Month: August 2014

Another night, another sell-side bank suggests European QE must be getting closer and, along with more un-de-escalation in Russia-Ukraine, the bid for German bonds continues to surge as Europe’s greater depression appears increasingly priced into bonds. Yields on all German bonds out to 3 years are now negative and 10Y Bunds have collapsed to 90.5bps – record lows. This in turn – as we explained here – is dragging Treasury yields lower (10Y 2.36%) but leaves the spread to Bunds at record highs.

Bund tests 90bps…

 

as the entire German yield curve is now negative out to 3 years…

 

Massively divergent from stocks…

 

and US Treasuries follow suit…

 

Charts: Bloomberg

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via Zero Hedge http://ift.tt/1vQP2vj williambanzai7

Wonder why last night’s Russian-Ukraine talks were a complete flop (as the WSJ explains here)? The following photo of Belarus president Lukashenko promising to Poroshenko that Putin doesn’t really bite, should help explain.

 

Source: WSJ

via Zero Hedge http://ift.tt/1wC9GU0 Tyler Durden

Ah, the perils of European power politics.

A day after France revealed its new government, the person who so eagerly stepped in after DSK’s infamous and choreographed fall from grace and the IMF presidency (not to mention his derailed French presidential ambitions, greenlighting Hollande as what would become the worst French president ever), Christine Lagarde is about to be DSKed herself after “someone” clearly has set their sights on the former French finance minister.

Several hours ago the news hit that a French court has put Christine Lagarde, head of the International Monetary Fund, under a formal probe for negligence in a corruption investigation dating back to her days as finance minister.  To be sure, this development is hardly a shock: recall that it was over a year ago when “IMF’s Lagarde Flat Raided Over French ‘Payout’ Probe” with her ascent to the head of the IMF also riddled with numerous allegations of impropriety involving the Tapie matter. However, until now, such outside interventions were below the radar, and certainly never escalated to anything formal or official. Alas, it now appears that Madame’s time has come, even if Lagarde hasn’t grasped it just yet.

From the WSJ:

Ms. Lagarde confirmed the decision in a statement but said it was “without basis,” adding she would challenge it with a higher court. She said she was heading back to Washington Wednesday and would brief the IMF board about the latest development.

 

The investigation is part of a complex, drawn-out probe into the alleged misuse of state funds. The case stems from a decision in the 2008 to use arbitration to settle a dispute with business tycoon Bernard Tapie. The arbitration panel awarded €420 million to Mr. Tapie.

 

“The magistrates of the court of justice of the Republic have decided to place me under formal investigation,” Ms. Lagarde said in statement. “After three years of procedure, the sole surviving allegation is that through inadvertence or inattention I may have failed to intervene to block the arbitration that brought to an end the longstanding Tapie litigation,” she added.

Bloomberg adds:

IMF issues statement after Managing Director Christine Lagarde put under formal investigation for her role in an arbitration case during her time as French finance minister.

 

IMF spokesman Gerry Rice: “She is now on her way back to Washington and will, of course, brief the board as soon as possible. Until then, we have no further comment”

Regardless of the spin, at this point it’s all over for the first female president of the IMF, whose departure has come with the same facility as her ascent.

The only question is who and why was angered by her policies over the past three years, and who will be her replacement. And most importantly, is the imminent shift at the top of the IMF indicative of what the CFR pitched yesterday when it proposed that the time has come for Bernanke’s money paradrop. After all, one would need an even more obedient puppet at the head of the monetary fund if such an idiotic plan is to even be able to take off the ground, so to speak.

As for Lagarde, we are confident she and Angelo Mozillo will have enough fake tanning tips to exchange during their long and worry-free retirement.

And with that, Bill was finally Killed.

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• Islamic State executes soldiers, takes hostages at Syria base (Reuters)
• Buffett Burger King Funds Flip Obama’s Inversion Calculus (BBG)
• Equities Reach Record $66 Trillion as S&P 500 Hits 2,000 (BBG)
• Central Banks Playing Own Version of Plaza-opoly With FX (BBG)
• Russia court closes McDonald’s branch for 90 days (Reuters)
• Finland Says NATO an Option After Russia ‘Violates’ Border Laws (BBG)
• Netanyahu Hit With Domestic Criticism Over Gaza Truce (BBG)
• Biggest Danish Fund Readies for Rate Shock as Exit Narrows (BBG)
• Nonprofit Hospitals’ Profits Fall (WSJ)
• Snapchat Fetches $10 Billion Valuation (WSJ), a year after it was valued at $800 million
• Apple Said to Prepare New 12.9-Inch IPad for Early 2015 (BBG)
• Demonstrations resume in Missouri over shooting death of black teen (Reuters)
• China Is Awash in Grain Crops (WSJ)

 

 

Overnight Media Digest

WSJ

* Israel and Hamas agreed to their first open-ended cease-fire after seven weeks of military confrontation and will resume truce talks in Cairo in the coming days. (http://on.wsj.com/1ldqdZE)

