Two years ago, when looking at the first available public data out of HFT frontrunning powerhouse Virtu, we observed the surge in net income from FX at the expense of all other traditional product categories, and reported what we thought was “The One Financial Product Now Targeted By The HFT Swarm” – currencies and FX in particular.

We made the following forecast:

“for those trading FX, our condolences: because the typical bizarro, idiot moves that previously were reserved for stocks are now sure to take over the final bastion of capital markets. In other words, the next time you feel like the USDJPY is trading as if it is in need of a software update, you will be right.”

We were also right, and two years later not only have thousands of FX traders lost their jobs (in no small part due to massive criminal collusion which has sent hundreds of riggers packing) to algos, but Bloomberg reports that in true HFT fashion which provides copious liquidity when it is not needed, and pulls all bids and offers the moment there is a violent move in the underlying, leading to an instant evaporation of all liquidity in what is now known as an “HFT stop” moment, “the specter of shrinking liquidity gripping fixed-income desks globally is creeping its way into the world’s biggest, most liquid financial market.” FX.

Bloomberg adds that “amid conversations about central bank policy and algorithmic trading, it was concerns about diminishing liquidity — or the prospects of it drying up entirely during times of market stress — that dominated discussions this week at the TradeTech FX conference in Miami.”

The so-called experts, who apparently could not see this coming from two years away, were stumped:

Pension funds, hedge funds and other asset managers were seeking answers after a string of so-called flash crashes in recent months sent some of the world’s most-traded currencies plunging. New Zealand’s dollar, the Norwegian krone and South Africa’s rand have all become victims to the phenomenon, as regulation pushes banks to reduce their size and cut down on market making. The ability to exchange currencies rapidly and cheaply is vital to everyone from importers and exporters to central banks seeking to ensure the smooth functioning of global markets.

Among the experts was Collin Crownover, head of currency management at State Street Global Advisors Inc., which oversees about $2.4 trillion,  who during a panel presentation said that “we are concerned. During volatile periods, market participants are backing away until conditions settle down, making it harder to complete large orders.”

“A lot of the electronification of the market, which by and large is a good thing, has led to kill switches on a lot of that algorithmic-provided liquidity,” Crownover said. “The liquidity just dries up in a stressed market.”

Yes, it’s called “high frequency trading” – get used to it.

The biggest irony is that even as investors lament disappearing liquidity, they are doing everything to make sure there is even less of it in the future: “Institutional currency investors are adopting more algorithmic trading that uses mathematical models to make transaction decisions, conference participants said.”

While algorithmic trading in foreign exchange is growing, it remains limited compared with other markets such as equities, according to Kevin McPartland, head of research for market structure and technology at Greenwich Associates.

 

That presents opportunities as firms that create algorithmic systems seek to target institutional investors, according to Alfred Eskandar, chief executive officer of Portware LLC, which offers systems to manage and execute trades. Investment firms have tripled algorithmic trading in the past year, and “we actually think that’s going to triple again this year because there’s a couple of very large asset managers who now want to use algos,” Eskandar said during a panel.

In other words, so if currency traders though FX flash crashes are bad now, just wait until virtually all trading is done by algos whose only directive is to frontrun major flow orders, and just in case it is still unclear – the only time HFTs provide liquidity is when they know there is a solid order behind them willing to take actual market marking risk; if the HFT is itself the market maker in a thin and illiquid market, it will simply do what HFT have done since when Reg NMS first made them legal: quietly pull all bids and offers.

via Zero Hedge http://ift.tt/2165w0J Tyler Durden

Going into Super Tuesday, the GOP political establishment is on the ropes. If either Marco Rubio or Ted Cruz aren’t able to put up a strong showing, then the nomination is Trump’s. Plain and simple.

To be sure, Rubio has gained some ground over the past several days. In the last Republican debate, the Florida senator went on the offensive against Trump and hasn’t let up since. Over the weekend, Rubio called Trump a “con man.” The frontrunner has also faced questions about his tax returns, a civil suit related to Trump University, his perceived unwillingness to disavow the KKK, and a litany of other issues.

