Ukraine Currency Crashes To Record Low; Abandons Dollar Peg

Following yesterday’s admission by the new head of Ukraine’s central bank of the considerable bank runs in recent days and the rapid dwindling of central bank reserves, Sergiy Kruglik – the director of international affairs for the bank – announced this morning that Ukraine has adandoned the dollar peg and will adopt a flexible exchange rate. The Hyrvnia collapsed through 10.00 on the news and is now trading 10.40 at record lows against the USD.

 

 

As The Economist notes, on February 7th the National Bank of Ukraine (NBU, the central bank) finally devalued the official rate of the hryvnya, to HRN8.7:US$1.

The policy was then to set the peg to the dollar roughly in line with trading on the interbank exchange. At the same time, the authorities introduced more foreign-exchange controls.

This has now changed and the currency is in free-fall. One cannot but think this is a desperate attempt to force the hands of a bailer-out to move before total chaos ensues (and of course, as the UAH plummets so import costs of energy will soar).

 

Charts: Bloomberg


    



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Frontrunning: February 26

  • California couple finds $10 million in buried treasure while walking dog (Reuters) … not bitcoin?
  • Dimon Says Threats to JPMorgan Span Google to China Banks (BBG)
  • Stocks So Many Love to Hate Buoyed by Fed’s Jobs Priority (BBG)
  • White House Weighs Four Options for Revamping NSA Phone Surveillance (WSJ) … to pick the fifth one
  • Credit Suisse Executives Weren’t Aware of U.S. Tax Dodges (BBG)
  • Militias Hunt Kiev Looters From Central Bank to Bling Palace (BBG)
  • Crisis Gauge Rises to Record High as Swaps Avoided (BBG)
  • Obama to Propose Highway-Repair Program (WSJ)
  • Ukraine Pledges to Protect Deposits as Kiev Rally Called (BBG)
  • Twinkies Bankruptcy Raises Specter of U.S. Pension Fund Failures (BBG)
  • U.S. warns banks to watch for ousted Ukraine leader moving looted funds (Reuters)
  • Investors Mount Attack on Norway in $20 Billion Oil, Gas Row (BBG)
  • Switzerland Shifting From Bankers to Bunkers in Data Push (BBG)
  • Obesity rates remain high, but stable in the U.S (Reuters)

 

Oveernight Media Digest

WSJ

* Administration lawyers have presented the White House with four options for restructuring the National Security Agency’s phone-surveillance program, from ditching the controversial collection altogether to running it through the telephone companies, according to officials familiar with the discussions.

* The virtual currency bitcoin suffered the biggest setback in its five-year history after a major exchange shut down on Tuesday, stoking concern about the future of a digital form of money traded by professional investors and ordinary people, but regulated by no one.

* Bitcoin exchange Mt. Gox has received a subpoena from federal prosecutors in New York, according to a person familiar with the matter, dealing another blow to the embattled marketplace for buyers and sellers of the virtual currency.

* Two big banks, Morgan Stanley and Bank of America Corp, on Tuesday disclosed details of the continuing regulatory and legal challenges they face for their actions during the financial crisis.

* Credit Suisse Group AG went to great lengths to assist U.S. customers trying to open Swiss bank accounts and evade federal taxes, courting clients at a Swiss-themed ball in New York and golf tournaments in Florida and setting up a branch in the Zurich airport to assist Americans en route to ski vacations, a Senate report alleged Tuesday.

* Tesla Motors Inc shares hit a record high on Tuesday ahead of an expected announcement of a battery-production partnership in which the company would carve out a business making advanced batteries for itself and others. Panasonic Corp, now the primary battery supplier for Tesla’s $71,000-and-up electric cars, is in talks about investing in a nearly $1 billion battery factory in the United States, according to Japanese business newspaper the Nikkei.

* When word got out that Procter & Gamble Co had allowed Amazon.com Inc to set up shop inside its warehouses, Amazon’s bitter rival Target Corp reacted by retaliating against P&G, according to people familiar with the matter. Several months ago, the discount chain started to give some P&G products less-prominent placement in stores people in the industry said.

* The Pentagon has responded to concerns that defense cuts could harm the U.S. military-industrial base by proposing support that could aid two unlikely beneficiaries: General Electric Co and United Technologies Corp.

 

FT

UK Chancellor George Osborne is facing a push from Tory MPs to announce tax cuts in the upcoming budget in an attempt to protect the government’s political position from a backlash from an interest rate hike by the Bank of England.

The European Commission has forecast a growth of 1.2 percent for the Eurozone’s economy while cautioning on vulnerable members such as Italy and France.

Indian banks may be forced to stop offering retail services in the UK as regulatory compulsions proposed in a consultation paper by Bank of England’s Prudential Regulation Authority would make it tough for banks to offer customer banking due to additional costs.

World’s biggest chemical maker by sales, BASF is targeting investments in North America and emerging markets as it feels the heat of saturating markets in Europe hit by recession.

The chief executive of British banknote printer De La Rue Tim Cobbold has resigned to join marketing services company UBM, and will replace David Levin effective May 6.

 

NYT

* The apparent collapse of Bitcoin’s best-known and once-dominant trading platform has provoked outrage among its users, but it has also stirred hopes that the way may now be clear for more established players to transform and rein in a largely unregulated market.

* U.S. orders tests on oil shipments as recent accidents have drawn attention to the risks of shipping large quantities of crude oil in unpressurized railcars.

* The proposal by the top Republican on the House Ways and Means Committee to overhaul and simplify the nation’s tax code is already coming under scrutiny from fellow Republicans, with at least one party leader, Senator Mitch McConnell of Kentucky, saying the plan has no chance.

* Seventeen brokerage firms, including Citigroup, Goldman Sachs, JPMorgan Chase & Co and Merrill Lynch, have agreed to stop participating in money management surveys aimed at tapping into research analysts’ changing views on companies before those opinions are publicly issued.