* Burger King Worldwide Inc defended its acquisition of Tim Hortons Inc as the hamburger chain came under criticism for its effort, backed by billionaire investor Warren Buffett, to move the quintessential American brand to Canada. (http://on.wsj.com/1ASHDyp)

* Kleiner Perkins Caufield & Byers agreed to invest in Snapchat at a valuation of close to $10 billion, making it one of the world’s most valuable private tech start-ups.(http://on.wsj.com/1qKk2J9)

Big Tobacco is finally making its big push into electronic cigarettes. Altria Group Inc and Reynolds American Inc together have captured about a quarter of convenience-store sales just weeks into national rollouts of the battery-powered devices. In a surprising development, though, e-cigarette sales are falling at these traditional retail outlets, reversing three years of rapid-fire growth. (http://on.wsj.com/XQZ04P)

* American Airlines Group Inc has withdrawn its flights from consumer websites powered by Orbitz Worldwide Inc, following a similar dispute between the airline and the travel website about three years ago. (http://on.wsj.com/1ASIgbc)

* The U.S. Securities and Exchange Commission is expected to complete rules Wednesday that would require banks and other firms to provide investors with more details about loans pooled into bonds known as asset-backed securities. (http://on.wsj.com/1pfnn7m)

* Islamic State insurgents have planted explosives to stall a Kurdish push to retake the town of Jalawla, an unfolding strategy that foes describe as built on patience, the element of surprise and a willingness to take losses. (http://on.wsj.com/1wzYEib)

* A meeting between the Russian and Ukrainian presidents failed to produce a breakthrough for ending the conflict over eastern Ukraine, as Kiev released videos of captured Russian soldiers and rebels pushed toward a government-held city. (http://on.wsj.com/1zBS7ji)

* Singapore’s Oversea-Chinese Banking Corp and its insurance unit have entered exclusive talks to sell their stakes in property and engineering company United Engineers Ltd to Thai billionaire Charoen Sirivadhanabhakdi. (http://on.wsj.com/1qsXYGl)

 

FT

The United States is preparing military options, including surveillance flights, to pressure Islamic State in Syria, U.S. officials said on Monday.

Europe’s leaders are set to select Federica Mogherini, Italy’s foreign minister, as EU foreign policy chief at a summit on Saturday, despite worries among some EU countries that she is too inexperienced and will not be tough enough on Russia.

Warren Buffett defended his role in Burger King’s $11.4 billion acquisition of coffee and doughnuts chain Tim Hortons, that will see the U.S. fast food chain’s headquarters move to Canada as part of the tax inversion deal.

The United Kingdom’s Financial Conduct Authority could fine Royal Bank of Scotland about 15 million pounds ($24.82 million) over its mortgage record-keeping and advice to borrowers, according to two people familiar with the matter.

WPP, the world’s largest advertising company, said the strong British pound “ravaged” its revenues, wiping more than 400 million pounds $661.72 million) off its net sales in the first half of the year.

 

NYT

* As Detroit prepares to defend its plan next week to exit bankruptcy, city leaders have received an unusual offer: Why not mortgage all the Van Goghs, Picassos and other works in the Detroit Institute of Arts? A company called Art Capital, which makes loans backed by artwork, has told the city it is willing to lend it up to $3 billion, roughly 10 times the exit financing Detroit is now contemplating, using the museum’s art as collateral. But the city’s response is silence. (http://nyti.ms/1tBtQtM)

* Allergan Inc, the Botox maker fending off a hostile takeover attempt by Valeant Pharmaceuticals International Inc and Pershing Square Capital Management, has set a date for a special meeting at which shareholders will have the opportunity to vote out a majority of the board. In a filing with the Delaware Chancery Court, Allergan said the meeting would take place on Dec. 18. (http://nyti.ms/1ryIcfQ)

* Google Inc announced Tuesday that it bought Boston-based Zync Inc, the maker of Zync Render, a “cloud-based rendering software.” Google wouldn’t say how much it paid for Zync. The company will integrate Zync’s data and technology into the Google Cloud Platform, and move off Amazon.com Inc Web Services. (http://nyti.ms/1syGo2c)

* A cross-border fast-food deal has united Warren Buffett with one of his favorite investors. Buffett’s conglomerate, Berkshire Hathaway, is helping finance Burger King Worldwide Inc’s $11.4 billion takeover of the Canadian restaurant chain Tim Hortons Inc by buying $3 billion of preferred shares in the new company. (http://nyti.ms/XQVDee)

* Time Warner Inc’s Turner Broadcasting System division said on Tuesday that it was offering buyouts to about 600 employees, the first step in an ambitious effort to overhaul a portfolio of cable networks that have struggled with declining ratings at a time of intense competition for viewers. Layoffs and additional cost-cutting measures will follow, according to an internal memo announcing the buyouts. (http://nyti.ms/YWQEsE)

* Volvo AB on Tuesday introduced its first vehicle designed and built under Chinese ownership. The vehicle, a seven-seat sport utility vehicle known as the XC90 that will go on sale in April, is probably a make-or-break model for Volvo. (http://nyti.ms/1qKeyxX)

