Month: February 2019

It’s official: January marked the record 100th consecutive month of consecutive job growth, and it did so in style, with the US adding a whopping 304K jobs last month, nearly double the 165K expected, however much of this appears to have come at the expense of a revised December number which was revised lower from 312K to 222K.

The change in total nonfarm payroll employment for November was revised up from +176,000 to +196,000, and as noted above, the change for December was revised down from +312,000 to +222,000. With these revisions, employment gains in November and December combined were 70,000 less than previously reported. After revisions, job gains have averaged 241,000 per month over the last 3 months.

Perhaps more importantly, the average hourly earnings grew by 3.2% for a second consecutive month, with December revised slightly lower from 3.3% to 3.2%. And yet, even with this now consistent wage growth, the Fed still appears to be worried that inflation is absent.

The unemployment rate rose again, printing at 4.0%, up from 3.9% last month, and above the 3.9% expected.

Of note, the underemployment (U-6) rate, saw a big jump, rising by the most since May 2009.

Developing

via ZeroHedge News http://bit.ly/2CZ9zJe Tyler Durden

Authored by Tom Luongo,

A court in Sicily has ruled that Interior Minister, leader of The League and all-around Euroskeptic bad-ass Matteo Salvini should stand trial for kidnapping migrants held in abeyance off Italy’s shores.

“I confess,” Salvini said in a video posted to his Facebook page, “there is no need for a trial. It’s true, I did it and I’d do it again.”

“I risk 3 to 15 years in prison for blocking illegal landings in Italy. I have no words,” wrote Salvini, the leader of the ultra-nationalist Lega (League) party, which now rules Italy in a coalition with the anti-establishment Five Star Movement (M5S).

If this wasn’t so stupid it would be hysterical, actually. But it exists and it’s an attack on Salvini that has a number of angles to it.

As Dr. Steve Turley explains in the video below one of the goals of this attack is to drive a wedge between Five Star Movement (M5S) and its coalition partner, The League.

Early returns on this look to be it will go nowhere as M5S leader Luigi DI Maio supported Salvini. But, the real issue isn’t the coalition government.

If somehow Di Maio can’t ride herd over his faction with the Italian parliament and they vote to allow this trial to go forward then M5S will continue sinking into obscurity and The League’s rising poll numbers will accelerate.

As Turley points out it is not in M5S’s best interest to betray its partner at this point. They enjoy parliamentary representation well above their current polling.

So, they would jeopardize everything they’ve worked to shape Italian domestic policy.

But that’s not the real issue here. The real issue is this is an attempt by the EU and The Davos Crowd behind them to slow down the integration of the Euroskeptic movement around Europe to challenge the current status quo in the European Parliament.

Salvini called for a “League of Leagues” after his meeting with Hungary’s Viktor Orban.

That’s why Salvini is calling for “A League of Leagues” across Europe.  He will succeed.

This is the guy who successfully rebranded the secessionist Northern League into the MIGA party – Make Italy Great Again.

Then he and Five Star Movement leader Luigi Di Maio navigated the Italian Swamp to form a government experts said couldn’t work, while simultaneously neutering establishment stalking horse Silvio Berlusconi.
Thanks to Salvini’s strategic genius Italian politics will never be the same again.  His League now polls around 30%, which bodes well for it in next year’s European Parliamentary Elections.

Because now his sights are MEGA – Make Europe Great Again.

In fact, this frivolous lawsuit is prima facia evidence that the EU oligarchs in Brussels are officially scared of what’s coming in May’s European Parliamentary elections.

If Salvini wasn’t a threat they wouldn’t be going after him this way.

If you bind Salvini down with having to whip up support in Italy he’s not spending that time convincing the leaders of Alternative for Germany (AfD) or Marine Le Pen’s National Rally to coalesce into a unified opposition against the hardcore leftist European integrationists.

Populist Euroskeptic movements are still rising all across Europe. And the EU needs to get past this election to ensure that the real power in Brussels remains in the hands of The Davos Crowd. This has become an existential threat to the European project.

It has to stay on course despite the will of the people of Europe.

It’s an act of pure desperation. It’s no different than how they are handling Brexit. And it’s why the EU will not cave on Brexit until the last minute, if at all. They cannot empower Salvini, Le Pen, Kurz, Orban, et.al. against them.

Caving to the U.K. on Brexit will reveal how weak they truly are.

So, Salvini and Di Maio were right to embrace the accusations rather than soft-peddle. The people are craving competent leadership and this initial show of solidarity demonstrates that.

This will have to be dealt with and it will be a real test of the political situation in Italy. If the Senate votes this down then Salvini can ignore it and, worse for Brussels, campaign harder on it.

It will also shore up his support abroad as the real prize, the European Commission Presidency comes into focus. If it fails then that will make it much harder to put together a coalition strong enough to block Jean Claude-Juncker’s expected successor.

The future of the EU actually hangs in the balance on this frivolity. That tells you just how desperate things really are for the current leadership of the rapidly disintegrating European Union.

*  *  *

To support more work like this and get access to exclusive commentary, stock picks and analysis tailored to your needs join my more than 230 Patrons on Patreon and see if I have what it takes to help you navigate a world going slowly mad. 

via ZeroHedge News http://bit.ly/2SlbBgn Tyler Durden

Submitted by Rarbobank’s Michael Every

US-China trade talks wrapped up with a flurry of announcements and Tweets that one needs to stitch together to try to understand what is going on. My conclusion is that things are about to get very spicy if you consider the full range of ingredients going into this dish and not just the meat.