* A report by a Senate subcommittee said Swiss bank Credit Suisse helped customers hide assets from taxation by the United States, and also accused American law enforcement of dragging its feet.

* Bank of America said that it was facing new investigations related to its activities in foreign currency exchange markets as well as its handling of government-backed mortgages in the United States.

* Morgan Stanley has tentatively agreed to pay $275 million to resolve a federal securities investigation related to subprime mortgage bonds the investment firm underwrote in 2007.

* Steven Cohen, the billionaire hedge fund owner, is looking to hire a former prosecutor or securities regulator to monitor trading at his investment firm after the federal government’s insider trading investigation.

* Standard & Poor’s is seeking information about certain meetings between President Obama and Timothy Geithner in 2011, hoping the details will help show that a lawsuit filed by the government in 2013 against the company was done in retaliation for a ratings downgrade of American debt.

* Hedge fund Elliott Management raised its bid for Riverbed Technology on Tuesday and continued to criticize the networking equipment company for failing to begin a process to sell itself.

 

Canada

THE GLOBE AND MAIL

* The debate over the proposed overhaul of Canada’s elections laws will be confined to Parliament Hill, as the governing Conservatives and opposition New Democrats continue to spar over the changes.

* Ottawa’s auction of the 700-megahertz frequency sparked such a frenzy among wireless carriers that during some rounds, they placed bids totaling more than C$7 billion ($6.32 billion).

Reports in the business section:

* The federal government’s plan to sign a free-trade agreement with South Korea has won the support of the Japanese Automobile Manufacturers Association of Canada.

* Tim Hortons Inc is planning a big expansion, some of it in smaller spaces. The company said on Tuesday that it would open 800 restaurants in North America – 500 of those in Canada – and 220 in the Middle East as it targets compound annual profit-per-share growth of 11-13 percent in the next five years.

NATIONAL POST

* Politicians have been trying to make the middle class out to be a poor huddled mass of declining fortunes, but Statistics Canada paints a different picture. The study, released on Tuesday, shows the median net worth of Canadian families jumped 44.5 percent to $243,800 in 2012, up from $168,700 in 2005. Over the past 15 years, the median net worth figure leaps 80 percent.

* Prime Minister Stephen Harper is hinting that the key Conservative campaign plank from the 2011 federal election that earned him a majority might not be pitched overboard after all. Income-splitting for couples with children under 18 was a $2.5-billion pledge during the last election – a Conservative promise that would kick in as soon as the government balanced the federal budget.

FINANCIAL POST

* Chief Executive John Chen is hoping that moving one step back will help BlackBerry Ltd take two steps winning back customers. Since taking over the embattled Waterloo, Ontario-based smartphone maker in November, Chen has made it clear the company must return to its roots if it hopes to restore its fortunes and rebound to profitability.

* Canadian shippers are bracing on Wednesday for a work stoppage at the Port Metro Vancouver by truck drivers protesting what they claim are long lineups, wait times and other “unfair” practices at the country’s busiest port

 

China

SHANGHAI SECURITIES NEWS

– The Securities Association of China has published rules that would require Chinese brokerages strengthen their risk management.

SECURITIES TIMES

– Singaporean developer CapitaLand Ltd plans to build 100 shopping centres in China over the next 3-5 years.

– China’s electronics manufacturer, TCL Corp, said it would fully embrace Internet and mobile technologies, aiming to boost the company’s market value to over 100 billion yuan in five years, from around 23 billion yuan now.

PEOPLE’S DAILY

– China President Xi Jinping has called on the nation to promote and embrace the core value of socialism.

 

Britain

The Telegraph

BRITAIN’S GROWTH PROSPECTS UPGRADED BY EUROPEAN COMMISSION

The European Commission expects Britain to grow by 2.5 percent in 2014, compared with a forecast of 2.2 percent in November. Its forecast for 2015 was unchanged at 2.4 percent.

DIXONS AND CARPHONE MERGER COULD FACE COMPETITION INVESTIGATION

A potential merger between Dixons and Carphone Warehouse is likely to face an investigation by Britain’s competition authorities, analysts have warned.

The Guardian

LONDON’S BUY-TO-LET RENTS DOUBLE THAT OF REST OF UK, SAYS LENDER

Landlords taking on new buy-to-let properties in London are charging twice as much rent as those in the rest of the country, according to data from one of Britain’s biggest buy-to-let lenders, BM Solutions.

ROYAL MAIL: COALITION ACCUSED OVER ‘POLITICAL’ FLOTATION

The government faced fresh accusations of short-changing the taxpayer over the Royal Mail float on Tuesday after it was revealed that bankers valued the company at up to 8.6 billion pounds when approached months before the float went ahead.

The Times

TESCO UNDERCUT BY ASDA AS IT STARTS HIGH-STREET PRICE WAR

The opening salvo in a supermarket price war was fired by Tesco as it announced a multimillion pound investment in price cuts. Britain’s biggest supermarket said it would spend more than 200 million pounds lowering prices.

COBHAM REPORTS “IRREGULAR” SALES OF SPY-TRACKING KIT

Cobham is under investigation by the U.S. Department of Justice over sales of its satellite tracking devices used by spies, emergency services, mining enterprises and oil and gas companies around the world.

Sky News

RBS REACHES DEAL TO AWARD £550M BONUS POT

Royal Bank of Scotland is to pay approximately 550 million pounds for 2013 after securing the agreement of the Treasury agency that is its biggest shareholder.

BOOHOO LURES EX-ASOS DIRECTOR FOR 500 MLN STG IPO

A former director of the online fashion retailer Asos is to become chairman of rival Boohoo.com as it finalises plans for a stock market flotation valuing it at 500 million pounds.

