Month: August 2014

UK Home Secretary Theresa May has announced that a terrorist attack on the UK is :highly likely,” although stressed that there is no information to suggest an attack is imminent:

• *UK TERROR THREAT LEVEL RAISED TO SEVERE FROM SUBSTANTIAL
• *REAL AND SERIOUS THREAT IN THE UK FROM TERRORISM, MAY SAYS

Her decision is based on the latest intelligence from Syria and Iraq (and we suspect, as Brandon Smith notes, “the goal will be to terrify you and those around you into seeking out a more powerful, more centralized government authority to protect your security.”)

 

As Press Association reports,

She said: “The Joint Terrorism Analysis Centre (JTAC) is responsible for setting the national threat level. That informs the decisions of security professionals across the public and private sectors about the appropriate level of security in place across the United Kingdom.

 

“JTAC’s judgements about that threat level are made on the basis of the very latest intelligence and are independent of ministers.

 

“JTAC has today raised the threat level to the UK from international terrorism from SUBSTANTIAL to SEVERE. That means that a terrorist attack is highly likely, but there is no intelligence to suggest that an attack is imminent.”

*  *  *
Time to strike fear into the people who will come begging for the government to help save them… as Brandon Smith notes,

“the goal will be to terrify you and those
around you into seeking out a more powerful, more centralized government
authority to protect your security.”

via Zero Hedge http://ift.tt/1thab3y Tyler Durden

Judging by the just released personal income and spending data, consumers are already forecasting a long, harsh winter. With incomes and outlays expected to rise by 0.3% and 0.2% respectively, the July data was a big dud, missing on both expectations, and while income rose by a modest 0.2%, far below the 0.5% in June, it was personal spending which in fact declined by 0.1%, a major drop from the 0.4% increase in the prior month, and the first outright decline in spending since January. As CNBC’s Steve Liesman explained the disappointing data: “weather.”

 

The monthly tumble in spending is clearly an indication that either the lovely weather is not priced to perfection, or harsh winter is coming:

 

The very unexpected drop in outlays was driven by a contraction in spending for both Durable ($9.1) billion and Non-Durable Goods ($3.4) billion.

 

And while today’s income and spending data is bad news for the economy and Q3 GDP, which is about to be slashed by 0.5% by the sellside, likely pushing it into the 2%-range, it is great news for the tapped out US consumer, whose (repeatedly revised) savings rate of 5.7%, up from 5.4% in June, just rose to the highest since 2012.

via Zero Hedge http://ift.tt/1qKX5t4 Tyler Durden

Having been quiet for a few days, comfortable sitting back and watching NATO, Europe, and the US escalate each other’s talking points to a frenzy of populist revolt, Russia’s Vladimir Putin has come out swinging this morning:

• *PUTIN: NO MATTER WHAT U.S. DOES, IT TURNS OUT LIKE LIBYA, IRAQ
• *PUTIN SAYS UN CAN’T BE FOREIGN POLICY TOOL FOR U.S., ALLIES
• *PUTIN: EUROPEAN LEADERS FAR FROM SHOWING INDEPENDENT THINKING
• *PUTIN SAYS RUSSIA IS COUNTRY THAT DOESN’T FEAR ANYTHING

In addition to discussions of The Bolsheviks, agreeing Stalin was a tyrant, and slamming liberal economic models for creating crises, Putin notes his approval rating is high because “he is confident he’s right.”

Some more fun soundbites:

• *PUTIN SAYS BOLSHEVIKS BETRAYED NATIONAL INTERESTS IN WWI
• *PUTIN SAYS UNFORTUNATELY SUCH PEOPLE IN RUSSIA TODAY
• *PUTIN SAYS LIBERAL ECONOMIC MODEL LEADS TO BUILDUP OF CRISES
• *PUTIN SAYS NOBODY DENIES STALIN WAS A TYRANT
• *PUTIN SAYS LEADERS WIN SUPPORT BY BEING CONFIDENT THEY’RE RIGHT
• *PUTIN: FIGHTS AT UN SOMETIMES FIERCER THAN DURING COLD WAR
• *PUTIN SAYS UNITED NATIONS NOT ALWAYS EFFECTIVE

And perhaps of most note… just as Obama pronounced yesterday that US would not engage militarily:

• *PUTIN: RUSSIA FAR AWAY FROM BEING SUCKED IN GLOBAL CONFLICT

But…

• *PUTIN SAYS RUSSIA IS NUCLEAR POWER, STRENGTHENING CAPABILITIES
• *PUTIN: RUSSIA STRENGTHENS ARSENAL TO FEEL SAFE, NOT THREATEN
• *PUTIN: DON’T THINK ANYONE SEEKS LARGE-SCALE CONFLICT W/ RUSSIA

