Month: May 2014

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

When rigged numbers are the basis of our success, we have failed.

When rigged numbers are the basis of our success, we have failed.

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

Events in Ukraine may have been moved to the backburner because not only are they not impacting US equities but have somehow managed to push Russian stocks to pre-sanction highs, but that does not mean that there is any de-escalation in the self-proclaimed eastern regions of Donetsk and Slavyansk where fighting between pro-Russian groups and Kiev army rages on. The latest incident took place a little over an hour ago when Pro-Russian rebels in eastern Ukraine shot down a military helicopter near Sloviansk, killing 14 people, the country’s outgoing president says.

This attack took place following a weekend of heavy fighting in Donetsk following a push against “terrorists” by the new president that left many rebel soldiers dead.

The helicopter was hit during heavy fighting between Sloviansk and Kramatorsk on Thursday after it had dropped off troops at a military base, reports said.

Insurgents shot down an Mi-8 transport chopper with a shoulder-fired missile amid heavy fighting in Slovyansk, 100 miles (160 kilometers) from the Russian border, Speaker Oleksandr Turchynov told lawmakers in parliament in Kiev today.

Below is a clip of the helicopter downing:

Meanwhile, as reported yesterday, Russia offered its services to provide humanitarian aid in the eastern part of the country. Ukraine promptly declined. From Bloomberg:

The Foreign Ministry in Moscow said yesterday that Russia is being asked for humanitarian aid by people in eastern Ukraine affected by the conflict. Russia wants Ukraine’s help delivering supplies across the border and expects “the fastest possible answer,” the ministry said on its website.

Ukraine said thanks, but no thanks.

“This is another element of propaganda,” Ukraine’s Foreign Ministry said. It may also be a “a hidden attempt to help Russian terrorists who are now in a difficult position,” the ministry said in an e-mailed statement today.

Putin, who has repeatedly denied aiding the insurgency, told Italian Prime Minister Matteo Renzi in a phone call on May 27 that Ukraine’s military operations must stop.

“Russia’s goal was and is to keep Ukraine so unstable that we accept everything that the Russians want,” Poroshenko said in an interview with German newspaper Bild that was published yesterday. “I have no doubt that Putin can end the fighting with his direct influence.”

Events like today’s helicopter downing will only further antagonize the two sides, leading to even more vocal demands for Russian intervention by eastern separatists until finally the Kremlin is “forced” to cave.

But perhaps the biggest irony in this latest and most serious escalation episode to date is that it comes days after EU ldears met in Brussels on May 27 and where France’s Francois Hollande said this:  “The possibility of de-escalation is here, finally,” French President Francois Hollande told reporters after the summit ended.

Guess not.

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

• Snowden: ‘no relationship’ with Russian government (Reuters)
• Bond Surge Worldwide Drives Index Yield to One-Year Low (BBG)
• Shares flirt with record highs on ECB easing bets (Reuters)
• Goldman Shuns Bonds Pimco’s Gross Favors in ‘New Neutral’  (BBG)
• Dish to Become Largest Company to Accept Bitcoin (AP)
• To Make a Killing on Wall Street, Start Meditating (BBG)
• Snapchat CEO ‘Mortified’ by Leaked Stanford Fraternity E-Mails (BBG)
• Apple to get Beats, music mogul Iovine for $3 billion (Reuters)
• Fink Says Leveraged ETFs May ‘Blow Up’ Industry  (BBG)
• Porn may be messing with your head (Reuters)
• Iranian Hackers Stalked U.S. Officials, Report Says (BBG)
• Egypt’s Sisi wins presidential election (Reuters)
• Billionaire Forrest Sees Fortune in Australian Beef to China (BBG)
• FBI’s Wanted List Sends Chinese Tech to First From Worst (BBG)

 

Overnight Media Digest

WSJ

* Apple Inc said on Wednesday it is buying Beats Electronics LLC for $3 billion to bolster a music business that has lost some of its mojo, as streaming-music services encroached on the downloads dominated by Apple’s iTunes service. (http://ift.tt/1hBsWF2)

* One of the General Motors Co engineers at the center of the controversy over the company’s handling of a deadly ignition switch defect has met with congressional investigators, indicating lawmakers are accelerating their probe, according to people familiar with the matter. (http://ift.tt/1gDjw0w)

* Valeant Pharmaceuticals International Inc, having so far been spurned by takeover target Allergan Inc, raised its offer to buy the Botox maker to $49.4 billion and sold the rights to some of its skin-care products in an attempt to smooth the antitrust review process if its unsolicited takeover bid is successful. (http://ift.tt/1hBsWF3)

* Hachette Book Group hit back at Amazon.com Inc on Wednesday, rebuffing the retailer’s suggestion that the two jointly compensate authors affected by a dispute between the companies. (http://ift.tt/1gDjw0x)

* Boeing Co said on Wednesday that U.S. air-safety regulators cleared its 787-8 Dreamliner to operate on a wider range of routes, with the jet able to handle longer oceanic and polar crossings as much as five-and-a-half-hours from a suitable landing field in the event of an emergency. (http://ift.tt/1hBsW85)

* Prominent proxy adviser Institutional Shareholder Services urged the ouster of most Target Corp board members for failing to manage risks and protect the company from a massive data breach at the end of last year, a warning to corporate boardrooms to take cybersecurity more seriously. (http://ift.tt/1gDjypq)

 

FT

Scottish engineering company Weir Group Plc said it would pursue other acquisitions after its bid for Finnish rival Metso Oyj was rejected by the heavy mining equipment leader.