 

 

Fly On The Wall 7:00 AM Market Snapshot

ECONOMIC REPORTS
Domestic economic reports scheduled for today include:
New home sales for January at 10:00–consensus down 3.4% m/m to 400K

ANALYST RESEARCH
Upgrades
Bristow Group (BRS) upgraded to Overweight from Equal Weight at Barclays
Exterran Partners (EXLP) upgraded to Outperform from Neutral at Credit Suisse
Felcor Lodging (FCH) upgraded to Outperform from Market Perform at JMP Securities
Kroger (KR) upgraded to Overweight from Neutral at JPMorgan
LinkedIn (LNKD) upgraded to Outperform from Sector Perform at RBC Capital
Masco (MAS) upgraded to Hold from Underweight at KeyBanc
Ralph Lauren (RL) upgraded to Outperform from Market Perform at Wells Fargo
SciQuest (SQI) upgraded to Buy from Hold at Canaccord
Teradata (TDC) upgraded to Buy from Neutral at Longbow
Downgrades
DiamondRock (DRH) downgraded to Neutral from Buy at ISI Group
Dynamic Materials (BOOM) downgraded to Neutral from Overweight at JPMorgan
Fresenius Medical (FMS) downgraded to Neutral from Buy at UBS
Humana (HUM) downgraded to Sell from Neutral at Citigroup
Jazz Pharmaceuticals (JAZZ) downgraded to Hold from Buy at Cantor
Juniper (JNPR) downgraded to Neutral from Overweight at Piper Jaffray
NII Holdings (NIHD) downgraded to Neutral from Outperform at Macquarie
Phillips 66 Partners (PSXP) downgraded to Neutral from Outperform at Credit Suisse
Safeway (SWY) downgraded to Neutral from Overweight at JPMorgan
Toll Brothers (TOL) downgraded to Market Perform from Outperform at Keefe Bruyette
Valero Energy Partners (VLP) downgraded to Neutral from Outperform at Credit Suisse
Volaris (VLRS) downgraded to Hold from Buy at Deutsche Bank
Vornado (VNO) downgraded to In-Line from Outperform at Imperial Capital
Initiations
Atlas Pipeline Partners (APL) initiated with a Hold at Deutsche Bank
CHC Group (HELI) initiated with a Buy at UBS
CHC Group (HELI) initiated with a Sector Perform at RBC Capital
EP Energy (EPE) initiated with a Buy at Deutsche Bank
EP Energy (EPE) initiated with a Buy at Goldman
EP Energy (EPE) initiated with an Outperform at Credit Suisse
EP Energy (EPE) initiated with an Outperform at Wells Fargo
EP Energy (EPE) initiated with an Overweight at JPMorgan
Intevac (IVAC) initiated with a Neutral at B. Riley
Kulicke & Soffa (KLIC) initiated with a Buy at B. Riley
La Jolla Pharmaceutical (LJPC) initiated with an Outperform at Wedbush
Nutraceutical (NUTR) initiated with an Outperform at Imperial Capital
Randgold Resources (GOLD) initiated with a Buy at UBS
Rudolph Technologies (RTEC) initiated with a Buy at B. Riley
Trevena (TRVN) initiated with an Outperform at JMP Securities
Trevena (TRVN) initiated with an Overweight at Barclays

COMPANY NEWS
GE (GE) to pay Shinsei $1.7B for refunds of interest
Bank of America (BAC) disclosed forex, FHFA probes
T. Rowe Price (TROW) opposes American Financial (AFG) tender offer for National Interstate (NATL)
General Motors (GM) expanded ignition recall to nearly 1.4M vehicles in U.S.
Lowe’s (LOW) board authorized repurchase of additional $5B in company stock
Anika Therapeutics (ANIK) announced that its Monovisc injection supplement to treat pain and improve joint mobility in patients suffering from osteoarthritis of the knee received FDA approval
Weatherford (WFT) said identified 6,192 positions for workforce reduction
Yandex (YNDX) announced advertising partnership with Google (GOOG)
Superior Energy (SPN) to pursue strategic alternatives for Asia Pacific-based unit

EARNINGS
Companies that beat consensus earnings expectations last night and today include:
AB InBev (BUD), Ormat Technologies (ORA), Range Resources (RRC), Solar Capital (SLRC), HEICO (HEI), Alleghany (Y), Big 5 Sporting (BGFV), Huron (HURN), R.R. Donnelley (RRD), Questcor (QCOR), Chicago Bridge & Iron (CBI), Edison International (EIX)

Companies that missed consensus earnings expectations include:
Sturm, Ruger (RGR), Forest Oil (FST), Nordson (NDSN), Newfield Exploration (NFX), CoreLogic (CLGX), Superior Energy (SPN), EXCO Resources (XCO), Jazz Pharmaceuticals (JAZZ), Boston Beer (SAM), QEP Resources (QEP), Cerus (CERS), First Solar (FSLR), Culp (CFI)

Companies that matched consensus earnings expectations include:
Lowe’s (LOW), Papa John’s (PZZA), Weatherford (WFT), Dycom (DY), Demand Media (DMD)

NEWSPAPERS/WEBSITES
Carlyle Group (CG) near deal for Tyco (TYC) unit, WSJ reports
Vodafone’s (VOD) European cable pursuits make AT&T (T) deal less likely, WSJ reports
Buffett (BRK.A) to modify Bank of America (BAC) investment terms, FT reports
BlackBerry (BBRY) CEO says he would accept $19B for BBM, CNBC reports
Aeropostale (ARO) working with Barclays (BCS) to explore options, Bloomberg reports
Target (TGT) retaliates against P&G (PG) after Amazon deal (AMZN), WSJ reports
Google Glass (GOOG) faces possible driving ban from some states, Bloomberg reports
Monsanto (MON) at epicenter of intensifying food debate, FT reports
Numerous Wall Street firms (JPM, GS) agree to stop analyst previews, Bloomberg reports
Royal Bank of Scotland (RBS) to pay GBP550M in staff bonuses for 2013, report FY13 loss, Sky News reports
Apple (AAPL) issues fixes for security flaw on Macintosh computers, Reuters reports