*  *  *

So – just like the Cold War – military build-up on either side and constant escalation in tensions…

via Zero Hedge http://ift.tt/1qKX4Fj Tyler Durden

Curious why European bond yields tumble to fresh new lows day after day (with the explicit backstop of the ECB of course, which makes fundamental analysis of sovereign solvency an irrelevant matter)? Then look no further than Italy, where as the chart below shows, not only has the economy “filled the gap” of its economy as tracked by its EU-Harmonized CPI, but at an August print of -0.2%, this is the lowest print in history, worse even than the brief -0.1%, flirt with deflation recorded just in the aftermath of the Lehman crash.

But it wasn’t only Italy: as Eurostat also reported today, Euroarea inflation also dropped once again, touching 0.3%, down from 0.4% a month ago, the lowest print October 2009.

 

… driven lower by plunging energy costs:

 

Finally, concluding the trifecta of terrible data was European unemployment, which remained at 11.5%, just shy of its all time high.

 

Finally, the worst news: youth unemployment across the Old Continent remains at stratospheric levels, and in fact is rising in several places such as Spain, where it just rose to 53.8% and Ireland, up to 25.1%.

 

Good luck Mario, surely this time QE will finally work.

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

• Obama Cools Talk of Strikes Against Islamic State in Iraq or Syria (WSJ)
• Separatists say will allow ‘trapped’ Ukrainian forces to withdraw (Reuters)
• Ukraine Fighting Surges as Russian-Backed Forces Gain (BBG)
• Missouri police sued for $40 million over actions in Ferguson protests (Reuters)
• BTFDividend stocks? Tesco Slumps as Retailer Slashes Dividend 75% on Forecast (BBG)
• In town halls, U.S. lawmakers hear voter anger over illegal migrants (Reuters)
• Obamacare’s Latest Threat Nears Turning Point in Court (BBG)
• Untangling the Mess of Austrian Bank Hypo (WSJ)
• The billion-dollar fall of the house of Espirito Santo (Reuters)
• Manhattan Condo Resale Prices Reach Record High (BBG)
• California Drought Squeezes Wells: State Considers Regulating Groundwater Use for First Time (WSJ)
• Hedge Funds Hunting Clues in Treasury Tax-Inversion Limit (BBG)
• Tragedy-hit Malaysia Airlines to lose 6,000 jobs in bold revamp (Reuters)
• Jet Fuel Crunch Strikes New York Airports Before Holiday (BBG)
• Volcano Erupts in Papua New Guinea (WSJ)
• Google tests airborne drones to deliver goods (Reuters)
• Corn Heists Turning Grain Port Into Argentina’s Chicago (BBG)
• Syrian refugees top 3 million, half of all Syrians displaced: U.N. (Reuters)
• IBM launches Watson system for research, hopes for breakthroughs (Reuters)

 

Overnight Media Digest

WSJ

* President Barack Obama signaled the U.S. has no immediate plans to escalate military operations against Islamic State extremists in Iraq or Syria, stressing the need to counter the group’s advance while formulating a broader strategy to protect U.S. interests and allies. (http://on.wsj.com/1tQuYsK)

* Google Inc’s advanced-research lab Google X said on Thursday it was developing a system of drones to deliver goods. Google said a 5-foot-wide single-wing prototype from its Project Wing carried supplies including candy bars, dog treats, cattle vaccines, water and radios to two farmers in Queensland, Australia, earlier this month. (http://on.wsj.com/VU8ytR)

* Some of the nation’s largest banks distanced themselves from a cyberattack that hit J.P. Morgan Chase & Co, saying they had no indication they had been the victims of a similar incident. Their comments came as law-enforcement officials pursued investigations of potential breaches at J.P. Morgan and a handful of other financial institutions that haven’t been identified. (http://on.wsj.com/1orM2j8)

* Vivendi SA in a swift decision on Thursday favored an offer worth nearly $10 billion for its Brazilian telecommunications business from Spanish telecom giant Telefónica SA over a bid from rival Telecom Italia SpA , ending a surprise bidding war between two of Europe’s largest telecom companies.(http://on.wsj.com/1tg8wvn)

* A PG&E Corp electrical substation for Silicon Valley was breached for a second time, despite the utility’s efforts to bulk up security following an armed attack last year. The Metcalf substation is a critical piece of Silicon Valley’s grid, flowing power to America’s technology hub. (http://on.wsj.com/1ljAvaJ)

