Neil's Morning Update - 12/5/21

Neil's Morning Update - 12/5/21

Please excuse typos. Mornings are tilted more international, evenings more U.S. Continuing to try to make this more digestible for those who are not as familiar with the markets, lingo, etc. Feel free to leave your thoughts in the comments section, they are appreciated. Also, I don't discuss crypto extensively as I don't consider myself knowledgeable enough to talk intelligently on the subject (and there are plenty of other sources for that). As are reminder, this is a free blog I put out to try to help people get information, so no editors, etc.

A small glossary.

SPX = S&P 500

Naz = Nasdaq Composite

NDX = Nasdaq 100 (100 largest stocks in the Naz)

RUT = Russell 2000 (smaller stocks)

DMA = Daily Moving Average (the moving average over the given time period (20, 50, 100, 200 days normally)).

MACD = Moving Average Convergence Divergence (basically a trend indicator)

RSI = 14-day Relative Strength Index (basically what it sounds like)

BBG = Bloomberg

WSJ = Wall Street Journal

_______________________________________________________________________

After last week's slide, global stocks are mixed with growth stocks continuing to lag, although off their worst levels, while more cyclical ones are doing better as initial data out of S Africa seems to show omicron to be less severe than previous waves. China cut its RRR rate for the second time this year, but Asian stocks still were down some thinking in "catch up" to Friday's action in the US. In the US, RUT up just under eight tenths, SPX +0.35%, and NDX -0.17%.

Here's the SPX futures this morning. Running into the downtrend line still.

In U.S. corporate news (Argus):

Amgen (AMGN 204.70, +2.26): +1.1% after Goldman Sachs initiated coverage of the stock with a Buy rating and a $258 target. GCP Applied Technologies (GCP 30.60, +3.58): +13.3% after agreeing to be acquired by Saint-Gobain (CODYY 13.11) for $32.00/share. Lucid Group (LCID 40.38, -6.89): -15.6% after receiving a subpoena from the SEC. ReneSola (SOL 5.53, +0.30): +5.7% after authorizing the repurchase of up to $50 mln of its shares. Buckle (BKE 50.45, +3.57): +7.6% after announcing a special dividend of $5.65 and increasing its quarterly dividend by 6.1% to $0.35. Kohl's (KSS 50.20, +1.75): +3.6% after an investor sent a letter to the company, urging changes to create value.

As BofA (who we noted was raising concerns in the Friday report) says it sees signs of a "market top". They also noted large inflows into Treasuries and cash in the week through Wednesday.

LONDON, Dec 3 (Reuters) - Narrowing equity market breadth, rising volatility and the prospects of rate hikes are the classic signs of a market top, BofA said in a weekly report on Thursday.

Just five of the biggest U.S. technology stocks accounted for 71% of the nearly 20% gains in U.S stocks, BoFA analysts noted of the performance of shares in a weekly flows note based on EPFR data. The picture was equally worrying for world stocks, with year-to-date returns from a global index excluding the top 300 U.S. growth stocks at a paltry 1.6% despite a record-breaking $1 trillion of equity market inflows so far this year.

Volatility gauges are also signalling caution. While U.S (.VIX) and European stock market volatility gauges (.V2TX) have stepped back from 2021 highs hit earlier this week, they remain far above recent averages.

"Hikes plus volatility plus divergences often a market top make," strategists at U.S. investment bank BofA led by Michael Hartnett said in a note.

U.S. Treasuries saw their biggest inflows since October 2020 while investment-grade and high-yield bond funds saw large outflows. Cash funds saw the biggest weekly inflows at $27.1 billion, followed by equities at $9 billion. BofA said its private clients have trimmed their equity positions for the past three weeks, led by outflows from growth and industrial sectors.

Although Hartnett also says that markets have gotten ahead of themselves in pricing a "Fed mistake":

“The zeitgeist is ‘Fed tightening into slowdown,’ and it will — eventually,” he wrote. “But the economy ain’t slowing yet, and the Fed hasn’t even started tightening."

And to the extent that Bitcoin, SPAC's, IPO's and ARKK represent "retail speculative" buying, it's looking like they may be pulling in their horns a bit. Bitcoin was down 21% at one point over the weekend. BBG.

