Nation's Largest Generic Drug Maker To Pay $450 Million To Resolve Kickback, Price-Fixing Claims

Teva Pharmaceuticals USA Inc. and Teva Neuroscience Inc. (collectively, Teva) have agreed to pay $450 million to resolve allegations that they violated the Anti-Kickback Statute (AKS) and the False Claims Act (FCA), according to the U.S. Department of Justice (DOJ).

Teva is an Israeli company, with U.S. headquarters in Parsippany, New Jersey, and is the largest generic drug manufacturer in the United States, according to the DOJ.

The settlement amount was based on Teva’s ability to pay, the DOJ said.

As Chase Smith details below, via The Epoch Times, the settlement addresses two alleged kickback schemes.

First, Teva allegedly violated and conspired to violate the AKS and FCA by covering Medicare patients’ copays for the multiple sclerosis drug Copaxone from 2006 through 2017, while steadily increasing the drug’s price.

The DOJ alleged that Teva coordinated with a specialty pharmacy and two purportedly independent copay assistance foundations to ensure donations were used specifically to cover Copaxone copays for Medicare patients with multiple sclerosis, which is prohibited by law.

Second, Teva USA agreed to resolve separate allegations of conspiring with other generic drug manufacturers to fix prices for pravastatin—a widely used cholesterol medication—as well as clotrimazole and tobramycin.

Teva USA entered into a deferred prosecution agreement with the DOJ’s Antitrust Division last year, paying a criminal penalty of $225 million and admitting to conspiring with three other companies to fix prices on certain generic drugs.

The $450 million payment to resolve the allegations is in addition to the criminal penalty previously paid under the deferred prosecution agreement.

Under the civil settlement announced today, Teva agreed to resolve allegations that the benefits it received from the price-fixing scheme constituted illegal kickbacks.

“Kickbacks designed to induce referrals or purchases of healthcare goods or services distort physician and patient decision-making, thwart competition and bypass controls put in place to protect federal health care programs,” said Principal Deputy Assistant Attorney General Brian M. Boynton, head of the DOJ’s Civil Division.

“The Justice Department is committed to pursuing those who engage in kickback violations, including drug manufacturers, to ensure that federal health care programs continue to serve the interests of taxpayers and program beneficiaries.”

The settlement is the largest to date involving pharmaceutical companies allegedly using third-party foundations as conduits to unlawfully pay patient copays.

“Kickback arrangements by pharmaceutical companies escalate the costs for critical drugs used by our citizens and federal health care programs,” U.S. Attorney for the Eastern District of Pennsylvania Jacqueline Romero said.

“My office is proud to work with the rest of the Department of Justice and our investigative partners to enforce federal laws prohibiting kickback arrangements.”

Since 2017, the United States has collected more than $1 billion from pharmaceutical companies that allegedly used third-party foundations to unlawfully pay patient copays, in addition to today’s settlement, according to the DOJ.

The Epoch Times reached out to Teva USA for a response to the settlement but did not hear back before publication.

Tyler Durden Fri, 10/11/2024 - 14:25

Is The Inflation Dragon Really Dead?

By Philip Marey, Senior US Strategist at Rabobank

Is the inflation dragon really dead?

Markets are a bit cautious as we are heading for the weekend. US stock markets declined yesterday and the 10 year US treasury yield moved up and down in an attempt to find direction. In the end it was down. China’s finance minister will give a fiscal policy briefing on Saturday. Markets are expecting Beijing to announce 2 trillion to 3 trillion yuan ($280-$420 billion) in new spending and worries about whether it will deliver. Meanwhile, the Middle East is still waiting for Israel’s retaliation against Iran. On the bright side, this morning monthly UK GDP growth turned positive (0.2%) again in August, after two months of zero growth.

Yesterday, the US CPI figures were higher than expected: headline inflation fell to 2.4% (2.3% expected by the Bloomberg consensus) and core inflation even rebounded to 3.3% (expected unchanged at 3.2%). The month-on-month rates were also higher than anticipated. The headline continued to rise at 0.2%, in contrast to an expected slowdown to 0.1%. The core kept rising at 0.3%, instead of slowing down to 0.2% as foreseen by the consensus. Looking inside the core, services-less-rent-of-shelter inflation rebounded from 4.3% to 4.4% and showed a strong acceleration from 0.1% to 0.6% month-on-month. This is the part of the core that is supposed to be most closely related to wage growth and should be affected by the Fed’s attempts to bring the labor market in better balance. In the minutes of the September 17-18 meeting released on Wednesday, some participants had proudly noted that “the rate of increase in core nonhousing services prices had moved down further.” Well, think again. On the bright side, shelter inflation fell from 5.2% to 4.9% and eased in month-on-month terms from 0.5% to 0.2%. Nevertheless, core inflation still seems a bit sticky.

In contrast, the initial jobless claims for the first week of October rose to 258K from 225K a week earlier. A big jump, but a large part of this seems to be weather-related. There were large percentage increases in Southeastern states such as North Carolina, South Carolina, Florida and Tennessee that were hammered by Hurricane Helene. Therefore, the Fed will look through it.  Instead, for the labor market the picture drawn by the Employment Report will prevail: strong employment growth, a decline in unemployment, and stronger average hourly earnings growth. So to summarize, September saw a strong labor market, a rebound in core inflation….  and a 50 bps cut by the Fed.

Nevertheless, three Fed speakers remain convinced that inflation is heading in the right direction and the FOMC can continue to cut rates. John Williams (New York Fed) said  that “Month to month, there’s wiggles and bumps in the data, but we’ve seen this pretty steady process of inflation moving downward … I expect that that will continue.” He also said that he thought it would be appropriate to “continue the process of moving the stance of monetary policy to a more neutral setting over time.” Austan Goolsbee (Chicago Fed) said “the overall trend for inflation over 12 to 18 months was clearly moving down.” Thomas Barkin (Richmond Fed), said inflation was “definitely headed in the right direction.” In contrast to these three, Raphael Bostic (Atlanta Fed) said “I am totally comfortable with skipping a meeting if the data suggests that’s appropriate.” He also revealed that his September projections would imply one more 25 bps cut this year, after the 50 in September.

Yesterday French prime minister Michel Barnier presented the 2025 budget. Given the dire state of France’s public finances, it was closely watched. Our France watcher Erik-Jan van Harn notes that beforehand Barnier warned that without intervention next year’s deficit could swell to 7% of GDP. Swift action is thus needed so Barnier presented plans to reduce the deficit by EUR60bn next year, around 2% of GDP. The package includes a combination of broad spending cuts and tax rises on big corporations and affluent individuals.

Even though these plans are quite detailed, prime minister Barnier stressed that the budget draft is a starting point for lawmakers. He welcomes any amendments to the plans provided they don't undermine the budget's integrity. However, this openness raises the concern that certain secure cost-saving measures or revenue boosts might be swapped for overly optimistic proposals. Moreover, this open stance clearly shows that Barnier lacks a parliamentary majority. His government relies on opposition backing, which remains uncertain. Chances are that Barnier will have to significantly water down his proposals or that he will face another vote of no confidence.

Consequently, we don’t believe that this budget will take away the market’s worries. Rating agencies are likely to look at this in a similar fashion. Fitch, who currently rates France as AA- with a stable outlook having downgraded the country one notch in April 2023, will review France’s rating after market’s close on October 11.

Our Rates Strategy team notes that it is likely that this review will lead to a downgrade. As of the end of June, the agency saw French budget deficits standing at 5.1% of GDP in 2024 and 4.2% over the ensuing two years. It also warned that a political paralysis risked the introduction of expansionary items into the country’s budget plan in order to ensure its approval whilst also limiting the scope for fiscal consolidation. Given the risks already highlighted by the agency and the comparatively optimistic nature of its earlier projections, we see a rating downgrade as likely. While clearly not a positive from a spread perspective we believe that the market is already largely pricing for such a move. For more details, please read Erik-Jan’s report on the French budget.

Tyler Durden Fri, 10/11/2024 - 14:05

Goldman Finds "Trade-Down Phenomenon" Strikes Rich & Poor Consumers 

Goldman hosted its Private Real Estate Retail (shopping center) Webinar on Thursday with panelists Mary Rottler from First Washington, Daniel Zatloukal from Inland Real Estate, and Joseph Tichar from Raider Hill. The webinar discussed many topics, including the consumer, 2025 same-store NOI growth, retailer bankruptcies, transaction market and cap rates, and the financing environment.

Our focus on the webinar centers around discussing high-end and low-end consumers trading down. This phenomenon occurs as macroeconomic headwinds mount, including elevated inflation and high interest rates due to backfiring 'Bidenomics.' More importantly, trading down occurs when incomes don't keep up with inflation or when purchasing power decreases.

Here are the key takeaways of the high-end and low-end consumers trading down, penned in a note by a team of Goldman analysts led by Caitlin Burrows:

The high-end consumer remains strong while lower-end sees softness, and both are trading down.

• In terms of the higher-end consumer, panelists noted that across their grocer anchored centers exposed to the upper quartile of demographics, traffic remains strong. August traffic was up +8.7% yoy, with positive y/y monthly trends throughout 2024 and traffic up double digits vs 2022, driving optimistic expectations around the holiday season.

• Panelists also highlighted that for low-end consumer, demand for essentials and services are still strong but discretionary spending such as luxury and cosmetics is relatively weak, and as a result, holiday sales will rely on how retailers incentivize customers to shop.

• Panelists noted that the trade-down phenomenon is present in both high-end and low-end consumer. For example, Nordstrom (luxury department store chain) sales are flat to down while Nordstrom Rack (off-price department store chain) sales are up. Additionally, low-end consumer is experiencing some stress and trading down into discount retailers like Walmart, Target, and Sam's.

At the beginning of August, we noted that the last time "trading down" mentions spiked on earnings calls was during GFC.  

The latest inflation data for September printed hotter than expected, and the persistent inflation storm has wreaked havoc on low/mid-tier households. The note above from Goldman is just more evidence that the consumer downturn has spread to wealthier households. 

Could we really replay the '70s once again?

After all, the consumer has never been in worse financial shape, with record-high credit card debt and drained personal savings.

Looking at Goldman's consumer baskets, middle-income consumers are outperforming high-end consumers, while low-income consumers continue to face mounting pressure.

The big takeaway is that our consumer downturn theme continues and possibly now signals stress for the more wealthy households as the Biden-Harris inflation storm persists. Everyone appears to be pissed off about food inflation.

Also, an energy price shock at the gas pump could be ahead if Israel bombs Iran's crude oil export facilities. Price shocks of this kind could trigger a recession.

Tyler Durden Fri, 10/11/2024 - 13:45

Adversarial Process Or Oppo Research? Judge Agrees To Release More Trump Material Before The Election

Authored by Jonathan Turley,

It appears that U.S. District Judge Tanya Chutkan and Special Counsel Jack Smith are not done yet in releasing material in advance of the election. In a previous column, I criticized the release of Smith’s  180-page brief before the election as procedurally irregular and politically biased, a criticism shared by  CNN’s senior legal analyst and other law professors. Nevertheless, on Thursday, Judge Chutkan agreed to a request from Smith to unseal exhibits and evidence in advance of the election.

The brief clearly contains damning allegations, including witness accounts, for Trump.

The objection to the release of the brief was not a defense of any actions taken on January 6th by the former president or others, but rather an objection to what even the court admitted was an “irregular” process.

As discussed earlier, Smith has been unrelenting in his demands for a trial before the election. He has even demanded that Donald Trump be barred from standard appellate options in order to expedite his trial.

Smith never fully explained the necessity of holding a trial before the election beyond suggesting that voters should see the trial and the results — assaulting the very premise of the Justice Department’s rule against such actions just before elections.

To avoid allegations of political manipulation of cases, the Justice Department has long followed a policy against making potentially influential filings within 60 or 90 days of an election. One section of the Justice Department manual states “Federal prosecutors… may never select the timing of any action, including investigative steps, criminal charges, or statements, for the purpose of affecting any election.”

Even if one argues that this provision is not directly controlling or purely discretionary, the spirit of the policy is to avoid precisely the appearance in this case: the effort to manipulate or influence an election through court filings.