Britain’s biggest drugmaker GlaxoSmithKline is facing protests from Chinese junior employees who claim that the group is refusing reimbursement for bribes they were ordered to pay by senior staff amid a formal criminal probe for bribery in China and four other countries.

Tesco Plc, one of the big four grocers in the UK, is set to report its worst quarter in decades amid rising pressure to slash prices in the face of competition from discount chains, the company’s joint brokers said.

Stryker Corp has denied any intention of making a bid for UK rival Smith & Nephew Plc after it emerged that the U.S. medical devices manufacturer was in early stages of preparing an offer.

One of London’s most prominent investment bankers, Ian Hannam, lost his appeal against a heavy fine for market abuse, in a case that has fuelled a high-level debate about the rules around deals and the disclosure of information.

 

NYT

* As renewable energy production has surged in recent years, opponents of government policies that have helped spur its growth have pushed to roll back those incentives and mandates in state after state. (http://ift.tt/1hBsWF6)

* Apple Inc is betting that Jimmy Iovine’s four decades in the recording industry, his knack for trend-spotting and his credibility with artists will help rejuvenate its music business. (http://ift.tt/1gDjyps)

* William Ackman of Pershing Square Capital Management plans to raise money for a closed-end fund that could list on the London Stock Exchange. (http://ift.tt/1hBsW86)

* Suspended General Motors Co engineer Raymond DeGiorgio, who is at the center of accusations that the company covered up a deadly defect, appeared distraught during lengthy questioning by Congressional investigators, according to people familiar with the session. (http://ift.tt/1gDjyFJ)

* Amazon.com Inc and Hachette Book Group took their cases to the public on Wednesday as a dispute over contract terms became clashing visions about the distribution of information in the digital age. (http://ift.tt/1hBsWF8)

 

Canada

THE GLOBE AND MAIL

* A promising Canadian stroke drug has received a rare waiver of consent that allows Toronto paramedics to use the drug on patients without their permission. (r.reuters.com/qaw69v)

* Canadians are “stupid” and post far too much information online, a former head of the national electronic spying agency says, leaving the country with “long ways to go” in protecting personal information in an Internet era. (r.reuters.com/waw69v)

Reports in the business section:

* Bank of Nova Scotia has settled on a plan to unload the majority of its stake in asset manager CI Financial , opting to sell shares directly to public investors by way of a bought deal. The bank is selling 72 million shares at C$31.60 each, amounting to a total deal size of about C$2.3 billion, making it one of the largest public offerings in Canada. (r.reuters.com/rew69v)

NATIONAL POST

* The Canadian government is in the process of hammering out a comprehensive new agreement on internal trade with the provinces, aimed at lowering barriers estimated to cost the country C$50 billion a year. (r.reuters.com/tew69v)

* Ontario Premier Kathleen Wynne is not ruling out teaming up with the New Democratic Party to form a government if the Progressive Conservatives win the most seats in the provincial election, but fall short of a majority. (r.reuters.com/cuw69v)

FINANCIAL POST

* Shares in PrairieSky Royalty Ltd, Canada’s largest initial public offering in more than a decade, start trading on the Toronto Stock Exchange on Thursday. It will be a C$1.46 billion debut closely watched by the company, a spinoff from Encana Corp, investors who bought the 52 million shares being offered, and by lead underwriters. (r.reuters.com/nuw69v)

* Canadian National Railway Co, Canada’s largest rail carrier, said on Wednesday that it was exceeding grain-shipment levels mandated earlier this year by the Canadian government despite a record crop that has squeezed available transportation and infrastructure. (r.reuters.com/quw69v)

 

China

CHINA SECURITIES JOURNAL

– China is supporting the establishment of crude oil futures and is looking to launch futures of the commodity this year, said Wang Yang, vice-president of the China Securities Regulatory Commision (CSRC).

SHANGHAI SECURITIES NEWS

– Bad loans at Chinese commercial banks rose to 646.1 billion yuan ($103.28 billion) at the end of the first quarter from 592.1 billion yuan at the start of the year, according to official data. This marked 10 straight quarters of rising bad loans.

CHINA DAILY

– Chinese teenagers are starting to smoke young, according to a new nationwide survey. Around 20 percent of kids between the ages 13-15 years have tried smoking, with 7 percent being frequent users, the Global Youth Tobacco Survey on China said.

– The Red Cross Society’s Beijing branch signed an agreement with the city’s public security bureau on Wednesday to strengthen cooperation on dealing with emergencies such as terrorist attacks.

SHANGHAI DAILY

– Shanghai will offer tax refunds to cruise tourists in specific venues to boost shopping, the city’s tourism authority said on Wednesday. The city expects 1.08 million cruise tourists this year, up 44 percent on 2013.

PEOPLE’S DAILY

– China’s economy is running smoothly and economic and structural adjustments are showing positive signs, the country’s premier Li Keqiang was quoted as saying in the paper which acts as a mouthpiece of the leadership.