SYNDICATE
Allete (ALE) files to sell 2.5M shares of common stock
Infinity Pharmaceuticals (INFI) files to sell 1M common shares for holders
Neurocrine (NBIX) files to sell 7M shares of common stock


    



via Zero Hedge http://ift.tt/1kg5kYR Tyler Durden

Putin Launches Military Drill In Western, Central Russia; Ruble Drops To Lowest Since 2009

Lest it be confused that Russia has somehow forgotten about the Ukraine coup, and that it no longer concerns the bread basket (and key gas pipeline hub) of Europe a core strategic resource, moments ago Russian wire services blasted the following diplomatic summary of Russian bullish grace in a china store:

  • PUTIN ORDERS URGENT COMPREHENSIVE CHECKS OF TROOPS’ COMBAT READINESS IN WESTERN AND CENTRAL MILITARY DISTRICTS, AND OF AEROSPACE, AIRBORNE TROOPS, LONG-RANGE AND MILITARY TRANSPORT AVIATION – SHOIGU

Bloomberg adds the following:

  • President Vladimir Putin issued orders to conduct immediate check of combat-readiness of central, western military districts, test of air defense, airborne troops, aviation, Interfax reports, citing Russian Defense Minister Sergei Shoigu.
  • Test began at 2pm local time today: IFX
  • Exercise to be conducted Feb. 26-March 3 in 2 stages
  • Commander-in-chief ordered test of military capability to react to “crisis situations, posing a danger to the country’s military security,” Shoigu is cited as saying
  • Second test phase will include tactical exercises involving Northern, Baltic Fleets

In short, not only has the Russian bear woken from hibernation but is rather angry. Incidentally, Russia’s ever-louder war footing rumblings have not been lost on investors who sent the USD/RUB to the highest level since March 2009, just north of 36.

As for the Ukraine Hryvnia, don’t ask.

And now back to watching your regularly scheduled S&P500 all time high melt up. Becuase there is nothing at all concerning in the world.


    



via Zero Hedge http://ift.tt/1c7CVVv Tyler Durden

Stock Futures Drift Into Record Territory As Chinese Fears Ease

For the second night in a row, China, and specifically its currency rate which saw the Yuan weaken once more, preoccupied investors – and certainly those who had bet on endless strenghtening of the Chinese currency – however this time it appeared more “priced in, and after trading as low as 2000, the SHCOMP managed to close modestly green, which however is more than can be said about the Nikkei which ended the session down 0.5%. Still, the USDJPY was firmly supported by the 102.00 “fundamental” fair value barrier and as a result equity futures, which had to reallign from tracking the AUDUSD to the old faithful Yen carry, have been propped up once more and are set to open at all time highs. If equities fail to breach the record barrier for the third time in a row and a selloff ensues after the open in deja vu trading, it will be time to watch out below if only purely for technical reasons.

As DB reports, China continues to bubble nervously under the surface. Chinese equities yesterday hit 1 month lows and are 65% off the all time highs. There’s a mix of reasons but one of the biggest stories of the past week or so has been the depreciation of the Chinese currency, both onshore where USDCNY is up 1.0% over the past week and offshore where USDCNH is up 1.25%. Whilst these moves may not seem large in the context of other EM currencies, they are significant compared to the usual size of Renminbi moves. Whilst there has been some weak Chinese data which might explain part of the depreciation, the broad feeling is that this move has been driven by efforts by the PBOC to shakeout the large long Renminbi carry trade that has been built on the back of the view that the Chinese currency can only appreciate in value. Indeed worries at the PBOC may have been triggered by one sign of this carry trade in action – the premium with which offshore USDCNH has been trading over the tightly controlled onshore USDCNY value over the course of 2014. This premium has now largely disappeared. The total size of the carry trade is hard to estimate although even just looking at some of the onshore CNY positions accumulated, DB Asia FX strategist Perry Kojodjojo estimates that corporate USD/CNY short positions are around $500bn. The size of the carry trade and the fact that China saw significant capital outflows during the last period of substantial Renminbi depreciation in the summer of 2012 has led to concerns over what this might mean for both the Chinese economy and financial markets as well as broader global financial implications. Looking forward it’s possible that the PBOC is not attempting to actively engineer a sustained depreciation of the Renminbi but rather is attempting to increase the level of two-way volatility in the market to discourage the carry trade and also excessive capital inflows. In terms of the broad risk going forward the sheer scale of the challenge the PBOC has set out to tackle likely means they will have to move with restraint. This is certainly a story to watch.

Stocks in Europe gradually pared the opening gap higher and are seen lower across the board, with Bunds failing to sustain the early bid after the second consecutive technically uncovered auction from the Bundesbank. Nonetheless, sentiment toward core fixed income is somewhat supported by concerns over what is widely believed to be PBOC engineered exodus of long CNY carry trades may lead to further volatility. Still, the fact that the Shanghai Comp gradually edged into positive territory and USD/JPY staged a minor rebound O/N underpins the view that the recent erasure of the premium by the PBOC is temporary measure aimed at discouraging investor  demand before widening the trading band in Q2.

There was little in terms of EU specific news flows this morning, instead market participants digested the release of the latest UK GDP reading which came in line with expectations and showed that total business investment was much stronger than expected (2.4% vs. Exp. 1.3%), with the Y/Y rising firmly to 8.5%. As a result, GBP
outperformed its major counterpart EUR this morning, albeit marginally, as a number of BoE members sought to downplay growing expectation of a rate hike. Going forward, market participants will get to digest the release of the latest new home sales data from the US, weekly DoE data and earnings by Target. Also, the US Treasury will auction off its 2y FRN and 5y note auction.

