” said Chinese Foreign Ministry spokesman Lin Jian in a briefing.

“We have lodged serious representations to the U.S.”

“This package gravely infringes upon China’s sovereignty. It includes large military aid to Taiwan, which seriously violates the one-China principle, and sends a seriously wrong signal to ‘Taiwan independence’ separatist forces,” Lin continued.

“The legislation undermines the principles of market economy and fair competition by wantonly going after other countries’ companies in the name of ‘national security,’ which once again reveals the U.S.’s hegemonic and bullying nature.”

The issue of Taiwan has remained a contentious point in U.S.-China relations, with some considering Taiwan to be a free and independent nation, while others believe it to be part of China. The federal government has never taken a clear stance on the question, thus highlighting the significance of the decision to provide direct aid to Taiwan.

TikTok has faced widespread scrutiny from both sides of the political aisle, with Republicans pointing out its threat to national security by virtue of it being a Chinese company preying on American users, while Democrats have raised concerns about users’ private information being easily accessed and sold by the company.

TikTok is most popular among younger Americans such as Generation Z, or “Zoomers,” and the ban being signed into law has sparked outrage against Biden among younger voters.

Tyler Durden Tue, 04/30/2024 - 14:05

WeWork Snubs Co-Founder Neumann As It Targets Quick Turnaround From Bankruptcy

After years of enriching himself to the tune of billions from his failed company WeWork, co-founder Adam Neumann is finally getting a small dose of karmic payback.

It was reported yesterday by Bloomberg that WeWork and its main backers, including SoftBank, have reached a new agreement to pull the struggling workspace provider out of bankruptcy, rejecting a rival proposal from co-founder Adam Neumann to buy back the company.

Under the deal, senior lenders will provide about $450 million in financing, gaining equity in the reorganized business. Additionally, SoftBank and other creditors may convert their debt into stock post-bankruptcy. This marks a significant step for WeWork, aiming to emerge from court protection with reduced debt and more efficient leases.

And to not be at the behest of, or enriching, Adam Neumann, will really mark a shift in strategy for WeWork...

A lawyer backing the deal told Bloomberg the deal  “is some of the best news we’ve had in this case,” and said the company is on a “fast and reliable path out of bankruptcy.”

WeWork aims to exit bankruptcy swiftly due to the high costs and unsustainable administrative expenses of the Chapter 11 proceedings. The proposed restructuring, backed by most senior debt holders and unsecured creditors, sidelines co-founder Adam Neumann's bid to repurchase the company.

Neumann's offer, valued at $650 million, hinges on winning support from senior lenders, who are crucial to the deal's success. However, WeWork's advisors have rebuffed Neumann's attempts to negotiate and have proceeded with the restructuring without public bidding on the company's assets.

Bloomberg reported that US Bankruptcy Judge John K. Sherwood emphasized the lenders' prerogative to decide on negotiations with Neumann based on their economic interests. If executed, the restructuring would result in majority ownership by Yardi's investment arm and involvement from WeWork bondholders.

SoftBank would retain ownership stake, initially at least 16.5%, potentially increasing to 36% depending on the treatment of letters of credit. WeWork must finalize the proposed deal into a contract and seek creditor approval for its broader reorganization plan.

The report notes that Neumann could still contest the deal by petitioning Sherwood to reject the reorganization proposal. 

And, normally taking the punchbowl away from someone who has already "earned" billions he didn't deserve shouldn't be of any concern, but we're sure Neumann's ego won't let that be the case. We're certain protest and prolonged litigation from Neumann will come from this, claiming he was "unfairly" snubbed...

*WEWORK CUTS BANKRUPTCY EXIT DEAL THAT LEAVES OUT ADAM NEUMANN

But how will the world's biggest grifter become the world's first trillionaire

— zerohedge (@zerohedge) April 29, 2024

Tyler Durden Tue, 04/30/2024 - 13:45

Bullish Sentiment Index Reverses With Buybacks Resuming

Authored by Lance Roberts via RealInvestmentAdvice.com,

Over the last two weeks, the bullish sentiment index has reversed from extreme greed to fear. The composite net bullish sentiment index, comprised of professional and retail investors, fell from 38.15 to 9.9 in two weeks. The previous drop between July and October last year was similar and marked the bottom of the correction.

While the bullish sentiment index can indeed fall further, what is notable is the sharp reversal of market “exuberance” in such a short span. However, as discussed in “Just A Correction,” there was a significant gap between buyers and sellers.

“However, at some point, for whatever reason, this dynamic will change. Buyers will become more scarce as they refuse to pay a higher price. When sellers realize the change, they will rush to sell to a diminishing pool of buyers. Eventually, sellers will begin to “panic sell” as buyers evaporate and prices plunge.”

Like clockwork, that correction came quickly, with the market finding initial support at the 100-DMA. With solid earnings from GOOG and MSFT, the market rallied to initial resistance at the convergence of the 20- and 50-DMA. It would be unsurprising if the market failed this initial resistance test and ultimately retested the 100-DMA soon. Such a pullback would solidify that support and complete the reversal of the bullish sentiment index.

In early April, we wrote:

“Whatever trigger causes a reversal in the bullish signals, we will act accordingly to reduce risk and rebalance exposures. But one thing is sure: investor sentiment is extremely bullish, which has almost always been a good “bearish signal” to be more cautious.

While we have warned of a potential correction over the past few weeks, it reminds us much of June and July last year, where similar warnings for a 10% correction went unheeded. We are now seeing many individuals ‘jumping into the pool’ in some of the most speculative areas of the market. Such is usually a sign we are closer to a market peak than not. As such, we want to make adjustments before the correction comes.”

Very quickly, as supported by the bullish sentiment index, those bulls are turning bearish and are now calling for a more profound decline.

While such is possible, I suspect most of this correction is complete for two reasons.

Earnings Continue To Remain Strong

The first reason is that despite higher interest rates, earnings growth continues to remain robust, at least among the “Magnificent 7,” where Google (GOOG) and Microsoft (MSFT), in particular, exceeded estimates by a wide margin. However, overall, and most importantly, earnings growth has continued since the October lows of 2022. Notably, the support for improving earnings comes from the increased fiscal policies such as the Inflation Reduction Act and CHIPS Act.

While those policies will eventually fade, making forward estimates subject to downward revisions, the current earnings environment remains relatively robust. Furthermore, forward estimates remain optimistic that the Federal Reserve will cut rates later this year, lowering borrowing costs and supporting economic activity.

Notably, the increase in earnings, at least for now, remains a strong indicator of rising asset prices. The risk of a deeper market correction (greater than 10%) is significantly reduced during previous periods of improving earnings. While such does not mean a deeper correction can not happen, historically, corrections between 5% and 10% in an earnings growth environment tend to be buying opportunities and limit deeper reversal in the bullish sentiment index.

Improving earnings also precedes improving CEO confidence, which has provided pivotal support to financial markets since 2000.

Buybacks Returning

We discussed the most critical reason we expected a market correction in mid-March. To wit:

“Notably, since 2009, and accelerating starting in 2012, the percentage change in buybacks has far outstripped the increase in asset prices. As we will discuss, it is more than just a casual correlation, and the upcoming blackout window may be more critical to the rally than many think.” – March 19, 2024

Furthermore, the “blackout” of corporate buybacks coincided with more extreme readings in the bullish sentiment index. Buybacks are crucial to the market because corporations have accounted for roughly 100% of net equity purchases over the last two decades.

Here is the math of net flows if you don’t believe the chart:

• Pensions and Mutual Funds = (-$2.7 Trillion)

• Households and Foreign Investors = +$2.4 Trillion

  • Sub Total = (-$0.3 T)

• Corporations (Buybacks) = $5.5T

  • Net Total = $5.2 Trillion = Or 100% of all equities purchased

Unsurprisingly, that blackout window coincided with a sharp contraction of more than $367 billion in buybacks over the last 4-weeks. Consequently, when you remove a critical “buyer” from the market, the ensuing correction is unsurprising.

However, corporate share buybacks will resume in the next couple of weeks, and with more than $1 trillion slated for 2024, many buybacks remain to complete. Such is particularly the case with Google adding another $70 billion to that total.