A brutal bout of selling that wiped billions of dollars from profitless growth companies, IPO stocks and SPACs has now caught up with Bitcoin, further stressing risk tolerances and brokerage balances among small-time traders.

Retail dip-buyers, whose willingness to stand firm amid turmoil has helped power the S&P 500 to a 21% gain in 2021, are nursing some of their worst wounds of the year as losses pile up in speculative corners. A hawkish turn from the Federal Reserve and the omicron variant have erased more than 10% off the market value of cryptocurrencies, $50 billion from newly public companies and 14% from a basket of meme stocks.

If Bitcoin, which trades around the clock, is any indication, markets will be in for more volatility. The cryptocurrency lost as much as 21% since Friday’s stock-market close and swung wildly throughout the weekend. The decline brought it down to around $42,290 at one point, well below its record high of near $69,000 just a few weeks ago. Meanwhile, Bitcoin futures open interest is also plunging and funding rates on a few major exchanges turned negative, meaning those with short positions are paying a premium -- all signs crypto positions are in a liquidation frenzy.

Cathie Wood’s ARK Innovation fund lost near 13%, its worst week since February. An index of special purpose acquisition vehicles, or SPACs, lost around 6% in that period, its worst showing since March. And an exchange-traded fund from VanEck that tracks some of the most-favorably mentioned companies on the internet lost nearly 9%. Additionally, a Goldman Sachs Group Inc. basket of non-profitable tech firms is down 14% over the past five days for its worst week since March 2020 as the Cboe Volatility Index climbed to the highest since January.

As according to Refinitiv Lipper Investors pulled nearly $4 billion from U.S. investment-grade bond funds in the week ending Dec. 1, the biggest withdrawal since April 2020, according to Refinitiv Lipper. Junk funds also bled roughly $2.6 billion. Money markets were the big winner again with the four-week inflow the largest since June.

During Refinitiv Lipper’s fund-flows week ended December 1, 2021, investors were overall net purchasers of fund assets (including both conventional funds and ETFs) for the seventh straight week, adding $32.5 billion.

Money market funds (+$26.3 billion), equity funds (+$13.0 billion), and tax-exempt bond funds (+$36 million) all attracted new money during the fund-flows week.

Taxable bond funds (-$6.8 billion) were the only asset class to suffer outflows. Money market funds have tailed their largest four-week inflow moving average since June 2021.

And Brian Gilmartin updates us on earnings noting that, as is typical at this point in the earnings season (basically the end) the forward 4-quarter estimate is starting to drift down.

• The forward 4-quarter estimate fell $0.06 to $215.97 last week;
• The PE ratio on the forward estimate is 22.9x
• The SP 500 earnings yield increased to 4.76% from 4.70% last week;

And Helene Meisler's Twitter poll comes in tilted to the bearish side for the second week in the last three. The last time was a net -4% negative (this one is -5%) and that's when we started the slide (Nov 20th). Hopefully this one is less accurate.

Asia

Major Asian markets ended lower. Japan's Nikkei -0.4%, Hong Kong's Hang Seng -1.8%, and China's Shanghai Composite -0.5% In economic data: Australia's M1 Inflation Gauge +0.3% m/m (last +0.2%)

In news, the People's Bank of China cut the reserve requirement ratio by 50 bps to 11.5% Chinese property developer Sunshine 100 defaulted on $179 mln of bond payments and Kaisa is reportedly finding it difficult to reach a deal with offshore bondholders to extend a deadline for repaying $400 mln due next week

On the RRR cut. BBG.

The PBOC decision was closely followed by a statement from top leaders pledging to stabilize the economy in 2022, with a Politburo meeting signaling an easing of some property curbs.

The message from the Politburo meeting is more important than the RRR cut, “as it indicates the government may loosen policies in the property sector,” according to Zhiwei Zhang, chief economist at Pinpoint Asset Management.