Overnight Headline Bulletin from Bloomberg and RanSquawk

  • Bunds failed to sustain the early bid after the second consecutive technically uncovered auction from the Bundesbank.
  • The release of the latest UK GDP reading came in line with expectations and showed that total business investment was much stronger than expected (2.4% vs. Exp. 1.3%), with the Y/Y rising firmly to 8.5%.
  • China’s SAFE sought to downplay the recent price action by USD/CHY and stated that the recent CNY fall is normal compared to other markets.
  • Treasuries steady, holding near week’s lowest levels after disappointing economic data yesterday; this week’s $109b auction cycle continues today with $35b 5Y notes and $13b 2Y floaters.
  • 5Y notes yielding 1.542% in WI trading after drawing 1.572% in January. 2Y notes sold yesterday awarded at 0.340% vs 0.343% WI yield at 1pm, 8th straight 2Y to stop through according to Stone & McCarthy; largest indirects since June, primary dealers with smallest share since Nov.
  • China’s benchmark money-market rate fell to a seven-month low amid speculation the central bank was intervening to weaken the yuan, a policy that would boost currency’s supply
  • Ukraine is weighing measures to stem cash withdrawals after as much as 7% of deposits were taken from banks during last week’s bloody uprising, underscoring the need for action to fend off a default
  • Merkel will call for a stronger EU in a speech in London that may disappoint Prime Minister David Cameron, according to a German government official with direct knowledge of her preparations
  • Senate Majority Leader Harry Reid won’t consider raising the U.S. minimum wage to any level less than $10.10 an hour, though some of his fellow Democrats say they are ready to negotiate a lower amount
  • Obama ordered the Pentagon to ready a so-called zero-option plan for Afghanistan after an unsuccessful months-long campaign to pressure Afghan President Karzai to sign an agreement that would leave a residual U.S. force there after the end of the year
  • Sovereign yields mostly lower. EU peripheral spreads tighter. Nikkei -0.5%; Shanghai Composite gains 0.4%. European stocks lower, U.S. stock-index futures gain. WTI crude, gold and copper higher

US Event Calendar

  • 7:00am: MBA Mortgage Applications, Feb. 21 (prior -4.1%)
  • 10:00am: New Home Sales, Jan., est. 400k (prior 414k)
  • New Home Sales m/m, Jan., est. -3.4% (prior -7%) Central Banks
  • 12:00pm: Fed’s Rosengren speaks in Boston
  • 7:30pm: Fed’s Pianalto speaks in Wooster, Ohio Supply
  • 1:00pm: U.S. to sell $13b 2Y FRN in reopening, $35b 5Y notes
  • POMO – 11:00am: Fed to purchase $1b-$1.25b in 2036-2044 sector

Asian Headlines

Overnight in Asia, JPY swaps reversed the initial flattening bias after the BoJ reduced the size of ultra longend bond buying operation by JPY 20bln from JPY 200bln.

In other Japan specific commentary, BoJ board member Ishida says BoJ stance is that it will adjust policy if needed, but not currently debating whether adjustments are needed for specific scenario. Ishida went on to say he is not seriously worried about economy undershooting BoJ’s main scenario or worried about sales tax hike impact on positive economic cycle. (RTRS)

China’s SAFE says two-way cross-border fund flows are normal as the CNY exchange rate moves towards its equilibrium level and market participants should deal with it actively. (BBG)

EU & UK Headlines

UK GDP (Q4 P) Q/Q 0.7% vs. Exp. 0.7% (Prev. 0.7%) – ONS says household expenditure and gross fixed capital formation including business investment and net trade are the biggest contributor to Q4 growth.

Germany sells EUR 2.438bln in 2046 2.50% Buxl Auction (New line), b/c 1.1 (Prev. 1.4) and avg. yield 2.53% (Prev. 2.64%), retention 18.7% (Prev. 16.75%) – second consecutive technically uncovered auction from the Bundesbank.

Market talk of ECB sources saying no consensus within governing council now for March policy move, March move possible if data and ECB governor Draghi supports. Negative deposit rate could send ‘problematic’ signal. (MNI)

Following the release of the preliminary EU GDP data for Q4 2013 last week, analysts at UBS believe that the Eurozone recovery remains on track and reiterate their above-consensus GDP forecast of 1.1% for 2014 and 1.5% for 2015, following -0.4% in 2013.

BoE’s Miles says people should not expect sudden rate rise and next year might be the right time but there is no certainty as there is quite a lot of slack in the economy. At the same time, BoE’s Dale said that he doesn’t know when rates might rise and any rate rise will depend on the speed of recovery with the rise set to be gradual and cautious. (BBG)

Barclays preliminary pan-Euro agg month-end extensions: (+0.07y) (12m avg. +0.07y)

Barclays preliminary Sterling month-end extensions:(+0.05y) (12m avg. +0.06y)

US Headlines

Senate banking panel to consider Fischer, Brainard and Powell nomination to the Fed on March 4th. (BBG)

Barclays preliminary US Tsys month-end extensions:(+0.12y) (12m avg. +0.07y) – Large extension is a result of the refunding auctions earlier this month.

Equities

In terms of notable stock movers, Lanxess shares came under distinct selling pressure and are seen among the worst performing stocks in Europe after the company said it had 2013 loss, citing unplanned writedowns of EUR 257mln in Q4.

Elsewhere, Credit Suisse shares fell this morning after a report alleged that the bank “helped its US customers conceal their Swiss accounts” and avoid billions of dollars in American taxes. Also of note, the FTSE-100 index underperformed its peers, with a host of Co.’s such as easyJet and Diageo trading ex-dividend.

FX

Concerns over potential default of Ukraine and likely spill over effects into neighbouring states (Russia, Hungary), continued to drive EUR/HUF and spot RUB higher this morning, with USD/UAH trading above the 10.00 level for the first time since 1996. Of note, this morning, Russian Finance Minister Siluanov said that Ukrainian bail out deal is bound by bond covenants and that Ukraine covenants breach to trigger talks with Russia.

Looking elsewhere, GBP marginally outperformed its peers this morning, with the short-sterling curve trading marginally steeper following the release of the latest GDP data. Of note, good size option strikes due to expire at 1.6600/50 level (USD 1.6bln) at NY cut.