Both sides agreed that the talks had been substantive and progress had been made, but US Trade Representative Lighthizer made clear the “thorniest” issues are still technology and intellectual property. Lighthizer and Mnu-China will now be going to Beijing together soon to continue the talks. President Trump has been stated as being deeply involved from backstage in these negotiations too, and he weighed in several times yesterday with comments that are important to understand. To reporters, he stated: “This isn’t going to be a small deal with China. This is either going to be a very big deal, or it’s going to be a deal that we’ll just postpone for a little while.” Translating that into English, it seems to mean that a Mnu-China soy and LNG deal is not the table, and Trump will keep pushing for the big Lighthizer reforms. Moreover, consider these following Trump Tweets:

China’s top trade negotiators are in the U.S. meeting with our representatives. Meetings are going well with good intent and spirit on both sides. China does not want an increase in Tariffs and feels they will do much better if they make a deal. They are correct. I will be meeting with their top leaders and representatives today in the Oval Office. No final deal will be made until my friend President Xi, and I, meet in the near future to discuss and agree on some of the long standing and more difficult points. Very comprehensive transaction. China’s representatives and I are trying to do a complete deal, leaving NOTHING unresolved on the table. All of the many problems are being discussed and will be hopefully resolved. Tariffs on China increase to 25% on March 1st, so all working hard to complete by that date!

He is keeping the negotiating pressure on. And a Trump-Xi summit looms. Yet Trump then immediately upped the ante on Xi:

Looking for China to open their Markets not only to Financial Services, which they are now doing, but also to our Manufacturing, Farmers and other U.S. businesses and industries. Without this a deal would be unacceptable!

Now things get even more interesting. Trump meets Xi in China immediately after a second summit with North Korea’s “rocket man” Kim Jong Un: that makes for truly spicy Kim-Xi! What does the US want? A real China trade deal and Kim in their camp as a threat to China. What does China want? A superficial trade deal and Kim back in their camp. What does Kim want? Economic aid, to be seen as a nuclear power, and to be in everyone’s good books so he can get Chinese trade and still get to take selfies with the public elsewhere. How is the US going to react on trade if Kim insists on not disarming, or on the US leaving South Korea? How will China react on trade if Kim decides he wants a Miami condo more than one in Hainan? And how will Trump react if Xi won’t give him his deal, and Xi react if Trump won’t bend? There are so many possible permutations. We could see the US, China, and North Korea all friends – or something else.

On that front, we also need to consider other Trump Tweets. They are relevant, I promise.

The Intelligence people seem to be extremely passive and naive when it comes to the dangers of Iran. They are wrong! When I became President Iran was making trouble all over the Middle East, and beyond. Since ending the terrible Iran Nuclear Deal, they are MUCH different, but a source of potential danger and conflict. They are testing Rockets (last week) and more, and are coming very close to the edge. Their economy is now crashing, which is the only thing holding them back. Be careful of Iran. Perhaps Intelligence should go back to school!

That is a very clear endorsement of a very hard line on geopolitics and the use of the economy and markets as weapons (i.e., sanctions) that “hold Iran back.” Furthermore, Trump added:

When I became President, ISIS was out of control in Syria & running rampant. Since then tremendous progress made, especially over last 5 weeks. Caliphate will soon be destroyed, unthinkable two years ago. Negotiating are proceeding well in Afghanistan after 18 years of fighting. Fighting continues but the people of Afghanistan want peace in this never ending war. We will soon see if talks will be successful? North Korea relationship is best it has ever been with U.S. No testing, getting remains, hostages returned. Decent chance of Denuclearization. Time will tell what will happen with North Korea, but at the end of the previous administration, relationship was horrendous and very bad things were about to happen. Now a whole different story. I look forward to seeing Kim Jong Un shortly. Progress being made-big difference!

Is he expecting success with Kim? Or is he trying to show that he at least tried? So many ingredients here, and so much chili! And there’s more. Against that backdrop we have the frankly jaw-dropping news that Germany is decided it will NOT be using the US F-35 fighter jet as the replacement for its Tornado air-fleet. Let me spell out what that means: 1) Germany won’t be buying US planes and so not only doesn’t it spend enough on NATO now, but even if it does ever spend, that cash won’t flow to the US to rebalance trade between the two; and 2) Only the F-35 is compatible with the US tactical nuclear deterrent, so Germany won’t be under that NATO shield, unless the US signs off on a Eurofighter alternative – why should it, considering the Eurofighter is seen as out of date? Indeed, given EU-US tensions over geopolitics, e.g., EU insistence on trying to circumvent the US sanctions on Iran Trump just said are so important, does anyone see this ending well for US-EU trade relations? Because I don’t. And circling back, what if the US does strike a China trade deal, and only US firms get the benefits, not EU? That said, yesterday also saw news that the EU is considering a ban on Huawei for 5G too, so it also seems to be hedging its bets.

Yet overall, with no US F-35 exports ahead I am not sure if Germany realises what it is doing (it seems blithely unaware of a whole host of problems it is creating for everyone, after all); suffice to say that this issue could create as much market fire as the spiciest chili.

Day ahead                    

For those who want to look at data instead of all this today has Caixin and Markit PMIs, Eurozone CPI, and US payrolls.

But does that even matter? The Fed has already shown us this week that it doesn’t intend to do anything except cut, eventually, so why get antsy about a number that will underline that the labour market is on fire, albeit without serious wage inflation. (For those who care, the consensus is 165K, but like I said ** yawn**.) Then we have the US ISM survey too. For which the same holds true. It will only matter if it’s weaker than consensus.

In short, what was once a juicy market steak has been cooked to death by the Fed, making it unpalatable; and it is anyway now smothered in a layer of Kim-Xi.

via ZeroHedge News http://bit.ly/2WATBh7 Tyler Durden

Following the best month for global markets in seven years, February has started off with a whimper as S&P were following the lack of tangible progress in US-China trade talks, Nasdaq futures sliding after disappointing guidance from Amazon, a European rally fizzled dragged down by banks and dismal German and Italian PMI data, and mixed Asian markets after the worst Chinese Caixin PMI in 3 years.

