Month: February 2014

Today the lingering problems of the “emerging” world and concerns about the Fed’s tapering take a back seat to what the European Central Bank may do, which ranges from nothing, to a rate cut (which sends deposit rates negative), to outright, unsterilized QE – we will find out shortly: with 61 out of the 66 economists polled by Bloomberg looking for no rate changes from the ECB today it virtually assures a surprise . However, despite – or perhaps in spite of – various disappointing news overnight, most notably German factory orders which missed -0.5% on expectations of a +0.2% print, down from 2.4%, the USDJPY has been supported which as everyone knows by now, is all that matters, even if it was unable to push the Nikkei 225 higher for the second day in a row and the Japanese correction persists.

Stocks in Europe traded higher since the get-go, with the German DAX index outperforming following consensus beating earnings by Daimler pre-market. On the sector breakdown, telecommunications sector outperformed, supported by earnings by Vodafone, with health care lagging following pre-market earnings by AstraZeneca. Looking elsewhere, Bunds remained under pressure even after supply from Spain (19k Mar-Bund contracts) and France (85k Mar-Bund contracts) was successfully observed, with Spain selling just above the targeted range. At the same time, given the absence of any tier 1 macroeconomic releases this morning, EUR/USD and GBP/USD traded steady, as market participants refrained from making directional commitments ahead of monetary policy announcements by the BoE and the ECB.

Headline bulletin summary from RanSquawk and Bloomberg

• European equities trade in the green ahead of today’s key risk events with the DAX leading the way after positive earnings from Daimler.
• SP/GE 10y spread continues to tighten (-5bps), with Spanish paper outperforming peripheral counterparts, which comes after the Spanish Treasury sold above targeted amount of EUR 5.5bln in today’s auctions.
• Apart from digesting comments from ECB’s Draghi, the latter half of the session will also see the release of the latest US Trade Balance data and the weekly jobs report.
• Treasuries steady, 10Y yield rising further from Monday’s YTD low 2.568% as market prepares for January payrolls report tomorrow, est. +183k, unemployment rate holding at 6.7%.
• ECB is likely to keep policy on hold at today’s meeting, with strong risk of easing in coming months as inflation slows, analysts say. Danske Bank and BNP Paribas joined Deutsche Bank, RBS and Barclays this week in expecting ECB  to cut rates today
• Decision due at 7:45am ET, with Draghi presser at 8:30am
• German factory orders unexpectedly declined in Dec. on weaker domestic demand, falling 0.5% M/m vs est. of 0.2% gain, +2.4% (revised) in Nov.
• Bank of England also meets today, economists expect no change in policy, as Carney and colleagues debate how they can reflect the strength of the U.K. economy in their forecasts without suggesting that interest rates are about to go up; decision due at 7am
• Bank of Japan Deputy Governor Kikuo Iwata says he’s emphasizing the bank’s commitment to ease until inflation is     stable at 2%, saying that this may “not have been so clear to the public”
• Japan’s Abe is considering the biggest change to Japan’s military engagement rules since World War II; would allow the nation to come to the aid of its allies
• Germany’s SPD wants counterespionage against the U.S.; interior policy expert Michael Hartmann says that “who spies on us must expect to become a target as well,” in interview with Rheinische Post newspaper
• Sovereign yields higher. EU peripheral spreads tighten. Asian stock mixed, European stocks higher, U.S. stock-index futures gain. WTI crude, gold and copper higher

Asian Headlines

The Nikkei 225 pared early gains to close with a minor loss of 0.2%, whilst the rest of the Asian equity markets were higher as they continued to stabilise following the heavy sell-off seen at the beginning of the week.

EU & UK Headlines

German Factory Orders (Dec) M/M -0.5% vs Exp. 0.2% (Prev. 2.1%, Rev. 2.4%)
– German Factory Orders WDA (Dec) Y/Y 6.0% vs Exp. 6.3% (Prev. 6.8%. Rev. 7.2%)

UK Halifax House Prices (Jan) M/M 1.1% vs Exp. 1.0% (Prev. -0.6%)
– UK Halifax House Prices 3Mths/Y (Jan) 3M/Y 7.3% vs Exp. 7.2% (Prev. 7.5%)

Markets remain relatively subdued ahead of today’s key risk events. Analysts remain split on today’s ECB rate decision, with the latest source comments suggesting the board is divided on further action from the central bank, as the ECB face constrained liquidity, disinflationary pressures and a strong domestic currency. Full rate decision due at 1245GMT/0645CST, with the following press conference at 1330GMT/0730CST. (RANsquawk)

US Headlines

Newsflow remains light from the US as participants look ahead to tomorrow’s Nonfarm Payrolls release, with various banks cutting their forecasts for the figure after yesterday’s softer than expected ADP reading.