On Sunday, Trump inadvertenly retweeted a quote from the fascist dictator Benito Mussolini. 

But while Rubio is resurgent, he needs a win. Badly. The senator has yet to carry a state and as always, it’s not at all clear that voters are rational when it comes to Trump. That is, Trump’s support isn’t based on the electorate’s careful consideration of the issues. It’s based on a kind of groundswell of nationalism and anger that the billionaire in many ways embodies. There’s every reason to be afraid of Trump, but he’s managed to make voters even more afraid of where the country is headed if he’s not the next president.

As Politico noted over the weekend, “even if he stumbles, Trump leaves Super Tuesday with enough delegates to remain at the front of the race [while] Marco Rubio, Ted Cruz, John Kasich and Ben Carson all lack that luxury.”

The hope was that as the field narrows, the other candidates would capture the support of voters who favored the candidates that dropped out. At one point, polls indicated that in a head-to-head battle, Trump would lose to Rubio. Put simply, that thesis hasn’t played out. In fact, the latest poll out from CNN/ORC shows Trump now has a 33 point lead over Rubio, while Ted Cruz is now a distant third place. “On the Republican side, the new survey finds Trump’s lead is dominant, and his support tops that of his four remaining opponents combined,” CNN wrote this morning. “The businessman tops his nearest competitor by more than 30 points: 49% back Trump, 16% Marco Rubio, 15% Ted Cruz, 10% Ben Carson and 6% John Kasich.“

Rel4a. .2016.Primaries

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• Shares fall on G20 disappointment, Fed hike worries (Reuters)
• China cuts reserve requirement ratio for fifth time since Feb. 2015 (Reuters)
• China Stocks Tumble Toward 15-Month Low as Stimulus Bets Unwind (BBG)
• S&P 500 Futures Signal 2nd Day of Stock Losses; Valeant Slides (BBG)
• Valeant fundamental risks are too severe to suggest the stock is poised for a lasting rebound (WSJ)
• Iran reformists cheer election gains, hardliners play down shift (Reuters)
• ‘Spotlight’ Wins Oscar for Best Picture in Hollywood’s Biggest Night (WSJ)
• His Job Is to Sell a $1,000 Pill for $10 Without Losing Money (BBG)
• Former Malaysian Prime Minister Resigns From Ruling Party (WSJ)
• Foxconn, Sharp Said to Weigh Revising Terms of Approved Deal (BBG)
• It’s Getting Harder for Currency Traders to Make Money, Market Veteran Says (BBG)
• Citi to Sell 20% Stake in China Guangfa Bank for $3 Billion (WSJ)
• Arab States Face $94 Billion Debt Crunch on Oil Slump, HSBC Says (BBG)
• Bullish Oil Bets Rise as Hedge Funds See Crude Supply Tightening (BBG)
• Manhattan Penthouse Gets Sliced in Two as Luxury Market Falters (BBG)
• JPMorgan traders sacked over compliance (FT)
• Citigroup Faces Fraud Suit Claiming $1.1 Billion in Losses (BBG)

Overnight Media Wrap

WSJ

– Valeant Pharmaceuticals International Inc said Michael Pearson has returned from medical leave to lead the company as chief executive officer, with the role of chairman split off. (http://on.wsj.com/1KWG3VN)

– “Spotlight”, the film on the Boston Globe’s investigative team, won the Academy Award for best picture, while “The Revenant” walked away with best director for Alejandro Inarritu and best actor for Leonardo DiCaprio. (http://on.wsj.com/1KWGajX)

– Helicopter manufacturers and operators from around the globe will gather this week to revamp safety initiatives after years of lackluster results marked by stubbornly high fatality rates. (http://on.wsj.com/1KWGsHB)

– Microsoft Corp’s new Cyber Defense Operations Center is at the heart of the software giant’s campaign to rebuild its reputation for security at a time when the number of potential cyberattack targets has exploded. (http://on.wsj.com/1KWGTld)

– The U.S. market is so oversupplied with oil that traders are experimenting with a new place for storing excess crude – Railcars. (http://on.wsj.com/1KWHhjN)

– The Federal Communications Commission is probing whether big cable firms use special contract provisions to discourage media companies – from Walt Disney Co to smaller firms – from running programming on the Internet. (http://on.wsj.com/1KWHnI1)

FT

GlaxoSmithKline Plc is set to start a formal search for its next chief executive. The company’s chairman, Philip Hampton, already spoke to large shareholders about the succession on an informal basis.