While stocks soared this week after the Fed all but abandoned plans for further rate hikes, and on optimism that a U.S.-China trade deal might be on the cards, the lack of any actual progress in trade negotiations coupled with the lowest Caixin/Markit index of Chinese manufacturing since February 2016, added to a growing list of economic readings indicating slowing global growth.

On Thursday, technology shares gained thanks to solid corporate reports, though a disappointing sales forecast from Amazon.com has now curbed optimism. On the trade front, Treasury Secretary Steven Mnuchin and U.S. Trade Representative Robert Lighthizer head to China in mid-February.

Meanwhile, Washington trade negotiations, that had been tipped as “determinative”, in the end broke up with an agreement to keep talking. Underwhelming news that China plans to buy substantially more American agricultural and energy goods failed to spark buying euphoria in either soybeans or global stocks.

MSCI’s World Index came off its highest level since Dec. 4 after its best January gain on record when it rose an unprecedented 7.79% on the month. The weak Chinese data also took MSCI’s broadest index of Asia-Pacific shares outside Japan down 0.2%, though that followed a 7.2% gain in January. The Australian dollar, the best barometer of investor sentiment towards China, tumbled half a percent.

Europe’s mood was only slightly better as several strong earnings reports helped offset the Chinese survey, providing an early boost to Europe’s STOXX 600 index, although while most European bourses were slightly positive to start, the rally fizzled as banks slumped, and it wasn’t just the aforementioned Deutsche Bank: Spain’s CaixaBank and Sabadell fell Friday after they released fourth-quarter numbers. Jefferies called CaixaBank’s earnings “messy,” citing the one-time items that pushed profit below estimates. At Sabadell, provisions weren’t as severe as expected, but analysts said its business in the U.K. looked weak. CaixaBank slumped 7.3% and Sabadell 6%, making them the biggest decliners on the Stoxx 600 Banks Index.

Separately, PMI prints for Italy and Switzerland came in below expectations, and even though Germany’s was just below expectations, it still posted the first contraction in over 3 years.

Friday’s market slump followed another strong day for US markets, when stocks also gained after U.S. President Donald Trump said he would meet Chinese President Xi Jinping soon to try to seal a comprehensive trade deal as the top U.S. negotiator reported “substantial progress” in the talks. Beijing’s trade delegation said the talks made “important progress”, China’s official Xinhua news agency reported although neither side was willing to provide details, suggesting that little – if anything – was actually achieved.

The previously upbeat mood was also chilled somewhat by White House insistence that March 1 was a hard deadline for a deal, a failure of which would lead to an increase in U.S. tariffs on Chinese goods.

“Analysts mostly remain deeply skeptical that a genuine trade deal can be done on this time frame,” Commonwealth Bank of Australia economists wrote. “We are less pessimistic since these negotiations are being conducted by senior politicians, not by trade bureaucrats,” they added. “Both sides also have an incentive, and arguably a growing incentive, to get a meaningful deal done.”

Traders now turn their attention to Friday’s monthly American labor report amid an ongoing earnings season that’s given investors mixed signals.

In FX, the Bloomberg dollar index moved in a tight range before today’s January payrolls data, while Treasuries were little changed. The euro rose as core inflation in the area beat estimates, shrugging off PMI misses in Germany and Italy. On Thursday, the euro slumped when Bundesbank President Jens Weidmann painted an unusually bleak picture of the German economy, saying the slump will last longer than initially thought. The pound led G-10 currency losses amid euro-sterling buying and after U.K. manufacturing data came in weaker than expected. Bunds edged lower, leading core and semi-core bond declines.

In commodities, oil prices were subdued as the China data offset signs major exporters were reducing output in line with a pact to cut supply. Gold prices hovered just short of nine-month highs supported by the fall in bond yields and expectations for a softer dollar. Spot gold stood at $1,318.41 per ounce, having touched a top of $1,326.30.

Key events include the employment report, manufacturing PMI readings. Exxon Mobil and Chevron are due to report earnings

Markets Snapshot

• S&P 500 futures down 0.03% to 2,703.75
• STOXX Europe 600 up 0.3% to 359.69
• MXAP down 0.09% to 156.50
• MXAPJ up 0.01% to 511.47
• Nikkei up 0.07% to 20,788.39
• Topix down 0.2% to 1,564.63
• Hang Seng Index down 0.04% to 27,930.74
• Shanghai Composite up 1.3% to 2,618.23
• Sensex up 0.7% to 36,500.77
• Australia S&P/ASX 200 down 0.03% to 5,862.83
• Kospi down 0.06% to 2,203.46
• German 10Y yield rose 1.1 bps to 0.16%
• Euro up 0.1% to $1.1459
• Brent Futures down 1.9% to $60.71/bbl
• Gold spot down 0.1% to $1,321.48
• U.S. Dollar Index down 0.1% to 95.52
• Italian 10Y yield fell 1.0 bps to 2.233%
• Spanish 10Y yield rose 1.4 bps to 1.21%

Top Overnight Headlines

• China promised to “substantially” expand purchases of U.S. goods after the latest round of trade talks, and both sides planned further discussions to reach a breakthrough with only a month to go before the Trump administration is set to ratchet up tariffs
• Europe’s primary bond market racked up a record 221.7 billion euros of sales in January, allaying fears that the European Central Bank’s wind-down of stimulus measures would hammer issuance; Issuance jumped 18% versus January 2018, partly because of a rush to get covered-bond sales and sterling public- sector deals done before looming risks such as Brexit
• Ministers in Theresa May’s government are setting out to woo members of the opposition Labour Party, in the hope that they’ll provide enough votes to get her Brexit deal through
• Japan’s Government Pension Investment Fund lost 9.1%, or 14.8 trillion yen ($136 billion), in the three months ended Dec. 31. The decline in value and the rate of loss were the steepest based on comparable data back to April 2008
• Despite a recession in Italy and a significant loss of economic momentum in Germany, the ECB president isn’t showing much urgency to reverse course on a stimulus-withdrawal path that was originally supposed to include an interest-rate increase late this year, according to Oxford Economics
• There’s a gold rush on as investors pour more and more funds into bullion. Global holdings in exchange-traded funds surged 70.6 metric tons in January, bringing assets to the highest in almost six years as prices rally