Commodities

Analysts at Citi revised up its Brent price forecasts for 2014 and 2015 whilst widening out its WTI-Brent price forecast for 2014 due to tighter than expected global S/D balances and increasing pessimism over incremental supplies from Iran and Libya.

Iraq’s Rumalia oil field is set to raise output to 1.39mln bpd by years end, with Iraq exporting 2.7mln bpd of crude this month, and oil exports due to rise to 3.4mln bpd by years end. (BBG)

US API Crude Oil Inventories (Feb 21) W/W 822k vs. Prev. -473k
US API Cushing Crude Inventories (Feb 21) W/W -1,070k vs. Prev. -1,800k
US API Gasoline Inventories (Feb 21) W/W -314k vs. Prev. 1,400k
US API Distillate Inventories (Feb 21) W/W -693k vs. Prev. -676k

China is to raise fuel prices from tomorrow, with diesel prices increasing by CNY 200 per ton, and gasoline by CNY 205 per ton. (BBG)

Chinese copper importers put purchases on hold after a sharp price fall and tight credit cut spot demand, with bonded stocks in Shanghai estimated at 560,000-660,000 tonnes, premiums hit their lowest point since July 2013. (RTRS)

* * *

We conclude with the overnight summary from DB’s Jim Reid

In fairly calm and generally buoyant markets, China continues to bubble nervously under the surface. Although the S&P 500 edged lower yesterday (-0.13%) it remains within 0.2% of its all-time highs. Meanwhile Chinese equities yesterday hit 1 month lows and are 65% off the all time highs. There’s a mix of reasons but one of the biggest stories of the past week or so has been the depreciation of the Chinese currency, both onshore where USDCNY is up 1.0% over the past week and offshore where USDCNH is up 1.25%. Whilst these moves may not seem large in the context of other EM currencies, they are significant compared to the usual size of Renminbi moves. Whilst there has been some weak Chinese data which might explain part of the depreciation, the broad feeling is that this move has been driven by efforts by the PBOC to shakeout the large long Renminbi carry trade that has been built on the back of the view that the Chinese currency can only appreciate in value. Indeed worries at the PBOC may have been triggered by one sign of this carry trade in action – the premium with which offshore USDCNH has been trading over the tightly controlled onshore USDCNY value over the course of 2014. This premium has now largely disappeared. The total size of the carry trade is hard to estimate although even just looking at some of the onshore CNY positions accumulated, DB Asia FX strategist Perry Kojodjojo estimates that corporate USD/CNY short positions are around $500bn. The size of the carry trade and the fact that China saw significant capital outflows during the last period of substantial Renminbi depreciation in the summer of 2012 has led to concerns over what this might mean for both the Chinese economy and financial markets as well as broader global financial implications. Looking forward it’s possible that the PBOC is not attempting to actively engineer a sustained depreciation of the Renminbi but rather is attempting to increase the level of two-way volatility in the market to discourage the carry trade and also excessive capital inflows. In terms of the broad risk going forward the sheer scale of the challenge the PBOC has set out to tackle likely means they will have to move with restraint. This is certainly a story to watch.

Outside of the Renminbi, China-related nervousness is showing up again this morning in both equities and credit. In equities, the Hang Seng China Enterprises Index (-0.25%) is underperforming other regional indices overnight, and Australian mining stocks are down 1.3%. On the credit-side, offshore Chinese high yield property bonds and investment grade SOE bonds continue to lag the rest of the market as aversion to the Chinese story continues. The Australian dollar is down 0.1%, and is poised to closer weaker against the greenback for the 6th time in the last eight days. Elsewhere in Asia, the Nikkei (-0.4%) is another notable underperformer, albeit on thin volumes.

Another interesting story at the moment is Italy although it’s more of a slow burning one. Overnight DB’s Marco Stringa has put out a comprehensive update entitled “Italy – Implementation, Implementation, Implementation”. In the piece he tries to quantify the potential impact of two key potential reforms in Renzi’s speech made before he obtained the confidence votes in the Upper and Lower Houses on 24 and 25 February. First, he thinks the government will target a EUR c10bn cut in the tax wedge in 2014. This could be increased to EUR15 and EUR20bn in 2015 and 2016 respectively if the savings from the planned expenditure cuts are not dispersed. The second is improving the efficiency of the public administration. A cut in the tax-wedge of EUR 10bn would not have too material an impact on growth. But a EUR 20bn cut in the tax wedge and a modest improvement of the efficiency of the public administration could nearly halve the gap between Italy’s potential GDP growth and that of Germany and France. The lack of detail in Renzi’s speech suggests that much of the groundwork has not been done ahead of the decision to replace ex-PM Letta. This is a potential concern in terms of the implementation phase. Furthermore, several of the headlines proposed by Renzi could disperse the country’s limited resources. Nevertheless, the report shows that even modest reforms could significantly improve the country’s public debt dynamics over the next 15 years if funded via expenditure cuts. That said, in a pessimistic scenario, the benefit of a small permanent cut in the tax wedge would be offset by decreases in the structural primary balance. To conclude after the ruling of the German Constitutional Court, the ability of the European allies to encourage Italy on a path of reform while shielding it from external shocks via the ECB’s OMT has decreased significantly. Hence, it is crucial that Italy pro-actively implements economic reforms before the next major internal or external shock hits the country.