 

Britain

The Telegraph

NATIONWIDE WARNS OF ‘UNINTENDED CONSEQUENCES’ OF CURBING MORTGAGES

(http://ift.tt/1gDjyFN)

Nationwide, Britain’s biggest building society, has warned that efforts to curb mortgage lending in an attempt to cool the London housing market could have “unintended consequences” for the rest of the country.

PENSIONS REFORM LOOPHOLE MAY COST OSBORNE 24 BLN STG

(http://ift.tt/1hBsWF9)

Treasury officials have been warned that the government could miss out on as much as £24billion because of the pensions freedoms announced by the chancellor in his budget, sources have said.

The Guardian

UNEMPLOYMENT RISING IN GERMANY AND FRANCE, FIGURES SHOW

(http://ift.tt/1gDjyFO)

Unemployment is rising in Europe’s two largest economies, with a shock jump in Germany and a new record high in France, according to the latest figures.

BANK OF ENGLAND GOVERNOR: CAPITALISM DOOMED IF ETHICS VANISH

(http://ift.tt/1hBsW8b)

Capitalism is at risk of destroying itself unless bankers realise they have an obligation to create a fairer society, the Bank of England governor has warned.

The Times

ECB PREPARES STIMULUS PLANS AS DEFLATIONARY PRESSURE RISES

(http://ift.tt/1gDjyFQ)

Mario Draghi, the ECB president, has dropped clear hints that some form of stimulus would be launched after the governing council meets on Thursday. Interest rate cuts, quantitative easing and a variation of the UK’s Funding for Lending scheme to help small businesses to access credit are being considered.

MITCHELLS & BUTLERS PLUCKS RIVAL ORCHID FOR 250 MLN STG

(http://ift.tt/1hBsW8c)

Mitchells & Butlers has entered exclusive talks to acquire the rival Orchid pub company for more than 250 million pounds after outbidding the private equity firms Colony Capital and Starwood Capital.

Sky News

BRITISH GAS CHIEFS POISED TO QUIT IN SHAKE-UP

(http://ift.tt/1gDjw0L)

The bosses of British Gas and its parent company are close to stepping down as part of a management shake-up at Britain’s biggest energy supplier.

LLOYDS STEPS TOWARDS FEMALE EXECUTIVE TARGET

(http://ift.tt/1hBsWFc)

The state-backed Lloyds Banking Group has taken a step toward meeting a self-imposed gender target for senior managers with the appointment of another top female executive.

 

Fly On The Wall 7:00 AM Market Snapshot

ECONOMIC REPORTS
Domestic economic reports scheduled today include:
Jobless claims for the Week of May 24 at 8:30–consensus 317K
Q1 GDP at 8:30–consensus down 0.5% for the quarter
Pending home sales for April at 10:00–consensus up 1.0% for the month

ANALYST RESEARCH

Upgrades

AngloGold (AU) upgraded to Overweight from Neutral at HSBC
Biogen (BIIB) upgraded to Overweight from Neutral at JPMorgan
CoreSite Realty (COR) upgraded to Hold from Sell at Cantor
D.R. Horton (DHI) upgraded to Outperform from Sector Perform at RBC Capital
Diamond Offshore (DO) upgraded to Equal Weight from Underweight at Morgan Stanley
Dollar Tree (DLTR) upgraded to Buy from Neutral at Sterne Agee
Harmony Gold (HMY) upgraded to Neutral from Underweight at HSBC
MercadoLibre (MELI) upgraded to Overweight from Neutral at JPMorgan
Palo Alto (PANW) upgraded to Outperform from Perform at Oppenheimer
Palo Alto (PANW) upgraded to Strong Buy from Outperform at Raymond James
Premier (PINC) upgraded to Buy from Neutral at Citigroup
Prospect Capital (PSEC) upgraded to Equal Weight from Underweight at Evercore
Twitter (TWTR) upgraded to Buy from Hold at Cantor
VMware (VMW) upgraded to Overweight from Neutral at Piper Jaffray
Vantiv (VNTV) upgraded to Outperform from Market Perform at Wells Fargo

Downgrades

Celgene (CELG) downgraded to Neutral from Overweight at JPMorgan
Credit Suisse (CS) downgraded to Neutral from Buy at BofA/Merrill
Digital Realty (DLR) downgraded to Hold from Buy at Cantor
Dollar General (DG) downgraded to Neutral from Buy at Sterne Agee
Energias de Portugal (EDPFY) downgraded to Sell from Neutral at Citigroup
HomeAway (AWAY) downgraded to Neutral from Overweight at JPMorgan
Manchester United (MANU) downgraded to Neutral from Overweight at JPMorgan
MedAssets (MDAS) downgraded to Neutral from Buy at Citigroup
New Jersey Resources (NJR) downgraded to Hold from Buy at Brean Capital

Initiations

Atmel (ATML) initiated with an Outperform at Imperial Capital
Chambers Street Properties (CSG) initiated with an Outperform at Wells Fargo
ExamWorks (EXAM) initiated with a Buy at Deutsche Bank
FairPoint (FRP) initiated with a Market Perform at Wells Fargo
Sabre (SABR) initiated with an Outperform at Bernstein
Stone Energy (SGY) initiated with a Buy at Brean Capital