Asian equity markets traded cautiously as disappointing Chinese data clouded over the momentum from Wall St. where most major indices finished positive and the S&P 500 posted its best January performance in over 3 decades, with sentiment driven by earnings and progress in US-China trade discussions. ASX 200 (Unch.) and Nikkei 225 (Unch.) both opened higher amid broad optimism following the trade talks and with corporate updates dominating news flow in Japan, although China slowdown concerns later pressured both indices off intraday highs. Hang Seng (Unch.) and Shanghai Comp. (+1.3%) traded indecisively after Chinese Caixin Manufacturing PMI printed its weakest in around 3 years. However, the mainland has kept afloat on trade-related hopes and after another liquidity effort by the PBoC ahead of the Lunar New Year week-long market closure, while Barclays also speculate the PBoC could lower interest rates as soon as today due to the weak data. Finally, 10yr JGBs were higher as they continued to track the upside in T-notes in the aftermath of this week’s dovish Fed, and as Japanese yields continued to decline in which 20yr and 30yr JGB yields fell to their lowest since 2016.

Top Asian News

• India Overshoots Budget Deficit Target for Second Straight Year
• India Stocks Rally as Budget Offers Tax Bonanza to Consumers
• Modi Woos Indian Voters With Tax Cuts, Payouts to Farmers
• Malaysians, Chinese Lead Record Influx of Tourists to Indonesia

Major European equities initially posted slight gains but have since deteriorated into negative territory [Euro Stoxx 50 -0.1%]. The FTSE 100’s Shell (+0.6%) shares strengthened after initially opening in the red as the energy sector is underperforming weighed on by the oil complex. Other sectors are broadly in the green. Other notable movers include, Electrolux (+9.8%) who are at the top of the Stoxx 600 following a revenue beat and the Co’s largest investor supporting their proposed split. JC Decaux (+9.4%) are also at the top of the Stoxx 600, following their earnings. At the bottom of the Stoxx 600 are Caixabank (-7.9%) as their net profit missed expectations. Deutsche Bank (-3.4%) were the mornings most notable earnings release as the Co. shrank for the 8th consecutive quarter, with sources stating that time is running out for the Co. to turn around on its own; making a merger with Commerzbank (-1.2%) or another European bank more likely. Separately Adidas (-2.9%) are in the red following a downgrade at UBS.

Top European News

• Thyssenkrupp Shares Jump as Major Holders Support Breakup
• UBS Downgrades Euro Forecasts, Still Sees Room for Appreciation
• Germany to Forfeit Billions in Carbon Sales With Coal Exit
• Italian Industry Slump Worsens Outlook for Economy in Recession

In FX, USD The Dollar is pretty evenly split in terms of relative performance against G10 counterparts going into the monthly US jobs data, as the DXY hovers around 95.500 and roughly midway between weekly highs and lows, so far (95.987-157). However, the Buck remains pressured after Wednesday’s dovish Fed and net short positioning for month end, so a bullish/upbeat NFP report is needed to confirm a near term base for the index, and expectations are not skewed to the upside after such a bumper payroll number last time around.

• GBP Sterling is the clear laggard, and already looking precarious before the UK manufacturing PMI miss. Indeed, the Pound succumbed to accelerated selling once Cable relinquished the 1.3100 handle and Eur/Gbp breached 0.8750, with the former subsequently declining through the 200 HMA (1.3085-90) and testing, but not yet breaking the 200 DMA (1.3045), while the cross got to within a few pips of offers said to be sitting up at 0.8800 before fading.
• AUD/CAD Also underperforming, albeit to a lesser extent, with the Aud undermined by benign Aussie PPI data and a sub-forecast/even deeper contraction in China’s Caixin manufacturing PMI. Aud/Usd is currently around 0.7260 having almost reached 0.7300 yesterday, while the Loonie continues to meet resistance ahead of 1.3100 and some key chart support just above the big figure following pretty sanguine comments from BoC’s Wilkins on Canadian wages.
• CHF/EUR/NZD All modestly firmer vs the Usd, with the Franc rebounding from 0.9950+ levels towards 0.9920 and not unduly deterred by weaker than expected Swiss retail sales or headline manufacturing PMI. Similarly, the single currency largely took more bleak Eurozone manufacturing PMIs in stride, before deriving some traction from firmer core inflation and technically a recovery in Eur/Usd of its 100 DMA (1.1441). The Kiwi remains above 0.6900, and perhaps benefiting from the Aud’s demise as the cross retreats back below 1.0500.
• JPY On a more even keel than major rivals and holding above 109.00 vs the Usd.

In commodities, Brent (-0.1%) and WTI (Unch) are choppy, with prices for both around the middle of a slim USD 1/bbl range; impacted by global growth concerns following the weak Chinese PMI data. In terms of recent news flow, Russian oil product exports from the Port of Tuapse are forecast at 1.128mln tonnes vs. 1.463mln in January. Markets are looking ahead to today’s Baker Hughes rig count, which previously showed total rigs increased by 9 to 1059, with gas rigs up by 9 at 862.  Gold (Unch) is also around the middle of its range, with the yellow metal uneventful mimicking the dollar’s lack of direction ahead of today’s US jobs report. Elsewhere, Glencore have said they see 2019 copper production at 1.54MT, alongside the Co’s subsidiary being told to halt the production of a new system which removes uranium from their cobalt supplies. Separately, US metal importers are reportedly losing hope that the tariff exemptions, which some applied for over 8 months ago, will be approved by the Commerce Department as the US shutdown further delays the ruling.