With no trial date for 2025, there is no reason why Smith or Chutkan would adopt such an irregular process. The court could have slightly delayed these filings until after the approaching election or it could have sealed the filings.

If there is one time where a court should err on the side of avoiding an “irregular” process, it is before a national election. What may look like simply an adversarial process to some looks like oppo research to others.  Delaying the release would have avoided any appearance of such bias.

For Smith, the election has long been the focus of his filings and demands for an expedited process. Smith knows that this election is developing into the largest jury verdict in history. Many citizens, even those who do not like Trump, want to see an end to the weaponization of the legal system, including Smith’s D.C. prosecution. Trump has to lose the election for Smith to be guaranteed a trial in the case.

Chutkan has given the Trump team just seven days to oppose her order. That would still allow the material to make it into the public (and be immediately employed by the media and Harris campaign) just days before the election. The move will only increase criticism that this looks like a docket in the pocket of the DNC.

It is telling that, once again, the timing just works out to the way that is most politically impactful. Many are left with a Ned Flanders moment of “well, if that don’t put the “dink” in co-inky-dink.”

Tyler Durden Fri, 10/11/2024 - 13:25

Boeing Union Fight Hits Turbulence, Files Unfair Labor Practice

Labor strikes at Boeing's commercial jet factories are approaching the one-month mark, with no end to the paralyzing labor action. This seriously threatens Boeing's credit rating, which faces mounting downgrade risks from investment grade to junk status from multiple credit ratings agencies as cash reserves dwindle.

Quartz News reported overnight that Boeing filed unfair labor practice charges with the National Labor Relations Board (NLRB) against the International Association of Machinists and Aerospace Workers, claiming union bosses have been bargaining in bad faith on behalf of the 33,000 striking union members. 

Boeing wrote in a statement that IAM negotiators "did not seriously consider" the latest offer earlier this week, which included a 30% wage bump over four years, up from 25%, and other benefits.

"The union's public narrative is misleading and making it difficult to find a solution for our employees," Boeing said in the filing to the NLRB, adding the union had engaged in a "pattern of bad faith bargaining." The aerospace giant retracted its "best and final" offer on Tuesday. 

Boeing Commercial Airplanes President and CEO Stephanie Pope wrote in a memo earlier this week, "Unfortunately, the union didn't seriously consider our proposals. Instead, the union made non-negotiable demands far in excess of what can be accepted if we are to remain competitive as a business."

IAM leaders said the talks collapsed when Boeing negotiators refused to increase wages over the contract's lifespan or reinstate the defined benefit pension. 

As the strike eclipses one month in just a few short days, troubles keep piling up for Boeing. S&P Global Ratings placed the struggling planemaker on CreditWatch negative, citing mounting risks that its investment-grade credit rating would be slashed to junk.

"The CreditWatch listing reflects the increased likelihood of a downgrade if the strike persists toward the end of the year, further constraining the recovery in the company's cash flow generation and the company does not raise capital sufficient to meet its upcoming needs in such a way that does not increase financial leverage," S&P said. 

S&P estimated the labor action costs Boeing $1 billion per month. They expect the target of producing 38 Max jets per month will be pushed to mid-2025. 

There's also concern the planemaker will need to raise money via public equity markets (read more about dilution fears) with its cash balance dwindling: 

Boeing will likely seek incremental funding. We anticipate that Boeing will end 2024 with a cash balance below its $10 billion target if the strike continues through the fourth quarter and the company typically uses cash in the first quarter due to seasonal working capital build. Boeing also has approximately $4 billion of debt maturities due in April 2025. We believe the company will need to seek external capital to meet these demands. Based on its public comments, we assume Boeing is also open to potentially issuing additional equity. However, we believe the company remains exposed to higher-than-expected cash usage and adjusted debt for the next year or two, which could further delay the expected recovery in its credit measure to levels we view as consistent with the rating.

S&P concluded:

The CreditWatch with negative implications placement reflects our view that we could lower our ratings on Boeing if the strike continues, increasing costs and delaying the company's recovery in aircraft production and cash flow generation. We could lower ratings if the company fails to preserve its target cash balance, fund operating and working capital, and meet debt maturities without increasing leverage. We intend to resolve the CreditWatch placement by the end of the year.

Some Wall Street desks following this story are left pondering this question: Which will happen first—Boeing's credit downgrade from investment grade to junk or a deal with the IAM?

 

Tyler Durden Fri, 10/11/2024 - 13:05

Company Recalls Nearly 10 Million Pounds Of Ready-to-Eat Meat, Poultry Over Listeria Risk

Authored by Naveen Athrappully via The Epoch Times (emphasis ours),

Oklahoma-based BrucePac is pulling millions of pounds of meat items from across the United States due to concerns they may be adulterated with listeria monocytogenes bacteria, according to the Food Safety and Inspection Service (FSIS).

Meat products are offered for sale at a grocery store in Chicago on Oct. 13, 2022. Scott Olson/Getty Images

Roughly 9,986,245 pounds of ready-to-eat meat and poultry are being recalled, according to an Oct. 9 FSIS announcement.

“Consumption of food contaminated with L. monocytogenes can cause listeriosis, a serious infection that primarily affects older adults, persons with weakened immune systems, and pregnant women and their newborns. Less commonly, persons outside these risk groups are affected,” the announcement reads.

“Listeriosis can cause fever, muscle aches, headache, stiff neck, confusion, loss of balance and convulsions sometimes preceded by diarrhea or other gastrointestinal symptoms.”

BrucePac has two manufacturing plants and supplies its products nationwide.

The products were manufactured between June 19, 2024, and Oct. 8, 2024. They were shipped to distributors and other establishments, eventually being sold to restaurants and intuitions. The recalled items come with establishment numbers “51205 or P-51205” printed inside or below the USDA mark of inspection.

No confirmed reports of adverse reactions have been reported so far, the announcement said, while advising people who are concerned about getting ill to contact a health care provider.

The contamination risk was discovered after FSIS conducted routine testing of BrucePac products and found that these items tested positive for listeria monocytogenes.

“FSIS is concerned that some product[s] may be available for use in restaurants, institutions, and other establishments. These other establishments may have used affected meat and poultry in [ready-to-eat] products that may be on store shelves or in consumers’ refrigerators or freezers,” the agency said.

“Restaurants, institutions, and other establishments are urged not to serve or use these products. These products should be thrown away or returned to the place of purchase.”

Multiple firms have pulled out their products from the market due to listeria fears in recent months.

In July, Virginia-based Boar’s Head Provisions recalled all their liverwurst and other deli meat products, amounting to more than 200,000 pounds. The firm later expanded the recall to an additional 7 million pounds of products.

The same month, Al-Safa US LLC pulled out more than 2,000 pounds of imported frozen ready-to-eat chicken products over listeria contamination concerns.

Listeria Dangers

Listeria is the third leading cause of death in the United States from foodborne illnesses, according to the U.S. Centers for Disease Control and Prevention (CDC). The agency estimates that around 1,600 Americans get infected by listeria annually, with 260 people dying from the disease.

Over half of all infections occur among people aged 65 years and older. “As you get older, your immune system has a harder time recognizing and getting rid of harmful germs, including Listeria. You also have less stomach acid, which can help kill germs,” the CDC states.

“Older adults with Listeria infection almost always have to be hospitalized. Sadly, 1 in 6 older adults with this infection die.”

Among pregnant women, one in 25,000 get infected with the pathogen every year, according to the CDC. Even if the mother does not feel sick from the infection, listeria can spread to the baby and cause harm. One in four pregnant women who get infected either lose their pregnancy or their baby shortly after birth.

As for people with weakened immune systems, these individuals make up 75 percent of all infections, which “almost always leads to hospitalization,” according to the CDC. One in six individuals in this demographic dies from the illness.

Last year, the CDC reported two listeria outbreaks. So far this year, five outbreaks have been reported, with various food products being responsible for these events, including enoki mushrooms, leafy greens, and ice creams.

The agency advises people to choose safer foods to prevent listeria infection. This includes avoiding consuming foods like unpasteurized soft cheeses, unheated deli meats, cold cuts, hot dogs, fermented or dry sausages, and refrigerated smoked fish.

Sticking to safer foods “is especially important if you or someone you cook for is at increased risk for Listeria infection,” the CDC said.

Tyler Durden Fri, 10/11/2024 - 12:50

McDonald's CEO Warns 2025 Will Be "Another Challenging Year" As Bidenomics Financially Crushes Working-Poor Americans 

McDonald's Chief Executive Officer Chris Kempczinski spoke at the Boston College Chief Executives Club event on Thursday, sounding the alarm that low-income customers will remain under strain through the end of the year and into early 2025. 

"We're starting to talk about 2025, and my message to our teams has been: 'We need to be preparing for another challenging year,'" Kempczinski told the audience, adding, "We need to be making sure that we've got a really strong value proposition in all of our markets."

In June, MCD rolled out the $5 meal deal in response to low/mid-tier customers struggling under the failed Bidenomics era (elevated inflation and high interest rates). This deal, which allows customers to pick the following items: a McDouble or McChicken sandwich or 4-piece Chicken McNuggets, a small fry, and a small soft drink, has been well received by customers and was recently just extended through the end of the year.

Kempczinski commented on the limited-time $5 meal deal, noting that MCD will likely revamp its value offerings. 

This comes as MCD reported in July its first quarterly same-store sales drop in nearly four years amid a slowdown in customer spending.

The latest consumer data we've shared with readers shows that working-poor households are cracking.

Consumers Crack: Credit Card Debt Suddenly Plunges Most Since Covid As APRs Hit Record High https://t.co/ojSaHAYLXb

— zerohedge (@zerohedge) October 7, 2024

As we've previously noted, values wars among fast-food chains are heating up:  

• McDonald's Admits Consumers Are Broke With Planned Reintroduction Of $5 Meal Deal
• First McDonald's, Now Burger King Admits Consumers Are Broke With Planned Reintroduction Of $5 Meal Deal
• KFC Unveils' Finger-Lickin Good' Meal Deal As Value Wars Heat Up
• McDonald's Meal Deal Extends Into December As Core Customers Under Pressure

MCD CEO also said, "It's easier to deliver value on chicken products than it is on beef products." 

And we wonder why? ...

One of the big themes this year has been low/mid-tier households faltering under the weight of elevated inflation and high interest rates. 

The latest consumer note from Goldman reveals a new survey of 2,000 consumers. It shows many consumers have been pushed into value-seeking mode because of the mounting macroeconomic headwinds.

All in all, remember that VP Harris pushed disastrous Bidenomics to the extreme. 

R group Restoration PAC is up on TV in battleground states and nationally with this spot targeted at Black voters --

Clip of woman in Philadelphia:

"They are killing us without killing us"

Clip of Kamala Harris:

"That is called Bidenomics" pic.twitter.com/5pndQdgAP5

— Medium Buying (@MediumBuying) October 6, 2024

You hear that consumers... Harris wouldn't have changed a damn thing. 

If you think four more years of Harris won’t mean the same high gas prices, inflation, open borders, and crime, I’ve got oceanfront property in Oklahoma to sell you!

Kamala Harris admitted she wouldn’t change a thing from Biden’s disastrous policies. pic.twitter.com/8cIKigt0lQ

— Randy Weber (@TXRandy14) October 8, 2024

Economic conditions for the working poor will only get more challenging through the end of the year. MCD reports third-quarter earnings on Oct. 29. The lingering problem for consumers is an energy price shock at the pump could materialize if Israel begins bombing Iran's crude oil export facilities. Consumers need to buckle up. 

Tyler Durden Fri, 10/11/2024 - 12:30

Progressives Issue Warning to Harris: Break With Biden On Gaza... Now

Via Common Dreams

With the high-stakes U.S. presidential election less than a month away, warnings about the possible political consequences of Democratic nominee Kamala Harris' refusal to break with President Joe Biden on supporting Israel's assault on Gaza and beyond are taking on fresh urgency amid new survey data showing the vice president narrowly trailing GOP nominee Donald Trump in Michigan—a critical battleground state.