Equities

Credit Suisse shares are trading marginally lower (-1%), underpinned by somewhat less than impressive earnings pre-market. As a result, the SMI index has underperformed its peers and is seen little changed.

Twitter shares initially moved higher in after-market trade following the release of the EPS and revenue figures but then reversed to trade down as much as 15% as monthly active users were lower than expected and EBITDA for Q1 was below forecasts.

FX

Ahead of policy announcement by the BoE and the ECB, both EUR and GBP pairs trade little changed, with the USD index unchanged on the session. At the same time, AUD/USD continues to trade higher, albeit off the best levels posted overnight, following the release of the latest trade balance data, with supports seen at the 50DMA line at 0.8917

Commodities

Credit Suisse have raised their 2014 nat gas price forecast, citing extreme weather in US and falling inventories. (RTRS) Iranian fuel oil exports may be reduced by 50% next month as maintenance work at the Abadan refinery is set to cut output.

The country may ship around 200,00 metric tonnes of fuel oil in March, compared with as much as 400,000 this month, and 350,000 in January. (BBG)

Indian gold jewellery imports have surged nearly 4-fold to 4-5 tonnes in January from 1-1.5 tonnes in November. (RTRS)

* * *

DB’s Jim Reid concludes the overnight recap

Today’s main event is the ECB meeting where our economists expect the ECB to cut all policy rates by 5-10bps, which would imply a small negative deposit rate. Mark and Gilles believe that given the decline in excess reserves, a small negative deposit rate will have more signaling content than direct stimulus. It would also signal ECB’s willingness to adopt new non-standard policies as well as a signal that the central bank is happy to accept a weaker EUR. This is certainly not a consensus view with 61 out of the 66 economists polled by Bloomberg looking for no rate changes from the ECB today. Our thoughts are that the ECB will probably have to do QE (or something closely resembling it) later in the year but that any move today (or soon) is a necessary stepping stone as they exhaust alternative options.

Away from the ECB, markets are trading firmer overnight with major Asian bourses higher on the day. Sentiment overnight is perhaps also being helped by stronger-than-expected Australian trade data. The trade surplus in December came in at A$468mn against the market consensus of an A$200m deficit. Whilst our Australian economics team noted that the outsized gain was driven by a large rise in the value of ‘cereal grains and cereal preparation’ exports, markets seem to be taking the strong iron ore export gain (+2.4% mom) as a positive read-through for China. Chinese markets are still closed for Chinese New Year celebrations but the ASX 200 (+1.2%) is up for the first time this week whereas the KOSPI (+0.9%) is extending small gains for the second consecutive day. Asian cash and CDS spreads are mostly tighter across the board. Indonesian sovereigns are around 3/8pts higher across the Dollar curve whilst the bid tone for Korean credit also remains very firm. Treasuries are modestly weaker with the 10yr up 5bps to 2.68% over the last 24 hours or so.

EM sentiment was also supported by Moody’s upgrade of Mexico’s sovereign rating (to A3/Stable from Baa1) during US hours yesterday. Moody’s is the first rating agency to move Mexico into the single-A bucket saying that the decision was driven by the country’s structural reforms which are expected to increase potential GDP growth and improve its fiscal fundamentals. Moody’s upgrade triggered a round of protection selling in credit which moved Brazil and Mexico CDS 6bps and 4bps tighter, respectively. Mexico is rated BBB+/Stable by both S&P and Fitch.