US Event Calendar

• 8:30am: Change in Nonfarm Payrolls, est. 165,000, prior 312,000
• 8:30am: Unemployment Rate, est. 3.9%, prior 3.9%
• 8:30am: Average Hourly Earnings MoM, est. 0.3%, prior 0.4%; YoY, est. 3.2%, prior 3.2%
• 8:30am: Labor Force Participation Rate, est. 63.0%, prior 63.1%
• 9:45am: Markit US Manufacturing PMI, est. 54.9, prior 54.9
• 10am: U. of Mich. Sentiment, est. 90.7, prior 90.7; Current Conditions, prior 110; Expectations, prior 78.3
• 10am: Construction Spending MoM, est. 0.2%, prior -0.1%
• 10am: Wholesale Inventories MoM, est. 0.5%, prior 0.8%; Wholesale Trade Sales MoM, prior -0.2%
• Wards Total Vehicle Sales, est. 17.2m, prior 17.5m

DB’s Jim Reid concludes the overnight wrap

Welcome to February where we’ve woken up to a few millimetres of snow here in the south of England. This will no doubt ground us to a halt here. Given it’s payroll Friday, it’s the 12 month anniversary of the higher than expected average hourly earnings print that broke the long period of ultra low vol and started the vol quake that saw the VIX trade over 50 just four days later. Back then, the expectation for AHE was 2.6% and it came in at 2.9% (eventually revised to 2.8%). Ironically 12 months later very few people are worried about inflation even though a print of 3.2% is expected today after a higher than expected surprise last month (3.2% vs 3.0% expected). Even the Fed have thrown the towel in and gone full circle in their dovishness. So we’ll see what today brings for the overall release. We’ll preview it in full later.

The last day of January proved in the end to be a decent microcosm of how the record-breaking month played out with US equities extending gains, credit tightening, and bonds rallying across the board. Indeed the tech sector led the charge again as the NASDAQ rallied +1.37% which means the index had 8 days in January with gains of at least 1%. That’s the most in a single month since October 2011. The NYSE FANG index also rose +2.74% which put it up +13.06% in January while the S&P 500 last night finished +0.87%. The index received a boost just before the US close, as USTR Lighthizer spoke positively about the US-China trade talks (details below). In fairness the DOW (-0.06%) did close a bit lower mainly due to DowDupont falling -9.23% following a profit warning. The other big laggards were US large-cap banks, with Goldman Sachs down -2.21% as lower yields weighed on the sector, with the S&P 500 banks index dropping -1.21%.

Indeed it was earnings that really dictated how things played out yesterday. The headliners were Facebook (+10.82%) and General Electric (+11.43%) which rallied by the most in 3 years and 10 years respectively. GE’s 2035 bonds rallied -24.6bps and they are now -128.5bps tighter from their November wides, around the time they got downgraded from A to BBB+ by the major credit ratings agencies. A reminder that it was GE which sparked all the concern about the swelling of the BBB credit market in the US last year.

Elsewhere Charter Communications (+14.19%), AmerisourceBergen (+6.19%), UPS (+4.09%), and Mastercard (+3.54%) deserve honorable mentions too after the market also viewed their latest earnings reports favorably. Much like how we saw companies get punished for small misses in previous quarters, the market has started rewarding companies who appear to be painting a less negative outlook picture.

After the close last night, Amazon beat consensus expectations on the profit and revenue fronts for the fourth quarter. Nevertheless, shares slid over -5% after hours as first quarter guidance was a touch lower than anticipated and international momentum softened surprisingly. To be fair, the stock is still up over 27% since its Christmas Eve though. Futures on the S&P 500 (unch) and NASDAQ (-0.40%) are trading flat and slightly lower respectively.

Overnight in Asia, stocks have fallen back after the China Caixin manufacturing PMI came in below expectations at 48.3 (vs. 49.6 expected), the second consecutive monthly reading below the 50-mark and the lowest since February 2016. The Nikkei (+0.12%), Hang Seng (-0.31%), and the Kospi (+0.06%) all fell after the release, although the Shanghai Composite (+0.77%) continues to climb as no dramas came out of the latest round of trade talks.

Indeed the sound bites trickling out of this week’s US-China trade talks have been on balance positive without necessarily seeing any breakthroughs. Yesterday we heard from President Trump who tweeted that “meetings are going well with good intent and spirit on both sides” however “no final deal will be made until my friend President Xi, and I, meet in the near future to discuss and agree on some of the long standing and more difficult posts”. He also suggested that both sides were working towards an agreement by March 1st which is when tariffs on China are due to go up. The WSJ yesterday reported that China are pushing for a Trump-Xi meeting this month, while Bloomberg reported that the Chinese negotiators offered no other major proposals or concessions in this week’s talks. Nevertheless, USTR Lighthizer, one of the more influential and hawkish members of the US administration, said that progress is being made and Chinese Vice Premier Liu He said that hopes to accelerate the timetable, possibly signaling increased confidence. President Trump then said that Lighthizer and Mnuchin will travel to China to continue talks and that have already made “tremendous progress,” though that “doesn’t mean we have a deal” yet. Both sides have released statements overnight. China have said talks went well and they will buy more goods from the US and “will actively respond to US concerns on intellectual property, creating (a) fair market environment”. The US statement was a bit more neutral. So all to play for over the next 4 weeks ahead of the current March 1st deadline for further escalation.

Back to yesterday where, as mentioned earlier, it was also a decent day for credit with cash HY spreads c.-4bps tighter in the US and Europe. EM hard currency spreads were also -2.9bps tighter while bond markets in Europe rallied anywhere from -1.1bps (in Italy – after the country officially entered a technical recession as expected) to -5.9bps lower (in Spain). Treasuries rallied -4.4bps and -4.3bps at the 2y and 10y points of the curve with the curve broadly unchanged while oil traded close to flat.