The Politburo meeting pledged to focus on stabilizing macroeconomic conditions, ensuring that the economy grows in a reasonable range and that society remains orderly ahead of a key Communist Party congress late next year. There will be proactive fiscal policy in 2022 and prudent monetary policy will be flexible, appropriate, and also maintain reasonably ample liquidity, according to the statement from the official Xinhua News Agency after the meeting chaired by President Xi Jinping.

What Bloomberg’s Economists Say

“We think the reduction would help offset the headwinds facing the economy, particularly in the first quarter of 2022. We maintain our view that an additional 50-100 basis points of RRR cut would come next year.”

David Qu, economist

The RRR cut is a “regular monetary policy action,” the PBOC said, downplaying any expectations that the decision was the start of of an easing cycle. “Prudent monetary policy direction has not changed,” it said, adding that the bank “will continue with a normal monetary policy, maintaining the stability, consistency and sustainability of policy, and won’t flood the economy with stimulus.”

And the targeting (as opposed to "flood") of stimulus was reinforced by an article in the People's Daily.

BEIJING, Dec 6 (Reuters) - A Chinese newspaper run by the State Council, or cabinet, warned the market against "simplistic" interpretations of monetary policy moves as easing expectations gathered steam, suggesting China is not about to unleash a huge wave of credit in panic.

Nomura analysts said in a note on Monday that they expect the economy and the property sector in particular to worsen further, and Beijing may have to significantly step up policy easing measures in the spring of 2022 to avert a hard landing.

But the financial daily ruled out the possibility of a flood of stimulus to prop up the economy, saying China would make its policies more targeted to cope with any downward pressure.

As it looks like Evergrande is headed for restructuring as we expected. BBG.

China Evergrande Group is planning to include all its offshore public bonds and private debt obligations in a restructuring that may rank among the nation’s biggest ever, according to people familiar with the matter.

The plan would cover public bonds sold by Evergrande and unit Scenery Journey Ltd., said the people, who asked not to be identified discussing private information. It would also include about $260 million of notes issued by joint venture Jumbo Fortune Enterprises that Evergrande has guaranteed, one of the people said. The formal restructuring process has yet to begin and details of the plan could change.

While Evergrande formally acknowledged the need to restructure its offshore debt for the first time on Friday, the developer’s brief exchange filing left investors guessing at whether the overhaul would encompass its entire complex web of international obligations.

And I noted on Friday the frustration from Western negotiators with the Iranian hard-line positions. It's to the point that even China may not play along. BBG.

Iran’s latest proposals on how to restore a nuclear deal with world powers sharply divided negotiators at talks in Vienna, and could even threaten to dull the diplomatic support it has received from its staunchest ally in Beijing.

Despite China’s ties to Tehran and its role as a key player in negotiations to revive the 2015 agreement, the Islamic Republic appears close to breaching even some of Beijing’s limits after serious problems emerged in the course of talks that ended Friday.

“The Iranian colleagues came up with a written revision to the text we left in June,” said Chinese envoy Wang Qun, adding that the changes left the sides far from a solution and risked bogging down diplomacy. “China continues to facilitate the process by trying to work together in partnership with our Russian colleagues to bring all these parties together.”

The discussions in Vienna this week, the first since a hardline administration took over in Iran, ended and the U.S. team led by envoy Rob Malley is returning to Washington, White House Press Secretary Jen Psaki said Friday. Iran did “not come to Vienna with constructive proposals,” she added.

The stalemate risks spiraling out of control unless Iran reconsiders its positions, according to European diplomats, who asked not to be identified in line with established rules. They suggested China and Russia are urging Tehran to reconsider demands that could set talks back months, an assertion U.S. Secretary of State Antony Blinken echoed during a conference on Friday.

“Even Russia and China are clearly frustrated with what Iran is doing or not doing in these talks,” Blinken said during a panel at the Reuters NEXT conference. “So Iran has some very important decisions to make.”

Among the most contentious Iranian positions was the insistence that its engineers be allowed to continue using some advanced centrifuges that weren’t permitted under the original agreement, according to one of the European officials.

Tehran’s government is also seeking broader respite from sanctions than the U.S. is prepared to give, as well as guarantees that future White House administrations won’t again scuttle the accord.