The Asian market is perhaps also responding to the US market closing (-0.20%) off its intra-day lows. Overall the data flow yesterday was mixed. In Europe the final non-manufacturing PMI reading came in slightly below the flash estimate (51.6 v 51.9) with the January US ADP report also modestly below expectations (175k v 185k). The ISM services data for January also came in slightly above market (54.0 v 53.7) with the employment sub-reading also showing some signs of month-on-month improvement. Staying on jobs, with the ADP coming in 25k below DB’s economics forecast, Joe LaVorgna has similarly trimmed their forecast for this Friday’s NFP by 25k to 175k. Their unemployment rate forecast remains unchanged at 6.5% (vs 6.7% in December).

In terms of today, the data docket will feature December’s trade data and weekly jobless claims in the US. The Fed’s Tarullo will also testify on Financial Stability later today. European and German factory orders are due today and we also have BOE’s policy meeting today (no change expected by the market and DB). All eyes will clearly be on the ECB meeting though.

via Zero Hedge http://ift.tt/1eAJONs Tyler Durden

Gold rose $3.20 or 0.25% yesterday to $1,257.90/oz. Silver rose $0.36 or 1.8% to $19.85/oz.

Gold is marginally higher in all currencies today. Gold appears to consolidating above the $1,250 level and strong support is at $1,200/oz.

Gold in US Dollars, 1 Year – (Bloomberg)

Demand for physical gold and silver remains robust. The U.S. Mint has raised its silver coin supply to 850,000 ounces this week. That compares with 761,000 1 ounce American Silver Eagle coins allocated last week, Michael White, a spokesman at the U.S. Mint, told Bloomberg. Sales by the mint last month rose to 4.775 million ounces from 1.2 million ounces in December.

The World Gold Council has confirmed that the all-in production costs to produce one ounce of gold is around $1,200 an ounce. A drop below that level  for a sustained period of time would have a significant effect on miners’ production, World Gold Council Director of Investment Research Juan Carlos Artigas said yesterday.

If gold dips below $1,200 per ounce for a “sustained” period, serious production cutbacks are likely.

About 30% of the gold mining industry becomes unprofitable if prices fall below that threshold, the council estimates.

 

Massive capital writedowns from 2013, from the world’s largest gold miner Barrick Gold Corp. (TSE:ABX) among others, could also “impair future production for some miners,” said the council’s 2014 outlook.

Global mine production is likely to hit 2,980 tons in 2013, up 4% from the year before. Gold mines can take years to come online, up to 20 years after deposits are first discovered. The industry is also  beset by a shortage of qualified mining engineers.

 

“There’s a real cost of getting it out of the ground. And that cost has to be accounted for” said the Council.  The council’s view adds to existing research highlighting $1,200 per ounce as a key price threshold.

Declining scrap or recycled gold supply, which fell to a five-year low in 2013, exacerbates a “tight supply picture”, said Artigas. 

 

Find out why Singapore is now one of the safest places in the world to store gold in our latest gold guide – Essential Guide To Storing Gold In Singapore

via Zero Hedge http://ift.tt/1iv9DP3 GoldCore

Submitted by Zahchary Zeck of The Diplomat,

 

via Zero Hedge http://ift.tt/1avUQUQ Tyler Durden

The US minimum wage has been a common news topic lately – increasing its sound and fury since President Obama's State of the Union proclamation of a rise in federal employee minimum wages to $10.10 (from $7.25). While obviously a contentious political issue, one question keeps coming up – will this help? As BofAML notes in a recent report, a simple back-of-the-envelope calculation suggests that the rise in wages from a minimum wage increase would amount to fractions of a percentage point on macroenomic data. There simply are not enough people working at (or below, since some jobs are exempted) the minimum wage to have a noticeable impact on the total wage bill and in the end, there are just too few people, earning far too little, at the minimum wage to meaningful affect aggregate macroeconomic statistics. So why is he doing it?

Via BofAML:

The Chart below shows the limited coverage of minimum wages upon the labor force.

According to BLS data, in 2012 there were just over 129mn wage and salary earners in the US, and a little less than 3.6mn were paid at or below the federal minimum on an hourly basis. In other words, only about 2.8% of US wage earners were paid at or below the minimum wage. This share has risen in recent years, likely due to increases in the statutory minimum from 2007 and 2009, as well as the recession pushing some workers into low-paying jobs. Even restricted to just hourly workers, of which there were about 75mn in 2012, according to the BLS, less than 5% are paid at or below the minimum.