The British Retail Consortium said that up to 1 million jobs in the retail sector, a third of today’s total, will disappear by 2025 as factors like rising minimum wage impact the industry.

Senior directors at EDF SA are pushing the company to seek for new investors for the 18 billion stg Hinkley Point nuclear reactor project causing a delay in its final approval.

NYT

– J. Michael Pearson has returned as the chief executive of Valeant Pharmaceuticals after two months of medical leave, setting him up for the challenge of restoring investor confidence in the embattled company. (http://nyti.ms/1T3KfFz)

– In a push for transparency since the 2008 financial crisis, regulators asked banks to clearly disclose and explain the terms of just about every financial product, including credit cards and mortgages. But overdraft practices still come with hidden costs and confusing terms, bank customers, lawyers and consumer advocates say. (http://nyti.ms/21CySGa)

– With a series of wins in key Republican primary states, and with the billionaire’s expected strong showing when 12 states hold primaries or caucuses on Tuesday, the European media, like its American counterpart, is adjusting to the prospect of a seemingly unstoppable Trump juggernaut. (http://nyti.ms/215gO5i)

– The discovery of perfluorooctanoic acid, a toxic chemical linked in some studies to an increased risk for cancer and thyroid disease, in the Hoosick Falls, N.Y. has alarmed residents, some of whom are critical of officials’ response. (http://nyti.ms/1UtjTw9)

Canada

THE GLOBE AND MAIL

** Enbridge Inc’s Chief Executive Al Monaco says his company is aiming to invest $1 billion a year in natural gas and renewable energy projects, as it looks to rebalance its earnings away from oil over the longer term and take advantage of the global push to a lower-carbon economy. (bit.ly/1KXycHt)

** Wealth managers are bracing for a busy day even though fewer Canadians say they plan to drop cash into registered retirement savings plans this year in the wake of the market turmoil. A recent Bank of Montreal study found that 61 percent of Canadians intend to a make a contribution to their RRSP accounts by the deadline, down slightly from 64 percent last year. (bit.ly/1KXyUEu)

** British Columbia Premier Christy Clark has spent more than half-a-million dollars on private flights in the past five years, but her office is defending the expense as necessary, saying that it falls within the annual budget. More than $65,000 was spent on charter flights between Vancouver and Kelowna since July 2013, when Clark was elected the MLA for Westside-Kelowna in a by-election. (bit.ly/1KXAF4z)

Britain

The Times

The RSPCA, the country’s largest private prosecutor, is to transform how it brings cruelty suspects to court by sparing huntsmen, farmers and animal sanctuaries but turning the spotlight on to pet owners. (http://thetim.es/1QehFOk)

A British exit from the European Union could raise the risk of blackouts and gas shortages, one of Britain’s leading energy lawyers, head of energy at CMS Cameron McKenna Penelope Warne, has warned. (http://thetim.es/1KVWiSN)

The Guardian

The UK’s biggest energy lobbying group, Energy UK, has shifted its position on green energy and will start campaigning for low-carbon alternatives for the first time, in what environmental campaigners are describing as a watershed moment. (http://bit.ly/1TKZW4K)

The Telegraph

Andrew Witty’s reign as chief executive of GlaxoSmithKline Plc is approaching its final months, with headhunters drawing up a list of potential successors. Glaxo chairman Philip Hampton is understood to have instructed the City recruiters Egon Zehnder to identify candidates within and outside the company. (http://bit.ly/1Qm9pgu)

Google’s rival to Apple Pay will make its British debut at the end of March, as the web giant attempts to muscle into the emerging mobile payments industry. (http://bit.ly/1TIWYfK)

Sky News

Barclays Plc’s remuneration committee has determined that former chief executive Antony Jenkins should receive a payment of around 500,000 stg on top of millions of pounds of other contractual entitlements due to him until July. (http://bit.ly/1QdY9RX)