As noted above, improving earnings and a decent outlook for the rest of this year also boost CEO confidence. (If you don’t understand why buybacks benefit insiders and not shareholders, read this.)

With robust economic activity supporting earnings growth, that improvement boosts CEO confidence. As CEOs are more confident about their business, they accelerate share buybacks to increase executive compensation.

The liquidity boost from buybacks and stronger earnings will likely provide a floor below the market. This doesn’t mean the current correction doesn’t have more work to do. However, it is unlikely that it will resolve into something more significant.

At least for now.

Tyler Durden Tue, 04/30/2024 - 13:25

Your Tax Dollars At Work: US To Buy Ukrainian-Made Weapons For Ukraine

It's not just US and Western defense contractors and arms makers that have been raking in the billions as a result of Washington's mammoth defense aid handed over to Ukraine, but Ukrainian defense companies are also enjoying the largesse at US taxpayers' expense.

"A total of $1.6 billion of the recent US aid to Ukraine would go to the purchase of Ukraine-made weapons, said a senior Kyiv official," Defense Post reports of the $61 billion in US aid just approved.

Image via Reuters

G7 countries have been planning broader assistance to Ukraine which would develop and prop up a Ukrainian domestic military-industrial complex for the long-term, in order to ensure the country's independence from Russia well into the future.

Ukraine parliamentarian and foreign policy committee member Arseniy Pushkarenko has said, "This is very important today, because it is about the creation of joint defense enterprises that will be located on the territory of Ukraine or in neighboring countries, taking into account security aspects."

The funds will be taken from the $14 billion apportioned by Congress for the Ukraine Security Assistance Initiative (USAI), allowing the DoD to purchase new weapons for Ukraine.

Interestingly, Pushkarenko admitted that all of this is about more than just defending Ukraine from the Russian military onslaught, but is also about 'testing' new weapons systems in real combat.

"This is one of the factors in the development of the Ukrainian economy. Today, the military technologies that we have are tested in combat conditions, which makes our military-industrial complex attractive enough for many countries of the world," he said.

Other Western countries, including the United Kingdom and Denmark, are expected to establish programs ensuring the purchase of Ukrainian-made weapons.

As we've long documented, over the course of more than two years of war in Ukraine, American defense firms are making a killing, with four US-based companies having been ranked as among the world’s five largest military companies.

Zelensky promises more Ukraine-made weapons in new year speech https://t.co/7UCb6pLX17

— BBC News (World) (@BBCWorld) January 1, 2024

The legendary early 20th century US Marine Corps Major General Smedley Butler said it best:"War is a racket. It always has been... It is possibly the oldest, easily the most profitable, surely the most vicious. It is the only one international in scope. It is the only one in which the profits are reckoned in dollars and the losses in lives."

Tyler Durden Tue, 04/30/2024 - 13:05

New Biden Energy Rules Will Raise The Cost Of A New Home By $31,000

Authored by Mike Shedlock via MishTalk.com,

New HUD energy rules will raise the cost of home construction by imposing stricter building codes. Payback time is 90 years...

Homes To Become Even More Unaffordable

The Wall Street Journal comments on Biden’s New Plan for Unaffordable Housing.

The Department of Housing and Urban Development is mandating costly new energy standards for new homes insured by the Federal Housing Administration (FHA), which will become de facto nationwide building codes.

HUD last Thursday announced that it will require new homes financed or insured by its subsidy programs to follow the 2021 International Energy Conservation Code standard.

Many governments have declined to adopt the 2021 standards because of their higher costs. The National Association of Home Builders says the energy rules can add as much as $31,000 to the price of a new home. It can take up to 90 years for a buyer to realize a payback on the higher up-front costs through lower energy bills.

Not to worry, HUD says taxpayers will help cover the cost. It “is anticipated that many builders will take advantage” of numerous tax incentives in the Inflation Reduction Act “as well as rebates that will become available in 2025 or earlier for electric heat pumps and other building electrification measures,” the rule says.

These incentives include a $5,000 per unit tax credit for “zero energy” multifamily construction that meets prevailing-wage requirements that also raise building costs. HUD adds that builders may also “take advantage of certain EPA Greenhouse Gas Reduction Fund programs, especially the Solar for All initiative” and an investment tax credit that can offset 50% of a solar project’s cost.

Even with the subsidies, HUD estimates the price of a new home will go up by $7,229.

You get a $5,000 credit but only if the builder pays union wages for everything. How much will that cost?

My general rule of thumb is to take government estimates and triple them. That’s for short projects like building a home. But 10x would not be surprising. And this is with subsidies.

Generational Homeownership Rates

Home ownership rates courtesy of Apartment List

Who Are the Renters?

The answer is younger voters and blacks.

Generation Z homeownership is dramatically lower than the home ownership rate of millennials.

And according to the National Association of Realtors, the homeownership rate among Black Americans is 44 percent whereas for White Americans it’s 72.7 percent.

That’s the largest Black-White homeownership rate gap in a decade.

Home Prices Hit New Record High

Case-Shiller, OER and CPI data from St. Louis Fed, chart by Mish

The latest Case-Shiller housing data shows home prices hit a new record high. Adding insults and costs, the 30-year mortgage rate ended last week at 7.50 percent

Youth Poll

On April 20, I commented People Who Rent Will Decide the 2024 Presidential Election

Q: What is it that young voters really have on their minds?
A: Rent

Many with rent as their top concern will switch to Trump. They are fed up with rising inflation. Rent is up at least 0.4 percent per month for 30 months.

Young voters propelled Biden over the top in 2020. Things look very different today. Many voters who do not like either Trump or Biden will sit this election out.

Tyler Durden Tue, 04/30/2024 - 12:45

Walmart Targets Gen-Z With Cheap Private Label Food As Youngsters Struggle In Era Of Failed Bidenomics

Walmart executives must be paying attention to Gen Z consumers bitching on TikTok and X about the failures of Bidenomics, as many of them have to work multiple jobs and still can't afford to put food on the table, pay shelter costs, and buy gasoline at the pump. That's why America's largest retailer is launching a new line of cheap store-brand groceries for consumers, more importantly, targeting lost and hopeless youngsters. 

Bettergoods is Walmart's "largest private brand food launch in 20 years and the fastest food private brand Walmart has brought to market," according to the retailer in a press release published Tuesday morning. 

The new brand targets young consumers and will offer them 300 items, including frozen, dairy, snacks, beverages, pasta, soups, coffee, chocolate, and more. Prices of the goods range from under $2 to under $15, with most products available for under $5.

"Today's customers expect more from the private brands they purchase – they want affordable, quality products to elevate their overall food experience. The launch of bettergoods delivers on that customer need in a meaningful way," said Scott Morris, senior vice president of private brands, food and consumables.

Morris continued, "Bettergoods is more than just a new private brand. It's a commitment to our customers that they can enjoy unique culinary flavors at the incredible value Walmart delivers."

Over the last few years, retailers have made a major push to expand private label brands that offer consumers a cheaper option amid persistent high inflation. This has forced many to drain personal savings and max out credit cards—just to survive the ongoing inflation storm. 

We have been documenting the countless number of Gen-Zers who have taken to various social media platforms to complain about how liberal colleges and Bidenomics are scams. Many of these youngsters seem more miserable than millennials who entered the workforce after the 2008 financial crash. At least back then, millennials weren't battered by high inflation. 

• Watch: Gen-Zers Melt Down Over 9-5 Jobs Amid Criticism About 'Bidenomics'

The latest Gallup poll numbers show youngsters are at a breaking point with Democrats who have promised them nothing but rainbows and unicorns, only to step foot in the real world after obtaining a worthless liberal arts college degree to realize affording rent, $1,000 car payments, and $15 avocado and toast is not what they signed up for.  

Walmart is smart. They're reading the crowd's outrage about 'Biden-flation' hitting supermarket items. 

And it's only a matter of time before Gen-Zers have to make the difficult decision to trade down from Walmart to Dollar General as the inflation storm heats up (read here). What comes next? Well, it's dumpster diving. 