That move for Treasuries comes ahead of a busy end to the week for data today including the aforementioned first employment report of the year tonight in the US. In terms of what else to expect from the report the consensus is running at 165k for nonfarm payrolls (following 312k in December) while earnings are expected to have risen +0.3% mom which would keep the annual rate at +3.2% yoy as discussed above. Our US economists also expect a 165k payrolls reading however are slightly below market on earnings at +0.2% which in their view would lower the annual rate slightly to +3.1%. However, they also note that if hours worked remain at 34.5 as they anticipate, the payroll proxy for nominal income growth would rise to 5.5% (year-over-year), matching its post-recession high. Therefore they note that in short, while the January employment report may not be as eye-popping as the prior month, it should still be consistent with further tightening of the labour market and strong income growth.

Meanwhile yesterday’s economic data certainly caught the eye. It started with Italy which confirmed a technical recession with its second consecutive negative qoq GDP print (-0.2% vs. -0.1% expected). So that’s now 6 recessions since the inception of the euro for Italy. Contrast that with Australia that leads the developed world pack by not seeing a recession since 1991. Growth for the broader Euro Area was confirmed at +0.2% qoq as expected which leaves the yoy rate at +1.2% and down from +1.6% in Q3.

In the afternoon in the US the Q4 ECI disappointed slightly at +0.7% qoq (vs. +0.8% expected) however given the dovish pivot for the Fed this is perhaps less significant than it previously would have been. More notable was the jump in claims last week to 253k from 200k which was the largest jump since the September 2017 hurricane-impacted month. The report was probably influenced by some transitory factors (the government shutdown affecting DC, the public teachers’ strike in California, weather in the Midwest). Worth watching if these end up being one-offs or not in next week’s data. Also out yesterday was the Chicago PMI which plummeted unexpectedly by -7.1 points – the biggest in nearly four years – to 56.7 (vs. 61.5 expected). That perhaps raises the potential of downside risks to today’s ISM reading in the US. Finally new home sales in November were confirmed as rising a much greater-than-expected +16.9% mom (vs. +4.8 expected).

In terms of the day ahead, this afternoon’s January employment report in the US will almost certainly be the biggest crowd puller. However prior to that this morning we get the final January manufacturing PMIs in Europe where the market will be on close lookout for the sub-50 readings in Germany (49.9 expected) and Italy (48.8 expected) especially. We’ll also get the January CPI report for the Euro Area (no change to the +1.0% yoy core reading expected) while due out in the US is the manufacturing PMI (no change to 54.9 expected), November construction spending (+0.2% mom expected), November wholesale inventories (+0.5% mom expected), January ISM manufacturing (54.0 expected), final January University of Michigan consumer sentiment survey revisions (headline 90.7 reading expected) and January vehicle sales data (17.2m expected). In addition to that, the Fed’s Kaplan is due to speak this afternoon while the earnings highlights include Exxon Mobil, Chevron and Merck.

via ZeroHedge News http://bit.ly/2Snpfzm Tyler Durden

New Jersey Senator and former Newark Mayor Cory Booker just made it official: He will be joining Kamala Harris, Elizabeth Warren and Kirsten Gillibrand in seeking the 2020 Democratic nomination.

According to CNBC, Booker officially launched his presidential campaign early Friday, a move that had been widely expected. In preparation, Booker has spent recent weeks crisscrossing key primary states.

Booker is a liberal Democrat and perennial Trump critic who nonetheless scored a key bipartisan victory when Congress passed a sweeping criminal reform bill that he had worked on.

However, the senator is coming off a string of embarrassing scandals that will likely be seized on by primary opponents: During one of the most memorable moments of the Kavanaugh hearings, Booker released 12 pages of confidential emails – purportedly risking censure or expulsion from the senate – which the Washington Examiner famously decried as a “total dud.”  More ominously, Booker – who is reportedly dating actress Rosario Dawson – was accused of sexually assaulting a man in a men’s restroom.

If elected, Booker would be the first bachelor to occupy the White House in 150 years.

With Democratic primary candidates tacking further to the left (something the conservative media has labeled the “AOC effect”, we look forward to hearing the formerly centrist, corporate-friendly Booker announce his support for Medicare for all and a 70% marginal tax rate for people earning more than $10 million a year.

via ZeroHedge News http://bit.ly/2t1qVR0 Tyler Durden

That merger between Deutsche Bank and Commerzbank, which is contingent on the biggest German lender’s inability to turn operations around, is looking increasingly likely, because earlier today Deutsche Bank reported earnings which confirmed that, well, it is simply unable to make said much-needed turn.

Deutsche Bank reported Q4 net revenue of €5.58BN that was 2.6% below the average analyst estimate of €5.73, led by another decline in trading revenue, resulting in a pretax loss of €319 million in line with estimates of a €331.0 million loss. And as the bank shrank for an eighth straight quarter in the final months of last year, CEO Christian Sewing pledged even more cost cuts although it is clear by now that cost cutting has starting to eat into profits.

In the volatilte fourth quarter, in which market gyrations were supposed to help the company’s trading desk (despite images of police raiding the bank’s headquarters in November) revenue shrank another 2.4%, led by a slump in the key fixed-income trading business that did even worse than peers. The key bank’s securities unit slumped, losing market share particularly in fixed income trading, where revenue slumped 23%, but also in equities, which declined 0.8%; both missed consensus estimates. The bank’s U.S. peers on average reported a 17% drop in FICC and 4% higher equities revenue.