COMPANY NEWS

Apple (AAPL) said it will acquire Beats Music, Beats electronics for $3B
BlackBerry (BRRY) CEO said he believes the company will be cash flow positive or breakeven end of fiscal year
AmSurg (AMSG) said it will acquire Sheridan Healthcare for $2.35B
Intercept Pharmaceuticals (ICPT) said the FDA granted fast track designation to obeticholic acid
Palo Alto Networks (PANW) reported better than expected Q3 results and announced a $175M settlement agreement with Juniper Networks (JNPR)
AT&T (T) and Uber announced a partnership to deliver Uber access to AT&T customers starting this summer

EARNINGS

Companies that beat consensus earnings expectations last night and today include:
Sanderson Farms (SAFM), ReneSola (SOL), Popeyes Louisiana Kitchen  (PLKI), Amerco (UHAL), Palo Alto (PANW), EnerSys (ENS)

Companies that missed consensus earnings expectations include:
Tech Data (TECD), Quality Systems (QSII), Costco (COST), MPLX (MPLX), Safe Bulkers (SB), Gordmans Stores (GMAN)

Companies that matched consensus earnings expectations include:
Descartes Systems (DSGX), Tilly’s (TLYS)

NEWSPAPERS/WEBSITES

Apple (AAPL) to continue Beat Music on Android (GOOG), Windows Phone (MSFT), TechCrunch says
BlackBerry (BBRY) CEO confident company will be saved, Bloomberg reports
BlackBerry (BBRY) CEO says company to focus again on enterprise roots, Re/code reports
Apple (AAPL) content chief sees best product lineup in 25 years, Re/code says
GM (GM) exec feels Google (GOOG) might be ‘serious threat,’ Bloomberg reports
BP (BP) approaches Supreme Court to shield Gulf spill payments, Reuters reports
3D Systems (DDD) stock looks overvalued, Barron’s says

SYNDICATE

BioCryst (BCRX) 10M share Secondary priced at $10.00
Booz Allen (BAH) announces sale of 10M shares for holders
Fabrinet (FN) announces secondary offering of 3.15M shares for holders
Parkway Properties (PKY) files to sell  up to $150M in common stock
RCS Capital (RCAP) announces proposed public offering of Class A Common Stock
Resonant (RESN) 2.25M share IPO priced at $6.00
Rexnord (RXN) 15M share Secondary priced at $25.50
Sophiris Bio (SPHS) files to sell 3.41M shares of common stock for holders
StoneMor Partners (STON) announce public offering of 2.6M common units
Vantiv (VNTV) announces secondary offering of 5.78M shares for holders

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

The complete implosion in volume and vol, not to mention bond yields continues, and appears to have spilled over into events newsflow where overnight virtually nothing happened, or at least such is the algos’ complete disregard for any real time headlines that as bond yields dropped to fresh record lows in many countries and the US 10Y sliding to a 2.3% handle, confused US equity futures have recouped almost all their losses from yesterday despite a USDJPY carry trade which has once again dropped to the 101.5 level, and are set for new record highs. Perhaps they are just waiting for today’s downward revision in Q1 GDP to a negative print before blasting off on their way to Jeremy Grantham’s 2,200 bubble peak after which Bernanke’s Frankenstein market will finally, mercifully die.

Looking at overnight markets, 10yr UST yields are down another half a basis point in Japanese trading at around 2.43%. Other government bonds in Asia Pac are trading firmer today led by Australia (-9bp), New Zealand (-5bp) and Indonesia (-3bp). The gap tighter in US yields is creating a strong search for yield in Asian EM especially in credit as evidence by the strong performance of recent new deals and the strong demand in secondary. This is a continuation of the price action that we saw in LATAM late yesterday. EMFX bellwethers including the INR (+0.1%) and KRW (+0.05%) are trading firmer today, adding on to the solid gains posted yesterday. In Japan, the drop in retail sales in April was worse than expected (-4.4% vs -3.3% expected) following the sales hike of that month, but this is partly offset by the anecdotal evidence from retailers that suggest that sales have recovered well in May. The Nikkei is down slightly overnight (-0.05%) while the Hang Seng (+0.1%) and HSCEI (+0.6%) are on firmer footing.

Outside of rates, another focus in Asia is on the renminbi with USDCNH breaking out of its recent trading range, The CNH has managed to firm a little overnight but the start of this week has seen the currency depreciate about 0.5% against the USD, large in historical context and pushing it to its weakest level since Q3 2012. There have been a lot of reports in recent weeks that the PBoC is in the midst of tweaking reserve ratios and other targeted monetary levers to ease funding pressure on banks. And if we look at onshore money market rates, short term funding costs appear to be stable so far this month, although we enter into the traditionally volatile June period when short term rates have typically fluctuated. DB’s Chinese bank analysts also highlight in a report that China’s financial sector is coping well with the repayment peaks of trust products and higher risk corporate bonds expected in May and June, as most of them have repaid or rolled over, with the unresolved risks concentrated in the coal and mining sectors.

European shares remain mixed with the banks and utilities sectors underperforming and personal & household, oil & gas outperforming. The Spanish and Italian markets are the worst-performing larger bourses, the U.K. the best. The euro is stronger against the dollar. Japanese 10yr bond yields fall; Portuguese yields increase. Commodities gain, with nickel, zinc underperforming and soybeans outperforming. European newsflow remains light with parts of Europe on Ascension holiday and no tier 1 data to guide fixed income or equities markets. BoE’s Weale (neutral) said the BoE needs to start raising interest rates sooner rather than later if it wants to avoid sharp and painful increases in the future, and the BoE can wait a bit longer before first rate hike, but he is not sure how much longer.