* Michael Lucarelli, the director of market intelligence at Lippert/Heilshorn and Associates, was arrested and charged with 13 counts of insider trading for buying and selling stocks based on information in news releases his company had prepared for its clients, the Federal Bureau of Investigation and Preet Bharara, the United States attorney in Manhattan, said in a statement. (http://nyti.ms/1zBUTVN)

* The Swiss private bank Pictet Group reported its financial results publicly for the first time in its 209-year history on Tuesday, showing a profit and highlighting continuing changes in Switzerland’s traditionally secretive banking culture. (http://nyti.ms/1tEZy8F)

* Governments should ban the use of electronic cigarettes in public places and outlaw tactics to lure young users, the World Health Organization said in a report released on Tuesday that calls for some of the toughest measures yet proposed for the increasingly popular devices. It also expressed “grave concern” about the growing role of the powerful tobacco industry in the e-cigarette market. (http://nyti.ms/1qsW1tG)

 

Canada

THE GLOBE AND MAIL

** Barrick Gold Corp is eliminating its entire corporate development team and more cuts are in the works as the world’s top gold miner looks to trim costs, three sources familiar with the situation said on Tuesday. (http://bit.ly/1zDcYml)

** Canada’s public health agency is preparing to bring home a trio of scientists who were helping to combat Ebola in Sierra Leone after three people in their hotel complex tested positive for the viral hemorrhagic fever. A Health Canada spokesman confirmed late Tuesday night that the Public Health Agency of Canada is finalizing plans to pull its mobile laboratory team out of the West African country. (http://bit.ly/1tCil5r)

NATIONAL POST

** Cominar Real Estate Investment Trust has signed a deal to buy a portfolio of 15 properties including shopping centres, office buildings and an industrial park in Quebec and Ontario from Ivanhoe Cambridge Inc for C$1.53 billion ($1.40 billion). (http://bit.ly/1qgvNtt)

** Hewlett-Packard Co is recalling more than 6 million personal-computer power cords in the United States and Canada, citing reports of overheating and melting units. The cords, distributed with Hewlett-Packard and Compaq notebooks and related products, were sold from September 2010 to June 2012, the company and U.S. Consumer Product Safety Commission said in a statement on Tuesday. (http://bit.ly/1p84Gg4)

** The Canadian Human Rights Tribunal has ordered Human Resources and Skills Development Canada to reimburse former employee Leslie Hicks nearly C$17,000 ($15,606) in expenses after ruling last year the department had engaged in “reckless discrimination” against him. (http://bit.ly/1tCcRHF)

** Drivers in Ontario could soon face much stiffer penalties for texting behind the wheel, as the governing Liberals are set to reintroduce a bill that would boost the maximum fine to C$1,000 ($918). (http://bit.ly/1zD3RSL)

 

Hong Kong

– The president of China Resources Power (CRP) and a Shanxi tycoon, believed to be the biggest beneficiary of a controversial coal investment, have been detained by authorities. CRP said its executive director Wang Yujun was under investigation in Jiangsu province, while sources revealed that Zhang Xinming, once the richest man in Shanxi, had been detained earlier this month. (bit.ly/1wzmdaR)

– Fashion retailer Fujian Nuoqi should have disclosed more information on its two failures to list on the mainland before floating its shares in Hong Kong, and CCB International, the sole sponsor of the share sale, may possibly be disciplined, analysts said. Nuoqi, which listed in Hong Kong in January, reported to police in July that its chairman was missing. (bit.ly/1tSzh5V)

– Homebuyers are increasingly seeking to finance their purchases with loans based on the lower interest rates in the Hong Kong interbank offered rate market. The percentage of mortgage applicants opting for loans priced with reference to Hibor rose from 42 percent in January to 77 percent in June, Hong Kong Monetary Authority data shows. (bit.ly/VMCAAa)

THE STANDARD

– Hopewell Holdings declared a special dividend distribution of one share of Hopewell Highway Infrastructure for every 20 shares of the developer, hoping to boost HHI’s market liquidity and shareholder base. (bit.ly/YWM5i7)

– The Urban Renewal Authority’s Kwun Tong redevelopment project received six tenders, including Henderson Land , Sun Hung Kai Properties, Wheelock and Great Eagle. It is believed to involve a total investment of HK$18 billion ($2.3 billion). (bit.ly/1luUVhl)

HONG KONG ECONOMIC JOURNAL

– Internet game developer Forgame Holdings Ltd said its net loss narrowed to 2.14 million yuan for the first half of 2014, from a 233 million yuan loss in the year-ago period.

HONG KONG ECONOMIC TIMES

– China Securities Regulatory Commission has approved Shenzhen Stock Exchange’s plan to conduct a feasibility study in relation to a trading connection with the Hong Kong stock exchange, according to a Shenzhen municipality official.