* Government-bond yields touched new lows in the U.S. and Germany, as investors piled anew into ultrasafe debt amid growing concern about the pace of European growth. The gains underscore the dynamics that have made government bonds a surprise star performer this year – a winning streak many analysts now expect will continue. (http://on.wsj.com/1vTHPKY)

* Bankers have been using code names to keep reporters, traders and even rival companies from sniffing out deal news before formal announcements are made. But deal-making powerhouse Goldman Sachs Group Inc is putting an end to the name game, opting instead to automate the process to avoid the pitfalls that go with the territory. (http://on.wsj.com/1vTIWKK)

* Twitter Inc plans to open an office in populous Indonesia in the next three to six months, an executive said, highlighting the importance of fast-growing emerging markets as the company seeks future growth. (http://on.wsj.com/1qm13qY)

 

FT

President Barack Obama said on Thursday that he has not yet developed a broad strategy for confronting Islamic State, dampening expectations of imminent US military action against Islamist radicals in Syria.

Moscow faced more backlash over growing evidence of its direct military involvement in eastern Ukraine after Nato warned on Thursday that Russia has well over 1000 troops operating inside the country.

Ahead of next month’s independence referendum, British Prime Minister David Cameron issued a passionate defence of the UK and its economic benefits at a dinner of Scottish members of the CBI business lobby on Thursday night.

British Prime Minister David Cameron suffered a setback on Thursday when a lawmaker from his ruling Conservative party unexpectedly resigned and defected to the anti-EU UKIP party.

Royal Dutch Shell Plc has sought permission from the U.S. government to drill in the Arctic Ocean and is keeping open the possibility that it could drill there next summer

Deutsche Bank, Germany’s largest lender has been fined 4.7 million pounds ($7.79 million)by Britain’s financial watchdog after it failed to report correctly all its transactions of a certain type of equity derivative in a six-year period between 2007 and 2013 to the regulator.

 

NYT

* Royal Dutch Shell Plc submitted a plan to the federal government on Thursday to try once again to explore for oil in the Alaskan Arctic, following years of legal and logistical setbacks as well as dogged opposition from environmentalists. (nyti.ms/1sM2jDh)

* Barclays Capital Plc has agreed to provide $275 million to finance Detroit’s operations as it comes out of bankruptcy, according to documents filed in bankruptcy court.(nyti.ms/1tQtA9y)

* The French conglomerate Vivendi SA is saying goodbye to the telecom sector. The company, whose holdings include the Universal Music Group and the French pay-television operator Canal Plus, said on Thursday that it was in exclusive talks to sell its Brazilian telecommunications unit to the Spanish carrier Telecom Italia SpA for about $9.8 billion. (nyti.ms/1vTHbNJ)

* A British regulator fined the German lender Deutsche Bank AG 4.7 million pounds($7.79 million) on Thursday for having failed to properly report certain swaps transactions over a period of almost six years. (nyti.ms/1zKyqps)

* Huarong Asset Management, China’s biggest manager of bad debt, said on Thursday that it had attracted about $2.4 billion from eight investors, including Goldman Sachs Group and Warburg Pincus, before an expected initial public offering here. (nyti.ms/1AZk0Ep)

* Private bank Lombard Odier unveiled its financial results publicly for the first time in its 218-year history on Thursday, reporting a profit and becoming the latest Swiss financial institution to pull back the curtain on what has been a traditionally secretive banking culture. (nyti.ms/YY8xr9)

 

Canada

THE GLOBE AND MAIL

* While federal public health authorities have assured Canadians that there is very little risk of an Ebola outbreak, hospitals across the country are training staff and reinforcing protocols should an infected patient walk through their doors. (http://bit.ly/1C80ffj)

* The apparent presence of Russian troops in Eastern Ukraine amounts to an “active invasion,” Canadian Foreign Affairs Minister John Baird said, calling Russia’s advance an “absolutely reckless” and “shamelessly dishonest” provocation leading up to a National Atlantic Treaty Organization summit next week. (http://bit.ly/1qmzCgv)

Reports in the business section:

* First, Germany expressed reservations about parts of the Canada-Europe free trade deal. Now, European Union lawmakers are threatening to block the agreement outright. The Greens and other left-wing parties are objecting to any trade deal that contains Investor State Dispute Settlement provisions. It allows companies to sue governments when they believe their trade rights have been violated. But critics say the system gives multinationals too much power – a concern that would magnify if the Canadian agreement becomes a model for the European Union-United States free trade agreement, which is also being negotiated. (http://bit.ly/1pPhNIj)