Looking at the day ahead, it looks like the main focus will be on the 2nd estimate of US Q1 GDP.  Other data today are US jobless claims and pending home sales.

Market Wrap

• S&P 500 futures up 0.1% to 1910.3
• Stoxx 600 down 0% to 344.3
• US 10Yr yield down 2bps to 2.42%
• German 10Yr yield up 0bps to 1.34%
• MSCI Asia Pacific up 0.2% to 142.2
• Gold spot down 0.3% to $1254/oz

Bulletin headline summary from Bloomberg and RanSquawk

• Fixed income and Equities markets (Euro Stoxx 50 -0.2%) remain subdued with Europe on holiday.
• The USD index has begun to soften and drift back towards its 200DMA after yesterday’s sharp gains.
  Treasuries extend week’s gains amid expectations for additional ECB easing next week, month-end index rebalancing; 30Y yield headed for its 5th straight monthly decline, last seen in 2006.
• Week’s auctions conclude with $29b 7Y notes, yield 2.010% in WI trading vs 2.317% April award; notes yesterday traded below 2.00% level for first time since November
• Bill Gross is betting 5Y Treasuries will do well because markets overestimate how much the Fed will raise rates. Bond managers at Goldman, BlackRock and JPM say he’s wrong and the intermediate bonds he holds will suffer when the Fed lifts borrowing costs
• Argentina and Paris Club creditors agreed on an arrangement to clear overdue debt payments over a five-year period, raising the prospect of international aid
• Vladimir Putin signed a treaty with his counterparts from Kazakhstan and Belarus creating a trading bloc of more than 170m million people to challenge the U.S. and EU
• Obama is offering a less-is-more doctrine to explain his foreign policy, a bow to the reality that after five and a half years in office his strategy remains a puzzle to much of the public
• Yemen’s army has begun a U.S.-backed offensive to dislodge al-Qaeda militants whose growing numbers pose a threat to neighbors including Saudi Arabia
• Pressure grew on U.S. Veterans Affairs Secretary Eric Shinseki to resign as an internal report found “systemic” scheduling problems that have stymied healthcare for veterans
• Sovereign yields mostly lower. Nikkei little changed, Chinese indexes fall. European equity markets lower, U.S. stock futures gain. WTI crude little changed, gold and copper fall

US Economic Calendar

• 8:30am: GDP Annualized q/q, 1Q (S), est. -0.5% (prior 0.1%)
  • Personal Consumption, 1Q (S), est. 3.1% (prior 3%)
  • GDP Price Index, 1Q (S), est. 1.3% (prior 1.3%)
  • Core PCE q/q, 1Q (S), est. 1.3% (prior 1.3%)
• Initial Jobless Claims, May 24, est. 318k (prior 326k)
• Continuing Claims, May 17, est. 2.650m (prior 2.653m)
• 9:45am: Bloomberg Consumer Comfort, May 25 (prior 34.1)
• 10:00am: Pending Home Sales m/m, Apr., est. 1% (prior 3.4%); Pending Home Sales y/y, Apr., est. -8.8% (prior -7.4%) Central Banks
• 11:00am POMO: Fed to purchase $2.5b-$3.25b notes in 2019-2020  sector
• 1:00pm: U.S. to sell $29b 7Y notes

ASIAN HEADLINES

JGBs traded higher by 15 ticks at 145.52 underpinned by spill-over buying in US/European fixed income markets and a weak post-sales tax retail sales. Nikkei (+0.7%) recovered from earlier losses weighed by yesterday’s weakness in US equities.

EU & UK HEADLINES

European newsflow remains light with parts of Europe on Ascension holiday and no tier 1 data to guide fixed income or equities markets.

BoE’s Weale (neutral) said the BoE needs to start raising interest rates sooner rather than later if it wants to avoid sharp and painful increases in the future, and the BoE can wait a bit longer before first rate hike, but he is not sure how much longer.

Final Barclays month end extensions show Pan-Euro Agg at +0.04y (Prelim +0.04y), Sterling-Agg at +0.06y (Prev. +0.02y)

US HEADLINES

US newsflow continues to remain light, with attention now turning to the secondary reading of US GDP, which is expected to be revised lower.

Final Barclays month end extensions show US Treasury at +0.12y (Prelim +0.13y)

EQUITIES

Amid muted European volumes, European indices trade relatively rangebound (-0.2%) while the FTSE 100 outperforms, with Smith & Nephew gaining as a result of continued M&A speculation with Stryker. Elsewhere, financials lag with Commerzbank (-3%) down after a broker move at Exane.

FX

GBP/USD was placed under pressure in early trade, weighed on by GBP/JPY which trades at a one-month low after breaking below the 50 and 100DMAs, with month-end related buying of EUR/GBP also putting pressure on GBP/USD. However both EUR/USD and GBP/USD managed to reverse earlier losses in recent trade amid a weakening in the USD index as it drifts lower towards its recently breached 200DMA and technical buying. AUD is stronger due to overnight CAPEX data from Australia which has pushed AUD/NZD to 5-month highs. Following the BoJ updating their JGB purchases earlier, Morgan Stanley say it’s JPY bullish, with crosses set to come under further pressure, noting that EUR/JPY is now confirming a break below its 200DMA and MS expect USD/JPY to follow.