A vote for the UK to leave the European Union could jeopardise billions of pounds in infrastructure investment, the boss of one of Britain’s biggest waste recycling groups, chief executive of Suez’s UK recycling and recovery division David Palmer-Jones, warned this weekend. (http://bit.ly/1Tgn0Zn)

The Independent

Another financial crisis is certain unless banks and governments reform financial systems across the globe, according to the former governor of the Bank of England, Lord King. (http://ind.pn/24w0EXc)

via Zero Hedge http://ift.tt/1Sc9sN2 Tyler Durden

After the G-20 ended in a wave of global disappointment, leading to the biggest Yuan devaluation in 8 weeks, and sending Chinese stocks into a tailspin on concerns the PBOC has forsaken its stock market as well as speculation the housing bubble is now sucking up excess liquidity which in turn pushed global market deep in the red to start the week, it was the PBOC’s turn to scramble in a panicked reaction to sliding risk exactly one month after Japan unveiled its own desperation NIRP, and as reported before unexpectedly cut its Reserve Requirement Ratio by 0.5% to 17.0%, the first such cut in 2016 and the 5th since the start of 2015.

Since this move is an implicit liquidity injection, it was immediate negative for the offshore Yuan which tumbled…

… forcing cynical observers to ask if the PBOC “told” the G-20 about this major intervention in its currency just hours after it “promised” it would refrain from precisely such an action.

And while desperate central banks are now the norm, what is more troubling is that just like in the case of Japan’s negative rates announcement, so far China’s latest RRR cut has failed to prompt a substantial bounce in either US equity futures or the all important USDJPY carry trade, which at last check was unchanged with the E-mini was barely up from overnight lows and still red.

And if the PBOC is indeed powerless to provoke a risk on move, as we said last night it will be all up to Draghi and the ECB on March 10.

One asset classes that did not ignore the latest risk disappointment was gold which has again rebounded from recent lows around $1,200 and is headed for the biggest monthly advance in four years as a darkening global outlook spurred demand for haven assets. Bullion for immediate delivery added 0.9 percent to $1,234.09 an ounce. It’s up more than 10 percent in February, set for the biggest gain since January 2012.

Bulletin Headline Summary from RanSquawk

• PBoC’s shock decision to lower the RRR sees European stocks pull off worst levels, while soft EU CPI figures increased speculation of more stimulus from the ECB.
• AUD has been the main beneficiary from the latest PBoC action, while USD/JPY trades lower after a failed break above 114.00
• Looking ahead, participants will be placing a keen eye on the latest US Chicago PMI data and Pending Home Sales.

Where we stand now:

• S&P 500 futures down 0.2% to 1939
• Stoxx 600 down 0.6% to 330
• MSCI Asia Pacific down 0.4% to 119
• US 10-yr yield down 2bps to 1.74%
• Dollar Index up 0.03% to 98.18
• WTI Crude futures down 0.5% to $32.63
• Brent Futures up 0.7% to $35.35
• Gold spot up 0.9% to $1,233
• Silver spot up 0.7% to $14.80