NATIONAL POST

* As many as 1,000 Canadian troops at a time are expected to soon be constantly rotating through Europe. It will be the first time that Canada has so many troops across the pond since it closed two bases in Germany’s Black Forest when the Cold War ended. With virtually no domestic political discussion about what Canadian Forces might end up having to do in eastern Europe, the Stephen Harper government as well as allies such as Britain have provided NATO with a template for how future deployments will try to assist NATO’s easternmost allies. (http://bit.ly/XXOJE4)

* Canada’s premiers have agreed at their annual meeting that they need more money from Ottawa to pay for healthcare and infrastructure – a familiar refrain at these gatherings – but there was no consensus on Thursday on how much cash they want to deal with crumbling roads and an aging population. (http://bit.ly/1lzxdk3)

FINANCIAL POST

* Repsol SA has dropped a plan to buy all of Talisman Energy Inc, and is instead weighing the purchase of some of the Canadian company’s shale assets, people with knowledge of the matter said. (http://bit.ly/1poNQiU)

* Air Canada has a vision of turning Toronto’s Pearson International Airport into a global aviation hub to rival Chicago’s O’Hare – but the airline’s Chief Executive Calin Rovinescu says that it could all be undone by the Ontario Liberal government’s determination to dramatically increase jet fuel taxes and drive away air traffic. (http://bit.ly/1qN9RDt)

 

China

SHANGHAI SECURITIES NEWS

– The 84 fund firms who have already reported their first-half results recorded a combined profit of 9.6 billion yuan ($1.6 billion), according to earnings data. Commodities-related funds performed the best.

– China’s pharmaceutical sector could see a pick-up in growth over the next few months after a fierce crackdown on corruption and drug pricing dragged on the sector, the official financial paper said, citing private-equity investors.

– Shanghai plans to invest up to 8 billion yuan ($1.3 billion) every year to support the elderly care industry, according to an official at the Community Health Alliance.

CHINA SECURITIES JOURNAL

– Net profits of 2,380 Shanghai- and Shenzhen-listed companies rose 9.4 percent in the first half of the year, according to calculations by the financial newspaper.

SECURITIES TIMES

– Chinese cities of Hangzhou and Xi’an have withdrawn any limitations on purchasing property because of high numbers of unsold properties.

SHANGHAI DAILY

– The trial of former Shanghai health official Huang Fengping began on Thursday, according to the Shanghai No. 1 Intermediated People’s Court. Huang is charged with corruption after authorities said he failed to account for over 15 million yuan of cash and property.

CHINA DAILY

– Chinese President Xi Jinping on Wednesday called for closer cooperation with Russia and other Central Asian countries to combat terrorism.

PEOPLE’S DAILY

– The United States must understand that China will not turn a blind eye to any outsiders trying to “peep in the window”, the paper, which acts as a mouthpiece for the Party, said in a commentary. The two countries are sparring over a recent near-collision between a Chinese and a U.S. jet.

 

Britain

The Times

CAMERON BRACED FOR MORE UKIP DEFECTIONS

David Cameron has been warned to brace himself for more defections in the coming months after a leading Conservative MP stunned Westminster by quitting his seat and switching to Ukip.

BIG HITTERS CLASH IN BATTLE FOR SCOTLAND

There are just three weeks to go before Scotland votes on independence – and the trickle of business leaders prepared to declare their hand has suddenly become a flood.

The Guardian

SMEs FEELING THE PINCH AS FUNDING FOR LENDING FAILS TO PICK UP

Business lending remains in the doldrums despite the economic recovery after the Bank of England’s Funding for Lending Scheme (FLS) recorded another poor performance in the second quarter.

DOUGLAS CARSWELL’S DEFECTION TO UKIP PUTS PRESSURE ON DAVID CAMERON

David Cameron was forced to interrupt a pre-referendum trip to Scotland on Thursday as the Conservative leadership scrambled to deal with the surprise defection of a hardline Eurosceptic MP to Ukip, triggering an early byelection.

The Telegraph

SCOTTISH INDEPENDENCE: CBI CHAIRMAN WARNS OF ‘ENORMOUS’ RISKS WITH A YES VOTE Sir Mike Rake, president of the Confederation of British Industry, says Scottish secession will endanger the recoveries on both sides of the border.