* * *

DB’s Jim Reid concludes the overnight recap

After 2 weeks of consolidation, bonds resumed their march lower in yield yesterday with US yields hitting 11-month lows and the European complex flirting with all time lows in many markets. Indeed in our 2012 “A Journey into the Unknown” document we showed Dutch yields back to the year 1517. The all time low was 1.49% at the end of December 2012, however last night we closed at just below 1.60 (-5.4bps) and within touching distance of fresh 500 year lows. For France, where we have data back to 1746, we closed 6bps away from all-time lows at 1.72 last night. Germany is still 17bps away from the May 2013 lows but Spain is now at all time lows (data back to 1789) again and Italy is close to near 70 year lows. These are truly remarkable times. As we said when we published “A Journey into the Unknown”, the uniqueness of this situation with yields generally close to multi-century all time lows proves how uncertain the outlook remains. There really is no precedent for so many countries to have such low yields. None of us can know the full ramifications of this.

In simple terms there are 2 ways to look at this. Either bonds are the short trade of the millenium (literally) at these levels or that something very unusual is going on globally and will continue for some time. Our view remains slanted towards the latter although at these levels it really is hard to recommend being long if making a decent return is your aim. We think yields stay low for longer but that we might be near the bottom of the range at the moment.

Outside of Europe, yesterday’s 7bp rally in 10yr UST yields took many by surprise and there were various theories as to what caused it. Some say this was driven by the FT article suggesting that perhaps China was buying treasuries through Belgium. The article says that the reported amount of treasuries held in Belgium, possibly at Euroclear, has doubled from $180bn last October to a current level of $381bn and that potentially China could be behind that flow (Financial Times). Others attributed the rally to month-end buying flows and more short covering from one of the biggest wrong way trades of this year. We should also note that the growing yield differential between US and core European bonds has probably made the former more attractive. For example the differential between UST and Bund yields is around +110bp now, versus a three year average and median of +47bp and +31bp respectively. DB’s George Saravelos also highlights that there has been pent-up fixed income demand from 2013 which has coincided with fresh demand from EM inflows and China-specific intervention.

All these are plausible explanations for what we saw yesterday although we’d also highlight that there is increasing anticipation about what the ECB could unveil in terms of policy easing when they meet next Thursday. Yesterday we got one of the first comments from an ECB official since the central bank concluded its annual gathering in the mountains north west of Lisbon earlier this week. Media reports have said that the ECB is weighing up a package of easing options, and yesterday Executive Board member Yves Mersch confirmed that the policy meeting next week could yield a combination of easing measures to try and tackle the problem of low inflation and credit growth. When asked about the chance of a cut in the ECB’s three main policy rates, Mersch said he assumes the differential between the rates (i.e. the corridor) will be maintained because narrowing the corridor could harm interbank markets – so there is a very real possibility that we see negative deposit rates on this day next week. Partly in reaction to this, EURUSD (-0.3%) hit its lowest level since early February yesterday.

Perhaps the rally in rates was also prelude to today’s release of the second estimate of US Q1 GDP. There is market chatter that we could get a significant downward revision to the first estimate due to revised assessments of business investment, equipment spending and construction activity. Note that the advanced estimates showed that growth was just 0.1% in the first quarter but Bloomberg consensus is expecting this to be downgraded by 60bp, well into negative territory at -0.5%. DB’s Joe Lavorgna is at -0.8%.

Looking at overnight markets, 10yr UST yields are down another half a basis point in Japanese trading at around 2.436%. Other government bonds in Asia Pac are trading firmer today led by Australia (-9bp), New Zealand (-5bp) and Indonesia (-3bp). The gap tighter in US yields is creating a strong search for yield in Asian EM especially in credit as evidence by the strong performance of recent new deals and the strong demand in secondary. This is a continuation of the price action that we saw in LATAM late yesterday. EMFX bellwethers including the INR (+0.1%) and KRW (+0.05%) are trading firmer today, adding on to the solid gains posted yesterday. In Japan, the drop in retail sales in April was worse than expected (-4.4% vs -3.3% expected) following the sales hike of that month, but this is partly offset by the anecdotal evidence from retailers that suggest that sales have recovered well in May. The Nikkei is down slightly overnight (-0.05%) while the Hang Seng (+0.1%) and HSCEI (+0.6%) are on firmer footing.

Outside of rates, another focus in Asia is on the renminbi with USDCNH breaking out of its recent trading range, The CNH has managed to firm a little overnight but the start of this week has seen the currency depreciate about 0.5% against the USD, large in historical context and pushing it to its weakest level since Q3 2012. There have been a lot of reports in recent weeks that the PBoC is in the midst of tweaking reserve ratios and other targeted monetary levers to ease funding pressure on banks. And if we look at onshore money market rates, short term funding costs appear to be stable so far this month, although we enter into the traditionally volatile June period when short term rates have typically fluctuated. DB’s Chinese bank analysts also highlight in a report that China’s financial sector is coping well with the repayment peaks of trust products and higher risk corporate bonds expected in May and June, as most of them have repaid or rolled over, with the unresolved risks concentrated in the coal and mining sectors.