MING PAO DAILY NEWS

– Department store operator Golden Eagle Retail Group Ltd , which is under pressure due to keen competition from e-commerce sites, is not in a hurry to develop its own e-commerce business as the company has still not seen a proven profit-making business model so far, according to chairman Roger Wang.

 

Britain

The Times

FRAUD OFFICE ATTACKS FLAWED CRIME REPORTS

The Serious Fraud Office has criticised the recruitment of independent experts to investigate criminal behaviour in companies, warning that the practice risks destroying the evidence needed to put rogue business people and bankers behind bars.

HOUSE PRICES EXPECTED TO RISE BY MORE THAN 25 PCT IN FIVE YEARS

House prices in Britain will be more than 25 percent higher in five years, with London finally being overtaken by other parts of the country.

The Guardian

CAMERON FACES DOUBLE 2015 TROUBLE

UKIP leader Nigel Farage and London Mayor Boris Johnson take steps toward Westminster, causing political headaches for Tory leaders.

SCOTTISH YES VOTE AND BRITISH EU EXIT COULD HIT UK ECONOMY, SAYS SORRELL

WPP boss Sir Martin Sorrell has warned that the prospect of Scotland voting for independence and Britain leaving the European Union could weaken the UK economy, adding to worries over heightened geopolitical tensions in Ukraine and the Middle East.

The Telegraph

GORDON BROWN AND ALISTAIR DARLING PUT ASIDE DIFFERENCES IN FIGHT FOR UK The former Prime Minister and his former chancellor are to share a platform for the first time in the independence referendum debate following Alex Salmond’s damaging TV debate victory.

SCOTTISH INDEPENDENCE VOTE COULD PROMPT PENSIONS CRISIS If Scotland votes “yes” this September, EU pension rules could threaten the cash flow of the UK’s largest companies, warns JPMorgan.

Sky News

RBS HIT BY 15 MLN STG FCA MORTGAGE ADVICE FINE

Royal Bank of Scotland will on Wednesday add to the list of misconduct for which it has been fined since it was bailed out by British taxpayers when it pays millions of pounds for giving poor advice to mortgage customers.

CALL FOR E-CIGARETTES TO BE BANNED INDOORS The World Health Organisation wants tougher regulation, including a ban on selling to minors and on vending machines in public.

 

Fly On The Wall Pre-market Buzz

ECONOMIC REPORTS

Domestic economic reports today include:
MBA purchase applications for week of Aug. 22–up 2.8%

ANALYST RESEARCH

Upgrades

Aruba Networks (ARUN) upgraded to Buy from Neutral at UBS
Hilltop Holdings (HTH) upgraded to Outperform from Market Perform at Keefe Bruyette
Rent-A-Center (RCII) upgraded to Buy from Hold at Canaccord
Tim Hortons (THI) upgraded to Neutral from Underperform at Credit Suisse
Waste Management (WM) upgraded to Buy from Hold at Stifel

Downgrades

Bank of Nova Scotia (BNS) downgraded to Neutral from Outperform at Credit Suisse
E-House (EJ) downgraded to Neutral from Buy at Goldman
Facebook (FB) downgraded to Neutral from Buy at Janney Capital
Laredo Petroleum (LPI) downgraded to Hold from Buy at Canaccord
Leju (LEJU) downgraded to Neutral from Buy at Goldman
Pioneer Natural (PXD) downgraded to Hold from Buy at Canaccord
Sturm, Ruger (RGR) downgraded to Fair Value from Buy at CRT Capital
Susser Petroleum downgraded to Market Perform from Outperform at Wells Fargo
Tim Hortons (THI) downgraded to Sector Performer from Outperformer at CIBC

Initiations

ASML (ASML) initiated with a Hold at Stifel
Akamai (AKAM)initiated with an Outperform at RW Baird
Alcobra (ADHD) initiated with a Market Perform at FBR Capital
Axcelis (ACLS) initiated with a Buy at Stifel
Bank of the Ozarks (OZRK) initiated with a Buy at Drexel Hamilton
Bristol-Myers (BMY) initiated with a Hold at Deutsche Bank
Concur (CNQR) initiated with a Neutral at DA Davidson
Cornerstone OnDemand (CSOD) initiated with a Neutral at DA Davidson
CyrusOne (CONE) initiated with a Neutral at Citigroup
Eli Lilly (LLY) initiated with a Buy at Deutsche Bank
FCB Financial (FCB) initiated with a Neutral at Guggenheim
First Financial (FFIN) initiated with a Hold at Drexel Hamilton
Garmin (GRMN) initiated with a Neutral at RW Baird
Marketo (MKTO) initiated with a Buy at DA Davidson
Merck (MRK) initiated with a Hold at Deutsche Bank
NetSuite (N) initiated with a Buy at DA Davidson
Oracle (ORCL) initiated with a Neutral at DA Davidson
Oxford Industries (OXM) initiated with a Buy at Wunderlich
Pfizer (PFE) initiated with a Buy at Deutsche Bank
ServiceNow (NOW) initiated with a Buy at DA Davidson
Southside Bancshares (SBSI) initiated with a Hold at Drexel Hamilton
Workday (WDAY) initiated with a Neutral at DA Davidson