A Quinnipiac University poll released Wednesday found that Harris is trailing Trump by three percentage points in Michigan—a reversal of the university's survey last month, which showed the vice president with a slight lead over her Republican opponent. The new survey showed Harris leading in Pennsylvania and Trump leading in Wisconsin.

Associated Press

While Trump's polling lead in Michigan was within the margin of error, the results amplified preexisting concerns about Harris' chances in the state, which has a large Arab and Muslim population—many of whom have lost family members in Israel's yearlong assault on the Gaza Strip, a relentless military campaign that has intensified in recent days as the prospects of a cease-fire agreement appear nonexistent.

The Quinnipiac poll found that by a margin of 53% to 43%, Michigan respondents said they think Trump—who has expressed support for Israel's devastating bombardment of Gaza—would do a better job "handling the conflict in the Middle East" than Harris.

James Zogby, president of the Arab American Institute, told Rolling Stone earlier this week that he has expressed to the Harris team that "if you want people to vote for you, you gotta give them a reason."

"They don't seem to care enough about the Arab American vote to do something to get it," said Zogby.

Last month, Zogby's organization released a poll of its own showing that support for Harris would climb nationally if she endorsed an arms embargo against Israel—something she has openly opposed despite pressure from advocacy groups who say it's essential to end Israeli Prime Minister Benjamin Netanyahu's obstruction of cease-fire talks.

Zogby noted in his interview with Rolling Stone that Michigan's Lebanese American population is the largest in the United States—potentially compounding Harris' political vulnerability in the state as Israel ramps up its assault on Lebanon with the support of the Biden administration.

"Many of the constituents are Lebanese who have deep attachments to Palestinians," said Zogby, arguing that Israel's escalation in Lebanon "will either put an exclamation point on the outrage or depression—causing them either not to vote or to flip and vote elsewhere."

"The reaction I'm getting, when I go around the country and talk to people, is they want to punish Democrats," Zogby added. "That's not a smart political move, but that's what people are feeling. And I don't have an argument to make because [members of the Harris campaign] haven't given us arguments to make."

Harris has repeatedly acknowledged, including during her speech at the Democratic National Convention in August, the "immense suffering of innocent Palestinians in Gaza who have experienced so much pain and loss over the year."

But Harris has rebuffed calls to create distance between herself and the Biden administration's unwavering support for Israel's assault on Gaza and Lebanon. "No," the vice president responded when asked during a recent televised interview whether she would support withholding U.S. arms shipments to Israel, whose forces have used American weaponry to commit war crimes in Gaza and Lebanon.

Harris has also declined to meet with Americans with family members in Lebanon and Gaza, according to the co-founder of the Uncommitted National Movement.

Speaking to Mother Jones earlier this week, Dearborn Mayor Abdullah Hammoud—who is Lebanese American—said Trump "is a threat" to Arab Americans and hardly an advocate of peaceful resolution in the Middle East. But Hammoud said the Harris campaign is not helping its case with voters when it fails to support an arms embargo against Israel, a position that—according to one recent poll—is backed by a majority of the American electorate.

Donald Trump won Michigan in 2016 by approx 10,000 votes. There are over 200,000 Arab Americans in Michigan.

Harris's decision to treat them with complete contempt is a massive, suicidal electoral error.

— Nathan J Robinson (@NathanJRobinson) October 10, 2024

"What I keep pushing back on is it's not this community that has to move in its values and principles and any issues that it's taken a stance on. It's the candidates who have to move," said Hammoud. "And don't move because of Dearborn, by all means. I'm not telling you to move because this small city in the Midwest is telling you to move on these issues. Move because the general American populace has said these issues matter to them."

"And this idea that people will forget?" he continued. "Remember we heard this nine months ago: 'People will forget come November.' People are not forgetting... Genocide is not something you can cast aside."

On Thursday, Emerson College released survey data it collected with The Hill showing that Trump and Harris are in a dead heat in Michigan—further indicating that a small swing in favor of either candidate could tip the scales and potentially decide who takes the White House.

Moira Donegan, a columnist for The Guardian, argued Wednesday that "Harris should give a speech in Michigan where she breaks with the Biden administration on Israel."

"This is very obviously in her self-interest to do," Donegan wrote on social media, adding that she doubts the vice president will take her advice. If she did, wrote IfNotNow co-founder Yonah Lieberman, it "would be a seminal political moment that would win Michigan, stop a second Trump administration, and help end a genocide."

Tyler Durden Fri, 10/11/2024 - 12:10

Silent Majority: Poll Finds Independents Are Far More Conservative Than They're Willing To Admit

Via Issues & Insights Editorial Board,

If conservatives want to win elections, they don’t need to rile up the base, they need to convince independents to say in public what they believe in private – that they agree with conservatives on most issues and that Democrats are the wildly out-of-touch extremists.

That, at least, is one way to read a fascinating new survey from Populace, a non-partisan think tank in Massachusetts, which figured out a way to discern what 20,000 Americans think privately and compare that to what they are willing to say publicly.

It turns out that there are often wide gaps between the two, which Populace calls the “Social Pressure Index.” People tend to avoid stating their views if they think they’re in the minority.

But here’s the really interesting finding: On a host of bellwether issues, independents are, in private, far more conservative than they will admit to pollsters.

The survey asked questions about democracy, individual rights, the economy, culture, racism, etc.

Take the question of whether the government has “too much control in America.” Fully 71% of independents believe this privately. That is almost identical to the 78% of Republicans who believe it.  In contrast, a mere 17% of Democrats think government has too much control.

When asked if “society is better off when individuals make decisions for themselves rather than having experts make decisions for everyone,” 86% of independents believe this privately, which is close to the 90% of Republicans. Among Democrats, just 63% believe it.

On the economy, independents are deeply depressed. Just 11% think it is doing well, and a mere 4% believe they are better off than they were five years ago. Those numbers are much closer to Republicans (5% and 2%, respectively). Democrats are the extreme outliers (64% think the economy is doing well and 47% think they’re better off).

Independents are also far less favorably inclined toward unions. Fewer than a third believe that “stronger labor unions are good for the economy.” That’s close to the 29% of Republicans. Again, Democrats – 70% said they believe this – are the extremists.

The chart above shows their hidden views on other issues and how they are actually much closer to conservative Republicans than leftist Democrats.

But this isn’t what independents tell pollsters. On almost all these issues, they publicly claim to be more liberal than they really are.

For example, while 86% of independents think privately that society is better off when individuals make decisions for themselves rather than experts doing it for everyone, only 69% are willing to admit that publicly.

While only 3% of independents privately believe that the government should censor offensive content, 20% say they do. Fifty-two percent think public schools focus too much on racism, but only 41% will admit to that view. Six in 10 think the U.S. is doing too much to help Ukraine, but only 44% will say that publicly.

Why do you suppose that is? The pollsters don’t speculate, but we can. We’d say it’s because the left has so thoroughly infiltrated the media, the entertainment business, education, and every other major institution that they’ve browbeaten independents into denying or hiding their actual views.

The result is that opinion polls skew left, which then only reinforces independents’ desire to stay silent. In reality, it’s leftist Democrats who should be running scared.

— Written by the I&I Editorial Board

Issues & Insights was founded by seasoned journalists of the IBD Editorials page. Our mission is to provide timely, fact-based reporting and deeply informed analysis on the news of the day -- without fear or favor.

We’re doing this on a voluntary basis because we believe in a free press, and because we aren't afraid to tell the truth, even if it means being targeted by the left. Revenue from ads on the site help, but your support will truly make a difference in keeping our mission going. If you like what you see, feel free to visit our Donations Page by clicking here. And be sure to tell your friends!

Tyler Durden Fri, 10/11/2024 - 11:30

GDP Report Continues To Defy Recession Forecasts

Authored by Lance Roberts via RealInvestmentAdvice.com,

The Bureau of Economic Analysis (BEA) recently released its second-quarter GDP report for 2024, showcasing a 2.96% growth rate. This number has sparked discussions among investors and analysts, particularly those predicting an imminent recession. There are certainly many supportive data points that have historically predicted recessionary downturns. The reversal of the yield curve inversion, the 6-month rate of change in the leading economic index, and most recently, consumer confidence warn of a recessionary onset.

However, despite these warning signs, the U.S. economy continues to show resilience, defying many bearish forecasts. This article will explore the recent GDP report, the risks to continued growth, and potential investing opportunities.

Defying Recession Calls: The Resilient U.S. Economy

Numerous market analysts have warned of an impending recession since early 2023, citing several factors: rapid rate hikes by the Federal Reserve, high inflation, and growing geopolitical risks. Yet, the Q2-2024 GDP growth of 2.96% suggests the U.S. economy is holding up better than expected. That resilience is particularly evident in consumer spending, which remains strong despite persistent inflation and higher interest rates. Currently, Personal Consumption Expenditures (PCE), which comprises about 70% of the GDP report, continue to be well above the polynomial growth trend.

Given PCE’s rather significant impact on the GDP report, a recession remains unlikely unless spending slows markedly.

Several aspects of the GDP report highlight the economic strength that has caught many bearish forecasters off guard:

Furthermore, the labor market remains supportive of economic growth. Yes, as shown, employment growth has slowed substantially following the “re-hiring” surge after the pandemic-related shutdown. However, as demand in the economy normalizes, employment growth is returning to its long-term growth trend. The chart below shows the 3-month average growth rate of hiring. As noted, employment growth has slowed but remains in growth mode. Until that 3-month average approaches zero job growth, the risk of a recession remains muted.

Lastly, business investment, another contributing factor to the GDP calculation, doesn’t support the recessionary expectations. Although business investment has been somewhat uneven and certainly weaker following the post-pandemic surge, there are signs that companies are still expanding. At nearly 5% annualized, private investment is not near levels normally associated with an economic recession.

These elements, all part of the last GDP report, suggest that predictions of an impending recession may have been overly pessimistic, at least for now. We will continue to monitor this data, and when it begins to approach levels normally associated with recessionary outcomes, we will warn our readers accordingly.

However, the implications for the stock and bond markets are clear for now.

Market Reactions: Why Investors Are Optimistic

Unsurprisingly, financial markets reacted positively to the latest GDP report, viewing it as evidence that the economy has avoided a recession from a period of elevated interest rates. That optimism has been particularly evident in the stock market, where equities have climbed on the back of positive consumer data.

A notable example is the recent surge in economically sensitive sectors of the market. As noted recently by Sentiment Trader:

“When 90% of cyclical sub-industry groups close above their respective 10, 20, 50, 100, and 200-day moving averages for the first time in six months, and the S&P 500 is within 2% of a five-year high, the world’s most benchmarked index displayed solid returns and consistency across all time horizons. Over the following three months, the S&P 500 advanced 81% of the time, achieving 13 consecutive gains since 1992.”

Most notably, growth-oriented sectors outperformed the S&P 500 over the subsequent year.

Unsurprisingly, as the risk of recession remains low, growth stocks have outperformed high-dividend “defensive” stocks. This is because economic growth provides support for earnings growth. Over the last year, analysts have continued pushing estimates higher into 2025, favoring stocks dependent on faster earnings growth rates.

Since investors are willing to “pay up” for future earnings, valuations have risen sharply.

As we discussed recently, the overall stock market is trading on optimism the Federal Reserve will continue to cut rates. With inflation coming down and growth remaining positive, many investors are betting on a scenario where the economy avoids a recession entirely. This “soft landing” narrative has propelled the S&P 500 and other indices despite many recessionary concerns.

Risks to Continued Economic Growth

Despite the Fed’s intervention, several risks to economic growth remain. The Q2 GDP report, while positive, revealed certain vulnerabilities that could threaten future growth, even with lower rates.

1. Weakened Business Investment

Business investment has slowed in recent reports, and as noted above, is a direct input into the GDP report. While lower borrowing costs will encourage some companies to expand, sectors like manufacturing and construction remain constrained by global supply chain issues and external demand. Additionally, as noted in the NFIB Small Business report, businesses may become more reluctant to invest significantly if the economy slows further or the upcoming election outcome suggests higher taxes and more regulations are forthcoming.