Looking at the day ahead, it looks like the main focus will be on the 2nd estimate of US Q1 GDP. Ahead of that we have the final estimate of Spanish GDP (0.4% expected). Other data today are US jobless claims and pending home sales.

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

Submitted by Mike Krieger of Liberty Blitzkrieg blog,

I have often said that while 9/11 was a horrible event, our collective response to it has been the real tragedy (read my How I Remember September 11, 2001 post). A terrible event is no excuse to become such scared children that we would relinquish the basic freedoms our ancestors fought so hard to secure for us.

The only people who really benefit from an expansion of the surveillance state and a loss of liberties are the rich and powerful. With China’s economy in free fall and increased violence occurring, it appears the leadership there is taking a page out of our post 9/11 playbook. This is what the commute looks like at train stations in Beijing:

This is what cattle in pens look like:

Actually, the cattle have more space. Seriously though, this is all security theatre. As I have mentioned on prior occasions, I have never gone through one of those naked body scanners. Instead, I opt out for the TSA “freedom grope.” Why? Because I know it’s total bullshit and I’m not going along with it.

I fly from Denver to New York City quite a bit and you know what I’ve noticed. While every machine in Denver is now a naked body scanner, all of the machines from the security checkpoint I use in New York are regular metal detectors. I find this bizarre. If the number one target for terrorism can get away with metal detectors, why can’t everywhere else? Because people like former head of the Department of Homeland Security (DHS), Michael Chertoff, need to get paid.

More from the Wall Street Journal:

Already difficult commutes in China’s capital became even more punishing this week, as Beijing beefed up subway security checks in the wake of deadly attacks targeting civilians.

 

Hundreds of unhappy commuters stood in long lines across the city Wednesday morning to undergo enhanced security screenings, which now include body checks as well as bag screenings in several stations. At stations in the city’s north, subway staff said passengers had to wait between 20-30 minutes to get through the security line, up from about 10-15 minutes prior to the new screening requirements.

 

“This is such a hassle,” said Zhi Yajuan, 23, as she stood in line Tuesday at Tiantongyuan North Station. “It’s just going through the motions. They don’t care even if the machine beeps.”

 

Security measures have stiffened across China in recent weeks, following a series of violent attacks since the start of the year. In the most recent incident, 31 people were killed last week in an attack at a market in northwest Urumqi. In March, dozens were killed in an assault by knife-wielding assailants at a train station in southwest Kunming. Authorities have labeled such episodes terrorist attacks and attributed them to separatists in northwestern Xinjiang.

They better ban knives, and quick.

Additional security measures in Beijing now include helicopter patrols, while cities across the country have been further arming their police forces, as well.

I don’t care what kind of security you put in place, if some maniac wants to do something crazy they are going to do it. Personally, I have no interest in living in a society where everyone is scared of their own shadow 24/7. We are all going to die, stop being afraid and start living. Free.

Full article here.

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

The last time we looked at the rather unpalatable issue of soaring bacon prices back in March, it was the direct result of exploding, no pun intended, prices of lean hogs stricken by the aptly named porcine epidemic diarrhea (PED) virus, which killed up to 7 million pigs and pushed the price of pork and its derivatives to record highs. We have bad news: according to Reuters an Indiana farm has become the first to confirm publicly it suffered a second outbreak of a deadly pig virus, fueling concerns that a disease that has wiped out 10 percent of the U.S. hog population will be harder to contain than producers and veterinarians expected. That’s right, the PEDv, aka pig diarrhea bug, is back, and this time it may have mutated.

Prepare for round two:

The state and federal effort to stamp out PEDv has operated on an assumption that a pig, once infected, develops immunity and will not be afflicted by the disease again for at least several years. Likewise, farms that had endured the disease were not known to suffer secondary outbreaks.

 

But a year after the virus was identified, repeat outbreaks have occurred at farms but not been publicly confirmed before now. These so-called secondary outbreaks are a challenge to efforts to stem the disease, which is almost always fatal to baby piglets.

Apparently the state and federal effort ignored the possibility that a virus may, gasp, strike again! “Nationwide, PEDv outbreaks seem to recur in about 30 percent of infected farms, the American Association of Swine Veterinarians told Reuters, confirming for the first time the likelihood of repeated outbreaks.” So it really the first time someone even considered this possibility.

Were they hoping Bernanke would just print more healthy pigs if things didn’t go according to plan? Probably not, but now it is time to scramble to glue the pieces back together:

The U.S. Department of Agriculture is fighting against repeated outbreaks by trying to extend immunity in female hogs through effective vaccines, Chief Veterinary Officer John Clifford told Reuters at the general session of the World Animal Health Organization in Paris. “It happens and it could happen again,” he said about secondary outbreaks of PEDv. “We need to practice good bio-security, cleaning and disinfection, all-in all-out, in order to break the cycle and prevent its re-emergence.”

Something about shutting the farm door after the pig has died from diarrhea…

The one good news, so far, is that the repeat virus does not appear to be a mutant.

In the Indiana case, genetic sequencing showed the “exact same strain” of PEDv hit pigs at the farm in May 2013 and again in March 2014, said Ackerman, who collected samples from the farm.