To figure out the effect of a minimum wage increase on wages in the aggregate, we have to make a few approximations for unavailable data. First, the share of workers at or below the minimum appears to have been trending slightly lower — as one might expect as the economy recovers — but let’s be conservative and assume it still stands at 2.8% today. Next, we need to figure out the share of wages, not persons, being paid at the minimum. Since those at the minimum wage are earning less than those above, less than 2.8% of wages are at the minimum — in fact, well less.

Chart 1 shows the minimum wage as a share of the prevailing hourly wage for private production and nonsupervisory workers. We plot this measure as it has a long history, which shows that the current share of around a third is not particularly high. The average wage across all workers in 2013 was about US$24/hour — nearly US$4/hour higher than production and non-supervisory workers.

But, as Chart 2 shows, average wages vary significantly across sectors — as do the relative sizes of each sector, shown as the share of total private sector hours along the horizontal axis.

For the sake of argument, let’s assume that the minimum wage does increase from the current US$7.25/hour to the proposed US$10.10/hour. That is a US$2.85/hour increase, or 39%! Surely that has to be inflationary?

Not necessarily. As a rough approximation, US$2.85 on a US$24 average hourly wage is nearly a 12% gain. But with just 2.8% of wages subject to the minimum, the overall impact is a 0.33% increase in average hourly earnings. This is very unlikely to be noticeable at all in the wage, let alone the inflation, data. If we use the 5.5% from the prior paragraph, the impact would be doubled, but still less than a percentage point increase in average hourly wages. Of course, these are very simple computations, but this exercise gives useful ballpark figures.

The minimum wage increases that have been enacted at the state level this year are smaller in size — the largest, a US$1.00/hour increase, brings the minimum wage for New Jersey to US$8.25/hour. This is only a little more than a 4% increase in the average hourly wage, so even if 8% of the workforce was affected, the impact on wages would still be just 0.33%.

In the end, there are just too few people, earning far too little, at the minimum wage to meaningful affect aggregate macroeconomic statistics

So one has to ask – if the rise in the minimum wage has begligble effects on growth or inflation and has the potential to price some out of the employment market – why is President Obama so insistent on its occurrence?

via Zero Hedge http://ift.tt/1jhk8cq Tyler Durden

The US minimum wage has been a common news topic lately – increasing its sound and fury since President Obama's State of the Union proclamation of a rise in federal employee minimum wages to $10.10 (from $7.25). While obviously a contentious political issue, one question keeps coming up – will this help? As BofAML notes in a recent report, a simple back-of-the-envelope calculation suggests that the rise in wages from a minimum wage increase would amount to fractions of a percentage point on macroenomic data. There simply are not enough people working at (or below, since some jobs are exempted) the minimum wage to have a noticeable impact on the total wage bill and in the end, there are just too few people, earning far too little, at the minimum wage to meaningful affect aggregate macroeconomic statistics. So why is he doing it?

Via BofAML:

The Chart below shows the limited coverage of minimum wages upon the labor force.

According to BLS data, in 2012 there were just over 129mn wage and salary earners in the US, and a little less than 3.6mn were paid at or below the federal minimum on an hourly basis. In other words, only about 2.8% of US wage earners were paid at or below the minimum wage. This share has risen in recent years, likely due to increases in the statutory minimum from 2007 and 2009, as well as the recession pushing some workers into low-paying jobs. Even restricted to just hourly workers, of which there were about 75mn in 2012, according to the BLS, less than 5% are paid at or below the minimum.

To figure out the effect of a minimum wage increase on wages in the aggregate, we have to make a few approximations for unavailable data. First, the share of workers at or below the minimum appears to have been trending slightly lower — as one might expect as the economy recovers — but let’s be conservative and assume it still stands at 2.8% today. Next, we need to figure out the share of wages, not persons, being paid at the minimum. Since those at the minimum wage are earning less than those above, less than 2.8% of wages are at the minimum — in fact, well less.

Chart 1 shows the minimum wage as a share of the prevailing hourly wage for private production and nonsupervisory workers. We plot this measure as it has a long history, which shows that the current share of around a third is not particularly high. The average wage across all workers in 2013 was about US$24/hour — nearly US$4/hour higher than production and non-supervisory workers.