Tyler Durden Tue, 04/30/2024 - 12:25

China Hosts Hamas & Palestinian Authority For Rare Talks

Via The Cradle

Representatives of Hamas and the Palestinian Authority’s (PA) Fatah party met recently in Beijing and held talks on reconciliation, the Chinese Foreign Ministry announced Tuesday. "Representatives of the Palestine National Liberation Movement and the Islamic Resistance Movement [Hamas] recently came to Beijing," China’s Foreign Ministry spokesman Lin Jian said. 

"The two sides fully expressed their political will to achieve reconciliation through dialogue and consultation, discussed many specific issues, and made positive progress," he added. The spokesman did not clarify exactly what day the meeting took place. 

Prior intra-Palestinian talks in Moscow, via Reuters

China, Hamas, and Fatah confirmed beginning last Friday that intra-Palestinian talks would be held in the Chinese capital. 

"They agreed to continue the course of talks to achieve the realization of Palestinian solidarity and unity at an early date," Jian went on to say, adding that the two sides thanked China for efforts to "promote Palestinian internal unity and reached an agreement on further dialogue."

China has continued to call for a ceasefire and an end to the war in the Gaza Strip and has long been an advocate of Palestinian unity and a two-state solution between the Palestinians and Israelis. 

Chinese diplomat Wang Kejian met with Hamas leader Ismail Haniyeh in Qatar last month, where they both called for an end to the war in Gaza and the achievement of "political goals and aspirations of establishing an independent Palestinian state."

Hamas assumed leadership of Gaza in 2006 after a political victory against Fatah in local elections. The Beijing talks come as Hamas has yet to deliver an official response to a new Israeli–Egyptian initiative for a ceasefire and prisoner release deal. 

While the initiative reportedly reflects an Israeli openness for the return of the displaced to northern Gaza and the establishment of a sustainable ceasefire, a Hamas official told Al-Mayadeen on Sunday that the proposal "does not reflect a fundamental shift" in Tel Aviv’s position. 

Washington has been promoting the idea of a reformed PA assuming control over post-war Gaza, something Hamas has rejected.

Prior file image: Chinese diplomat Wang Kejian met with Hamas political leader Ismail Haniyeh in Qatar on March 17. 

US–Israeli efforts to "create bodies to manage Gaza is a failed conspiracy that will not come to fruition," a Hamas official said last month. 

Tyler Durden Tue, 04/30/2024 - 12:05

Columbia Student Protesters Break Into, Barricade Themselves Into Building After Deadline To Disperse Passes

Dozens of Columbia University students broke into Hamilton Hall on the New York campus early Tuesday and barricaded themselves inside, hours after the school began suspending students who violated a deadline to disperse from a pro-Palestinian encampment.

Demonstrators supporting Palestinians in Gaza barricade themselves inside Hamilton Hall, an academic building which has been occupied in past student movements, in New York on April 30, 2024. (Alex Kent/Getty Images)

"The safety of every single member of this community is paramount," said Ben Chang, vice president for communications at Columbia University, in an emailed statement to The Epoch Times, adding "In light of the protest activity, we have asked members of the University community who can avoid coming to the Morningside campus to do so; essential personnel should report to work according to university policy."

Holy…. pic.twitter.com/42Lw4kaRHY

— Jessica Schwalb (@jessicaschwalb7) April 30, 2024

Taking over Hamilton Hall as done in 1968, Columbia students unfurl a banner that reads "Hind's Hall," in reference to Hind Rajab, a six-year-old girl killed by Israeli forces.
Hundreds of students cheer as the banner is revealed, erupting into chants to "Free Palestine." pic.twitter.com/Oi8WgdZmqf

— Prem Thakker (@prem_thakker) April 30, 2024

As the Epoch Times' Katabella Roberts notes further;  According to The New York Times, the students began occupying the hall at around 12:35 a.m.

The protesters linked arms and blocked off the main entrance to the building at the Ivy League institution after previously marching around campus to chants of “free Palestine,” according to the publication.

A statement shared on the social media platform Instagram by student groups said the protesters had “taken matters into their own hands,” and would remain in the building until the university “divests from death.” Protesters have been urging the university to pause its investments in companies that, they claim, are profiting from Israel’s war against Hamas in Gaza.

The statement included video footage that appeared to show the students carrying metal barricades into Hamilton Hall as other students cheered them on.

“This escalation is in line with the historical student movements of 1968, 1985, and 1996 which Columbia repressed then and celebrates now,” the statement read. “This action will force the university to confront the blood on its hands.”

In the statement, the student group further accused the university of having been “complicit” in “Israel’s ongoing genocidal assault on the Gaza strip” for the past seven months.
“The students are on the right side of history,” the statement continued. “We know that the university will remember them as anti-apartheid, anti-genocide activists with moral clarity.”

Protesters Make Demands

According to Politico, protesters hung a sign reading “intifada,” which is Arabic for uprising, from the front of the building.

A spokesperson for the New York Police Department told Politico that law enforcement officers were outside the university campus as of Tuesday; however, they declined to elaborate further on exactly how many officers were on site or whether they had authorization to enter the school grounds.

The Epoch Times has contacted a spokesperson at Columbia University and the New York Police Department for further comment.

The takeover of Hamilton Hall occurred just hours after the university confirmed that it had begun suspending some students. The pro-Palestinian students failed to disband before Monday’s 2 p.m. deadline.

Students/protestors lock arms to guard potential authorities against reaching fellow protestors who barricaded themselves inside Hamilton Hall, an academic building which has been occupied in past student movements, in New York on April 30, 2024. (Alex Kent/Getty Images)

Students have occupied the lawn in the middle of campus—in which graduation ceremonies are scheduled to take place for roughly 15,000 students on May 15—for nearly two weeks while calling on the university to disclose and divest from any of its financial ties to Israel.

They are also calling for an end to alleged “land grabs” in the Harlem neighborhood of New York City and Palestine, no more policing on the university campus, and no academic ties with Israeli universities.

However, negotiations between university officials and student protest leaders broke down earlier in the day when the university rejected their demands, prompting officials to issue the 2 p.m. deadline.
In a statement, Minouche Shafik, Columbia’s president, said that ultimately, the university will not divest from Israel, adding that the school is committed to maintaining its core principles and shared values, which include ensuring no students suffer from harassment and discrimination and no anti-Semitic language is used.

Columbia University students protest the Israel-Gaza conflict at Columbia University in New York City, on April 27, 2024. (Emel Akan/The Epoch Times)

School, Students Fail to Reach Agreement

“Both sides in these discussions put forward robust and thoughtful offers and worked in good faith to reach common ground,” Ms. Shafik said. “We thank them all for their diligent work, long hours, and careful effort and wish they had reached a different outcome.”

While the University will not divest from Israel, it has offered to “develop an expedited timeline for review of new proposals from the students by the Advisory Committee for Socially Responsible Investing, the body that considers divestment matters,” Ms. Shafik noted.

“The University also offered to publish a process for students to access a list of Columbia’s direct investment holdings, and to increase the frequency of updates to that list of holdings,” she added.

Ben Chang, vice president for communications at Columbia University, confirmed the suspensions had begun in a press conference late Monday, USA Today reports.

He added that students had been notified in advance that they would face disciplinary action, including suspension if they did not vacate the encampment by 2 p.m. ET and sign a form committing to abide by student politics until either June 30, 2025, or until their graduation, whichever came first.

The site of the protests has created an unwelcoming environment for many Jewish students and faculty members, he said. It has also been a source of loud noise.

“We’ve been suspending students as part of this next phase of our efforts to ensure safety on campus,” Mr. Chang said.

Mr. Chang did not provide further details regarding how many students from Columbia and its affiliate Barnard College have been disciplined. However, he confirmed that those suspended would not be able to finish the semester or graduate, Axios reports.

They will also be banned from entering any campus housing or academic buildings, he added.

Juliette Fairley contributed to this report.

Tyler Durden Tue, 04/30/2024 - 11:40

We Have Reached The Geo-Populist Tipping Points: Here Are Four Examples

By Michael Every of Rabobank

Beg, Borrow, or Steel

Yesterday’s JPY slump from 158 to 160, surge to 155 on BOJ intervention, and stop over 156 underlines how volatile markets are as long-run fundamentals finally reach tipping points. Tomorrow’s FOMC decision should make that clear for all asset classes: especially with the Treasury’s quarterly refunding announcement the same day, and as the US borrowed a net $748bn in Q1, expects another $243bn in Q2, $41bn higher than seen in January due to lower receipts, and then $847bn in Q3. As a potential warm-up of sorts, albeit due to traditional overbought dynamics, was a 15% collapse in cocoa.