2. Housing Market Still Under Pressure

The housing market, one of the most interest-sensitive sectors, has been battered by high mortgage rates. The Fed’s rate cut will provide some relief, but it may not be enough to fully revive housing demand. With mortgage rates still elevated by historical standards and home prices high, affordability remains an issue for many potential buyers. Therefore, while we may see a slight pickup in housing activity, the overall impact of the rate cut on the housing market could be limited.

3. Consumer Spending Could Slow

Although consumer spending remained strong in Q2, higher consumer debt levels—particularly credit card debt—are an increasing concern. While lower interest rates will ease the burden for some borrowers, the overall level of consumer debt remains high. As the labor market cools and wage growth moderates, consumer spending could slow in the coming quarters, especially if inflation continues to pinch household budgets. Notably, PCE as a percentage of GDP has remained relatively stagnant since 2010 despite a significant surge in household debt levels.

Conclusion

I don’t disagree there are many reasons to be concerned about the economy currently. The Government is clearly spending like a “drunken sailor” on pet projects that don’t produce long-term economic prosperity. Geopolitical risks remain along with upcoming election risks that could significantly change the landscape for taxes and regulations.

However, while it is easy to focus on those risks as a reason “not to invest,” the Q2 GDP report continues to provide evidence that undermines many of the “doom and gloom” predictions for the U.S. economy.

At least for now.

Will that eventually change? Absolutely. There will be a recession at some point in the future, whether in six months or three years. However, if we focus on sectors and asset classes that can perform well in both slow-growth and inflationary environments, investors can navigate the current landscape and capitalize on opportunities, even as some analysts continue to warn of recession risks.

Importantly, when a recession approaches, the market has a long history of letting investors know.

Tyler Durden Fri, 10/11/2024 - 10:15

UMich Sentiment Slips In October As Inflation Expectations Rebound

Medium-term inflation expectations picked up in preliminary UMich sentiment data for October, with the 5-10Y now at 2.9%...

Source: Bloomberg

This anxiety weighed on the overall sentiment survey, as it declined from 70.1 to 68.9 (well below the 71.0 expected). Both the current conditions and expectations index also fell on the month...

Source: Bloomberg

Rather oddly, while inflation expectations have softened in recent months, concerns about high prices remains extremely elevated...

Source: UMich

It seems the 'average American' is smart enough to understand the difference between price levels (what it actually costs you every day) and inflation (the rate of change of that cost). Of course, it's the former that matters to main street.

Tyler Durden Fri, 10/11/2024 - 10:08

Judge Rejects Georgia Voting Registration Extension After Hurricane Helene

Authored by Katabella Roberts via The Epoch Times,

A request by voting rights groups in Georgia to reopen voter registration to counter disruptions caused by Hurricane Helene was rejected on Thursday by a federal judge.

The ruling came after voting groups filed a complaint on Tuesday, seeking to temporarily extend the voter registration period in the state which had closed last Monday.

U.S. District Judge Eleanor Ross found that voting rights organizations, including the National Association for the Advancement of Colored People (NAACP)—which advocates for racial justice and the rights of black Americans—the Georgia Coalition for the People’s Agenda, and the New Georgia Project, had failed to sufficiently prove that their members would be harmed if the deadline was not extended for an additional week.

Ross also said that no state laws exist that would allow Georgia Gov. Brian Kemp and Secretary of State Brad Raffensperger—the defendants in the case—to order an extension of the voter registration deadline.

The groups argued that potential voters in Georgia had been unable to register before the deadline because of prolonged power and internet outages, election office closures, and disruptions to the postal service resulting from the storm.

Failing to extend the deadline would result in the disenfranchisement of Georgians impacted by the effects of the hurricane, including those in counties with disproportionately large populations of Black voters, the groups said.

“Residents in many counties across the state have faced, and continue to face, widespread flooding, damaged roadways, power outages, and internet outages, as well as suspended postal service and the closure of county boards of election offices,” the groups wrote in their filing with the court.

“Compounding these significant issues is the fact that Defendant Secretary of State is aware that the Secretary of State’s online voter registration platform has been inaccessible and/or experiencing persistent glitches today,” they added.

The groups said there had also been multiple reports of voters experiencing difficulty using the secretary of state’s online voter registration platform on the same day the filing with the court was made.

Historically, there’s a spike in Georgia voter registrations just before the deadline, they argued.

Voter Registration ‘Significantly Impeded’ for Thousands

“As such, registering to vote during the crucial period leading up to the voter registration deadline—when Georgia typically sees a significant spike in registrations—has been significantly impeded or impossible for thousands of Georgians,” they wrote.

While the groups presented testimony stating that they know of at least two people unable to register, Ross said the testimony lacked sufficient details to link it to the damage and disruptions caused by Helene.

“I don’t think we had even one voter who had been harmed or would likely be harmed by failure to register to vote,” Ross said.

Republican presidential nominee former President Donald Trump walks outside the Chez What furniture store as he visits Valdosta, Ga., on Sept. 30, 2024. Evan Vucci/AP Photo

“The harm to the state’s interests outweighs the plaintiffs’ interests,” Ross said in her ruling.

Responding to the motion, the state of Georgia and the Republican Party argued an extension could interrupt the election processes, noting that absentee ballots had already been mailed. Early in-person voting was also scheduled to begin on Tuesday, they said.

Georgia is one of several closely contested states that will likely determine the outcome of the presidential race between Vice President Kamala Harris and former President Donald Trump.

In a joint statement after the ruling, NAACP President and CEO Derrick Johnson and Georgia State Conference President Gerald Griggs said Georgia’s election officials and state leaders have a “duty to ensure a fair elections process” in the midst of a “historic election year.”

“Extending the voter registration deadline is essential to give impacted communities the time they need to recover and fully participate in the election process,” they added.

Thursday’s ruling came one day after a separate judge in Tallahassee denied a similar request by the League of Women Voters of Florida and the state NAACP chapter to extend the voting deadline due to the disruption caused by Helene, and more recently, Milton.

The Epoch Times has contacted Gov. Brian Kemp’s office for comment.

Tyler Durden Fri, 10/11/2024 - 09:50

"It Will Happen": Elon Musk Predicts Joe Rogan Will Interview Donald Trump

Just minutes before the scheduled start of the much-anticipated Robotaxi event on Thursday night, Elon Musk took to Twitter to tell the world an interview between Joe Rogan and Donald Trump "will happen". 

Musk made the post responding to our article, "Joe Rogan Has 25 Days To Interview Donald Trump", submitted by Zero Hedge contributor Quoth the Raven, who wrote on Tuesday: "I can't listen to another 4 years of Rogan bitch about how bad things have gotten if he won't talk to Trump."

It will happen

— Elon Musk (@elonmusk) October 11, 2024

Rogan has been notoriously uninterested in the interview, which he has been asked about multiple times over the last half decade. Back in June 2023, when asked about the idea, Rogan said to Lex Fridman:

"I have had the opportunity to have him on my show, more than once, and I have said no every time. I don't want to help him, I'm not interested in helping him."

By August 2023, it looked like Rogan might be changing his tune, as he told Valuetainment's Patrick Bet-David:

"I don't know. Maybe. At a certain point in time. Just like, it would be interesting to hear his perspective on a lot of things.”

Since then, Rogan has stated his admiration for RFK, Jr., who is now supporting Trump. He has also given a platform to Tulsi Gabbard, who is campaigning with, and for, Trump. The idea that Rogan wouldn't interview Trump, who has recently done podcasts with Theo Von and Andrew Schultz, to name a few, seems bizarre. 

QTR wrote on his blog Tuesday night that "If anything, an interview would give Rogan an opportunity to push Trump on the things that he disagrees with him on. Bring him on and give him hell if you want, Joe. Rogan could even extend an invitation to the Harris campaign and invite her on for a separate appearance if she wants."

"I don’t want to pretend to understand what the problem is that Rogan has with Trump, but all I know is that it’s not bigger than the potential consequences of this election," he wrote.

"After listening to Rogan’s podcast for nearly 2,000 episodes, I’m confident in my assessment that he’s a person of integrity and a man of character. The truth is, whether he likes it or not, putting his personal animus aside and getting Trump on the largest media platform in the world can only make an impact for the next month or so."

He concluded: "After the November election, especially if Trump loses, there will be no point — and it’ll be impossible to listen to Rogan crow about the lunatics on the left any further, knowing he didn’t talk to Trump when he had the chance. So let’s get real, Joe: what the hell are you waiting for?"

QTR first predicted the interview would happen in September 2023:

To me, this meeting seems inevitable over a long enough timeline. There's sufficient positive motivation for both parties to make it happen before the 2024 election, which is why I predict the interview will likely air before the end of the first quarter of 2024.

He's got about 3 weeks left...

 

Tyler Durden Fri, 10/11/2024 - 09:30

Futures Dip After Hot PPI, China Frenzy Unravels

Futures are lower ahead of the last trading day of the week, but well off session lows as JPM earnings were solid enough to push the stock higher and reverse some of the market's losses as Q3 earnings season was officially launched. As of 8:45am, S&P futures are down fractionally, while Nasdaq futures dropped 0.2%, hammered by TSLA which is down -5.8% pre-market as the Robotaxi event failed to meet market expectations. Bond yields are higher with the 10Y rising 3bps to 4.09%, while the Bloomberg Dollar index reversed earlier losses. Commodities are mixed with Oil fractionally lower, base metals higher, and pPrecious metals mixed. Today’s macro focus will be banks earnings and PPI, which came in fractionally light MoM (headline 0.0% MoM, Exp. 0.1%; core 0.2%, exp. 0.2%), but hotter on a YoY basis (core 2.8% YoY, Exp. 2.6%). Over the weekend, key macro catalysts will be China finance minister’s press conference on stimulus package.

In premarket trading, JPMorgan rose 1% after the bank reported a surprise gain in net interest income for the 3Q and raised its forecast for the key revenue source. Wells Fargo also gained, rising 3% after posting 3Q profit that topped analyst expectations as a surge in investment-banking fees helped counter a dip in lending revenue as interest rates fall. Tesla fell 6% as Elon Musk unveiled prototypes of the automaker’s long-awaited robotaxi Cybercab. Analysts note that the event did give a clearer picture of the company’s autonomous plans, but it was “light on the details.” Here are some other notable premarket movers:

• Aehr Test Systems (AEHR) jumps 13% after the semiconductor manufacturing firm reported fiscal 1Q results and reiterated its guidance for the fiscal year.
• A.O. Smith (AOS) falls 10% after the manufacturer of water heating and water treatment equipment lowered its annual forecasts for net sales and adjusted earnings per share, citing continued softness in its China business.
• BNY Mellon (BK) gains 1% after the bank’s 3Q adjusted earnings per share beat the average analyst estimate.
• Humana (HUM) slips 3% after the US Medicare program released final quality ratings for private Medicare Advantage plans, confirming a previously announced cut for the health insurer.

The producer price index for final demand was flat from August after rising 0.2% in the prior month, printing below estimates. From a year ago, however, it rose more than expected up 1.8% and 2.8% for headline and core, respectively, both above estimates of 1.6% and 2.6%.