Here are the key results in a nutshell:

• 4Q FICC sales & trading revenue €786 million, missing the est. €992.0 million
• 4Q equities sales & trading revenue €379 million, missing the est. €372.0 million
• 4Q sales and trading revenue €1.17 billion, missing the est. €1.34 billion
• 4Q Investment Bank revenue €2.60 billion, missing the est. €2.72 billion

And so clearly unable to rightsize the company’s revenues, the bank focused on cutting even more costs instead. To appease angry shareholders, CEO Sewing boosted his target for adjusted costs, promising to keep them below 21.8 billion euros this year, compared with the 22 billion euros previously announced, and affirmed a plan to return at least 4% on tangible equity “despite a challenging market environment.”

Sewing also said the bank would return to “controlled” growth, a promise that eluded his predecessor, and said if revenue keeps disappointing, he’ll find more savings. At some point, though, even he will have to admit that at this point DB has cut out all the fat and is increasingly chopping away muscle, with any new terminations resulting in direct hits to the bottom line.

“Management has delivered on what is in their control in the medium term: cost, capital and liability optimization,” JPMorgan Chase analyst Kian Abouhossein said. “However, for now, we remain concerned about Deutsche Bank’s inability to turn around fixed-income trading.”

Despite the latest dismal results, Sewing did deliver on one pledge: to post the first annual profit in four years, with Deutsche Bank reporting net income after minority interests of 267 million euros for 2018, despite a bigger-than-expected loss in the final three months. The bank also achieved a target of keeping costs, adjusted for one-time items, to below 23 billion euros.

Looking ahead, however, there was little clarity, with the company merely focusing on more cost-cutting instead of providing a roadmap to higher revenues: “If the revenue environment does not develop as we expect, we will seek additional savings,” Sewing said. “Beyond 2019, we are still committed to further reducing our costs and improving our cost-income ratio.”

As Bloomberg notes, the prolonged revenue contraction is adding pressure on the CEO and Chairman Paul Achleitner to explore alternative fixes for Germany’s largest lender. Sewing, who only took over last year, has pleaded for patience with his strategy of expense controls and a scaled-back investment bank, but government is worried he may not succeed before the next economic slowdown.

To be sure, DB’s CFO tried his best to spin the results in a favorable light: “We feel we are in control of our destiny, we’re executing against our plans,” James von Moltke, the bank’s chief financial officer, said in an interview on Bloomberg TV. Still, “there’s a lot of talk in the sector overall, that over time mergers, consolidation in the European banking sector would be sensible for a variety of reasons. We’ve tended to agree with that.”

Von Moltke also said that the recent police raid “absolutely impacted” business in December. A group of about 170 law-enforcement officials searched the bank’s headquarters and other offices in late November, in a case tied to the Panama Papers, fueling market concern about potential legal fines. Sewing said at the time that the bank had considered the case closed, having examined it in 2016, when news about the Panama Papers first broke.

“Clearly being in the headlines in that way is unhelpful for client confidence,” von Moltke said. “We’ve gone some way to restoring that. There’s more work to do to communicate the nature of these issues.”

The bigger problem than money laundering, however, is that Germany’s largest bank has been facing declining revenue for four years, turning the shrinkage, especially in the most profitable investment banking division, into the top concern among investors and analysts alike and sparking speculation it may ultimately seek a merger with Commerzbank which may come as soon as this summer.

While a deal is viewed by some as an imperfect solution, the German government — which on Wednesday slashed its economic growth forecast for this year — has said it wants strong international banks to support Germany’s export-oriented companies. The country still owns a large stake in Commerzbank after a bailout. It doesn’t own a stake in Deutsche Bank.

For now however, investors appear to have thrown in the towel, with DB stock initially jumping then sliding 3.4% after the results.

The good news is that for now at least, DB, which was the worst performing Stoxx 600 member in 2018,is still up on the year. We don’t expect this to hold, especially if the yield on longer-dated European yields keeps sliding and there is no rebound in Germany’s economy, which after today’s terrible German Mfg PMI is not looking likely.

via ZeroHedge News http://bit.ly/2WwQK8Z Tyler Durden

Two days of intense trade talks in Washington have yielded some progress…but not nearly as much as the Trump administration has let on. Looking past US Trade Rep Robert Lighthizer’s post-hoc press conference, where he revealed that, during two days of intense discussions, the two sides had focused on US demands for structural reforms by Beijing (including ending the forced transfer of technology from US companies and reining in the use of industrial subsidies, two of the US’s biggest asks), as well as the requirements for enforcement. But it doesn’t appear that the US or China were in the mood to make any new commitments.

No specific concessions had been made by Beijing. Instead, a US delegation led by Lighthizer and Mnuchin are planning to travel to Beijing after the Chinese New Year for another round of talks. And after that, President Trump – the “closer” in chief himself – is expected to meet Xi on the southern island of Hainan after the second summit with North Korean leader Kim Jong Un to seal the deal with President Xi.

Trump told reporters in the Oval Office that “I think that probably the final deal will be made, if it’s made, between myself and President Xi.” But he offered little in the way of anything concrete to justify why investors should be optimistic now. As China’s Xinhua news agency reported, the two sides had “clarified the timetable and roadmap for the next consultation” after holding “frank, concrete and constructive” discussions on issues like technology transfers and IP protections. But though the two sides had “clarified the roadmap” toward a deal, it doesn’t appear that any actual progress was made, despite Xi telling Trump in a letter delivered by the Chinese delegation that the “intensive consultations” had yielded “good progress,” according to Bloomberg.

And the US has continued to insist that if there isn’t a deal by March 1, tariffs on $200 billion in Chinese goods will increase from 10% to 25%.

“I hope our two sides will continue to work with mutual respect and win-win co-operation,” the Chinese president wrote, adding that an agreement would “send a positive signal to our two peoples and the broader international community.” So far, China has offered to boost its purchases of soybeans and discuss improving market access to international investors – but neither of these offers is anything new.