“Some proposals by Iran are inconsistent with the JCPOA and some go beyond the provisions of the JCPOA,” read a statement by European diplomats, referring to the name of their 2015 agreement with Iran. “Tehran is walking back almost all of the difficult compromises crafted after many months of hard work.”

As money managers have the largest net short position in the Aussie dollar since March 2020.

Europe

As of 8 am Eastern, major European indices trade higher. Germany's DAX +0.5%, France's CAC +0.8%, and the U.K.'s FTSE +0.9%

In news, FT reports that economists and traders now think the Bank of England will forego a rate hike this month to give it more time to assess the impact of the Omicron variant. Fitch raised its sovereign rating for Italy to BBB from BBB-.

In economic data, EU investor confidence and German factory orders were weaker than estimates.

Eurozone's December Sentix Investor Confidence 13.5 (Expected 15.9; last 18.3)

Germany's October Factory Orders -6.9% m/m (expected -0.5%; last +1.8%); November IHS Markit Construction PMI 47.9 (last 47.7)

Italy's October Retail Sales +0.1% m/m (last +1.0%) and +3.7% yr/yr (last +5.4%)

UK's November Construction PMI 55.5 (expected 52.0; last 54.6). UK New Car Registrations (Y/Y) Nov: 1.7% (prev -24.6%).

As the collapse of more than 24 energy suppliers in the UK will cost the average household around 85 pounds next year. Javier Blas does the math. As a side note this estimate is much lower than what many analysts are estimating.

And the situation isn't much better in France.

As the price of carbon in Europe has increased 140% this year. BBG.

European carbon futures rose above 80 euros ($90.272) a ton on Friday for the first time, testing the resolve of politicians who are promising to act aggressively on climate change while grappling with inflation that’s tearing into economies across the globe.

The cost of polluting has increased more than 140% this year after a stricter environmental agenda in Europe was laid out and a sweeping rally in natural gas prices made dirtier coal more economic to use for power generation. The futures price rose as much as 0.7% Friday to 80.42 euros a metric ton on ICE Endex in Amsterdam, before turning negative.

The fast-paced increase in carbon prices has taken policy makers by surprise. Making it expensive to pollute is meant to push dirty fuels out of the power generation and industrial processes. Right now, that’s not really happening. Soaring natural gas prices mean Europe will likely see emissions increase this year as coal plants burn profitably through the winter. That’s uncomfortable for many leaders that made loud pledges at the climate talks in Glasgow last month.

With inflation already surging, rising emission costs aren’t going to help. Rapidly rising carbon prices are stoking concerns that the European Commission could step in to limit speculation in the market.

Commodities/Currencies/Bonds

Bonds - Getting a little bear steepening this morning with longer yields bouncing back a little. The 2-year yield is up two basis points to 0.61%, while the 10-year is up 4 to 1.39%. As a reminder the 10-year yield fell beneath its trendline from the lows on Friday.

As on Friday the implied likelihood of a rate hike in June ticked up to 73.0% from 69.9% on Thursday and 62.3% one week ago.

And traders grow more cautious on corporate bonds. BBG.

A record $2.5 billion poured into the iShares 20+ Year Treasury Bond ETF (ticker TLT) in the week through Thursday as investors sought shelter in government debt amid growing fears about the omicron variant. The bid for Treasuries comes as sentiment on corporate debt sours: short interest on the $38 billion iShares iBoxx Investment Grade Corporate Bond ETF (LQD) is near an all-time high, while traders pulled money from the iShares iBoxx High Yield Corporate Bond ETF (HYG) for a third week.

It’s a worrisome cross-asset signal of additional turbulence ahead as equity markets quake under the combined weight of coronavirus concerns and a surprisingly hawkish tilt from the Federal Reserve’s Jerome Powell. [B]lue-chip spreads are now wider on the year after narrowing to the lowest since 2007 over the summer.

“There is some caution starting to seep in on the part of investors towards credit, given the tight spreads, omicron concerns, and the shift in the Fed’s focus from the labor market to inflation,” said Sameer Samana, Wells Fargo Investment Institute senior global market strategist.

As they start to bet on 2025 rate cuts (I know). BBG.