Elsewhere in Europe, German QoQ GDP growth came in at +0.4% yesterday, slightly ahead of the Q3 number of +0.3% and unchanged from the flash estimate. As our German economists noted however the underlying components painted a mixed picture with stronger than expected net export numbers adding +1.1pp compensating for weaker than expected final domestic demand growth (which added +0.1pp) and a large drop in inventories. This marks a reversal from Q3 where net exports where negative and domestic demand was strong. It would be wrong to take too much from a single quarter of data, but such a reversal if sustained would be a worry for the European periphery. On that note yesterday also saw some weak data out of the European Periphery as we got Spanish PPI data for January which saw the rate of producer price inflation rate slip to -1.3% MoM (vs. +1.1% previously), leaving the YoY rate at -1.8% (vs. -0.6% previously). We also had weak Italian retail sales numbers with a reading of -2.6% YoY vs. +0.2% expected. In more positive news the European Commission yesterday raised its forecasts for eurozone 2014 and 2015 growth by 0.1pp each to 1.2% and 1.8% respectively.

News on the other side of the Atlantic was slightly more positive as housing data beat expectations across the board, with the Q4 House price purchasing index up +1.2% vs a market consensus estimate of +1%. The December Case-Shiller 20 City index also surprised to the upside (0.76% MoM vs 0.6% consensus). Staying on the housing theme, there were some noteworthy observations from home improvement-retailer Home Depot on the recent effect of inclement weather. The company said that this Spring is likely to be an especially strong season for the company as homeowners flock to Home Depot for repairs caused by the winter storms of January and February. The CFO said that the company knows “firsthand that many homeowners have some major repairs ahead of them”. Home Depot’s stock closed 4% higher yesterday, driving a 1.2% gain in S&P500 retail stocks. Offsetting some of the positive newsflow on the housing front, the Conference Board’s consumer confidence index fell to 78.1, short of consensus estimates of 80.0 and below last month’s revised 79.4. US equities hit an intra-day low shortly after the confidence data. Elsewhere JPMorgan announced that it will be shedding 8000 jobs, predominantly in its mortgage unit reflecting weakness in refinancing volumes. JPM joins Wells Fargo and Bank of America in announcing home-lendingrelated job cuts in recent months.

Today looks set to be a relatively quiet day on the data front with the biggest release being UK Q4 preliminary GDP data. Consensus is expecting no change from the Advanced figures of +0.7% QoQ and +2.8% YoY. If the YoY figure remains at +2.8% this would be the highest YoY rate since Q1 2008. Maybe my building work is making a small difference! Staying in Europe we will also get French jobseekers data and German consumer confidence which will be interesting to see after the downward revisions yesterday to Q4’s QoQ German domestic demand. In the US we will get more Housing data with January new home sales. We will also hear from the Fed’s Rosengren who speaks on the economy in Boston.


    



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Jacob Sullum on Indefinite Detention of Sex Offenders

The military prison at
Guantanamo Bay is notorious as a place where people can be held
indefinitely without charge because the usual rules of criminal
justice do not apply. Jacob Sullum says 20 states have their own
versions of Guantanamo Bay for sex offenders, a fact that attracts
little attention and generates little outrage because the detainees
are even less sympathetic than suspected terrorists.

View this article.

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Brickbat: Unmentionables

The Eurasian Union
– a trading block that includes Russia, Kazakhstan and Belarus –
has banned the import, sale and manufacture of underwear containing
synthetic materials unless it meets a very strict absorption
standard. Up to 90 percent of ladies underwear currently sold in
those countries will be banned under the rule, which takes effect
July 1.

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PiMPCO: SoMe LiKe IT HoT…


.

 

Gross: “I have a 41-year track record of investing excellence… What do you have?”
El-Erian: “I’m tired of cleaning up your shit.”

Mohamed and Bill are in drag
The market they’re starting to lag
Their bonds were sure hot
But then they got caught
Now both are left holding the bag
The Limerick King

.


    



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The Dangers Of Economic Proximity With China

Submitted by J. Michael Cole of The Diplomat,

As Taiwan’s legislature prepares to review the controversial Cross-Strait Services Trade Agreement with China next month, apprehensions over the island’s growing economic reliance on China continue to rise. A recent anti-dumping case initiated by a U.S. trade commission, and subsequent decisions on legal representation, highlight the dangers — economic and political — that can arise from a further integration of the two economies.

The United States International Trade Commission (USITC) on February 14 said it had reason to believe that Chinese solar panel companies have used solar cell components built by a third party — Taiwanese firms — to circumvent heavy anti-dumping duties imposed on China in late 2012. U.S.-based SolarWorld Industries America, a subsidiary of the German firm SolarWorld AG, filed the initial complaint in 2012, which resulted in countervailing tariffs averaging 31 percent against Chinese solar makers. However, efforts back then to expand the tariffs so as to include Chinese solar panels made with non-Chinese solar cells were turned down, creating a loophole that China quickly exploited. (Some industry watchers, however, have suggested that SolarWorld is “manipulating U.S. trade procedure in order to prop up its own failing business.” Others argue that the “dumb” trade war could end up hurting the future of solar power.)

So in January 2014, USITC and the U.S. Department of Commerce (DOC) launched an investigation following a renewed complaint by SolarWorld, filed on December 31, 2013, which this time targeted Chinese solar energy firms it said were exploiting the loophole by using components supplied by Taiwanese crystalline silicon photovoltaic (PV) cell makers.

The USITC is scheduled to pass its views to the DOC on February 24. The latter is expected to make preliminary determinations on June 9 regarding the dumping case and to impose duties and anti-dumping tariffs against the Chinese and Taiwanese firms, with a final judgment in October (the department is also scheduled to make a separate preliminary ruling on unfair subsidies to Chinese firms at the end of March).

The Taiwanese firms deny engaging in dumping practices and stated that their prices are 8 percent above the global average and 11 percent above those of Chinese firms.

The case highlights the many problems that could face Taiwan should it further open its high-tech sector to China. While China has positioned itself as an indispensible partner in assembly, it remains a laggard on several fronts, including advanced technologies, for which it depends on countries like the U.S., Japan, and Taiwan. By joining forces with Chinese firms, foreign companies can become collateral whenever unfair subsidizing or dumping accusations are lodged against Chinese firms. By positioning themselves as component makers rather than end-product manufacturers, Taiwanese high-tech firms are especially vulnerable to such an outcome and risk being dragged into cases over which they have little control and in which they did nothing wrong. Or they can get dragged into trade wars between the U.S. and China.