European stocks reversed earlier losses and rose 0.2% with automobile and telecommunications shares leading the decline, while real estate and basic resources stocks are the biggest outperformers. Here are the biggest movers Friday:

• Aeroports de Paris gains as much as 2.7% as JPMorgan upgrades to overweight in note switching its top pick within the European airports space
• Zalando shares rise as much as 1.5% after the online fashion retailer delivered preliminary third-quarter results that were significantly above expectations and boosted its full-year guidance
• Brembo shares gained as much as 4.6% in Milan after the Italian company signed an agreement with Apollo Global Management’s Tenneco to buy a 100% stake in Öhlins Racing for $405m
• BP shares drop as much as 1.6% after the UK oil company said in a 3Q trading update that it expects rising net debt due to weaker refining margins
• Thales declines as much as 3.2% after Berenberg cuts to hold, citing in note continuing challenges for the defense contractor’s Space busines
• J Sainsbury falls as much as 5.1% after the largest shareholder in the UK supermarket chain, the Qatar Investment Authority, offered around $400 million worth of shares at a discount to the last closing price
• Revenio declines as much as 5.6% following a downgrade to sell from hold at Nordea, which cites short-term uncertainties for the Finnish ophthalmological device and software firm
• THG shares drop as much as 7.9%, hitting their lowest intraday level since January 2023, after the online retailer reported third-quarter revenue that Citi said missed their estimates

Earlier, Asian equities were headed for a second week of losses as the rally in China fizzled. The MSCI Asia Pacific Index pared earlier gains of as much as 0.4%. TSMC and Fast Retailing were among the biggest boosts to the regional benchmark. Japanese stocks were mixed, while China’s onshore gauge capped its worst week since July ahead of a policy briefing by the Ministry of Finance on Saturday. Chinese stocks have been volatile this week as traders digested weaker-than-expected holiday spending data and await further announcements from the key meeting this weekend. Investors and analysts are expecting China to deploy as much as 2 trillion yuan ($283 billion) in fresh fiscal stimulus, according to a majority of 23 market participants surveyed by Bloomberg.

“We have to expect some profit taking” after China’s sharp rally in the past few sessions, said Jessica Amir, market strategist at Moomoo. Meanwhile, “traders are also considering the risks should China not deliver a second bazooka stimulus package on the weekend.”

In FX, the Bloomberg Dollar Spot Index is little changed. The Bloomberg Dollar Spot Index dipped 0.1% as the greenback slipped against most Group-of-10 peers; the Norwegian krone led gains alongside the British pound, while the Japanese yen slumped.

• EUR/USD inched up 0.1% to 1.0943 reversing an earlier drop; France’s government unveiled a budget for next year that aims to deliver a €60.6 billion remedy for its creaking public finances
• GBP/USD rose as much as 0.2% to 1.3081; The UK economy returned to growth in August, putting Britian on course for modest growth in the third quarter, albeit at a slower pace than in the first half of the year

In rates, treasuries are lower, with US 10-year yields rising 4bps to 4.10%, the highest since July 31. French government bonds dip after the government unveiled a budget for next year that aims to deliver €60.6 billion in spending cuts and higher taxes. The OAT-bund spread is steady around 77 bps.

Oil prices decline, with WTI down 0.7% as Israel’s government has yet to decide how to retaliate against Iran for a missile attack last week. Spot gold rises $8 to around $2,637/oz.

Today's data calendar includes September PPI (full summary here) and October preliminary University of Michigan sentiment (10am). Fed speakers scheduled include Goolsbee (9:45am), Logan (10:45am) and Bowman (1:10pm)

Market Snapshot

• S&P 500 futures down 0.1% to 5,822.75
• STOXX Europe 600 little changed at 519.13
• MXAP little changed at 192.69
• MXAPJ up 0.2% to 613.35
• Nikkei up 0.6% to 39,605.80
• Topix down 0.2% to 2,706.20
• Hang Seng Index up 3.0% to 21,251.98
• Shanghai Composite down 2.5% to 3,217.74
• Sensex down 0.3% to 81,370.74
• Australia S&P/ASX 200 down 0.1% to 8,214.51
• Kospi little changed at 2,596.91
• German 10Y yield little changed at 2.27%
• Euro up 0.1% to $1.0949
• Brent Futures down 0.7% to $78.86/bbl
• Gold spot up 0.4% to $2,641.07
• US Dollar Index down 0.18% to 102.80

Top Overnight News

• China could announce fiscal stimulus measures worth a combined ~$280B when the finance ministry holds a press conf. on Saturday according to a Bloomberg survey of investors and analysts. BBG
• China’s housing market sees a spike in foot traffic following gov’t stimulus measures. WSJ
• South Korea’s central bank lowered its policy rate by 25bp, as expected, but the decision wasn’t unanimous (one person wanted to keep rates unchanged) and while further easing will come, additional reductions are unlikely in the near-term. WSJ
• France on Thurs unveiled a budget plan with EU60B worth of spending cuts and tax hikes as the country looks to put its fiscal policy on a more sustainable path. FT
• The U.S. government announced quality ratings for 2025 Medicare health and prescription drug plans on Thursday, the first indication of which large health insurers, including CVS Health, UnitedHealth Group, and Humana will get bonus payments in 2026. RTRS
• Tesla stock slumped premarket after Elon Musk’s much-hyped Cybercab launch fell flat. The event lacked technical details, glossed over topics including regulation, and his comment that production may start in 2026 only highlighted Tesla’s poor record on timelines. Musk originally promised to get 1 million on the road by 2020. BBG
• Boeing’s relationship with its union turns more acrimonious, with the aerospace giant filing unfair labor practice charges, alleging labor leaders are failing to negotiate in good faith. BBG
• BAC: Berkshire Hathaway filed a form 4 disclosing the sale of 3.9mn/4.0mn/1.6mn shares on 10/8, 10/9, 10/10. This takes their stake below the 10% reporting threshold and creates some uncertainty around whether they are still reducing their stake until the next 13F filing. .. Have heard mixed views around how the stock will trade with this uncertain supply overhang but we would flag that this has turned into a crowded long heading into the print on Tuesday. All eyes on JPM print this AM. GS GBM
• Fed's Goolsbee (2025 Voter) says does not see convincing evidence is overheating; repeats Fed must focus on both sides of the dual mandate; repeats inflation has cooled and job market is strong: BBG
• DBRS calculates insured losses for hurricane Milton likely in the USD 30-60bln range.
• Blackrock reported strong FQ3 EPS upside at 11.46 (vs. the Street 10.40), with the beat driven by robust margins (op. margins spiked 350bp Y/Y to 45.8% vs. the Street 44.1%) and higher revenue (sales climbed 25% to $5.197B vs. the Street $4.99B). Total net inflows were $221.1B in the quarter, including $160B long-term (the $160B number was far above the consensus forecast of $100B). Equity inflows were particularly robust at +$74.1B (vs. the Street $30B). Total AUM was nearly $11.5T as of the end of Q3. RTRS

A more detailed look at global markets courtesy of Newsquawk

APAC stocks traded mixed following the choppy price action stateside where markets reflected on disappointing data and hawkish-leaning comments from Fed's Bostic, while regional participants await the Chinese Ministry of Finance's press briefing. ASX 200 price action was lacklustre with the index contained by weakness in real estate, utilities and financials.  Nikkei 225 eked marginal gains with index heavyweight Fast Retailing leading the advances post-earnings, while Seven & I was at the other end of the spectrum after it cut its guidance and announced a restructuring plan to fend off a takeover. KOSPI sits with marginal gains following the BoK's 25bps rate cut which Governor Rhee framed as a hawkish cut. Shanghai Comp was pressured in the absence of Hong Kong participants and stock connect flows, while participants await tomorrow's Ministry of Finance press conference and whether China will unveil large fiscal stimulus.

Top Asian News

• China issues guidelines on strengthening supervision, preventing risks and promoting high quality development of the Futures market. Will be cracking down on illegal and irregular activities. Measures will be implemented to curve specific speculation. To support deepening product and business cooperation
• China's Infrastructure Ministry, Ministry of Industry and Information Technology, and State Administration for Market Regulation are to hold a briefing on Monday at 10:00 local time (03:00BST/22:00EDT).
• BoK cut its base rate by 25bps to 3.25%, as expected, with the decision not unanimous as board member Chang Yong-Sung dissented and the central bank also voted to lower policy interest rate in special loan programmes. BoK said it will thoroughly assess trade-offs among inflation, growth, and financial stability, as well as noted that South Korea's economy is to continue moderate growth and the BoK will carefully determine the pace of further cuts to the base rate. Governor Rhee stated that five board members said keeping the policy rate at 3.25% is appropriate for the next three months and one board member was open to a further cut in the three months ahead, while Rhee added that today's policy decision could be viewed as a hawkish cut. Furthermore, he said they will look at property prices, Q3 growth figures and the pace of household debt growth for the rate review in November, while he added that they will look at financial stability risks for any further rate reduction decisions and the pace of rate cuts will be slower in South Korea compared with the US.

European bourses, Stoxx 600 (U/C) are bobbling around the unchanged mark in what has been a very lacklustre and indecisive session thus far. European sectors are mixed but with the breadth of the market fairly narrow; Real Estate takes the top spot alongside Basic Resources whilst Autos lags. US Equity Futures (ES, NQ, RTY) are very modestly on the backfoot, continuing the losses seen in the prior session. Tesla (-5.7%) slips in the pre-market after its event where it unveiled Cybercab and a driverless Model Y, but RBC said they heard much of what they expected to hear.

Top European News

• French Markets Digest Barnier’s Budget as Fiscal Concerns Linger
• German Finance Chief Has More Room to Lift Net Debt Next Year
• Northvolt to Pay Taxes Monday as Battery Maker Battles Crisis
• Hays Rebounds From 2013 Low as Panmure Sees Stock Bottoming Out
• MANDATE: Louis Dreyfus Exp. €500m 7Y Investor Calls
• China Seeks Carbon Data From Ships as Trading Scheme Grows

FX

• DXY is slightly lower and trading within a very busy 102.76-94 range, which is within the confines of the prior session. Today’s docket includes US PPI, UoM Inflation Prelim. and speak from Fed’s Goolsbee, Logan & Bowman.
• EUR is slightly firmer vs the Dollar and trading just ahead of its 100 DMA (1.0934) in a current 1.0930-53 range. Today’s Final German CPI print for August were unrevised, but the internal commentary held a slight hawkish skew.
• GBP is firmer vs the Dollar and trading within a very narrow 1.3042-80 range. Cable was little moved on the back of the softer-than-expected GDP 3M/3M and Y/Y figures, with the Services figure also printing below expectations.
• JPY is very slightly lower vs the Dollar, with price action rangebound in what has been a quiet European session thus far. USD/JPY currently trades within a busy 148.41-85 range, which resides towards the midpoint of the prior day’s confines.
• Antipodeans are ever-so-slightly firmer vs the Dollar, attempting to nurse of their recent losses. Price action has been contained within a tight range given the lack of notable newsflow, so focus will ultimately lie on China’s MoF press conference on Saturday.

Fixed Income

• USTs remain bid following on from the US 30yr auction, which was well received. Since then, they have faded slightly from best but remain within reach of today’s 112-09+ peak and therefore only a few ticks shy of Thursday’s 112-11+ best.
• Bunds were initially firmer, in-fitting with USTs after the auction. However, an unrevised flash/prelim. set of German CPI (where the internals held a hawkish skew) sparked some modest pressure. A release which sparked around 10 ticks of pressure in Bunds, downside which has continued since to a 133.05 base.
• OATs are slightly firmer following the French draft budget; the OAT-Bund 10yr yield spread remains steady around the 76bps mark. Next up for France, is Fitch's credit review.
• Gilts are firmer and gapped higher at the open in reaction to today's somewhat mixed GDP figures with the M/M as expected but Y/Y figures coming in softer than expected, a dynamic which spurred a dovish reaction at the open but it is hard to say how much of this was from the UK or led by the catch-up to US supply. Gilts currently off best levels and holding around 96.18.
• Italy sells EUR 9.50bln vs exp. EUR 7.5-9.5bln 3.45% 2027, 2.65% 2027, 3.45% 2031, 4.15% 2039, 3.45% 2048 BTP:

Commodities

• Crude is under pressure having initially spent much of the APAC session within a tight range. Downside accelerated on reports that there was no vote at all at the end of the Israeli Security Council Meeting on Thursday.
• Spot gold is firmer, continuing to extend above the USD 2600/oz mark but yet to test the USD 2650/oz point and by extension the USD 2659/oz WTD peak.
• Base metals hold a positive bias vs generally flat overnight with price action somewhat hampered by the absence of Hong Kong participants with the remainder of the region largely awaiting the Chinese support updates which are expected on Sunday and Monday.