SHELL COULD RESURRECT CONTROVERSIAL ARCTIC OIL DRILLING PLAN

Royal Dutch Shell could resurrect its controversial plan to drill for oil in the Alaskan Arctic after filing new plans with the U.S. government.

Sky News

BUSINESS LEADERS BACK SCOTTISH INDEPENDENCE

A letter by more than 200 business figures supporting Scottish independence has been published, just 24 hours after opponents made a similar pitch.

 

Fly On The Wall Pre-Market Buzz

ECONOMIC REPORTS

Domestic economic reports scheduled for today include:
Personal income for July at 8:30–consensus up 0.3%
Consumer spending for July at 8:30–consensus up 0.2%
Chicago PMI business barometer for August at 9:45–consensus is 56.4
Consumer sentiment index for August at 9:55–consensus 80.5

ANALYST RESEARCH

Upgrades

AGCO (AGCO) upgraded to Neutral from Underweight at JPMorgan
OmniVision (OVTI) upgraded to Market Perform from Underperform at Raymond James

Downgrades

Mobile TeleSystems (MBT) downgraded to Hold from Buy at Deutsche Bank
Sunesis (SNSS) downgraded to Neutral from Outperform at Wedbush

Initiations

3D Systems (DDD) initiated with a Buy at Stifel
Athlon Energy (ATHL) initiated with an Overweight at Barclays
ExOne (XONE) initiated with a Hold at Stifel
Federated National (FNHC) initiated with an Outperform at William Blair
Liberty TripAdvisor (LTRPA) initiated with an Outperform at FBR Capital
Stratasys (SSYS) initiated with a Buy at Stifel

COMPANY NEWS

Fiat (FIATY) said Chrysler merger on schedule to go ahead as intended
Microchip Technology (MCHP) confirmed preliminary discussions with CSR plc (CSRE)
Tyson Foods (TSN), Hillshire complete merger, see FY15 synergy savings of $225M
Fred’s (FRED) announced operational restructuring, closing of 60 stores
Big Lots (BIG) announced new $250M share repurchase program

EARNINGS

Companies that beat consensus earnings expectations last night and today include:
Big Lots (BIG), Ocular Therapeutix (OCUL), Bona Film (BONA), Amira Nature Foods (ANFI), OmniVision (OVTI), Rally Software (RALY), Zoe’s Kitchen (ZOES), China Cord Blood (co), Splunk (SPLK), Avago (AVGO), Veeva (VEEV)

Companies that missed consensus earnings expectations include:
Fred’s (FRED)

Companies that matched consensus earnings expectations include:
American Software (AMSWA), Pacific Sunwear (PSUN)

NEWSPAPERS/WEBSITES

JPMorgan (JPM) hack said to occur over months, Bloomberg reports
Google (GOOG) has been developing delivery drones for two years, The Atlantic reports (AMZN)
Royal Dutch Shell (RDS.A) submits new Arctic drilling plan, NY Times says
McDonald’s (MCD) said 12 restaurants in Russia temporarily shut, Bloomberg reports
J&J (JNJ) begins sales process for its medical device unit Cordis, WSJ says
Google’s (GOOG) Smith said to be top candidate for U.S. CTO job, Bloomberg reports

SYNDICATE

Authentidate (ADAT) files registered direct offering of approximately $2.47M
Brookfield (BAM) files $3B mixed securities shelf
Carrizo Oil & Gas (CRZO) files automatic mixed securities shelf
NanoString (NSTG) files $100M mixed securities shelf
Quantum (QTWW) files $75M mixed securities shelf

via Zero Hedge http://ift.tt/1C9kY2o Tyler Durden

Following Wednesday’s laughable tape painting close where an algo, supposedly that of Citadel under the usual instructions of the NY Fed, ramped futures just over 2,000 to preserve faith in central planning, yesterday everyone was expecting a comparable rigged move… and got it, only this time milliseconds after the close, when futures moved from solidly in the red, to a fresh record high in seconds on no news – although some speculate that Obama not announcing Syrian air strikes yesterday was somehow the bullish catalyst – and purely on another bout of algo buying whose only purpose was to preserve the overnight momentum. Sure enough, this morning we find that even as bond yields around the world continue to probe 2014 lows, and with the Ruble sinking to fresh record lows as the Ukraine situation has deteriorated to unprecedented lows, so US equity futures have once, driven by the now generic USDJPY spike just after the European open, again soared overnight, well above 2000 and are now at all time highs, driven likely by the ongoing deflationary collapse in Europe where August inflation printed 0.3%, the lowest since 2009 while the unemployment remained close to record high, while the Japanese economic abemination is now fully featured for every Keynesian professor to see, with the latest Japanese data basically continuing the pattern of sheer horror as we reported yesterday.