In one corner of the U.S. rates market, traders have begun to contemplate the possibility of Federal Reserve rate cuts in 2025.

That’s what the eurodollar futures market is predicting, as short-term interest-rate traders are pricing in a substantially lower peak for the Fed’s policy rate than the central bank expects. In other words, they are saying that the U.S. economy can’t cope with the number of rate hikes Fed officials are forecasting.

This is evident in the spread between December 2024 and December 2025 eurodollar futures, which inverted on Wednesday and remained negative Thursday. The inversion means that traders expect the policy rate to peak after just five 25-basis-point rate increases priced in by the end of 2024. The Fed’s latest dot-plot forecast anticipates seven rate hikes by the end of 2024 and another three by the end of 2025.

And JPM's head of fixed income says sell Treasuries and buy corporate bonds. BBG.

Bob Michele, a bond market veteran for more than four decades, is buying corporate debt and telling investors to get in on the bargain by selling government bonds to finance credit purchases.

“You sell government bonds and you buy credit,” the global head of fixed income at JPMorgan Asset Management said in an interview on Bloomberg TV’s Surveillance on Wednesday. “This is an opportunity to get rid of any remaining government bonds you have, and then go back into the credit markets, go back into investment grade and high yield. You can do it in U.S. and Europe. Those are the things you are buying on sale.”

“There’s been a tremendous repricing. You’ve had a flattening of the yield curve. There’s a lot of concern that the Fed is going to move too quickly for the market and will lead to recession,” Michele said. “That’s nonsense. They are miles away from anything that looks normal.”

Michele says the opportunity in corporate debt is clear because companies are financially strong. “Profitability still remains very high,” he said. “Companies we’re talking to don’t see any significant drop-off in aggregate final demand. So their top line is going to grow.”

“Right now, we’re looking at a consumer that is flush with cash, that is out there spending,” Michele said. “Yeah, there may be some headwinds from the omicron variant. We’ll see over the next couple of weeks and months. But for now, corporate profitability looks pretty good. I want to be a part of that.”

Dollar (DXY) - Trading up slightly at $96.17. It's slowly drifted higher the last few day. Remains in intermediate-term uptrend. Daily technicals remain negative.

As BBG notes that funds are very long the dollar as a hedge against stocks.

“The dollar has become of one of the last hedges that are really working in this environment,” Russ Koesterich, Blackrock Global Allocation Fund Portfolio Manager, said in a Bloomberg TV interview. “It has become fairly negatively correlated with stock.”

VIX - Down but remains elevated at 29.31. Still think we should see this coming down towards 20 soon.

Crude (/CL) - Gaining a couple percent today on the back of a Saudi price hike as discussed below. Currently at $68.10 WTI. Coming up on 200-DMA and $70 again which it failed at last week. Daily technicals now mixed with an RSI positive divergence.

As Saudi Arabia shows confidence in demand strength by raising prices for January to Asia and the US. Will be interesting to see if other countries follow (which is normally the case). BBG.

Saudi Arabia raised oil prices for buyers in Asia and the U.S., signaling it sees demand staying strong despite the spread of the omicron variant of the coronavirus.

The move comes days after OPEC and its allies -- a 23-nation group led by Saudi Arabia and Russia -- surprised traders with a decision to boost crude output.

Saudi Aramco increased January’s prices for all crude grades that will be shipped to Asia and to the U.S., according to a statement from the state producer. The company raised its key Arab Light grade for customers in Asia by 60 cents from December to $3.30 a barrel above a benchmark.

While Aramco’s price increase was in line with a Bloomberg survey of traders and refiners in Asia, it suggests bullishness on the part of the company’s management. Chief Executive Officer Amin Nasser said last week he was “very optimistic about demand” and that the market had over-reacted to omicron.

Aramco’s official selling prices, or OSPs, serve as a bellwether for oil markets and often lead the pricing trend in the region. Most Middle Eastern countries set monthly prices as a premium or discount to a benchmark.

And global rigs ex-US tick up but remain well below pre-pandemic levels.