 

Piglets born to sows that were infected for a second time have a death rate of about 30 percent, compared to near-total death loss among newborn piglets during the first outbreak, he said.

 

The incidence of the disease “re-breaking” on farms after it appeared to have been wiped out, indicates that the risk for ongoing severe losses from the virus is bigger than previously expected. The lack of long-term immunity also means hog producers must keep up strict bio-security measures to fight the disease, which has already spread to 30 states.

However, this leads to another just as problematic possibility: the natural immunity to the PED virus is far shorter than expected:

Preliminary results from studies on immunity, directed by the National Pork Board, confirm “immunity does appear not to be very long lived,” said Lisa Becton, director of swine health information for the board. The board has collected more than $2 million for research on PEDv.

 

…

 

Veterinarians and others have been unable to predict the duration of immunity to PEDv in hogs following exposure, in part because the disease had never been in the United States before last year.

 

Ackerman had thought hogs would have a natural immunity to PEDv for three years after being infected because that is the case for a similar disease called Transmissible Gastroenteritis. “Just because a farm broke with PEDv last year doesn’t mean that they are protected from re-breaking with it this year,” he said in a telephone interview.

 

Ackerman said he did not know why the female pigs, or sows, on the Indiana farm were re-infected after being exposed to the virus during the original outbreak last year. At the time, they were about six months to a year old. The sows are having piglets and passing limited immunity on to their offspring, he said.

 

The farm “does an excellent job of sanitation,” he said. “That’s why it’s so hard to figure out why they’re struggling with it.”

 

The repeat case of PEDv in Indiana puts to rest gossip about a re-break in the state that has passed from one Midwest farmer to another for weeks. Producers are on edge because no vaccine has yet been able to completely protect pigs from the disease.

 

PEDv is transmitted from pig to pig by contact with pig manure, which contains the virus. It can be transmitted from farm to farm on trucks, and many veterinarians also believe it is spreading through animal feed.

Summarizing it best:

The re-breaking is causing concern among farmers and meat packers across the country, as the PEDv outbreak continues to spread with no definitive solution in sight. “If you have that disease, it causes a huge death loss, and then you get it again,” said Josh Trenary, executive director of Indiana Pork. “It’s pretty clear why it would be concerning.”

The other good news: “The virus does not pose a risk to human health and is not a food safety issue, according to the USDA.”

It does, however, pose a huge risk to human wallets, especially those who enjoy eating pork or bacon, because one should certainly expect hog prices to hit fresh new all time highs shortly, only for the BLS to declare them hedonically overstated due to the return of that perfect substitute for pretty much everything: Pink Slime.

via Zero Hedge http://ift.tt/1oLXE3q Tyler Durden

This evening’s interview between Edward Snowden and NBC’s Brian Williams is already stirring up controversy. In one excerpt, Snowden blames the State Department for “stranding him” in Russia, saying he “never intended” to wind up there. John Kerry has been quick to react to this “For a supposedly smart guy, that’s a pretty dumb answer, frankly,” Kerry said. “If Mr. Snowden wants to come back to the United States today, we’ll have him on a flight today.” In an interview with Chuck Todd on MSNBC, Kerry called Snowden a “coward” and a “traitor,” adding that “he should man up and come back to the United States,” the secretary of state said. There is a live special at 11ET (below) after the televised interview.

 

As NBC reports,Snowden was “stranded” in Russia by the State Department…

“I personally am surprised that I ended up here,” Snowden said in the interview, an excerpt of which aired on TODAY on Wednesday morning.

 

Snowden’s comments about his new home came in an extended, wide-ranging interview with Williams, his first with a U.S. television network, airs Wednesday at 10 p.m. ET on NBC.

 

“The reality is I never intended to end up in Russia,” he said. “I had a flight booked to Cuba onwards to Latin America and I was stopped because the United States government decided to revoke my passport and trap me in Moscow Airport.

 

“So when people ask why are you in Russia, I say, ‘Please ask the State Department.”

To which John Kerry responded…

 

“For a supposedly smart guy, that’s a pretty dumb answer, frankly,” Kerry said. “If Mr. Snowden wants to come back to the United States today, we’ll have him on a flight today.

 

“We’d be delighted for him to come back. He should come back. That’s what a patriot would do. A patriot would not run away and look for refuge in Russia or Cuba or some other country. A patriot would stand up in the United States and make his case to the American people,” Kerry added.

 

“He can come home but he’s a fugitive from justice which is why he is not being permitted to fly around the world,” he said.

 

Asked whether he had changed his mind about the nature of Snowden’s actions, Kerry said Snowden “stole” information and did “great damage” to the United States.

 

“The fact is if he cares so much about America and he believes in America, he should trust in the American system of justice,” Kerry said.

 

“But to be hiding in Russia, an authoritarian country, and to have just admitted he was really just trying to get to Cuba — what does that tell you?” he added. “I think he’s confused. I think it’s very sad.”

 

In an interview with Chuck Todd on MSNBC, Kerry called Snowden a “coward” and a “traitor.”

 

…

 

“He should man up and come back to the United States,” the secretary of state said.

Snowden also fought back against critics who dismissed him as a low-level hacker — saying he was “trained as a spy” and offered technical expertise to high levels of government.

At 11pm ET Brian Williams will be hosting a live special analysis of what was said…

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