As a result, with the Fed firmly in tapering mode for now, all hopes are once again firmly pinned on Draghi, and as Bloomberg says the European economic crash is “increasing pressure on the ECB to take action to kindle the bloc’s faltering recovery” even as Germany’s finance minister poured cold water overnight on more action out of the ECB, in line with the Reuters headline earlier this week. In short, complete confusion reigns in the Fed’s “Mutant, broken market” in which nothing really matters and where a green EOD print is now a matter of urgent national security and policy.

Asian markets are a bit of a mixed bag overnight. The escalation of the geopolitical tension between Russia and Ukraine is certainly being felt by markets. Other than Chinese indices, bourses in Japan, Korea, and most parts of South East Asia are down somewhere around 0.2-0.5%. Chinese stocks are up overnight reversing of yesterday’s decline. There wasn’t much in the way of specific news flows behind that but there were stories that China ETF has attracted just over US$500m of inflows in August which was the biggest since December 2012 as investors optimism rose on government’s stimulus measures. A good set of results from ICBC probably also helped the Financial sector performance overnight. Away from equities, Asian IG and HY credit markets continued to firm up as technicals remain rather one sided in light of thin supply. This may start to change as we gradually exit earnings season in China and HK from next week onwards. In other markets overnight, Treasuries remain well supported with the 10yr holding in at below 2.34%, Gold is up for its fourth consecutive day, and the AUD is seeing some consolidation after a decent streak over the last 3 days. Asian stocks fall with the Shanghai Composite outperforming and the Kospi underperforming. MSCI Asia Pacific down 0.3% to 147.9. Nikkei 225 down 0.2%, Hang Seng up 0%, Kospi down 0.3%, Shanghai Composite up 1%, ASX up 0%, Sensex up 0.3%. 2 out of 10 sectors rise with telcos, energy outperforming and staples, materials underperforming

European shares little changed, down from earlier gains, with the insurance and financial services sectors outperforming and retail, media underperforming. The Italian and Swedish markets are the best-performing larger bourses, Spanish the worst. Euro-area inflation slows to 0.3% as Draghi hints at more ECB stimulus. The euro is little changed against the dollar. Greek 10yr bond yields rise; German yields increase.

It’s a busy day for data over in the US where we will get July personal income and spending (expected at +0.3% and +0.2%), July’s PCE Core and deflator reads (both expected at +0.1% MoM) and the Chicago August PMI (expected to rise to 56.5) and U.Mich August confidence read (expected in at 80).

Bulletin Headline Summary from RanSquawk And Bloomberg

• EUR/USD rises further from the YTD lows at 1.3153 as the inline Eurozone CPI at 0.3% keeps imminent ECB easing at bay for another month
• E-Mini S&P rises to record levels ahead of the open as month-end flows dictate equity dominance in the final trading session of the month
• Ahead of Labor Day on Monday, markets have a slew of data to work their way through, with US Personal Income/Spending, Chicago PMI and Uni. Of Michigan Confidence all due ahead of the early electronic close
• Long Treasuries lead week’s gains amid rally in EGBs on Russia/Ukraine tensions, ECB stimulus speculation that pushed bund yields below 0.90%.
• This year’s Treasury market rally has been stronger than every economist surveyed by Bloomberg News predicted; 10Y yields that slid to 2.32% yesterday were lower than the levels projected by all 66 economists surveyed for their Sept. 30 forecasts
• German bunds are set for an eighth monthly advance, longest run since Jan. 2005
• Euro-area inflation slowed in August, rising 0.3% vs 0.4% in August, weakest rate since Oct 2009 and region’s unemployment rate remained close to a record, increasing pressure on the ECB to take action to kindle the bloc’s faltering recovery
• The ECB has run out of ways to help the euro area, putting the burden on governments to spur growth without running excessive deficits, German Finance Minister Wolfgang Schaeuble said
• ECB Governing Council member Ewald Nowotny suggested the bank may cut its economic forecast when it presents an updated estimate next week
• Obama indicated the U.S. has no immediate plans to strike Islamic State havens inside Syria; “we don’t have a strategy yet,” he said at the White House yesterday when asked if he would need congressional approval to hit targets in Syria
• The U.S. and European powers closed ranks with Ukraine in condemning what they said is an upsurge in Russian troop incursions and intensified fighting as the government in Kiev struggles to counter a separatist offensive
• Finland’s government said its fighter jets were ready to intercept foreign aircraft after Russian planes repeatedly violated the northernmost euro member’s airspace
• Three days ago, in an English seaside town, Nigel Farage boasted he was Prime Minister Cameron’s worst nightmare; yesterday, one of the Conservative Party’s highest-profile lawmakers announced he was defecting to UKIP
• Sovereign yields mostly higher. Asian stocks mixed, with Nikkei lower, Shanghai higher, European stocks, U.S. stock futures gain. WTI crude and copper gain, gold lower