Today we have a sizeable packet of economic data: we already saw the Chinese official manufacturing PMI at 50.4 vs. 50.3 expected and 50.8 last month, and services at 51.2 vs. 52.3 consensus and 53 in March. Will the rest of today’s numbers show disinflation, inflation, or stagflation? That answer is fundamentally related to a subject which markets understand little and dislike lots: the intersection of political economy and the global economic architecture reductively known as either “geopolitics” or “populism”. There, we are also reaching tipping points.

• Example 1: The Rhodium Group says for Europe to compete with Chinese EVs would require it to impose ‘Trump 2’ tariffs of at least 50%. However, they expect the EU will make a typically rear-view mirror decision to raise tariffs to the ‘Trump 1’ range of 15-30%. That would push up prices while allowing Chinese EVs to push EU auto production off the market. In short, we either get higher inflation and protectionism; or we get stagflation as prices rise somewhat less, yet Europe loses its key auto sector, taking 7% of GDP, 6% of (well-paid) jobs, the muscle-memory for sideways moves into defence production, and hopes for “strategic autonomy” with it.

• Example 2: The White House is trying to ban imports of Russian processed uranium, which currently make up 25% of the supply for the 90 US commercial nuclear reactors. Of course, this means inflation. And it can mean stagflation if local supply isn’t brought on-line.

• Example 3: In the Financial Times, Nobel laureate economist Joseph Stiglitz: (i) argues neoliberalism produces “demagogues”; (ii) implies liberty is not something which can be easily maximized for all, as I alluded to recently via the Quadragesimo anno; and (iii) says the US needs to be like the EU, with higher regulation, state spending, and taxation – yet, in the absence of protectionism, with the same loss of strategic industries? So, again, it’s still inflation or stagflation.

• Example 4: in an unwitting riposte to Stiglitz, former UK PM Gordon Brown warns, ‘There’s a hard-right tidal wave about to hit Europe – and it will only make the economic crisis worse’ as “near-zero growth has crushed living standards, sending voters to populist demagogues” -- the D word again -- but “they have no solutions to offer.” Brown concludes: “The nationalist timebomb is ticking. Across the continent, Europeans need a plan for better jobs through economic and environmental transformation. When the Polish trade union Solidarity was first formed, its anti-Soviet slogan was “No solidarity without freedom”. But soon many realized that free-for-all neoliberal economics would mean rising inequality and low living standards for the mass of people, and so a new slogan soon rang out: “There is no solidarity in freedom.” If progressives want to prevent an election campaign dominated by anti-immigrant propaganda, they will have to stand up to protectionism and xenophobia by showing the benefits of cooperation.”

But how could Europe do Brown’s Green Keynesianism, with expanded issuance of Eurobonds to fund vast fiscal deficits, without higher inflation? And, absent protectionism, how does it do it without importing the key inputs from China, so running large balance of payments deficits? Moreover, does mass immigration not lower wages or push up rents and house prices via supply vs. demand, as Marx argued, and voters see around them? Must governments boost investment to reduce housing supply pressures (how?) and regulate for higher wages (how?) and build Green Keynesianism and rearm Europe? That implies double-digit fiscal deficits as far as the eye can see. Absent new, hybrid tighter AND looser fiscal-and-monetary policy to match domestic demand to new domestic supply, with inflationary tariffs and industrial policy, that backdrop implies a drift towards becoming a deindustrialised, macro-destabilised, stagflationary emerging market-style economy that certainly produces demagogues.

Allow me to share two related quotes from Classical ‘free market’ economists that are likely to upset Stiglitz and Brown as much as they do those who think we live solely in financial times:

“If any particular manufacture was necessary, indeed, for the defence of the society, it might not always be prudent to depend upon our neighbours for the supply; and if such manufacture could not otherwise be supported at home, it might not be unreasonable that all the other branches of industry should be taxed in order to support it.” – Adam Smith, The Wealth of Nations (Book IV, Chapter V)

* *  *

“It would undoubtedly be advantageous to the capitalists of England, and to the consumers in both countries, that under such circumstances, the wine and the cloth should both be made in Portugal, and therefore that the capital and labour of England employed in making cloth, should be removed to Portugal for that purpose... Experience, however, shews, that the fancied or real insecurity of capital, when not under the immediate control of its owner, together with the natural disinclination which every man has to quit the country of his birth and connections, and entrust himself with all his habits fixed, to a strange government and new laws, check the emigration of capital.” - David Ricardo, ‘Principles of Political Economy and Taxation’ (Chapter VII: ‘On Foreign Trade’)

That, dear readers, is the sound of the two great ‘free market’ and ‘free trade’ champions supporting protectionism for national security purposes.

We have long lived in an environment where central banks saying “whatever it takes” was what mattered most to markets (apart from playing ‘higher/lower’ on a daily basis, without which there can be little to do). A well-known idiom for doing whatever it takes is to ‘beg, borrow, or steal’. When looking at China’s mercantilist EV --and steel-- production, as just two examples, and the geopolitical / national security backdrop they are tightly wrapped up in, then the choice of outcomes for Western economies is abundantly clear for those who want to see it:

Beg, borrow, or steel – literally and metaphorically.

The first and second choices imply short-term market-friendly disinflation, then followed by long-term EM-style stagflation. The third choice implies near-term inflation and radical policy framework and market shifts, if done correctly, then disinflation, and near and long-term stagflation if done wrong.

Which will it be?

Tyler Durden Tue, 04/30/2024 - 10:45

Judge Holds Trump Contempt With Fine, Jail Threat For Violating Gag Order In 'Hush Money' Trial

Manhattan Supreme Court Judge Juan Merchan has held Donald Trump in contempt of court for 'repeatedly violating' a gag order in his so-called hush money trial in New York.

According to Merchan, Trump violated the gag order nine times in online posts which targeted jurors or likely witnesses in the trial. The former president was fined the maximum of $1,000 per violation, or $9,000 - and was ordered to remove all of the offending posts by 2:15 p.m. ET on Tuesday.

What's more, Merchan threatened to toss Trump in jail if he willfully violates court orders again.

"Defendant is hereby warned that the Court will not tolerate continued willful violations of its lawful orders and that if necessary and appropriate under the circumstances, it will impose an incarceratory punishment," wrote Merchan in his ruling, CNBC reports.

Merchan read the order aloud before the trial resumed with more testimony from a banker who worked with the former president’s lawyer on a $130,000 hush money payment to porn star Stormy Daniels.

That payment is at the heart of Manhattan prosecutors’ case accusing Trump of falsifying business records as part of a scheme to influence the 2016 presidential election.

Gary Farro, a former senior managing director at First Republic bank, took the stand Friday and continued testifying Tuesday.

On his way into the courtroom, Trump repeated his call for Merchan to both recuse himself from the case and dismiss it entirely. -CNBC

"The judge should terminate the case because they have no case," said Trump in response, adding that he's been unable to campaign for president because he's stuck in court.

That said, Merchan is allowing Trump to attend his son Barron's high school graduation on May 17.

The historic trial began last week, which has included testimony from former National Enquirer publisher David Pecker, as well as Trump's longtime personal secretary, Rhona Graff.

Pecker testified to his efforts to "catch and kill" stories that could be damaging to Trump - including one instance in which his company American Media paying $30,000 for the rights to a former Trump Tower doorman's story about Trump having a secret love child - though Pecker believes the story is untrue.

The company also inked a $150,000 deal with former Playboy model Karen McDougal, who claimed to have had an extramarital affair with Trump, according to Pecker.

Pecker said he did not pay to silence Daniels, who claims she had sex with Trump.

As the Epoch Times notes further, Court was resuming Tuesday with Gary Farro, a banker who helped President Trump’s former attorney Michael Cohen open accounts, including one that Mr. Cohen used to send a payment to adult film performer Stormy Daniels, whose real name is Stephanie Clifford. She alleged a 2006 affair with President Trump, which he denies.

...

Outside the courtroom Tuesday, President Trump criticized prosecutors again. “This is a case that should have never been brought,” he said.