But, as Chart 2 shows, average wages vary significantly across sectors — as do the relative sizes of each sector, shown as the share of total private sector hours along the horizontal axis.

For the sake of argument, let’s assume that the minimum wage does increase from the current US$7.25/hour to the proposed US$10.10/hour. That is a US$2.85/hour increase, or 39%! Surely that has to be inflationary?

Not necessarily. As a rough approximation, US$2.85 on a US$24 average hourly wage is nearly a 12% gain. But with just 2.8% of wages subject to the minimum, the overall impact is a 0.33% increase in average hourly earnings. This is very unlikely to be noticeable at all in the wage, let alone the inflation, data. If we use the 5.5% from the prior paragraph, the impact would be doubled, but still less than a percentage point increase in average hourly wages. Of course, these are very simple computations, but this exercise gives useful ballpark figures.

The minimum wage increases that have been enacted at the state level this year are smaller in size — the largest, a US$1.00/hour increase, brings the minimum wage for New Jersey to US$8.25/hour. This is only a little more than a 4% increase in the average hourly wage, so even if 8% of the workforce was affected, the impact on wages would still be just 0.33%.

In the end, there are just too few people, earning far too little, at the minimum wage to meaningful affect aggregate macroeconomic statistics

So one has to ask – if the rise in the minimum wage has begligble effects on growth or inflation and has the potential to price some out of the employment market – why is President Obama so insistent on its occurrence?

via Zero Hedge http://ift.tt/1jhk8cq Tyler Durden

It would seem, in the case of momo-chasing levered fast-money flows, that Propertius was correct – “fickleness has always befriended the beautiful…” and Japanese stocks are no longer the once beautiful trend that Abe had promised them to be. A tapering of the US flow; a ripple across the bow of emerging markets; and suddenly Kyle Bass’ sarcastically-named “macro tourists” are running for exits as Shakespeare himself once wrote, “was ever feather so lightly blown to and fro as this multitude.” Historical quotations aside, the last time flow swung so violently negative, the Nikkei ended up losing 55% in the next 18 months. We love the smell of nay-sayers in the morning…

Foreigners sold the most Japanese stocks last week since 2010 and before that since the credit crisis started to implode…

 

This outflow was 3x the size of the entire selling following the tumble in May/June last year.

 

and just in case you are banking on that flowing back to the US… think again – as we are trying to explain – it’s not real money, it’s credit-created leverage…

The ironists among market punters will even attempt to construe all this as a reason to buy more developed world stocks on the premise that the money flooding out of such places as Thailand, the Ukraine, Turkey, and Argentina will be parked in the S&P and the DAX (perhaps overlooking the fact that the purchase price of these now-unwanted positions was most likely borrowed, meaning that their liquidation will also extinguish the associated credit, not re-allocate it).

A gentle reminder of days gone by when rational investors roamed the markets…

 

Charts: Bloomberg

via Zero Hedge http://ift.tt/1bwBw8a Tyler Durden

“The market is way overdue for a 20 to 30% drop,” Marc Faber warns, “but that is not what worries him.” Sarcastically reflecting on the typical talking-head that appears on financial media, Faber adds you won’t “hear this view from someone who is fully invested,” as he “hopes the market drops 40% so stocks will become – from a value point of view – attractive.” The outspoken Faber channels Jim Grant as he exclaims, “the experience with quantitative easing is a complete failure. It has lifted asset prices and created asset inflation, but it hasn’t lifted the standard of living of most people in the U.S. nor worldwide.”

 

“I think the market is way overdue for a 20 to 30 percent correction,”

“nothing worries me… In fact, I’m hoping for the market to drop 40 percent so stocks will again become—from a value point of view—attractive.”

“But that is not the view of someone who is fully invested—obviously not.”

“Stocks are by-and-large fully priced“

“I think the experience with quantitative easing is a complete failure. It has lifted asset prices and created asset inflation, but it hasn’t lifted the standard of living of most people in the U.S. nor worldwide.”

On the chance of a bounce (and what next?)

“If the rebound fails around 1,820 [on the S&P 500] and then the market starts to drift again on the downside, and we see important shares for the market such as General Motors, GE, MMM, Coke … failing to make new highs, then I think we can assume that something more serious is in the offing.”

via Zero Hedge http://ift.tt/1e4J0vS Tyler Durden