COMPANY NEWS

Allergan (AGN) requests block to Ackman, Valeant (VRX) votes, announces Special Meeting date of December 18
Royal Bank of Scotland (RBS), NatWest fined GBP14.47M by FCA
Mario Gabelli told CNBC that Chemtura (CHMT) has limited downside, can double in next five years; Gabelli also said he thinks Diebold (DBD) is “in the beginning of a major turnaround”
Aruba Networks (ARUN) announced a 3.7% workforce reduction
Cooper Tire (CTB) said Chengshan JV valued at around $440M
CFTC ordered Merrill Lynch (BAC) to pay $1.2M fine for supervision failures
Lakes Entertainment (LACO) engaged financial advisor to explore strategic alternatives
Chiquita Brands (CQB), Fyffes now see $60M of annualized pre-tax cost savings
EARNINGS
Companies that beat consensus earnings expectations last night and today include:
Donaldson (DCI), Seadrill (SDRL), Globe Specialty Metals (GSM), HEICO (HEI), Dycom (DY), TiVo (TIVO), TubeMogul (tube), Smith & Wesson (SWHC), Nimble Storage (NMBL), Aruba Networks (ARUN)

Companies that missed consensus earnings expectations include:

SQM (SQM), Solera (SLH)

Companies that matched consensus earnings expectations include:

Bob Evans (BOBE), Analog Devices (ADI)

NEWSPAPERS/WEBSITES

Apple (AAPL) readying larger iPad for 2015 launch, Bloomberg reports
Shell-led (RDS.A) group close to selling Nigeria oilfields for $5B, FT reports (TOT, E)
AT&T’s (T) Ralph de la Vega to oversee enterprise and mobile, Re/code reports
Apple (AAPL) may introduce a thinner MacBook as early as this year, Digitimes says
Intel (INTC) working on luxury smart bracelet with curved glass display, Business Insider reports
Amazon (AMZN) steps point to digital health entry, VentureBeat says
Repsol (REPYY), Talisman (TLM) talks on oil and natural gas assets stall, WSJ reports
Time Warner Cable (TWC) customers reporting outages nationwide, Business Insider reports

SYNDICATE

Air Industries (AIRI) files $12.14M mixed securities shelf
Ardmore Shipping (ASC) files $300M mixed securities shelf
BNC Bancorp (BNCN) files $150M mixed securities shelf
Carver Bancorp (CARV) requests withdrawal of registration statement
Compugen (CGEN) files $200M mixed securities shelf
Gabelli Equity Trust announces rights offering
Quest Resource Holding (QRHC) files $50M mixed securities shelf

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

If the big hope propelling both ES and S&P cash over 2,000 was the Ukraine-Russian talks, leading to some de-escalation and a thawing of Russian-German conditions, then it was clearly a dud. As the WSJ reports, “face-to-face talks between the Russian and Ukrainian presidents failed to produce a breakthrough for ending the conflict over eastern Ukraine, as Kiev released videos of captured Russian soldiers and rebels pushed toward a government-held city. The one-on-one session, which Ukraine’s President Petro Poroshenko described as “tough and complex,” ended early Wednesday after a day of talks on the crisis in the Belarusian capital of Minsk. Mr. Poroshenko said afterward that he would prepare a “road map” toward a possible cease-fire with the pro-Russia separatists.” In other words, absolutely no progress. There was however escalation, when overnight the September Bund future rose as much as 36 ticks to 151.18, after Poland PM Tusk said “regular” Russian troops are operating in eastern Ukraine. And so we are back to square one, with concerns over Russia pushing European bonds to new record highs, in turn leading to more US Treasury buying, while a brand new rumor of more easing from the ECB, this time by Deutsche Bank, has propped up European equities, which like US futures are trading water around the critical 2000 level.

As noted, after JPM yesterday DB was the latest bank to join in with expecting more easing from Draghi. DB’s European economists now think that ‘private’ QE will be unveiled at the next ECB’s policy meeting on the 4th September as opposed to early next year. In their view, the weak data recently and Draghi’s latest comments on inflation expectations were enough to prompt the ECB into action. They said that it will be a very close call though as an announcement could wait which will probably disappoint the markets. What they expect is not a generic QE with government bond purchases rather the ECB will engage in ABS purchasing as a complement to the TLTRO. How this is news is arguable: after all Draghi already announced this but algos need fresh headlines to keep buying, even if it is of perfectly stale data. Also, if private QE does not emerge in September, they think it will follow shortly thereafter.