And lost in all of the kerfuffle over the OPEC+ decision of January production was Iraq stymying OPEC's attempt to put in the Kuwaiti nominee to succeed Barkindo next summer. It should be noted of course that while the head of OPEC is an important role, the Saudis and Russians really have the control. Argus.

Opec's attempt to select a replacement for Mohammad Barkindo as secretary-general have been stymied by Iraqi calls for further nominees.

With Barkindo's formal mandate ending in the summer of next year, discussing his successor was on the agenda at the group's bi-annual administrative meeting yesterday, but the session ended with no decision. Opec will now hold an extraordinary meeting in January, immediately before the broader monthly Opec+ meeting, to address the issue.

So far, Kuwait has nominated the only contender for the post — the country's former Opec governor Haitham al-Ghais, who acted as the first chairman of the Opec+ Joint Technical Committee (JTC). Al-Ghais has received support from Opec heavyweight Saudi Arabia, according to one delegate, along with the endorsement of smaller delegations. Iraq yesterday requested further time for other candidates to step forward, hinting that it too might submit a nomination. Baghdad has yet to decide on a nominee.

The position of secretary-general requires unanimous support, according to the Opec statute of 2021, although two delegates suggested that members have agreed to shift the requirement to a majority vote, at least on this occasion. The Opec secretary-general is expected to maintain political neutrality and plays a significant diplomatic role, both within Opec and the wider Opec+ coalition.

Nat Gas (/NG) - Plummeting this morning, down -10% as now we've got systematic strategies dumping as key levels have been breached with continuing warm weather reducing the chances of inventory issues this winter. Below the 200-DMA and $4. Currently at $3.74. Daily technicals very negative.

As John Kemp gives a nice breakdown on the state of the nat gas market.

LONDON, Dec 3 (Reuters) - U.S. gas prices have retreated from their highest level in real terms for more than a decade as mild temperatures and fuel-switching to coal have reduced the chance stocks will fall to critically low levels by the end of winter next March.

Front-month futures have retreated to $4.10 per million British thermal units, down from a peak of $6.30 in early October, which was the highest level in real terms since the financial crisis of 2008. The six-month calendar spread has fallen to a backwardation of 31 cents per million Btus, down from a record $2.30 two months ago, as traders have become more comfortable about the level of inventories.

Working gas inventories in underground storage were 3,564 billion cubic feet at the end of last week, according to the U.S. Energy Information Administration ("Weekly natural gas storage report", Dec. 2). Working stocks were just 92 billion cubic feet (2.5%) below the pre-pandemic five-year seasonal average for 2015-2019, an improvement from a deficit of 180 billion cubic feet (5.8%) to the average in early September. Inventories have risen more (or drawn less) than the five-year seasonal average in 10 out of the 12 most recent weeks (https://tmsnrt.rs/3dhW9dM).

One reason is that the start of the heating season has been warmer than normal, with the number of heating degree days since the start of July around 15% below the long-term average for 1981-2010. Very high gas prices relative to coal have also encouraged generators to run gas units for fewer hours and rely on coal instead, especially cutting back on the use of less-efficient single-cycle gas and steam turbines.

In September, the most recent month for which estimates are available, coal-fired units produced almost 53% of their theoretical maximum generation, up from just 44% in the same month a year earlier.

The probability that inventories will be depleted to critically low levels by the end of main heating season in March has fallen sharply, reflected in a much-reduced calendar spread between March and April 2022. The spread between futures prices for gas delivered in March and April 2022 has softened to a backwardation of just 17 cents per million Btus, down from $1.80 on Oct. 5.

But the winter is still in its very early stages. In an average heating year, running from July 1 to June 30, just 20% of total heating degree days fall on or before Dec. 1, with 80% occurring after this date. Gas inventories have returned close to average, but shortages in Europe and Asia are providing a powerful pull on exports and prices, and there is still plenty of potential for a cold snap to send prices spiking higher.

Gold (/GC) - Trading down a little as it remains in a range the last few days below resistance. Currently at $1780. Daily technicals tilted negative.

Copper (/HG) - Similar to gold, has settled into a range below resistance. Currently up 1%. Daily technicals tilt negative. In longer term uptrend.