Geopolitics: Middle East

• "Israel Hayom: Last night's cabinet meeting witnessed sharp differences between ministers", via Al Jazeera
• At the conclusion of Thursday's Israeli Security Council Meeting there was no vote on the outline of Israeli action in Iran or on giving "authorization of Netanyahu and Gallant to accept the decision", via Kann's Stein.
• Israeli Broadcasting Authority says the Security Cabinet has not yet made a decision on the nature of the response to Iran, according to Sky News Arabia.
• US President Biden and Israeli PM Netanyahu narrowed the gaps regarding the nature of Israel's response against Iran, according to Walla News' Ravid citing three US officials. The officials noted that Netanyahu and Biden made significant progress during their phone call in achieving an understanding of the scope of Israel's retaliation against Iran, while the administration was "a little less worried" after the call, and another official said "We are moving in the right direction".
• Iranian delegate to the UN said they do not seek war but are ready to defend their sovereignty against any aggression against their security and interests, while they will the exercise natural right to self-defence in accordance with international law against any attack. Furthermore, the delegate said Israel is a threat to international peace and its aggressive actions lead the region to all-out war.
• Lebanon's delegate to the UN said Lebanon is ready for a diplomatic solution and to facilitate the task of mediators.
• Israeli army said a local leader of the Islamic Jihad movement was killed in a raid on the Nour Shams camp in Tulkarm in the West Bank, according to Al Jazeera.

Geopolitics: Other

• US Secretary of State Blinken denounces China's naval manoeuvres at ASEAN summit and said they are "increasingly dangerous".

US Event Calendar

• 08:30 PPI 0.0% M/M, Exp 0.1%
  • PPI Core 0.2% MoM, Exp. 0.2%
  • PPI 1.8% YoY, Exp. 1.6%
  • PPI Core 2.8% YoY, Exp. 2.6%
• 10:00: Oct. U. of Mich. Sentiment, est. 71.0, prior 70.1
  • Oct. U. of Mich. Current Conditions, est. 64.0, prior 63.3
  • Oct. U. of Mich. Expectations, est. 74.8, prior 74.4
  • Oct. U. of Mich. 1 Yr Inflation, est. 2.7%, prior 2.7%
  • Oct. U. of Mich. 5-10 Yr Inflation, est. 3.0%, prior 3.1%

Central Banks

• 09:45: Fed’s Goolsbee Gives Opening Remarks
• 10:45: Fed’s Logan Participates in Panel Discussion
• 13:10: Fed’s Bowman Speaks on Community Banking

DB's Jim Reid concludes the overnight wrap

It's yet another morning where I wake to social media posts of the most stunning Aurora Borealis pictures in my area last night. I stuck my head out the window at 9:30pm before I went to bed and it all looked pitch black. I think I need to work on my iPhone settings as that seems to be the trick. Talking of which, it's the annual new model arrival day today so maybe I can up my game.

There have been some strange lights shining in market skies in the last week with the way above expected payrolls last week and a slightly above expected US CPI yesterday. The narrative has certainly changed a bit. Maybe the full implication of yesterday's inflation number was offset by the much weaker than expected claims. However, we are in for a period of data heavily influenced by recent storms and strikes. So this will likely make it a complicated few weeks for markets and the Fed. Although I've struggled to work out which way things will go in recent weeks the view I've felt most certain of was that the market was massively overpricing the perfect scenario of smooth enough data that the Fed would be able to serenely cut rates back below 3% without a recession. If we don’t get a recession, it’s hard to see how rates can be cut anywhere near as aggressively as this.

Anyway there'll be more twists and turns in that argument but for yesterday the response in markets to the data was fairly muted but a confused one, complicated further as oil prices posted a fresh advance due to geopolitical tensions in the Middle East.

We’ll start off with the CPI release, as that set the tone for a day where investors grew a bit more concerned about inflation. It showed that headline CPI was stronger than expected in September at +0.18% (vs. +0.1% expected), meaning that the year-on-year number only came down to +2.4% (vs. +2.3% expected), even if it was still the lowest since February 2021. But what concerned investors more was the core CPI number, which came in at a monthly +0.31% in September (vs. +0.2% expected), pushing the year-on-year number up to +3.3% (vs. +3.2% expected). Now of course, that’s only one month’s reading, but it also meant the 3-month annualised rate for core CPI rose to +3.1%, having been at +2.1% in August. So the last couple of months have added to fears that inflation is proving a bit more persistent than the Fed would like, and there were fresh signs that investors were pricing this in as well. For instance, the US 5yr inflation swap (+6.5bps) was up to a three-month high of 2.51% yesterday (low of 2.14% on September 10), and it was a decent day for precious metals, which traditionally operate as an inflation hedge, with gold prices up around +0.7% and a further +0.6% this morning.

Ordinarily, an inflation release like that would have led investors to dial back their expectations for rate cuts. But just as that was coming out, we simultaneously had the weekly initial jobless claims, which were noticeably worse than expected. They moved up to 258k over the week ending October 5 (vs. 230k expected), which is the highest they’ve been since August 2023. Now to be fair, there are some weather-related factors that can help explain that, and the numbers are likely to remain volatile for several weeks as a result. But even so, the number was higher than expected, and given it’s quite a timely release, it pushed back against the more positive labour market narrative from last week’s jobs report. The chances are still high that it was heavily distorted though and with the current storms in Florida, getting a clean reading soon will be tough.

Nevertheless, with all that in hand, investors moved to increase the pricing of Fed rate cuts in the coming months, even as they priced in more inflation for the years ahead. The likelihood of a 25bp cut next month rose marginally from 83% the previous day to 85%, but having peaked at 95% intra-day after the data. The move was more sustained further out the curve, with the rate priced in for the December 2025 meeting falling by -8.2bps to 3.34%. The reversal in November pricing from the day's peaks came following a WSJ interview with the Fed’s Bostic, who left open the possibility of a pause in November, saying that “I am totally comfortable with skipping a meeting if the data suggests that’s appropriate”. On the other hand, comments from Williams, Goolsbee, and Barkin suggested they were largely unphased by the stronger CPI print.

The more dovish Fed pricing contributed to a rally in front-end yields that pushed the 2yr Treasury yield down -6.5bps to 3.96%, while the 10yr yield was down a more marginal -1.1bps to 4.06%. This comprised of sharply diverging moves in real yields and breakevens, especially at the front end. While 2yr breakevens (+9.8bps) rose to their highest since early July, 2yr real yields (-16.3bps) posted their sharpest daily fall since the December 2023 FOMC. So signs of market pricing turning in a slightly more stagflationary direction.

Whilst markets were digesting the latest US data, there were ongoing concerns about a potential escalation in the Middle East, and Brent crude oil prices moved up +3.68% yesterday to $79.40/bbl. That came as Israel’s security cabinet met last night to discuss how and when to retaliate against Iran’s strikes last week, with Israel’s public broadcaster reporting that the final decision will be made by PM Netanyahu and defence minister Gallant.

Against this backdrop, equities were unable to hold onto their recent gains, with the S&P 500 (-0.21%) moving off from its record high the previous day. The declines were pretty broad based, with nearly 70% of the S&P 500 lower on the day with the small-cap Russell 2000 (-0.55%) struggling in particular. Meanwhile in Europe, there was a similar pattern of evenly spread but modest declines, with small losses for the STOXX 600 (-0.18%), the DAX (-0.23%) and the CAC 40 (-0.24%). All change from today as we see the unofficial start of earnings season with releases beginning to ramp up, with several US financials reporting including JPMorgan, Wells Fargo, BNY Mellon and BlackRock.

Over in Europe, last night we heard the details of the French government’s 2025 budget proposal. This confirmed a fiscal deficit target of 5% of GDP, foreseeing some EUR 60bn of spending cuts and tax increases. The budget will now pass to parliament to be the first major test of PM Barnier’s minority government. Earlier in the day, the Franco-German 10yr spread had remained at 77bps, with yields on 10yr bunds (-0.1bps) and OATs (-0.1bps) both basically unchanged on the day.

Overnight in Asia, Chinese stocks are lagging behind other markets with Hong Kong closed for a holiday. The CSI 300 is down -1.88% while the Nikkei 225 and the Kospi are up by +0.72% and +0.18%, respectively. US equity futures are up less than a tenth of a percentage as I type. All eyes are on tomorrow's finance ministry briefing in China to hopefully get much more details on the stimulus package the market has grown a little more nervous of this week. So lots to report by Monday.

To the day ahead now, and data releases include US PPI for September, the University of Michigan’s preliminary consumer sentiment index for October, and UK GDP for August. From central banks, we’ll hear from the ECB’s Holzmann, and the Fed’s Goolsbee, Logan and Bowman. Finally, today’s earnings releases include JPMorgan, Wells Fargo, BNY Mellon and BlackRock.

Tyler Durden Fri, 10/11/2024 - 09:19

Core Producer Price Inflation Hotter Than Expected; Food Costs Surge

After yesterday's hotter-than-expected CPI, all eyes are on this morning's PPI print for dovish hopes that the blip in CPI is 'transitory'. Of course, there is the baffle 'em with bullshit print too... as data shows the MoM prints cooler than expected but the YoY prints hotter than expected.

Headline PPI was unchanged MoM (cooler than the +0.1% expected) but it was up 1.8% YoY (hotter than the +1.6% exp)... but down from the upwardly revised 1.9%!?

Source: Bloomberg

Energy prices weighed the PPI down (that won't last!) as Food and Services surged...

Source: Bloomberg

Final demand goods: The index for final demand goods decreased 0.2 percent in September following no change in August. The decline can be traced to a 2.7-percent drop in prices for final demand energy. In contrast, the indexes for final demand foods and for final demand goods less foods and energy increased 1.0 percent and 0.2 percent, respectively.

Product detail:

• Leading the September decline in prices for final demand goods, the index for gasoline decreased 5.6 percent.

• Prices for diesel fuel, jet fuel, chicken eggs, home heating oil, and plastic resins and materials also fell.

• Conversely, the index for processed poultry jumped 8.8 percent.

• Prices for electric power and for motor vehicles also moved higher.

Final demand services: The index for final demand services moved up 0.2 percent in September after rising 0.4 percent in August. Leading the broad-based increase in September, prices for final demand services less trade, transportation, and warehousing advanced 0.1 percent. The indexes for final demand trade services and for final demand transportation and warehousing services also rose, 0.2 percent and 0.3 percent, respectively. (Trade indexes measure changes in margins received by wholesalers and retailers.)

Product detail:

• A 3.0-percent increase in the index for deposit services (partial) was a major factor in the September advance in prices for final demand services.

• The indexes for machinery and vehicle wholesaling, furniture retailing, desktop and portable device application software publishing, apparel wholesaling, and airline passenger services also rose.

• Conversely, margins for professional and commercial equipment wholesaling fell 6.3 percent.

• The indexes for securities brokerage, dealing, investment advice, and related services and for consumer loans (partial) also moved lower.

More problematic for the doves is that core PPI jumped to +2.8% YoY (hotter than the 2.6% exp) as PPI ex-food-and-energy rose 0.2% MoM as expected...

Source: Bloomberg

On a YoY basis, Services costs are accelerating...

Source: Bloomberg

...and the deflationary drag of Energy prices won't last...

That's a long way from The Fed's mandated 2%... and it's going the wrong way!

Tyler Durden Fri, 10/11/2024 - 08:39

JPMorgan Rises After NII, Trading Revenues Jump, Offset By Profit Decline, Unexpected Spike In Credit Loss Reserve

Third quarter earnings season officially started this morning when JPMorgan reported earnings just before 7am ET, and unlike last quarter, this time the company not only beat on the top and bottom line (even as loan loss reserves rose again hitting $1 billion), but reported blowout earnings in its investment banking division and also raised its full-year net interest income outlook. That however was eclipsed by an overall drop in profits (Net Income down $0.3BN to $12.9BN), a surprising jump in loan loss reserves to $1.0 billion, and compensation expenses of $12.8BN which rose and camd in above estimates. In any case, the kneejerk reaction on the stock was positive, helping it rise 2% (just shy of its all time high hit in late August) but the early spike appears to be fading a bit.