As for the Russian re-escalation,”“Regular Russian units are operating in eastern Ukraine,” Poland’s Prime Minister Donald Tusk tells parliament in Warsaw, citing information from the country’s intelligence services and NATO. Poland must influence EU, U.S., Canada and NATO to conduct common policy towards Ukraine and Russia, Tusk says, adding that unilateral actions against Russia wouldn’t be wise. Is Poland also finally jumping on the “no more sanctions” bandwagon? It seems that Europe is tired of bearing the US “Costs” of containing Russia. Especially now that winter is just around the corner…

In other news, Asian equities are generally having a good day this morning with most bourses trading firmer. The Nikkei is up but as are the Shanghai Composite, KOPSI and Nifty. Away from equities, technicals remain pretty solid for Asian Credit with CDS spreads generally 1-2bp tighter on the day. All eyes are still fixated on the earnings season in that part of the world right now but it won’t be long before the new issue pipeline becomes the center of attraction again. There was not much Asian specific news flow that we think is driving the market but some supportive geopolitical headlines over the last 24 hours may have also helped.   Asian stocks rise with the Sensex outperforming and the Hang Seng underperforming; MSCI Asia Pacific up 0.3% to 148.8; Nikkei 225 up 0.1%, Hang Seng down 0.6%, Kospi up 0.3%, Shanghai Composite up 0.1%, ASX up 0.2%, Sensex up 0.4%. 9 out of 10 sectors rise with health care, tech outperforming and staples, energy underperforming

European shares remain little changed with the travel & leisure and basic resources sectors outperforming and autos, oil & gas underperforming. The Spanish and Italian markets are the best-performing larger bourses, French the worst. The euro is stronger against the dollar. Spanish, French, Italian, Portuguese 10yr bond yields fall; German yields decline.  9 out of 19 Stoxx Europe 600 sectors rise; travel & leisure, basic resources outperform, autos, oil & gas underperform. 59% of Stoxx 600 members gain, 39.2% decline. Eurostoxx 50 -0.1%, FTSE 100 +0.1%, CAC 40 -0.1%, DAX -0.1%, IBEX +0.3%, FTSEMIB +0.2%, SMI -0%

Looking to the day ahead, whilst it is a quiet day for US data there are some important confidence releases coming out of Europe. We have the German GfK consumer confidence survey (consensus is for an 8.9 read), French manufacturing and business confidence (consensus is for reads of 96 and 93 respectively) and the Italian consumer confidence index (consensus expects a read of 104). We will also get July German import prices (forecast 0.1% MoM) and French jobseekers data, with consensus forecasting a total read of 3412.5k. Otherwise, let’s see if we can hold on to the 2,000 mark again today!

Market Wrap

• S&P 500 futures up 0.1% to 1999.7
• Stoxx 600 up 0.1% to 343.3
• US 10Yr yield down 2bps to 2.37%
• German 10Yr yield down 3bps to 0.91%
• MSCI Asia Pacific up 0.3% to 148.8
• Gold spot up 0.3% to $1285.7/oz

Bulletin Headline Summary from RanSquawk and Bloomberg:

• Expectations of ECB easing run further as Deutsche Bank forecast ECB’s Draghi embarking on ABS purchases next Thursday, sending IT and SP 10yr yields to all-time lows
• European equity rally runs out of steam as stocks going ex-dividend and negative broker calls cap the week’s gains
• Treasuries gain as rally in euro- area bonds continues, with 10Y yields from Germany to Spain falling to record lows amid expectations ECB is preparing to expand stimulus; central bank meets on Sept. 4.
• Week’s UST auctions continue with $13b 2Y FRN, $35b 5Y notes; 5Y WI bid at 1.662% vs 1.72% award in July
• The value of global equities rose to a record $66 trillion amid rallies from Brazil to Japan and the S&P 500’s first trip above 2,000
• Agricultural Bank of China Ltd., the government-controlled lender set up by Mao in 1951, boosted provisions for potential bad loans by 56% to 15.6b yuan ($2.5b) in the three months ended June 30 from a year earlier, according to a Hong Kong exchange filing yesterday
• Scotland opting for independence from the U.K. might sharpen investors’ fears of Britain leaving the EU, Deutsche Bank AG Chief European Economist Gilles Moec said; referendum scheduled for Sept. 18
• French factory confidence fell to the lowest in 13 months in August, adding to signs that the economy may struggle to grow after a stagnant first half
• The U.S. has begun to mobilize a broad coalition of allies behind potential American military action in Syria and is moving toward expanded airstrikes in northern Iraq, administration officials said on Tuesday: NYT
• The U.S. said an American citizen was killed while fighting alongside Islamic extremists in Syria, highlighting concerns that foreign combatants involved in the conflict pose an increasing global threat
• Israel’s Netanyahu faced criticism at home from allies and opponents both for accepting an Egyptian-brokered truce with the Gaza Strip’s Hamas rulers that detractors say doesn’t assure Israel’s security
• IMF managing director Christine Lagarde has been put under formal investigation for her role in an arbitration case during her time as French finance minister
• Sovereign yields extend declines. Asian stocks gain, Europe  mixed. U.S. stock futures higher. WTI crude and gold higher, copper lower
• Data calendar remains sparse as focus turns to the second auction from
  the US Treasury; USD 35bln 5yr Notes as well as the USD 13bln 2yr FRN
  auction