Top Global News

• Valeant’s CEO to Return From Medical Leave; Guidance Withdrawn: CEO Pearson gives up board chairman role to Robert Ingram
• Foxconn, Sharp Said to Weigh Revising Terms of Approved Deal: Bankers, lawyers are going through a list of Sharp liabilities that could exceed 300b yen
• Boehringer Ingelheim, AbbVie Said in Cancer Partnership Talks: Multi-billion alliance could be announced as soon as this week
• Buffett Seeks More Takeovers, Likens Precision’s CEO to Da Vinci: Investments offer source of funds for “elephant” deals
• Nintendo Falls After Halving Profit Goal on Weak 3DS Sales: Sluggish handheld sales, yen cut earnings
• China Cuts Reserve Requirement Ratio by 0.5 Percentage Point: Says it seeks to maintain reasonable, ample liquidity in financial system
• SpaceX Scraps Another Attempt at Falcon 9 Rocket Launch: “Aborted on low thrust alarm,” according to Elon Musk tweet
• Google Parent Could Gain $3.5b If Intel Wins Tax Dispute: WSJ Says: Alphabet would benefit if Intel wins international tax dispute with IRS
• UTX Adds Goldman Sachs as Adviser Against Honeywell Bid, CNBC Says: UTX on Friday again spurned $90b Honeywell offer
• Hillary Clinton Wins S.C. Democratic Primary, Defeating Sanders: Clinton won state with electorate similar to upcoming contests
• Citigroup Faces Fraud Suit Claiming $1.1 Billion in Losses: Investors in Mexican oil services firm sue over loan schemes
• Lattice Semiconductor Mulls Sale Amid Chinese Interest: Reuters: Co. is working with Morgan Stanley to review interests
• Monsanto Next Logical Target for BASF, Baader-Helvea Says: Monsanto’s seed pipeline, weaker crop protection offering would fit very well with BASF portfolio
• ‘Spotlight’ Wins Oscar Upset in Ceremony Dominated by Race: Favorite ‘Revenant’ gets wins for DiCaprio, director Iñárritu
• ‘Gods of Egypt’ Is Year’s First Big Flop at U.S. Box Office: Lions Gate may not turn profit on $140 million movie
• Starbucks to Open Its First Store in Italy Early Next Year: Percassi will be the licensee for SBUX in the country.

Looking at overnight global market highlights, we start with China were as reported previously, the PBoC cuts the RRR by 50bps to 17.00% in a surprise announcement, however refrains from lowering the lending and deposit rate. Overnight Asian equities traded mixed, following last Friday’s lacklustre lead from Wall St., where US stocks finished in mild negative territory as firmer than expected US GDP data increased rate hike expectations. Nikkei 225 (-1.0%) was dictated by JPY, as the index reversed early firm advances as JPY strengthened during Asia trade. ASX 200 (+0.12%) finished with mild gains amid rising hopes for RBA easing later this year, while mainland China significantly underperformed with the Shanghai Comp (-2.8%) slumping after PBoC continued to weaken the currency. Shenzhen markets were also down nearly 5% on concerns that major reforms such as the Shenzhen-HK connect could be delayed. Prospects of liquidity outflows from the stock market into the recovering property sector and an expected 1.8MM job cuts in the coal and steel industries also weighed on sentiment. 10 year JGBs traded in minor positive territory with the BoJ in the market for JPY 1.26TN, although prices softened from highs in the second half of the session amid thin trade.

Top Asian News

• Telkom Seeks to Slash Workforce by Two-Fifths to Cut Costs: Company identifies about 6,250 positions for elimination
• ChemChina Seeks $35 Billion in Loans for Syngenta Takeover Deal: China Citic Bank to arrange a $15b loan facility; ChemChina to meet lenders this week on separate $20b loan
• Australia Rate-Cut Bets Rise on Stimulus Outlook, Weak Pay Gains: AU wage rises are smallest on record, jobs growth evaporates and firms plan to cut investment
• Yuan Fixings Enigma Returns as PBOC Reverts to Currency Basket: PBOC kept moves in its daily reference rates to a maximum 0.02% most days in the month up to Lunar New Year break
• Zheshang Bank Said to Delay Testing $1 Billion IPO Interest: Stock buyers reported difficulty transferring money out of mainland China
• Modi Budget Key to Breaking March Jinx for India Sovereign Bonds: Benchmark 10-yr yields have risen avg. 18 basis points in last 10 months of March

European equities pulled off worst levels on the back of the surprise action by the PBoC to cut the RRR by 50bps, coupled with the soft EU CPI readings which could force the hand of the ECB to act . Prior to this Eurostoxx had been treading water following the weakness in Chinese stocks amid prospects of liquidity outflows from the stock market. Additionally, financials have underperformed with large caps HSBC (-2.5%) and Standard Chartered (-4.2%) leading the losses, while the latter has been weighed on by concerns that the Shenzhen-HK connect could be delayed. Softness in EU bourses as well as rising ECB stimulus bets have seen bunds bid throughout the mornings to take out the earlier session highs and last Friday’s high around 166.14. Subsequently, bunds printed a fresh all time high (166.46) with yields in the 10-yr falling to the lowest since April.