“Our country’s going to hell and we sit here day after day after day, which is their plan, because they think they might be able to eke out an election,” he declared last week in the courthouse hallway.

Tyler Durden Tue, 04/30/2024 - 10:31

Don't Buy Rate-Hike Hype, Next Fed Move Is A Cut

Authored by Simon White, Bloomberg macro strategist,

The Federal Reserve’s next move this year is likely to be a rate cut - despite the re-emergence of inflation - leaving markets at risk of a dovish repricing.

When it comes to the Fed, it’s easy to get hung up on what they should do, and neglect what they actually will do. From an inflation perspective, it’s becoming increasingly clear the central bank needs to raise rates further to quell resurgent price growth. But that’s unlikely. Instead, the risks to government funding costs and mounting pressure on liquidity are likely to tilt the Fed in favor of cutting rates, even as inflation is making an unwelcome return.

This week again draws focus to the greater entanglement of monetary and fiscal policy. The Fed meets on Wednesday, but the Treasury’s QRA (quarterly refinancing announcement) is just as consequential for the path of monetary policy. We found out the Treasury’s borrowing requirements on Monday.

The amounts are eye-watering - $243 billion in 2Q and $847 billion in 3Q - and unthinkable outside a recession only a few years ago. The market is gradually waking up to the Treasury put and the realization the fiscal deficit is unlikely to go back to a non-recessionary norm any time soon. Term premium is rising as lenders demand greater compensation for holding longer-term debt.

The chart below shows a tradeable proxy for term premium - the difference between the 10-year yield and the 1-month OIS rate 10-years forward - that is as high it’s been since the GFC.

Other measures of term premium are also rising. The ACM term premium has gone back into positive territory, while implied measures of term premium based on forecasters’ estimate of the 10-year bill rate are already 150 bps higher than the OIS-based term premium shown above. Even if Treasuries are not as overpriced as this infers, the government still has a problem.

As important for yields as how much the Treasury wants to borrow is how it intends to borrow it. On Wednesday, we will find out the proportion of longer-term versus shorter-term debt (i.e. bills) Treasury expects to issue over the next two quarters.

The increase in bill issuance over the last year or so has been of immense importance to markets. The “Yellen pivot” meant that liquidity lying idle in the RRP could be used by money market funds to buy bills and thus help fund the government.

Without this, there’s a strong likelihood the mass of sovereign issuance would have crowded out other assets, and markets would be considerably weaker. The Treasury thus – implicitly or otherwise – aided the Fed by allowing it to keep rates higher for longer and proceed with quantitative tightening.

Wednesday’s announcement will shed further light on whether the Treasury will stick to its stated aim and not significantly increase coupon (i.e. non-bill) issuance for now. A look at the nominal amounts of coupons and bills issued appears to confirm this has been the case.

But in duration-adjusted terms the picture is already changing. The amount of coupons issued adjusted for duration is rising. That will amplify the move higher in term premium and ultimately jeopardize support for risk assets.

USTs are simply not in high demand at current prices. Foreigners are more wary due to reserve-confiscation risks, or put off by high FX hedging costs; banks have on net been reducing their ownership of USTs as policy has been tightened; multi-asset managers have less need when Treasuries are a poor recession hedge when inflation is elevated, and a poor portfolio hedge when the stock-bond ratio is positive; and the Fed is busy trying to offload its UST inventory.

Households have become the de facto buyer of last resort for Treasuries. But there’s nothing to suppose they’ll be happy to continue to do so at any price. As the chart below shows, consumers’ long-term inflation expectations typically lead term premium. The market’s view of longer-term inflation, i.e. breakevens, is about 150-200 basis points lower than households’ outlook. As the UST buyer of last resort, households will increasingly set the price, one that’s likely to be lower than it is now.

Higher long-term yields will lead to the government having to borrow yet more to pay its spiraling interest-bill on its outstanding debt. But that points to fewer reserves and falling reserve velocity – effectively undoing the work of the Yellen pivot and leaving the stock market in a precarious spot.

The Fed is thus likely to cut rates in a quid pro quo with the Treasury. This would not only help the government fulfill its borrowing requirements at a non-usurious cost, it also helps the Fed with its responsibility for financial stability by taking the pressure off risk assets and reducing the likelihood of a funding squeeze.

Even though such a move would be unwise, it doesn’t mean it won’t happen. Cutting rates before inflation has been snuffed out threatens to intensify structural risks for price growth.

But in the heat of liquidity drying up, funding risks rising, markets on increasingly shaky ground, and the government locked in an issuance doom-loop as its interest costs soar, the Fed is likely to cut rates as an easy first move to ease the pressure — an outcome made even more likely with an election looming.

In the short-to-medium term, it’s hard to see how quantitative tightening isn’t soon tapered or curtailed. But the Fed is unlikely to want to go full tilt into easing again, or engage in yield curve control. That’s why in the longer term some sort of financial repression – where private cash flows are directed into public debt markets – is very likely.

This would be yet another chip in the de facto erosion of Fed independence. In such an environment, gauging the central bank’s next move needs to consider the spending whims of the government as much as the outlook for inflation and unemployment.
 

Tyler Durden Tue, 04/30/2024 - 10:10

Fastest Drop Since 'Lehman': Chicago PMI Puke Screams Stagflation

After miraculously surging to two years highs in Nov 2023, Chicago PMI has plunged for five straight months, with the last four months seeing the MoM declines accelerating. Against expectations of a rise to 45.0 (from March's 41.4), April's PMI data printed 37.9

Source: Bloomberg

That is the worst five-month collapse since Lehman...

Source: Bloomberg

More problematically - the underlying data screams stagflation:

• Prices paid rose at a faster pace; signaling expansion

• New orders fell at a faster pace; signaling contraction

• Employment fell at a faster pace; signaling contraction

• Inventories fell at a slower pace; signaling contraction

• Supplier deliveries fell at a faster pace; signaling contraction

• Production fell at a faster pace; signaling contraction

• Order backlogs fell at a slower pace; signaling contraction

All of which leaves 'hope' languishing at 'Bidenomics'-cycle lows...

Source: Bloomberg

And cue...

cue mainstream media splaining to Chicago: "you don't understand how strong Biden's economy is" https://t.co/W1ewTgjsLx pic.twitter.com/lrhYqDDNM7

— zerohedge (@zerohedge) April 30, 2024

Tyler Durden Tue, 04/30/2024 - 09:59

US Futures Dip On Last Day Of April, First Down Month Of 2024

US equity futures dropped, and European markets were mixed on the last day of the month amid concerns the Fed may stick to its hawkish messaging at its meeting on Wednesday. As of 7:40am, S&P 500 and Nasdaq futures were down 0.1% while Europe’s Stoxx 600 index retreated 0.4%, while Asian stocks gained on Japan's return from holiday. The Bloomberg Dollar Spot Index climbed and 10-year Treasury yields were steady at 4.62%. The yen resumed its decline even as a Bloomberg analysis found that Japan almost certainly conducted its first currency intervention since 2022 to prop up the yen on Monday. Commodities were mixed with metals down and oil rebounding from its biggest drop in almost two weeks amid discussions on a possible cease-fire in the Middle East. Macro data today includes Q1 employment cost index, Case Shiller home prices, April MNI Chicago PMI, consumer confidence and Dallas Fed services activity. Bitcoin tumbled after activity on Hong Kong's new crypto ETFs came in far below expectations.

In premarket trading, HSBC Holdings climbed more than 3% after solid earnings and the surprise departure of CEO Noel Quinn, which some analysts said could pave the way for the next stage in the bank’s growth plans. Chegg shares fell 13% after the online educational platform company forecast total net revenue for the second quarter that missed the average estimate. Here are some other notable premarket movers:

• Blend Labs shares jump 20% after it reported a $150 million investment by Haveli Investments in the form of convertible preferred stock with a zero percent coupon.
• Coursera’s shares drop 14%, putting them on track for a one-year low, after the online educational firm cut full-year revenue and adjusted-Ebitda forecasts, prompting analysts to lower their price targets on the stock.
• NXP Semiconductors shares rose 3.6% after the chipmaker reported better-than-expected 1Q adjusted earnings per share and forecast 2Q adjusted EPS and revenue largely above average analyst expectations.
• Paramount Global analysts note that investors are more focused on the Skydance deal rather than results this quarter. The media company replaced CEO Bob Bakish as the board negotiates a possible change in control of the company. Shares in the company fell about 0.4% in premarket trading.