US Economic Docket

• 8:30am: Personal Income, July, est. 0.3% (prior 0.4%)
  • Personal Spending, July, est. 0.2% (prior 0.4%)
  • PCE Deflator m/m, July, est. 0.1% (prior 0.2%)
  • PCE Deflator y/y, July, est. 1.6% (prior 1.6%)
  • PCE Core m/m, July, est. 0.1% (prior 0.1%)
  • PCE Core y/y, July, est. 1.5% (prior 1.5%)
• 9:00am: ISM Milwaukee, Aug., est. 60 (prior 63.87)
• 9:45am: Chicago Purchasing Manager, Aug. 56.5 (prior 52.6)
• 9:55am: UMich Confidence, Aug. final, est. 80 (prior 79.2)

FIXED INCOME

German 10yr yields have climbed back towards 0.9% as markets pull back on bets of outright QE purchases. Today’s CPI Estimate (0.3% vs. Exp. 0.3%) from the Eurozone solidified expectations that the ECB may be content holding off for one more month before embarking on broad-based easing, however the longer-term expectations of easing have kept peripheral bonds bid. Credit Suisse, Commerzbank and BNP Paribas added their names to the ever-growing list of those expecting Draghi to act in order to lift inflation expectations. Ahead of the Wall Street open, the E-Mini S&P has climbed to record levels of 2,003.75 as month-end flows dictate equity dominance in the final trading of August, with a number of desks noting the month-end flows in fixed income now coming to a conclusion in a shorter-session today.

EQUITIES

European equities trade tentatively in positive territory (EuroStoxx +0.25%) as markets cover shorts initiated in yesterday’s sharp sell-off. The DAX future is still yet to pull back half of yesterday’s steep decline, as traders remain concerned over the deterioration in relations between Ukraine and Russia. The FTSE-100 underperforms as Tesco (-6.1%) fell to the lowest level in over a decade after issuing a stark profit warning over challenging market conditions, being forced to slash dividends by over 75% – dragging down other UK supermarket names including J Sainsbury (-4.5%) and WM Morrison (-4.3%).

FX

The inline Eurozone CPI data prompted a minor relief rally in EUR/USD and kept the pair comfortably above the YTD lows of 1.3153, with turning to a slew of option expiries at the 1.32 handle (1.14bln rolling off at the 10am NY cut). NZD weakened after August New Zealand ANZ Business Confidence fell for a 6th consecutive month to the lowest level since 2012 (24.4 vs. Prev. 39.7). Elsewhere, despite initially shrugging off largely poor Japanese data, JPY remains steady despite a raft of Japanese data which showed inflation remaining unchanged, a result likely to be welcome by the BoJ ahead of Thursday’s rate decision, while household spending, comprising of almost 60% of the economy, plummeted for a 4th consecutive time.

COMMODITIES

WTI and Brent crude futures trade higher, with WTI on track for the first weekly gain in over one month on short-covering and caution surrounding the south-eastern front in Ukraine. The latest reports suggest the pro-Russian separatists are to open a humanitarian corridor through which the encircled Ukrainian army can leave peacefully. Spot gold trades lower after tripping stops on the way through the 200DMA at USD 1,285.50 well ahead of the COMEX open.

* * *

DB’s Jim Reid and team conclude the overnight recap

Markets had a rather weak day yesterday as the ratcheting up of Ukraine-Russia tensions and the continued darkening of the European economic picture outweighed positive data from the US to weigh on assets across the board.

On the Ukraine-Russia situation, Ukraine’s President yesterday cancelled a visit to Turkey citing “Russian troop deployments” in the east of the country and Nato said it had detected a significant increase in Russian arms being supplied to rebels over the past couple of weeks with Nato Brigadier General Niko Tak stating that there had been a, “significant escalation in the level and sophistication of Russia’s military interference in Ukraine” (BBC). Later on in the day Nato released satellite images it says shows Russian armed forces in Ukraine and the UN Security Council held an emergency meeting. Russia denied that there were any Russian troops in Ukraine. Yesterday Britain’s ambassador to the UN Sir Mark Lyall Grant said that the conflict in Ukraine would, “no longer exist” without Russia’s direct support for the rebels whilst overnight President Obama accused Russia of being responsible for the violence, stating that fighting was not the result of a local uprising but instead of “deep Russian involvement.” Nato will hold an emergency meeting later today. All of this comes after the Ukrainian army had been making headway against the rebels although the rebels have now opened up a new front in the south of the country (BBC).