US Event Calendar

• 7:00 a.m.: MBA Mortgage Applications, Aug. 22 (prior 1.4%) Supply
• 11:00am: Fed to purchase $950m-$1.15b in 2036-2044 sector
• 11:30am: U.S. to sell $13b 2Y FRN reopening
• 1:00pm: U.S. to sell $35b 5Y notes

FIXED INCOME

Core fixed income markets have been well supported from the open by heightening expectations of imminent easing from the ECB, as Deutsche Bank add their name to the long list of research houses now expecting Draghi to embark on an ABS purchasing program next Thursday. Spanish and Italian 10yr yields fell to fresh record lows once more this morning, with foreign accounts buying peripheral bonds throughout the day. Furthermore, real-money buying in Treasuries, Bunds and Gilts ahead of month-end has assisted in pushing the German 10yr yields closer toward 0.9%.

Final Barclays month end extension for Pan-Euro Agg at +0.03y (Prev. 0.12yrs, 12m average +0.03yrs)
Final Barclays month end extension for Sterling Agg Tsy at +0.08y
Final Barclays month end extension for US Treasuries +0.13yrs (Prelim. +0.12yrs, 12m average +0.09yrs)

EQUITIES

The rally in European equity markets has slightly run out of steam, however European stock futures sit close to the week’s best levels. The downside in equities follows a number of companies going ex-dividend and falling after negative broker moves, most notably United Utilities and ST Microelectronics. Earnings have been relatively sparse barring SeaDrill, the Norwegian driller, who reported better than expected net profits in Q2, however an uncertain outlook and a cloudy forecast on rig orders sent their shares lower by over 3%.

FX

Despite heavy French selling in EUR/CAD in the Asia-Pacific session, downside in EUR/USD has been stemmed by a successful defence of a touted option barrier at the 1.3150 level, allowing the major pair to recoup the majority of the overnight losses. USD/CAD tests the 200DMA at 1.0885 and lower Bollinger band at 1.0880/85, after European real money names sold USD/CAD below 1.0900 and markets eyed Burger King’s CAD 12.5bln purchase of Tim Hortons alongside month-end related demand for CAD. Finally, NZD firmed across the board after Fonterra, the world’s biggest dairy exporter, kept its milk pay-out forecast unchanged at NZD 6/kg amid concern that the Co. may cut its forecasts.

COMMODITIES

WTI crude futures trade stronger ahead of the NYMEX open, supported by expectations of the second consecutive drawdown in the DoE inventories scheduled for later today. Today’s DOE inventories are expected to show a draw of 2.5mln barrels. This would be the second consecutive drawdown and the eighth in the past 9 weeks. Gold has been supported by the somewhat softer USD and ECB easing hopes propping gold as an inflation hedge.

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We conclude as usual with Deutsche Bank’s summary of the balance of overnight events

Yesterday was certainly a landmark day for the S&P 500 with the index crossing the 2,000 milestone for the first time in history. The index actually hit an intraday high of 2005.04 before closing +0.11% higher at 2002.02. We have come a long way from the post-crisis lows of 676.5 in March 2009 which means the S&P 500 has effectively doubled itself in the space in just over 5 years. Not bad indeed! The US data flow yesterday was encouraging but the risk tone was probably also supported by market celebrations on the other side of the Atlantic as expectations of an imminent ECB QE gathers pace.

Indeed the ongoing chatter of ECB’s private QE gained further momentum yesterday which pushed European bond and equity markets higher once again. Upon reflecting on Draghi’s Jackson Hole commentary over the weekend, our European economists now think that ‘private’ QE will be unveiled at the next ECB’s policy meeting on the 4th September as opposed to early next year. In their view, the weak data recently and Draghi’s latest comments on inflation expectations were enough to prompt the ECB into action. That said, it will be a very close call though as an announcement could wait which will probably disappoint the markets. To be clear, what Mark and Gilles expect is not a generic QE with government bond purchases rather the ECB will engage in ABS purchasing as a complement to the TLTRO. If private QE does not emerge in September, they think it will follow shortly thereafter.

Given the focus on private debt QE, rather than governments, the sharp rally in European peripheral bond markets certainly offers some interesting food for thought. It may well be down to the ‘crowding out’ effect, but yesterday was another strong day for bonds. The 10yr government bond yield in Germany, Spain and Italy fell -1bp, -9bp and -7bp to close at their new lows of 0.939%, 2.172% and 2.413% respectively. Treasuries were steady for the day with the 10yr closing 1bp higher at 2.396%. So with Spanish 10yr currently 20bps inside and Italian 10yr nearly flat to Treasuries, the spread between peripheral bonds and US Treasuries is now at the lows not seen consistently since 2007 and also marks a continuation of the impressive decline seen since the summer of 2012.