But as the Financial Times points out, China remains unwilling to reduce state support for its economy in any way that could impact its ability to compete with the US. So whatever progress was made on this key US demand, it was, apparently, superficial, at best. Setting aside the administration’s optimistic tone, Trump’s team is apparently leaning on the notion that the US has the upper hand because the Communist Party would be unwilling to rock the boat at a time when the economy is slowing. But the US is facing pressures of its own – pressures that have been exacerbated by the government shutdown – and nothing about China’s behavior so far suggests they’re leaning toward caving.

Plus, Beijing’s simmering outrage over the US’s perceived persecution of Huawei remains a major complication. 

But the White House is facing pressure of its own – in the form of the hit taken by the US economy this month from the partial government shutdown and Mr Trump’s sensitivity to adverse movements in equity markets.  Politically, Mr Trump is striving to fulfil one of his key 2016 campaign pledges – to reset trade relations with China. But any agreement that is seen as weak or inconclusive would expose him to attacks from Democratic rivals. 

The chance of a big breakthrough this week in the trade talks was relatively low, after Beijing reacted with outrage to Monday’s indictment of Huawei, the Chinese telecoms equipment maker, on criminal charges it stole US technology and violated US sanctions. But US officials said there was no evidence it adversely affected the negotiations. 

A new summit between Mr Trump and Mr Xi would follow their steak dinner in Buenos Aires on December 1, just after the G20 summit in the Argentine capital. That meeting resulted in a commercial ceasefire between the US and China and avoided a tariff escalation that was originally scheduled for January 1.

Speaking with the FT, a professor of economics at Syracuse University named Mary Lovely highlighted what appears to be the biggest obstacle to a deal: The Trump administration remains unwilling to make big concessions.

Mary Lovely, a professor of economics at Syracuse University and a senior fellow at the Peterson Institute for International Economics, a think-tank, said it was still unclear whether the US was prepared to make “tough trade-offs” with the Chinese in the final stretch.

This was perhaps best encapsulated by Trump’s hint (a suggestion he later walked back) that the talks could be extended past the March 1 deadline.

“This isn’t going to be a small deal with China,” Trump said. “This is either going to be a big deal or it’s going to be a deal that we’ll just postpone for a while.”

So if the administration doesn’t have a change of heart, it would be easier – and more politically expedient – for Trump to continue hailing incremental “progress” while putting off the “real” breakthroughs until the next meeting…and the next meeting…and the next meeting.

via ZeroHedge News http://bit.ly/2CZeHNf Tyler Durden

Authored by Tim Daiss via Oilprice.com,

In what would be an early geopolitical win for Moscow, German news agency DW reported yesterday, citing one of the project’s engineers, that the Nord Stream 2 natural gas pipeline should be operational by November.

Klaus Haussmann, an engineer at Nord Stream 2’s future landfall site at Lubmin on Germany’s Baltic Sea coast, told German public radio station Deutschlandfunk that the “raw” laying of the pipeline would be finished by the middle of 2019, according to the DW report.

“Then comes the entire installation of the electrical equipment, security chains. And, then it’s planned on the large scale that we get the first conduit filled with gas in November, from Russia,” Haussmann said.

Haussmann said his concern was more the impact of the Baltic’s winter weather and waves on construction at sea and less so the international pros and cons.

“For two years or more, Nord Stream 2 has been pretty much under fire. But at the moment we have more worries with the weather outside,” he said.

Geopolitically charged pipeline

Nord Stream 2 is a 759 mile (1,222 km) natural gas pipeline running on the bed of the Baltic Sea from Russian gas fields to Germany, bypassing existing land routes over Ukraine, Poland and Belarus. It would double the existing Nord Stream pipeline’s current annual capacity of 55 bcm.

However, it is arguably one of the most geopolitically charged energy projects ever proposed. Germany maintains that the pipeline is needed to increase natural gas supply as some EU members move away from nuclear for power generation, but not everyone agrees. The U.S., under the past three presidents including Donald Trump, has long countered that the pipeline puts European national security in jeopardy – a concern that seems grounded given Russia’s history of using gas a geopolitical weapon in the middle of winter.

Ukraine, which has argued that it will lose revenue since the Nord Stream 2 project would bypass the country, has tried to form a consortium of EU-based companies to stop the new pipeline, however, those efforts have largely fallen apart and at this point would be too late to make much difference.

The Nord Stream 2 project has so angered President Trump that his administration has recently threatened to put sanctions in place if the project becomes operational. In a televised meeting with reporters and NATO Secretary-General Jens Stoltenberg before a NATO summit in Brussels last year, Trump said it was “very inappropriate” that the U.S. was paying for European defense against Russia while Germany, the biggest European economy, was supporting gas deals with Moscow.

Earlier this month, Richard Grenell, the U.S. ambassador to Germany, said sanctions could be put in place against specific German firms involved in the pipeline project, prompting Berlin to reply that “nothing had changed” and the project had its permits and was proceeding.

“We’re not that easy to impress and intimidate,” said German Economy Minister Peter Altmaier.

U.S. pressure

Though Germany has resisted U.S. efforts to back out of the Nord Stream 2 project, American pressure is likely the impetus for the country to forge ahead with plans to put more LNG infrastructure in place as well as procure U.S.-sourced LNG which would not only diversify its energy mix but also appease President Trump.

Nord Stream 2 is owned by Russian energy giant Gazprom which already has a monopoly over Russia’s network of pipelines to Europe and supplies close to 40 percent of Europe’s gas. Meanwhile, Russia’s gas exports to Europe rose 8.1 percent in 2017 to a record level of 193.9 bcm, even amid concerns over Russia’s cyber espionage allegations, and its activities in Syria, Ukraine and other places

via ZeroHedge News http://bit.ly/2WycEZs Tyler Durden