To drive the point home, Yingli Solar and Hanwha SolarOne, two of the Chinese PV module makers involved in the DOC/USITC decision, have “offered” to represent the Taiwanese companies. The Taiwanese firms in question, along with other local solar component makers, have reacted with alarm at the possibility that the U.S. would allow the Chinese firms to represent them, arguing that this loss of sovereignty over their products would prevent them from having their attorneys speak for and defend them. Already, major Taiwanese PV makers including Motech Industries have warned that the case could have a seriously damaging impact on Taiwan’s industry. Taiwanese authorities have weighed in and vowed to do everything in their power to ensure that the Taiwanese firms are represented properly and not by China.

According to statistics from Taiwan’s Bureau of Foreign Trade, exports of Taiwan-made solar cells to China were valued at US$1.02 billion in the first 11 months of 2013, up 66 percent from the previous year. During the same period, Taiwan’s direct solar cell shipments to the U.S. only accounted for 5 percent of Taiwan’s exports, with China accounting for about 45 percent. However, the majority of the cells exported to China ended up being shipped to the U.S., meaning that the U.S. market represents about 50 percent of Taiwan’s total cell exports.

Aware of the dangerous precedent that the case could create, Taiwanese politicians representing southern parts of the country, where most PV suppliers are located, brought up the issue during a U.S. congressional delegation visit to Taiwan led by Ed Royce, Chairman of the U.S. House Foreign Affairs Committee (HFAC), and eight other committee members.

A DOC decision allowing the Chinese firms to represent their Taiwanese counterparts would furthermore have political implications, as this would further erode Taiwan’s image abroad as a sovereign country and play directly into Beijing’s efforts to absorb the democracy of 23 million people.

According to reports, the department was scheduled to decide on February 21 whether to allow the Chinese firms to represent Taiwanese component makers. When contacted, the DOC responded that no decision was to be made on that day.

 


    



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TEPCO Admits Fukushima Radiation “Significantly” Undercounted

From April to September of 2013, as Bloomberg reports, TEPCO admits that levels of radiation measured from water samples around the destroyed Fukushima nuclear reactor were "significantly undercounted."  We assume it was mere coincidence that during this very time Shinzo Abe proclaimed the 2020 Olympics would be safe and used many of these readings as evidence. In addition to this debacle, The BBC reports, the likely scale of the radioactive plume of water from Fukushima due to hit the west coast of North America should be known in the next two months; and rather stunningly, The Japan Times reports a new study finds the lifetime risk of developing cancer has risen among 1-year-old girls in an area affected by the nuclear crisis at the Fukushima No. 1 power plant. But apart from that, everything's great.

 

TEPCO admits radiation levels were "signicantly" undercounted… (Bloomberg)

Tokyo Electric Power Co. is re-analyzing 164 water samples collected last year at the wrecked Fukushima atomic plant because previous readings “significantly undercounted” radiation levels.

 

The utility known as Tepco said the levels were undercounted due to errors in its testing of beta radiation, which includes strontium-90, an isotope linked to bone cancer. None of the samples were taken from seawater, the company said today in an e-mailed statement.

 

These errors occurred during a time when the number of the samplings rapidly increased as the result of a series of events since last April, including groundwater reservoir leakage and a major leak from a storage tank,” according to the statement.

And this…

Earlier today, Tepco suspended the removal of spent nuclear fuel rods at Fukushima plant after a cooling system failed due to a damaged power cable, the company said in a separate e-mailed statement. Work resumed at the reactor No. 4 spent fuel pool after activation of a backup system.

And then there's the plume coming California's way… (BBC)

The likely scale of the radioactive plume of water from Fukushima due to hit the west coast of North America should be known in the next two months.

 

 

Only minute traces of pollution from the beleaguered Japanese power plant have so far been recorded in Canadian continental waters.

 

This will increase as contaminants disperse eastwards on Pacific currents.

 

And this dismal study.. (The Japan Times)

The lifetime risk of developing cancer has risen slightly among 1-year-old girls in an area affected by the nuclear crisis at the Fukushima No. 1 power plant, according to a study published online in a U.S. science journal Monday.

 

The assessment was based on a two-month study by Japanese researchers conducted about a year and a half after the March 2011 nuclear disaster. The study checked the radiation exposure of around 460 residents living near the crippled plant Fukushima Prefecture.

 

Health risk assessment indicates that post-2012 doses will increase the lifetime solid cancer incidence rate among 1-year-old girls by 1.06 percentage points in the Tamano area of Soma, Fukushima Prefecture, from the average rate of 31.76 percent, the study, published in the Proceedings of the National Academy of Sciences, said.

 

 

It is the first time projections have been made regarding the probability of cancer risk related to the nuclear disaster, according to the team.

 

Akio Koizumi, a team member and Kyoto University professor of environmental health, acknowledged that lifetime cancer incidence likely rose slightly due to radiation exposure but said he sees the impact of radiation exposure on health as “small.”

But apart from that, the clean-up is going great…

Oh wait…

  • *TEPCO SAYS PLANNED RESTART OF NUCLEAR PLANT DIFFICULT: MAINICHI

But this should make everyone feel better…

  • *TEPCO TO GIVE CONDO RESIDENTS 5% DISCOUNT ON POWER: NIKKEI


    



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Patriots move on with OT win

The Sandy Creek Patriots moved into the AAAA quarterfinals of the GHSA state basketball tournament with an 83-80 overtime win Tuesday night over Johnson of Gainesville.

The Patriots’ next test comes Thursday at Columbia, who downed the Fayette County Tigers 67-58 Tuesday night.

The McIntosh Chiefs saw their season come to a close in the AAAAA bracket Tuesday night with a 54-51 loss to Northside of Columbus

In the A Private bracket, Landmark lost 80-67 to Aquinas.

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