Away from the QE chatter the US data flow was also generally better than expected. Durable goods orders headline jumped by a sharp 22.6% in July versus an expectation of +8.0%. Core capex orders fell 0.5% mom in July but June’s numbers were revised higher which seems consistent with solid shipments in Q3. The Richmond Fed manufacturing index (12 v 5 expected) and Consumer Confidence readings (92.4 v 89.0) were both beats. Housing data was perhaps the soft spot yesterday with the Case-Shiller registering a 0.20% mom drop in June.

Back to markets Asian equities are generally having a good day this morning with most bourses (except for Japan and Hong Kong) trading firmer as we type. The Nikkei is down 0.3% but the Shanghai Composite, KOPSI and Nifty are up +0.2%, +0.2% and +0.4%, respectively. Away from equities, technicals remain pretty solid for Asian Credit with CDS spreads generally 1-2bp tighter on the day. All eyes are still fixated on the earnings season in that part of the world right now but it won’t be long before the new issue pipeline becomes the center of attraction again. There was not much Asian specific news flow that we think is driving the market but some supportive geopolitical headlines over the last 24 hours may have also helped.

During the Russia-Ukraine summit in Minsk yesterday, Russia and Ukraine have agreed to commence immediate consultations on how to jointly facilitate restoration of peace in the East of Ukraine (including closure of border for military purpose). There are also headlines ( FT) of an open-ended truce between Israel and Hamas which raises hopes to a longer lasting peace in that region.

Looking to the day ahead, whilst it is a quiet day for US data there are some important confidence releases coming out of Europe. We have the German GfK consumer confidence survey (consensus is for an 8.9 read), French manufacturing and business confidence (consensus is for reads of 96 and 93 respectively) and the Italian consumer confidence index (consensus expects a read of 104). We will also get July German import prices (forecast 0.1% MoM) and French jobseekers data, with consensus forecasting a total read of 3412.5k. Otherwise, let’s see if we can hold on to the 2,000 mark again today!

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Russia Coordinating Gold Reserve Accumulation With Ex Soviet States?

The IMF’s latest international gold reserves data, updated yesterday, shows that in July, Russia raised its official gold reserves to 5.5 million ounces (1,104 tonnes).

Gold bars in a vault in West Point, N.Y. (Associated Press)
Or is it?

This confirms data released last week by the Central bank of the Russian Federation, which reported an increase of over 300,000 ounces from June’s 5.197 million ounces figure. IMF data is reported with a one month lag.

The latest IMF data also shows that in July, the National Bank of Kazakhstan added 45,000 ounces to its official gold reserves, taking its total holding to 5.1 million ounces.

According to the World Gold Council, over the last six months, Russia has now increased its gold reserves by 54 tonnes. In the same period Kazakhstan has purchased 12 tonnes.

Russia now has the world’s 6th largest gold reserves, officially higher than both Switzerland’s 1,040 tonnes and China’s 1054.1 tonnes. As a comparison, in the second quarter of 2009, Russia only had 550 tonnes of gold in its official reserves meaning that their reserves have nearly doubled in just over 5 years.

The ongoing accumulation of official gold by Russia appears to be part of a reserve diversification strategy. Gold is held by central banks as one of their reserve assets alongside foreign exchange assets including US Dollars and Euros, and also IMF Special Drawing Rights (SDRs).

Some Russian analysts point to the threat of continued western sanctions on Russia as a renewed catalyst for the Russian central bank diversifying out of dollars and euros by increasing its gold reserves. Gold now accounts for over 12% of Russian official reserves and could reach 15% by year end if the current trend continues.

As well as Kazakhstan, other countries in the region have also actively been increasing official gold reserves this year including Azerbaijan, Kyrgyzstan and Tajikistan.

Today in the Belarusian capital of Minsk, Russian President Vladimir Putin met for trade talks with his counterparts Nursultan Nazarbayev of Kazakhstan, Alexander Lukashenko of Belarus and also President Petro Poroshenko of the Ukraine.

If Putin meets separately with the Ukraine’s Poroshenko today, this will be the first time that the two presidents will have held discussions, which is especially significant given the ongoing Ukrainian conflict.

Russia is a member of the Eurasian Customs Union along with Kazakhstan and Belarus. The Eurasian Customs Union is a precursor to a Eurasian Economic Union which the three countries hope to establish by 2015 which will be modelled on the European Union.

Russia, Kazakhstan and Belarus are also members of the Eurasian Economic Community along with Kyrgyzstan, Uzbekistan and Tajikistan, and all six countries are members of the Shanghai Cooperation Organisation (SCO) alongside China.

Chinese President Xi Jinping raises a shot with Russian President Vladimir Putin

Given close economic cooperation between Russia, Kazakhstan and Belarus, and a trajectory towards economic union, it is probable that the three countries would be coordinating monetary policy which would include a common approach to official gold reserves accumulation.

This will be worth watching in the coming months and years, and like China, it is possible that Russia and its allies may not be fully reporting their gold reserves accumulation data to the IMF since it is not obligatory that they do so.
 

Important Guide to Currency Wars here Currency Wars: Bye, Bye Petrodollar – Buy, Buy Gold

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