US stocks are on the edge of closing out the first monthly retreat of 2024, with the S&P 500 down 2.6% in April. Amazon.com, McDonald’s and Coca-Cola are due to report later today, but all eyes are on Fed Chair Powell who will likely bolster expectations interest rates will stay higher for longer after Wednesday’s rates announcement.

“Sentiment is positive but reserved,” said Peter Rosenstreich, head of investment products at Swissquote. “There has been plenty of hype around rates, earnings and the macro environment — now markets want to see the results.”

Meanwhile, as we reported first last night, Goldman's desk calculated that momentum traders are modeled to buy equities over the next week, regardless of market direction. Commodity trading advisers — funds that use systematic strategies to trade futures contracts — are exposed to about $106 billion in long positions after the drawdown in April, Cullen Morgan, an equity derivatives and flows specialist at the bank, wrote in a note. That’s set to support a bounce in global equities after a rough month.

European stocks also fall, led by declines in autos as Volkswagen and Mercedes Benz shares fall post-earnings which offset better-than-expected European economic data. Here are the biggest movers Tuesday:

• Logitech shares soar as much as 10%, the most in six months, after the Swiss maker of computer accessories reported better-than-expected FY25 sales guidance
• Cargotec jumps as much as 17% to a fresh high after the Finnish crane and cargo-handling equipment firm reports “record” first-quarter earnings boosted by its Marine division
• HSBC shares advanced as much as 3.6% after the lender announced a larger buyback than expected and reported earnings that analysts saw as solid
• OMV shares jump as much as 5.3%, largest intraday rise since November, after Austrian refiner reported 1Q clean CCS operating profit beat
• Clariant shares gain as much as 4.8%, to the highest level in more than six months after the Swiss specialty chemicals firm’s margins beat consensus despite some challenges
• Rotork shares rise 3.9% after the valve manufacturer reported a solid start to the year. Sales and orders both grew, while its book-to-bill ratio also improved
• European automakers shares fall as 1Q numbers from Stellantis, Volkswagen and Mercedes disappointed the market, making the SXAP auto index the worst performing subsector
• Straumann shares drop as much as 10%, the most since Oct. 26, after a soft performance in North America overshadowed the Swiss dental equipment company’s 1Q revenue beat
• SES depositary receipts drop as much as 12% after the satellite firm agreed to buy Intelsat for $3.1 billion, in a deal to be funded by cash on hand and new debt
• Air France-KLM falls as much as 4.7% after carrier reports a wider operating loss than expected in the first quarter. Bernstein says one-off costs weighed on profitability
• Santander shares drop as much as 2.9% after forecast-beating net interest income and fees in the first quarter were offset by a cost surge at the Spanish lender
• Adidas shares fell as much as 1.6% as 1Q results broadly confirmed a recent pre-release, and the sportswear maker’s guidance was seen by some as conservative

Earlier in the session, Asian stocks advanced for a third day, led by a rally in Japanese shares as the yen stabilized following wild swings in the previous session. The MSCI Asia Pacific Index rose as much as 1.1%, led by industrial shares such as Hitachi and Toyota Motor. Japan’s Topix Index jumped more than 2% as the market reopened from a holiday. Traders remain on alert for sharp yen moves after the currency’s rebound from a 34-year low sparked speculation of intervention.

“While we remain constructive on the Japan equity market over the medium term, we also believe that near-term FX movement is likely to see some profit taking from investors in the broad Japanese equity market,” said Ricky Tang, head of client portfolio management at Value Partners Group.

In FX, the dollar gained against all its major peers on expectation of a hawkish message from the Federal Reserve on Wednesday. The euro outperformed and the region’s government bonds fell after data showed the largest economies of the bloc were stronger than expected in the first quarter. The yen weakens towards 157 against the dollar. The Aussie underperforms, falling 0.5% after retail sales missed estimates.

In rates, treasuries are slightly cheaper across the curve, paring a portion of Monday’s gains, amid steeper declines for bunds after first estimate of 1Q euro-zone growth rate topped estimates. US yields cheaper by 0.5bp to 1.5bp across the curve with losses led by intermediates, steepening 2s10s spread by 1bp on the day; 10-year yields around 4.63% with bunds underperforming by 1.5bp in the sector.  Also during London morning, an array of regional inflation readings lifted intermediate German yields by ~3bp. Bunds are in the red, with German 10-year yields rising 2bps to 2.55%. S&P 500 futures are down 0.1%.

In commodities, oil prices advanced, with WTI rising 0.2% to trade near $82.80. Spot gold falls 0.8%.

Looking at today's calendar, we have the 1Q employment cost index (8:30am), February FHFA house price index, S&P CoreLogic home prices (9am), April MNI Chicago PMI (9:45am, 3 minutes earlier for subscribers), consumer confidence (10am) and Dallas Fed services activity (10:30am). Fed members are in self-imposed quiet period ahead of May 1 policy announcement.

Market Snapshot

• S&P 500 futures down 0.1% to 5,139.50
• STOXX Europe 600 down 0.2% to 507.25
• MXAP up 0.7% to 174.73
• MXAPJ little changed at 540.41
• Nikkei up 1.2% to 38,405.66
• Topix up 2.1% to 2,743.17
• Hang Seng Index little changed at 17,763.03
• Shanghai Composite down 0.3% to 3,104.82
• Sensex up 0.5% to 75,063.11
• Australia S&P/ASX 200 up 0.3% to 7,664.08
• Kospi up 0.2% to 2,692.06
• German 10Y yield little changed at 2.54%
• Euro down 0.2% to $1.0700
• Brent Futures little changed at $88.47/bbl
• Gold spot down 0.9% to $2,314.21
• US Dollar Index up 0.31% to 105.90

Top Overnight News

• China’s NBS PMIs for April are mixed, with manufacturing about inline at 50.4 (vs. the Street 50.3 and down from 50.8 in Mar) while non-manufacturing fell short at 51.2 (vs. the Street 52.3 and down from 53 in Mar). China’s Caixin manufacturing PMI came in at 51.4, slightly ahead of the Street’s 51 forecast. WSJ
• China’s ruling Communist Party vowed to explore new measures to tackle a protracted housing crisis, which remains the biggest drag on the nation’s economy, and hinted at possible rate cuts ahead. BBG
• HSBC’s chief executive Noel Quinn is to retire unexpectedly after five years, setting off a hunt for a successor at the UK-based bank. Quinn, 62, has overhauled the lender since taking charge in 2019, selling off parts of its global operations to increase its focus on Asia, where it makes the lion’s share of its profits. FT
• BOJ accounts suggest Japan probably intervened in the FX market yesterday, buying around 5.5 trillion yen. Officials have declined to say whether they stepped in. BBG
• The chief executive of Ericsson said a focus on regulation was “driving Europe to irrelevance” as he warned that the region’s competitiveness was being undermined and called for changes to antitrust policy. FT
• EU’s Apr CPI was inline with the Street on a headline basis at +2.4% (unchanged vs. Mar) and a bit firmer on core (+2.7% vs. the Street +2.6% and vs. +2.9% in Mar). BBG
• ECB’s Knot says it is “realistic” to anticipate a cut in June and expresses confidence in inflation coming back to 2%, although he doesn’t envision rates returning to their pandemic/pre-pandemic lows. Nikkei
• Tensions grow between Trump and Lake in Arizona race for Senate. The former president fears that GOP candidate Kari Lake might not win and will drag down his own prospects in the battleground state. WaPo
• Apple has poached dozens of artificial intelligence experts from Google and has created a secretive European laboratory in Zurich, as the tech giant builds a team to battle rivals in developing new AI models and products. FT
• Caterpillar Caterpillar announced a voluntary delisting from Euronext Paris and the Six Swiss Exchange; cites low trading volumes and high administrative costs. CAT will solely trade on NYSE thereafter. (Newswires)
• Tesla (TSLA) CEO Musk is reportedly planning more layoffs as two senior executives depart, while roughly 500 people will be laid off in supercharger group, according to The Information. (The Information)
• WSJ's Timiraos article "Fed to Signal It Has Stomach to Keep Rates High for Longer" & "Firmer price pressures could lead longer-term rates to rise as investors continue paring back expectations of cuts"