European economic data also provided little cause for cheer as Italian and Euro area confidence surveys broadly disappointed already low expectations. Italian business confidence came in at 95.7 vs 99.2 expected (the previous read had been 99.7) whilst Euro area economic, industrial, consumer and services confidence came in at 100.6 (vs 101.5 expected), -5.3 (vs -4.5 expected), -10 (vs -10 expected) and 3.1 (vs 3.5 expected) respectively. Some slightly better reads including the euro area business climate (0.16 vs 0.1 expected), Spanish YoY CPI (-0.5% vs -0.6% expected) and German inflation and unemployment which came in line with expectations at 0.8% YoY and 6.7% respectively did not help to lift the general gloom. The data helped to drive a divergence of performance between core and peripheral government debt as core debt outperformed (German 10Y’s tightened another 3bps and French 10Y’s 1bp) whilst peripheral debt sold off (Italian Spanish and Portuguese 10Y paper widened 5bps, 8bps and 14bps respectively).

Staying on this theme, ECB’s Governing Council member Nowotny was on the wires overnight hinting that the ECB may cut its economic forecast at the next meeting. He said he is worried about the Eurozone’s economic situation and said it would be a big mistake for banks not to take up TLTRO. He also added that Germany is no longer able to be a locomotive for growth. Overall he seems to be on the same page as Draghi as we continue to build up towards the key policy meeting next Thursday.

As mentioned before most US economic releases yesterday came in above consensus. The US Q2 GDP was revised up to +4.2% annualised QoQ (vs expectation of a slight fall to 3.9%), initial jobless claims fell to 298k and July pending home sales rose +3.3% MoM (vs +0.5% expected). The August Kansas Fed read (3 vs 7 expected) disappointed though. Overall the combination of the Ukraine crisis, weak European economic data, and the strong rally in equities over the past month proved to be a negative mix for assets. In Europe, the Stoxx 600, DAX, and FTSEMIB were -0.66%, -1.12%, and -2.03%, respectively, On the other side of the Atlantic, we saw the S&P500 down -0.17% at the closing bell after having recovered from an intraday decline of nearly half a percent around the open. Credit also struggled with Europe Main and Xover widening out by 2bps and 6bps whilst in the US CDX IG and HY drifted by 1bp and 2bps wider.

Asian markets are once again a bit of a mixed bag overnight. The escalation of the geopolitical tension between Russia and Ukraine is certainly being felt by markets. Other than Chinese indices, bourses in Japan, Korea, and most parts of South East Asia are down somewhere around 0.2-0.4% as we type. Chinese stocks are up by about two-tenths of a percent overnight reversing of yesterday’s decline. There wasn’t much in the way of specific news flows behind that but there were stories that China ETF has attracted just over US$500m of inflows in August which was the biggest since December 2012 as investors optimism rose on government’s stimulus measures. A good set of results from ICBC probably also helped the Financial sector performance overnight. Away from equities, Asian IG and HY credit markets continued to firm up as technicals remain rather one sided in light of thin supply. This may start to change as we gradually exit earnings season in China and HK from next week onwards. In other markets overnight, Treasuries remain well supported with the 10yr holding in at below 2.34%, Gold is up for its fourth consecutive day, and the AUD is seeing some consolidation after a decent streak over the last 3 days

Looking to the day ahead in Europe we have German and Spanish July retail sales. We will also have Italy’s July and Q2 unemployment rate read (expected at +12.3% and +12.5% respectively), final Q2 GDP (expected unchanged) as well as the August inflation read which is expected to show that Italy has slipped into deflation with MoM and YoY reads of -0.1% expected. We will also get Euro area August core CPI which is estimated to be +0.8% YoY. It’s also a busy day for data over in the US where we will get July personal income and spending (expected at +0.3% and +0.2%), July’s PCE Core and deflator reads (both expected at +0.1% MoM) and the Chicago August PMI (expected to rise to 56.5) and U.Mich August confidence read (expected in at 80).

via Zero Hedge http://ift.tt/1qmL9N5 Tyler Durden