US Data

And no new data this morning so I thought I'd post some reactions to the jobs report from Friday which caused a good deal of discussion. If you read my summary you'll understand why. BBG.

Peter Boockvar, chief investment officer at Bleakley Advisory Group, says:

“While the headline number disappointed relative to expectations, the big household survey figure, the rise in the workweek, the increase in the participation rate and employment to population ratio, along with the near 5% average weekly earnings print, all point to a Fed that will quicken the pace of taper as many have said, and we’ll see how that goes before debating rate hikes,” he says.

Carl Riccadonna, Bloomberg Intelligence’s chief industry economist, says:

“This complicates the messaging from the Fed with respect to accelerating the taper process at the December FOMC meeting -- and doing it at a time when job growth is sputtering and case counts accelerating,” he says.

“Nonetheless, Fed officials have been explicit in their communication that they are strongly inclined to adjust the taper at the next meeting. As a result, a Fed charging into mounting headwinds will continue to put pressure on a flatter yield curve -- an unwelcome development for many banks and financial intermediaries.”

Seema Shah, chief strategist at Principal Global Investors:

“Just as the story was starting to come together, the jobs report threw out more questions than answers,” she said. “The November jobs report likely doesn’t change anything for the Fed’s recent hawkish pivot. Keeping monetary policy so accommodative doesn’t seem to have made any meaningful headway with participation, so why continue risking price stability?”

Scott Ladner, chief investment officer at Horizon Investments:

“Ultimately, the bar for the Fed to move MORE hawkishly -- after they’ve been moving that way fairly aggressively over the past 4 weeks -- was not cleared by this employment report. Too many cross-currents in the data to draw clean, clear conclusions of the type that would change minds at the Fed.”

Diane Swonk, chief economist at Grant Thornton LLP:

“The Fed will welcome the drop in unemployment and the jump in participation in the labor market in the household survey with open arms. The miss on payrolls looks like yet another undercount by the establishment survey for November and will be superseded by the surge of more than a million jobs in the household survey when the Fed decides to accelerate the tapering of asset purchases at its next meeting.”

Misc.

Random stuff:

As initial hospitalization studies from S Africa are consistent with Omicron being a milder variant than previous ones. BBG.

Initial data from a major hospital complex in South Africa’s omicron epicenter show that while Covid-19 case numbers have surged, patients need less medical intervention.

The Steve Biko and Tshwane District Hospital Complex in Pretoria had 166 new admissions between Nov. 14 and Nov. 29, with 42 patients currently in the Covid wards, according to a report showing the early experience of patients at the hospital group. Most originally sought treatment for ailments unrelated to the coronavirus and were discovered to have it in testing required for admission.

And a great chart showing that regardless of what inflation does, earnings have a way of dealing with it (as we've seen this year).

And more on issues with the Iranian talks on the JCPOA restart. BBG.

Iran didn’t show seriousness in the latest talks to rejoin a 2015 accord restraining its nuclear program, and the U.S. is preparing for a scenario where restoring the deal won’t be possible, a senior U.S. official said Saturday.

In the seventh round of talks last week, Iran walked back many offers it made in previous sessions and demanded sanctions relief that goes beyond the terms of the original Joint Comprehensive Plan of Action, the official told reporters. Former President Donald Trump abandoned the deal in 2018 and the Biden administration wants to rejoin it.

Iran went into the latest talks calling for the removal of all sanctions that it says violated the deal and prevent it from gaining the promised economic benefits.

Iran’s strategy appears to be to race ahead with nuclear advances to get more leverage in the talks, said the official, who asked not to be identified discussing private deliberations. That strategy will backfire and even Iranian allies such as Russia and China were disappointed by its stance, the official said.

The comments were the Biden administration’s most pessimistic public assessment of the talks to date, and aligned with remarks from European Union officials after the latest round. U.S. officials say they want to return to the 2015 accord, but they demand that Iran end its enrichment of uranium to high levels and other activities that it began in violation of the agreement after Trump quit the deal and reinstated punishing sanctions.

To see more content, including summaries of most major U.S. economic reports and my morning and nightly updates go to Cbus Neil's Blog Posts for more recent or Sethi Associates for the full history.