Here is a summary of what JPM reported for Q3:

• Adjusted Revenue $43.32BN, up 3.4% from a year ago, and beating estimates of $41.9BN, consisting of Net Interest Income of $23.5BN, up 3.2% y/y (vs most other banks which are expected to see their NII down this quarter) and beating estimates of $22.8BN and non-interest income of $19.8BN, up 3.2% y/y and beating estimates of $19.2BN. This was good enough to generate a 16% return on equity (or 19% in ROTCE terms).
  • Total trading revenue $7.152 billion, +6.9% y/y, beating estimates of $6.69 billion
    • FICC sales & trading revenue $4.53 billion, +4.6% y/y, beating estimates of $4.36 billion
    • Equities sales & trading revenue $2.62 billion, +21% y/y, beating estimates of $2.37 billion
  • Investment banking revenue $2.27 billion, +13.4% y/y, beating estimates of $1.99 billion
    • Advisory revenue $847 million, +12.2% y/y, beating estimates of  $754.9 million
    • Equity underwriting revenue $344 million, down 9.0% y/y, missing estimates of $378.2 million
    • Debt underwriting rev. $1.08 billion, +26.6% y/y, beating estimates of $850.2 million
• EPS $4.37, up 8.99% from a year ago, and beating estimates of $4.01
• The bank reported $22.6 billion of total noninterest expenses, down 1.2% YoY and below estimates of $22.9 billion.
  • However, compensation expenses $12.817 billion, up 2% y/y higher than estimates of $12.56 billion
• While JPM's net charge-offs in Q3 dropped modestly to $2.09 billion, below the estimate of $2.37 billion, from $2.2 billion in Q2 (but above the $1.5 billion a year ago), the reserve build grew again, rising to $1.0 billion from $0.8 billion in Q2 and up from a $0.1 billion reserve release a year ago. This means that the total provision for credit losses was $3.11 billion, higher than the estimate of $2.94 billion, and in line with the $3.1 billion in Q2.

Here are the visual snapshots:

Some more details:

• Managed net interest income $23.53 billion, beating estimates of $22.8 billion
• Loans $1.34 trillion, beating estimate of $1.33 trillion
• Total deposits $2.43 trillion, beating estimates of $2.4 trillion
• Non-interest expenses $22.57 billion, below estimates of $22.85 billion even though compensation expense of $12.8 billion came in higher than the $12.56 billion expected.

Looking at the bank's balance sheet we find the following details:

• Net yield on interest-earning assets 2.58%, higher than the estimate 2.57%
• Standardized CET1 ratio 15.3%, higher than the estimate 15.1%
• Standard risk-weighted assets are $1.8 trillion, cash and marketable securities hit $1.6 trillion, and average loans were at $1.3 trillion.  
• Managed overhead ratio 52%, below the estimate 54.7%
• Return on equity 16%, higher than the estimate 14.5%
• Return on tangible common equity 19%, higher than the estimate 17.5%
• Assets under management $3.90 trillion, higher than the estimate $3.8 trillion
• Book value per share $115.15, above estimates $113.80

Something else worth noting: JPM revealed that its Q2 stock buybacks surged to $6.0 billion from $4.9 billion last quarter, and up from $2.8 billion in Q1. This took place after the Fed greenlighted more shareholder returns on at the end of Q2.

What we also find notable is that in a reversal from last quarter, the bank actually built reserves by just over $1 billion ( up from $821 million in Q2 and a $72 million release in Q1): this was the biggest reserve build since the bank crash quarter in Q2 2023 when the bank added $1.5 billion in reserves. This meant that provision for credit losses was roughly unchanged from last quarter at $3.1 billion, above the $2.94 billion expected even as total charge-offs came in at $2.09 billion, below the $2.37 billion expected.

Commenting on the quarter, Jamie Dimon once again pushed a familiar narrative for the largest US bank, pushing back against aggressive regulation and saying that he awaits "our regulators’ new rules on the Basel III endgame and the G-SIB surcharge as well as any adjustments to the SCB or CCAR. We believe rules can be written that promote a strong financial system without causing undue consequences for the economy, and now is an excellent time to step back and review the extensive set of existing rules – which were put in place for a good reason – to understand their impact on economic growth, the viability of both public and private markets, and secondary market liquidity. Regardless of the outcome of these rules, we have an extraordinarily strong balance sheet, evidenced by total loss-absorbing capacity of $544 billion plus cash and marketable securities of $1.5 trillion, while our riskiest assets, loans, total $1.3 trillion. On share repurchases, given that market levels are at least slightly inflated, we maintain our modest pace of buybacks, although we reserve the right to adjust this at any time.”

Taking a look at the geopolitical picture, Dimon said that he has been "closely monitoring the geopolitical situation for some time, and recent events show that conditions are treacherous and getting worse. There is significant human suffering, and the outcome of these situations could have far-reaching effects on both short-term economic outcomes and more importantly on the course of history. Additionally, while inflation is slowing and the U.S. economy remains resilient, several critical issues remain, including large fiscal deficits, infrastructure needs, restructuring of trade and remilitarization of the world. While we hope for the best, these events and the prevailing uncertainty demonstrate why we must be prepared for any environment.”

Dimon also took the opportunity to thank the bank's employees, saying  that as he gets to travel around the country and the globe "it gives me immense pride to see our employees tirelessly serve their clients and communities, which include over 82 million U.S. consumers and 6 million small businesses, 40 thousand large and medium-sized businesses – who we bank wherever they do business – and thousands of institutional clients, as well as veterans, schools, cities, states and countries around the world. I know you join me in extending gratitude to our employees.”

And speaking of employees, it is notable that at a time when other banks are cutting staff to keep expenses in check, JPMorgan added to its headcount which rose 2% year-over-year to 316,043 employees. That appears to also be driving JPMorgan’s costs higher.

And some more detailed from Bloomberg: CCB’s $9.6 billion noninterest expense was up 5% (“predominantly driven by higher compensation, primarily for advisers, bankers and technology employees, as well as continued investments in marketing”), CIB’s $8.8 billion noninterest expense was down 1% (“driven by lower legal expense, offset by higher compensation, including revenue-related compensation and growth in employees, as well as higher technology expense”) and AWM’s was up 16% (!) to $3.6 billion, (“driven by higher compensation, including revenue-related compensation and continued growth in private banking advisor teams, as well as higher legal expense and distribution fees”).

Turning to the all-important commercial and investment bank, here the results were impressive and beat almost across the board, with the exception of equity underwriting which continued to be quite soft. Here are the details:

• Total trading revenue $7.152 billion, beating estimates of $6.69 billion
  • FICC sales & trading revenue $4.53 billion, fractionally lower y/y, but beating estimates of $4.36 billion
  • Equities sales & trading revenue $2.62 billion, up $553 million y/y, beating estimates of $2.37 billion
• Investment banking revenue $2.27 billion, +31% y/y, beating estimates of $1.99 billion
  • Advisory revenue $847 million, up 10% y/y, beating estimates of  $755 million
  • Equity underwriting revenue $344 million, up 26% y/y, missing estimates of $378 million
  • Debt underwriting rev. $1.08 billion, +56% y/y, beating estimates of $850 million

Turning to JPM's consumer and community bank, the first thing that sticks out is the $2.8 billion provision for credit losses, reflecting a $876 million net reserve build and $1.9 billion of net charge-offs. The latter was up $520 million, “driven by Card Services, primarily due to the seasoning of newer vintages and continued credit normalization.” As BBG notes, why does that $2.8 billion provision matter? Because a year ago it was only $1.4 billion.

Also of note in CCB is that net income of $4 billion was down 31%, nearly a third. Why? One contributor: “Banking & Wealth Management net revenue was $10.1 billion, down 11%, driven by lower net interest income on deposit margin compression and lower deposit balances, partially offset by higher asset management fees in J.P. Morgan Wealth Management.” Another reason: That rise in noninterest expense to $9.6 billion noted above.

Meanwhile, Home Lending net revenue was $1.3 billion, which was “up 3%, driven by higher net interest income, partially offset by lower servicing and production revenue.” And Card Services & Auto net revenue was $6.4 billion, “up 11%, driven by Card Services, reflecting higher net interest income on higher revolving balances.”

Finally, looking at the company's guidance, JPM sees the following:

• 2024 FY net interest income (Ex-CIB Markets) of ~$91.5B, previously saw about ~$91B. Including markets, the bank now sees NII of $92.5BN, above the $91.0BN previously.
• 2024 FY Adj. Expense ~$91.5B, saw about ~$92B
• 2024 FY Card Services NCO Rate of About 3.4%

Said otherwise, JPM now expects full-year NII to come in around $92.5 billion, well above the original forecast of $91 billion. It’s “market dependent,” the bank says, but still noteworthy given that JPM was telling analysts to temper their expectations a month ago. Excluding markets, the NII increase is more modest, from $91.0 billion to $91.5 billion. Expenses are now expected around $91.5 billion for full-year 2024, lower than the original forecast of $92 billion last quarter. This implies about $23 billion for the fourth quarter.

After all that, the market reaction was favorable: unlike last quarter when JPM stock got hammered on mixed earnings, this time the stock pumped 3% before modestly easing gains as the algos were satisfied. It remains to be seen if gains will persist once human are also done parsing the results.

Elsewhere, other banks also reported results. Wells Fargo climbed about 3% during the session after third-quarter profit beat estimates. Investment-banking fees helped counter a dip in lending revenue as interest rates fall. Shares of Bank of America, Citigroup and other lenders are higher ahead of the US open. They report their earnings next week.

The full Q3 investor presentation is below (link here).

Tyler Durden Fri, 10/11/2024 - 08:18

The Market Is Not Positioned For the 'Unwatched Inflation Pot' To Boil Over

Authored by Simon White, Bloomberg macro strategist,

The market is not ready for a re-rise in inflation, with positioning long in stocks, bonds and rates futures.

Inflation has been relegated to secondary importance for now, but unwatched pots often boil over.

Structural price-growth remains elevated, while core consumer prices are still above 3% - harbingers that it’s not time to mute the inflation alarm.

It would be around now – before inflation has returned to a low-and-stable regime – that a shock arrives and prices re-accelerate.

Price pressures had already begun to boil in the late 1960s, and it was the “bad luck” of Nixon closing the gold window in 1971, the Arab oil embargo in 1973 and the Iranian Revolution in 1979 that turned the decade into the Great Inflation.

For September’s PPI data today (and following yesterday's CPI), it’s clear positioning is not expecting any big upside shocks, or more concernedly, not prepared for inflation that starts to trend higher again.

The chart below shows inferred positioning for CTAs based on HFR’s indices. A multiple regression on CTA returns versus the S&P 500 and Treasuries shows that they are likely long and getting longer stocks and bonds.

The CTA fund data is not perfect, but we see corroboration elsewhere.

The DBi Managed Futures ETF shows it has been getting longer 2-year and 10-year note futures as well as long-bond futures.

It is long the S&P, MSCI Emerging Markets index and MSCI EAFE as well.

Commitment of Trader positioning shows the net long of speculators in US stocks is rising. And the US Bonds Position Proxy, where I have amalgamated hedge funds’ beta to Treasuries, COT data and the JPMorgan Treasury Client Survey, also shows a long in bonds that’s burgeoning outside of CTAs.

Furthermore, COT data shows significant longs in fed funds and SOFR futures. There is a net short bond position between leveraged funds and asset managers, but some of this could be related to the basis trade, i.e. it is not clear how much of this is outright short risk.

A revival in inflation very likely means higher rates, lower bonds, and quite possibly lower stocks, as valuations are throttled by higher discount rates.

With SOFR options implying a near-zero probability of an inflation tail, and positioning as it is, it’s clear the market is not prepared for such an outcome.

Tyler Durden Fri, 10/11/2024 - 07:45

"'We, Robot' 10/10 Event": Wall Street Reacts To Elon Musk's Big Cybercab Debut

Tesla's shares stumbled in premarket trading after the company's long-awaited robotaxi event in Burbank, California. The event showcased the robotaxi Cybercab, the futuristic-looking Robovan concept, and the latest version of the humanoid robot, Optimus.

Just hours after the event, some top Wall Street analysts began weighing in, praising the impressive lineup of new innovative products that will revolutionize transportation and other areas of the economy but noting a lack of technical details. 