Earnings

• NXP Semiconductors NV (NXPI) Shares climb 3.4% pre-market on top- and bottom-line beats, and guidance. Q1 adj. EPS 3.24 (exp. 3.16), Q1 revenue USD 3.13bln (exp. 3.13bln). Q1 gross margin 58.2% (exp. 58%), Q1 operating margin 34.5% (exp. 34%). Auto revenue -1% Y/Y, Industrial/IoT +14%, Mobile +34%, Communications Infrastructure -25% Y/Y. Exec said early views into H2 underpin a cautious optimism. Sees Q2 revenue of 3.125bln (exp. 3.11bln), Q2 EPS of 3.20 (exp. 3.12).
• Paramount Global (PARA) Q1 Adj. EPS 0.62 (exp. 0.36), Q1 revenue USD 7.69bln (exp. 7.73bln); Q1 Paramount+ net additions +3.7mln (exp. +2.2mln); Q1 EBITDA USD 0.987bln (exp. 0.756bln), Q1 FCF USD 209mln (exp. -62mln). President and CEO Bob Bakish stepped down, as many press reports suggested he would do over the weekend. Establishes a management committee; George Cheeks, Chris McCarthy, and Brian Robbins will work with CFO Naveen Chopra to accelerate growth, streamline operations, and optimise streaming strategy; Chair Shari Redstone (of National Amusements) has expressed confidence in their leadership.
• Adidas (ADS GY) Q1 (EUR): Revenue 5.45bln (exp. 5.46bln, prev. 5.27bln Y/Y). Currency-neutral sales +8% driven by growth in all regions except in North America, where revenue fell by 4% to 1.12bln. Europe: +14%.
• Stellantis (STLAM IM/STLAP FP) Q1 (EUR): Revenue 41.7bln (exp. 43.92bln), -12% Y/Y due to "volume, mix and foreign exchange headwinds, partly offset by firm net pricing".
• Volkswagen (VOW3 GY) Q1 (EUR): Operating Profit 4.59bln (exp. 4.51bln). Revenue 75.5bln (exp. 74.193bln). Operating Margin 6.1% (prev. 7.5% Y/Y); outlook confirmed.
• Mercedes-Benz Group (MBG GY) Q1 (EUR): Adj. EBIT 3.60bln (exp. 3.71bln). Sales 35.87bln (exp. 35.58bln). Cars Adj. EBIT 2.32bln (2.57bln); Outlook maintained.
• HSBC (5 HK/ HSBA LN) Q1 (USD): Revenue 20.75bln (exp. 21.03bln). Pretax profit 12.65bln (exp. 12.61bln). CET1 ratio 15.2% (exp. 15.4%). CEO Quinn is unexpectedly retiring.

A more detailed look at markets courtesy of Newsquawk

APAC stocks were mostly higher but with gains capped heading into month-end amid a slew of data and earnings. ASX 200 was led by strength in the mining sector but with upside limited after a surprise contraction in Retail Sales. Nikkei 225 outperformed on return from the long weekend and as participants digested a slew of earnings releases. Hang Seng and Shanghai Comp. were varied in which the former made another brief foray into bull market territory, while the mainland lagged ahead of the Labour Day holidays and as participants reflected on mixed Chinese PMI data in which the official NBS Manufacturing and Caixin Manufacturing PMIs topped forecasts but Non-Manufacturing PMI disappointed despite remaining in expansion territory.

Top Asian News

• PBoC injected CNY 440bln via 7-day reverse repos with the rate at 1.80%.
• PBoC reportedly wants to halt the bond-buying spree and not join in on it, with the central bank concerned about bond market bubbles and economic gloom, according to Bloomberg.
• Japan's top currency diplomat Kanda said no comment on FX intervention and noted that a weak yen has positive and negative impacts, while he added the currency has a bigger impact on import prices now and that excessive FX moves could impact daily lives. Kanda said they need to take appropriate actions on FX and reiterated they are ready to take action 24 hours a day and will continue taking appropriate actions when needed.
• BoJ keep monthly bond purchases plan for May unchanged from April
• China's Communist Party Central Committee is to hold a 3rd plenum during July, via State Media; Politburo undertook a meeting on Tuesday.
• Former Japanese top FX diplomat Furusawa says it is highly likely the Japanese government intervened on Monday to prop up the JPY

European bourses, Stoxx600 (-0.3%) are mixed, with a slight negative bias. Indices initially opened around flat, though tilted lower as the morning progressed, with little driving the shift in sentiment. European sectors hold little bias, with the breadth of the market fairly narrow, with the exception of Autos, dragged down by poor results from Mercedes (-3.4%), Stellantis (-2.4%) and Volkswagen (-2.1%). Real Estate tops the pile, propped up by post-earning gains in Vonovia (+5.5%). US Equity Futures (ES -0.2%, NQ -0.2%, RTY -0.3%) are modestly softer, in fitting with the broader price action seen in European trade. Earnings include: McDonald's, AMD, Amazon and Starbucks.

Top European News

• ECB's Knot said he is increasingly confident inflation is falling towards the 2% target but the ECB must be cautious beyond a June rate cut.

FX

• USD is attempting to claw back some of yesterday's JPY-induced losses which sent the index down to a low of 105.46. For now, the DXY has topped out at 105.96 and unable to reclaim 106 status, 106.18 was the high from yesterday. Recent EUR strength in the wake of the EZ data has led the index back down to the unchanged mark.
• EUR is slightly firmer vs. the broadly flat USD in the wake of a slew of EZ data with EUR being propped up by firmer than expected growth metrics. Inflation data was in-line on a headline basis and mixed from a core perspective.
• JPY is softer vs. the USD after yesterday's wild (touted intervention led) session which saw USD/JPY swing from a 160.20 peak to a 154.51 low; currently trades towards the top end of a 156.08-99 range.
• Antipodeans are giving back yesterday's gains and then some as the USD regains some poise. AUD/USD had advanced to a peak of 0.6586 yesterday (highest since April 12th) before pulling back as low as 0.6514 with soft retail sales also acting as a drag.

Fixed Income

• Bunds began on the backfoot after hotter than expected French inflation and a sticky Services metric, with additional pressure coming from better-than-forecast GDP prints by France & Germany ahead of the EZ figures. EZ HICP headline Y/Y was in-line with the core metrics mixed against expected, which led to a hawkish reaction; Bunds currently sit at session lows around 130.40 given the strong GDP numbers and potentially mixed core.
• USTs are moving in tandem with EGBs which leaves the benchmark a touch softer but some way from Monday's 107-18+ base. Specifics light thus far into Wednesday's FOMC and Quarterly Refunding.
• Gilts are once again following EGB/UST impetus. A narrative that is unlikely to change significantly in the near-term given a sparse UK docket before next week's BoE; though, we are attentive to anything from the EZ/US, particularly around the Fed, which provides insight into the Central Bank divergence narrative.
• UK sells GBP 4bln 4.125% 2029 Gilt: b/c 3.21x, average yield 4.251%, tail 0.8bps.

Commodities

• Crude futures are choppy and now in modest positive territory after earlier subdued trade. Prices are on standby ahead of key macro risk events including the FOMC and US jobs data on Friday; Brent July similarly found an intraday base at USD 86.64/bbl.
• Softer trade across precious metals amid yesterday's geopolitical unwind coupled with a rebound in the Dollar today. Spot silver sits as the laggard after yesterday's outperformance; XAU fell under yesterday's low (USD 2,319.84/oz) to a current base at USD 2,310.96/oz.
• Losses seen across base metals amid the aforementioned Dollar rebound coupled with a pullback in sentiment. 3M LME copper topped USD 10,200/t earlier to reach a USD 10,217.00/t intraday peak.