Robotaxi details pic.twitter.com/AVSoysc6pS

— Tesla (@Tesla) October 11, 2024

Robovan details pic.twitter.com/Pdito0dfRq

— Tesla (@Tesla) October 11, 2024

Optimus is your personal R2D2 / C3PO, but better

It will also transform physical labor in industrial settings pic.twitter.com/iCET3a9pd8

— Tesla (@Tesla) October 11, 2024

A team of Goldman analysts led by Mark Delaney and Will Bryant attended the robotaxi Cybercab.

The analysts said Tesla "demonstrated very strong progress with the Optimus humanoid robot, and we think the Cybercab looked attractive," but noted, "the lack of data shared on Full Self Driving (FSD) performance, relatively limited details on the robotaxi business plan, and absence of a lower-cost consumer vehicle unveil may be disappointing for some market participants." 

Here are more of their thoughts about Cybercab and Optimus:

Cybercab

Tesla unveiled a two-seat Cybercab vehicle without a steering wheel or pedals/controls, and with winged doors. The company also showcased a Robovan that can carry up to 20 people or could transport goods. Tesla expects to start unsupervised FSD robotaxi operations in Texas and California next year with its currently available models (e.g. 3 and Y) and be in production with the Cybercab in 2026/before 2027 (although the company noted that it tends to be optimistic with timelines).

Given that vehicles are only typically used for several hours per week, Tesla believes that autonomous vehicles can offer 5X or even 10X higher utilization. Importantly on costs, Tesla believes the average operating cost of its Cybercab over time will be ~$0.20 per mile and may be priced at ~$0.30-$0.40 per mile including taxes and other costs. Tesla expects the Cybercab to cost ~$30K or less. Tesla also commented that it plans to over-spec the computer for the Cybercab (AI 5 computer) as the company believes that distributed inference compute can be utilized when the vehicle is not in use. Additionally, the robotaxi will use inductive charging, and Tesla indicated there would be self-cleaning capabilities. Finally, Tesla said one business model could be a person owning a small fleet that they put onto the network. Tesla did not provide other details on its business plan (e.g. scope of the initial deployments, pricing to start, if Tesla will own the early fleet, remote assistance, etc).

The timelines for AV deployment (next year with 3/Y in Texas and California) and with Cybercab (in 2026/by 2027) and lack of incremental FSD performance data will likely leave the debate on how close Tesla is to unsupervised FSD (L4) unresolved.

As we have previously written in our report, "Can new AI technology help accelerate AV deployments? Updating our global ADAS and AV forecast" we believe there is a material long-term revenue opportunity from robotaxis. However, revenues from initial smaller scale deployments would likely be more limited, as we show in Exhibit 1 and Exhibit 2.

We also provide an illustrative cost model for an owned and operated fleet of robotaxis in Exhibit 3. At scale, we believe that Tesla could benefit from lower per mile costs for its vehicle depreciation (e.g. if Tesla can produce a robotaxi at $30k vs a competitor robotaxi at $50k-$75k, at 100k miles per year and a three year useful life, Tesla would have depreciation costs of $0.10/mi vs a standard robotaxi at $0.15-$0.25/mi). This is driven by the volume leverage Tesla already has making cars (with each vehicle already equipped with inference silicon), and its more narrow sensor stack (e.g. no lidar). Tesla said the cybercab will use vision and AI, implying that it may not use radar (and how it would handle operating in certain weather/lighting conditions without a secondary sensor type is something that may remain a debate).

Optimus

The progress with Optimus was impressive in our view especially given where Tesla was just a few years ago. The robots were very life like in several of the movements, and interacted via voice with attendees, danced, and gave out snacks. We had an impromptu conversation with one of the robots which asked us if we'd checked out the snack bar, and when we asked what it would suggest to eat, it said to ask its friend that was actually giving out snacks (which we found to be relatively human like). We expect Optiumus to be a growing part of the Tesla story.

The TAM for higher-end humanoid robots could be >$10 bn in 2030 per research from a report led by our colleague Jacqueline Du. Recall that on its 2Q24 earnings call, Tesla stated that it expects to have limited production of Optimus Version 1 starting early next year for internal Tesla use (and expects to have several thousand produced and deployed by the end of next year), and expects to ramp production and provide Optimus Version 2 to external customers in 2026.

The analysts are "Neutral-rated" on TSLA shares and believe "that Tesla can grow longer term including with FSD." However, they noted that "headwinds in the auto business" will limit EPS growth in the near term. Their TSLA 12-month price target is $230, based on 65X applied to our Q5-Q8E EPS estimate, including SBC. 

Separately, other Wall Street analysts published notes to clients after the event, with many also detailing how Elon Musk and Tesla were light on details (list courtesy of Bloomberg):

Barclays analyst Dan Levy (equal weight, PT $220)

• Tesla's Cybercab demo was similar to prior sketches, but "the event was light on the details"
• "Consumers able to buy Cybercab, but Tesla also likely planning to operate fleet," Levy said
• The near-term stock reaction is likely to be sell the news, "as the focus now shifts back to fundamentals – which has been neutral at best"

Baird analyst Ben Kallo (outperform, $280)

• The company did not unveil a lower-cost vehicle which can be manufactured on existing factory lines.
• Investor attention will now shift to auto margins in the near term as the company reports 3Q results on Wednesday

Bloomberg Intelligence analyst Steve Man

• "Tesla will likely need to add steering wheels and pedals to scale its robotaxi production by 2026"
• However, the robotaxi announcement provides a better visibility of the company's capabilities in affordable cars and autonomy

Citi analyst Ronald Josey

• Tesla's event clarified the company's vision and timeline for its robotaxi — leading us to be "incrementally positive on Uber shares as a result"
• "Importantly, details regarding distribution or a potential ride-hailing app for the Cybercab were limited, which leads us to believe it's still possible that Tesla could partner with Uber for distribution in the future"

Jefferies analyst John Colantuoni

• Tesla's event is a best-case outcome for Uber as the automaker did not provide verifiable evidence of progress in its self driving technology and it also did not outline the number of robotaxis planned

Morgan Stanley analyst Brian Nowak

• Tesla's $0.20 cost per mile estimate is in line with expectations, confirming its cost advantage
• "This speaks to TSLA's current theoretical cost advantage over Uber's current cars and Waymo"

The market reaction to Thursday's Tesla event this AM in premarket trading in NYC is simply underwhelming. Shares are down 6%. For the past two years, shares have traded sideways, facing resistance above $250. 

Nancy Tengler, the chief executive officer of Laffer Tengler Investments and a Tesla investor who attended the event, told Bloomberg that the only specifics Tesla gave were the $30,000 price tag for Cybercab. 

Tyler Durden Fri, 10/11/2024 - 07:20

Tough Luck For NYC Apartment Hunters: Bargains Scarce As Rents Hover Near Record Highs

Tens of millions of Americans have been battered by a multi-year housing affordability crisis, mainly during the Biden-Harris administration's first term. With high interest rates and record-high home prices, many prospective buyers have been sidelined and forced to remain in their parent's basement or stuck in expensive rentals.

Despite a hotter September CPI print, this morning's inflation report offered some good news: "The silver lining is that shelter inflation continues to slow."

Yet rents are still at or near record highs in markets like Manhattan, giving apartment hunters minimal room for deals anytime soon.

Bloomberg cited new data from brokerage Douglas Elliman Real Estate and appraiser Miller Samuel showing that the median rent in the NYC borough slipped 3.4% in September to around $4.2k. Prices also fell in Brooklyn and Queens. 

Even though shelter costs in NYC are easing in some boroughs, prices are still near record highs - offering minimal deals for apartment hunters. 

Jonathan Miller, president of Miller Samuel, told Bloomberg that while rents typically trend lower in the autumn and winter, only "modest easing" is expected in the coming months, with no significant drops forecasted through the end of the year. 

Bloomberg noted, "That's at least partly because the market remains fiercely competitive. The number of newly signed leases in Manhattan surged 40% from a year earlier, and bidding wars broke out in nearly a fifth of those deals." 

Miller pointed out that the slight drop in rents last month was due to cheaper mortgage costs that turned some renters into buyers. However, with a recent hot jobs report and Thursday's inflation print, the 30-year fixed-rate mortgage tracked by Bankrate has surged from 6.5% to nearly 7%. 

"Think of the direction of rents in terms of the direction of the economy. Wages and employment continue to defy expectations," Miller noted, adding, "Symbolically, the Fed rate cuts are important to the purchase market. But if mortgage rates don't come down, it will stall the decline in rents."

What's often left out from the conversation by leftist media outlets, and correctly pointed out by Sen. JD Vance at last week's vice presidential debate is the topic of the illegal alien invasion stoked by Biden-Harris that is driving up housing costs in various markets: "[Y]ou have got housing that is totally unaffordable because we brought in millions of illegal immigrants to compete with Americans for scarce homes."

The root cause of the affordability crisis is the housing shortage. Biden-Harris importing ten-plus million illegal aliens into the country certainly exacerbated the crisis.

Tyler Durden Fri, 10/11/2024 - 06:55

Hungary Might Delay G7's $50BN Loan To Ukraine Until After US Election

Authored by Kyle Anzalone via The Libertarian Institute,

The Hungarian government announced it will seek to prevent a vote on the European Union’s participation in a $50 billion Group of Seven (G7) loan to Ukraine. The G7 will use investments and interest gained from frozen Russian funds to pay off the loans. 

Finance Minister Mihaly Varga explained that Budapest wants the issue decided within the EU after the US election. "We believe that this issue, the prolongation of the Russian sanctions, should be decided after the US elections. We have to see in which direction the future US administration is going with this issue," he said. 

The $50 billion loan is a scheme devised by Washington and its allies in the G7 to give Ukraine a significant influx of cash without it coming directly from a Western government. The terms of the loan call for Ukraine to receive $50 billion, and then G7 countries that freeze a collective $200 billion in frozen Russian funds will use the interest generated to pay off the loan. 

However, Moscow’s money is frozen as part of the EU’s sanctions on Russia. Those sanctions are renewed every six months, and the loans will take several years to pay off. The White House has refused to sign off on the loan until the EU extends the duration of the sanctions on Russia for at least three years. 

Earlier this month, Western officials said they believed the loan could be approved sometime in October, meaning Kiev would have access to the funds by the end of the year. Budapest’s block will push the loan back at least a week. 

It is unclear what Hungarian Prime Minister Viktor Orbán hopes will change by delaying the loan for a few weeks. Orbán has attempted to create the conditions for Russia and Ukraine to come to the negotiation table with little success.

The Hungarian leader has spoken with former President Donald Trump and believes he may attempt to end the conflict between Msocwo and Kiev if he returns to office. According to fresh words from PM Orbán this week:

Speaking at a press conference in Strasbourg on Tuesday, Orban said that should Trump defeat his Democratic rival Kamala Harris, “he will not wait until the inauguration ceremony … in order to manage a peace” in Ukraine.

Trump “will act immediately, so we as European leaders don’t have any time to waste, because there would not be two or three months, as we usually have between the election and the inauguration of the new president,” Orban said.

He urged European leaders to “react first intellectually, philosophically, then strategically, and then at the level of action as soon as possible.”

EU leadership has meanwhile blasted Orban for being too close to Russia and China...

Ursula von der Leyen slammed Viktor Orbán after he spoke to the European Parliament for cozying up to putin, allowing foreign interference by Russia and China.

“Prime Minister,

“I heard your words over the weekend. You said that Hungary is 'protecting its borders', and that… pic.twitter.com/0uCOhqT5s4

— Yasmina (@yasminalombaert) October 9, 2024

RT writes, "Orban also pointed to foreign policy differences between the current Democratic administration and the Trump team, and admitted that he is rooting for the GOP candidate."

Orbán expectations that Trump will try to end the war may be misplaced. As president, Trump significantly increased Washington’s support for Kiev by sending military aid to Ukraine. Additionally, earlier this year, Trump was crucial in breaking the Congressional impasse over the $95 billion foreign military aid bill that authorized over $60 billion for Ukraine. 

Tyler Durden Fri, 10/11/2024 - 05:00