Geopolitics

• "IDF finalizes Rafah plans, invasion possible if no deal in 72 hours", according to Times of Israel.
• "Israeli delegation will not head to Cairo until Hamas gives its response, according to Israeli official", according to Walla's Elster.
• Hamas is expected to respond to the exchange deal proposal "tomorrow evening", Al Arabiya reports
• Hamas delegation left Cairo and will return with a written response to the ceasefire proposal, according to Egypt's Al Qahera News.
• An Israeli delegation plans to travel to Cairo to resume ceasefire talks if Hamas agrees to attend, according to NYT.
• Israeli PM Netanyahu asked US President Biden to help prevent the ICC from issuing arrest warrants against Israeli officials, according to Axios.
• Yemen's Houthis said they targeted the 'Cyclades' vessel and two US destroyers in the Red Sea, while it also targeted 'Israeli ship MSC Orion' in the Indian Ocean, according to Reuters. US CENTCOM later confirmed that Iranian-backed Houthis fired three anti-ship ballistic missiles and three UAVs from Yemen into the Red Sea towards MV Cyclades but added there were no injuries or damages reported by US, coalition or merchant vessels.
• Chinese Coast Guard expelled a Philippines Coast Guard ship and vessels from waters adjacent to the Scarborough Shoal.
• Shanghai Maritime Safety Administration said military activities will be carried out in a part of the East China Sea from 07:00 AM on May 1st to 09:00 AM on May 9th local time and vessels unrelated to the activity are prohibited from entering the area.

US Event Calendar

• 08:30: 1Q Employment Cost Index, est. 1.0%, prior 0.9%
• 09:00: Feb. FHFA House Price Index MoM, est. 0.2%, prior -0.1%
• 09:00: Feb. S&P CS Composite-20 YoY, est. 6.70%, prior 6.59%
  • Feb. S&P/CS 20 City MoM SA, est. 0.10%, prior 0.14%
  • Feb. S&P/Case-Shiller US HPI YoY, est. 6.38%, prior 6.03%
• 09:45: April MNI Chicago PMI, est. 45.0, prior 41.4
• 10:00: April Conf. Board Consumer Confidenc, est. 104.0, prior 104.7
  • April Conf. Board Present Situation, prior 151.0
  • April Conf. Board Expectations, prior 73.8
• 10:30: April Dallas Fed Services Activity, prior -5.5

DB's Jim Reid concludes the overnight wrap

Markets got the week off to a decent start yesterday, with the S&P 500 (+0.32%) building on last week’s advance as we await the Fed’s decision tomorrow and an array of earnings releases. Several factors helped to boost sentiment, including a remarkable advance for Tesla (+15.31%) as outlets including Bloomberg and the Wall Street Journal reported that Chinese government officials had given the firm in-principle approval for its driver-assistance system. In addition, investors were reassured after there was nothing alarming in the flash CPI releases from several European countries, which cemented expectations that the ECB would deliver a rate cut in June. And alongside that, concern about a geopolitical escalation continued to ebb, with Brent crude oil prices down -1.23% to $88.40/bbl. So there were several positive catalysts helping to boost sentiment. The Yen's range of around 160.25 - 154.5 was a constant side show all day, with heavy speculation that the government had intervened in very thin holiday trading. As we type this morning the Yen is trading down slightly at 156.75 from 156.35 as the US closed last night, which continues to leave it as the worst performing G10 currency year-to-date, down -10% against the US dollar. The intervention hasn't been officially confirmed but top currency official Kanda has commented that the authorities are watching the Yen 24 hours a day and suggested they were looking more for the size of moves rather than specific levels.

Staying in Asia, China's factory activity remained in expansion territory for the second consecutive month in April but the pace of expansion slowed slightly as the official manufacturing PMI came in at 50.4 (v/s 50.3 expected) as against a reading of 50.8 in March. Meanwhile, the decline in non-manufacturing activity was more pronounced as the official PMI moderated to 51.2 (v/s 52.3 expected) down from a reading of 53.0. At the same time, the Caixin manufacturing PMI advanced to 51.4 in April (v/s 51.0 expected), marking the fastest pace since February 2023 and compared to an expansion of 51.1 seen in March. Our Chinese economist reviews the details within today’s PMIs in a note just out here.

Going into more detail now on the main events of the last 24 hours. Those European inflation numbers were important from the market open, as they helped to allay fears about a European inflation rebound of the sort happening in the US. We’ll have to wait for the Euro Area-wide number today, but ahead of that, Spanish inflation came in at +3.4% on the EU-harmonised measure, in line with expectations. Then in Germany, harmonised inflation ticked up to +2.4% in April (vs. +2.3% expected), whilst in Ireland it fell a tenth to +1.6%, the lowest since June 2021. So given recent ECB commentary about a potential June cut, those numbers keep that on track, and market pricing raised the chance to a 91% probability by the close, up from 88% on Friday. Estonia’s Muller also backed up that sentiment, as he said that in June “we’ll probably have reached the point where it’s already possible to start lowering central-bank interest rates”.

The lack of any bad news on inflation supported government bonds on both sides of the Atlantic, with some added support from the fall in energy prices. For instance in Europe, yields on 10yr bunds (-4.3bps), OATs (-6.2bps) and BTPs (-6.6bps) all saw decent declines. And over in the US, yields on 10yr Treasuries were also down -5.0bps to 4.61% and are a further -1bps lower overnight at 4.60% as we go to print.

US Treasuries had sold off by a couple of basis points later in the US session following the latest borrowing estimates from the US Treasury. These saw the expected Q2 issuance rise from $202bn to $243bn, “largely due to lower cash receipts”. This was slightly puzzling given what have been fairly strong tax receipts in the recent April tax period. Still, while the Q2 estimate was revised slightly higher, the Q3 number (excluding TGA movement) was in line with expectations, so our rates strategists don’t see meaningful alteration to the fiscal outlook. Indeed, the negative reaction in Treasuries did not persist with yields closing not far above their intra-day lows.

For equities, it was also a solid day, with the S&P 500 (+0.32%) up to its highest level in a couple of weeks, and Europe’s STOXX 600 (+0.07%) inching up to a 3-week high. The advance was a broad-based one, with the small-cap Russell 2000 (+0.70%) and the equal-weighted S&P 500 (+0.70%) posting larger gains. But there was some weakness in continental Europe, where the CAC 40 (-0.29%), the DAX (-0.24%) and the IBEX 35 (-0.48%) all lost ground.

Asian equity markets are mostly higher again this morning with the Nikkei leading gains (+1.38%) after returning from a public holiday with the KOSPI (+0.70%) also notably higher after index heavyweight Samsung Electronics topped earnings estimates for the Jan-March quarter after its semiconductor division returned to profitability. Meanwhile, the Hang Seng (+0.25%) and the S&P/ASX 200 (+0.24%) are also moving higher. Elsewhere, mainland Chinese stocks are trading slightly lower with both the CSI (-0.18%) and the Shanghai Composite (-0.12%) seeing minor losses following the batch of mixed PMI readings for April. S&P 500 (-0.11%) and NASDAQ 100 (+0.0%) futures are quiet.

Retail sales in Australia unexpectedly slumped -0.4% m/m in March (v/s +0.2% expected) as against a revised +0.2% increase the previous month thus dampening expectations that the next move in interest rates might be up. This was a very low number relative to the last several decades of data so it does put into doubt the RBA’s view that the consumer is holding up.

In the political sphere, Spanish Prime Minister Sánchez confirmed that he would remain as PM, which follows his decision to cancel engagements last week following allegations against his wife. Separately in the UK though, the Scottish First Minister Humza Yousaf announced his resignation. That comes after last week’s collapse of an agreement between his Scottish National Party and the Greens, meaning that the SNP no longer had a majority in the Scottish Parliament. We’ve got lots more UK political events this week, as local elections are taking place on Thursday, which are the final electoral test for the political parties before the next general election, which has to be held by January at the latest.

To the day ahead now, and data releases include the Euro Area flash CPI release for April, along with Q1 GDP. In the US, we’ll also get the Employment Cost Index for Q1, the FHFA house price index for February, the Conference Board’s consumer confidence for April, and the MNI Chicago PMI for April. Meanwhile in the UK, there are mortgage approvals for March. Finally, today’s earnings releases include Amazon, Eli Lilly, Coca-Cola, McDonald’s and Starbucks.

Tyler Durden Tue, 04/30/2024 - 08:15