Top European News

• Euro-Area Consumer Prices Fall Most in Year as ECB Mulls Easing: Inflation rate at minus 0.2% in February vs 0% forecast
• Gameloft Rejects Vivendi’s Valuation of $562 Million as Too Low: Guillemot family to fight Vivendi’s Bollore for control
• Manz Jumps After Deal to Sell 29.9% Stake to Shanghai Electric: Manz to sell new shares to investors to add Chinese partner
• Amazon Steps Up U.K. Grocery Advance With Morrison Supply Deal: To sell hundreds of WM Morrison Supermarkets products
• SNB Could Cut Exemption Limit If More Easing Needed, Jordan Says: Current threshold at 20 times minimum-reserve requirements
• Barclays Africa Shares Plummet as U.K. Parent Said to Mull Sale: Barclays Africa says it still sees growth on the continent
• Swiss Spared New EU Headache as Vote on Foreign Criminals Fails: Rejects initiative to deport foreigners convicted of crimes

In FX, it has been a tentative start to the week, though European trade was following on from an Asian session which saw USD/JPY turnaround sharply. After hitting a wall at 114.00, losses extended through 113.00, but found some support ahead of Friday’s lows before subsequent consolidation received a fresh boost after the PBoC announced it was to cut the RRR by 0.5%. Spot jumped through 113.00, with AUD also turning higher sharply, but topping out around .7165-70 before heading back to pre-announcement levels. At the same time, we also had the release of the EU inflation data, where the Fec core rate fell from 1.0% previously to 0.7%. EUR/USD had already been threatening a retest of the 1.0900 level, and managed to do so after the data. GBP still looking weak vs the USD, but earlier lows intact as yet. CNH and CNY above 6.5500, creeping higher but nothing to concern markets as yet.

Eurogroup chief Jeroen Dijsselbloem said in Shanghai on Saturday that “there was some concern that we would get into a situation of competitive devaluations” with regards to Japan. Japanese Prime Minister Shinzo Abe told parliament Monday he is not trying to influence foreign-exchange rates, and that an excessively strong yen has been corrected under his economic reform program, dubbed Abenomics. The currency was trading around 85 per dollar when Abe took office in December 2012.

China’s yuan declined 0.2 percent, retreating for a seventh day, as the central bank lowered the currency’s reference rate and stepped up efforts to cushion the economic slowdown with the cut in banks’ required reserve ratio.

In commodities, WTI and Brent crude futures have seen somewhat of a turnaround in the wake of the PBoC’s actions, consequently signalling rising global growth prospects in what has otherwise been a rather subdued start to the week in the energy complex. Oil headed for its fourth monthly decline in New York, the longest retreat in a year, as record U.S. crude stockpiles weighed on prices. West Texas Intermediate fell 0.3 percent to $32.67 a barrel, extending February’s decline to 2.9 percent. Brent crude added 0.5 percent to $35.28 for an increase of 1.6 percent this month.

Record-high stockpiles of U.S. natural gas for the time of year sent futures 4.8 percent lower to $1.706 per million British thermal units, extending a fourth weekly decline as mild winter limited the drawdown.

Copper erased a decline of as much as 1.3 percent after the China central bank stimulus, leaving it little changed at $4,706 a metric ton.

* * *

DB’s Jim Reid concludes the overnight wrap

tomorrow we’ll give a full performance review but with a day left the highlights are a US equity market that has just edged back into positive territory for February, leaving mainland Europe behind (generally down 2-7% still). US 10yr yields are nearly 20bp lower, with Bunds nearly 30bps lower in what is the standout move on the month! Meanwhile Oil is pretty much flat with Chinese equities wiping out monthly gains after a steep late month sell-off. Anyway, full review tomorrow.

The overall numbers mask a strong rebound in risk (and oil) since around Feb 11th, although bonds haven’t sold off much since. Although the dates don’t exactly coincide it’s worth highlighting that US data surprises troughed in early February after a poor run but are now at around their highest level since early December. So this has helped risk and helped US out-performance. Meanwhile European data surprises continue to plummet and to their lowest since 2013 in the comparable indices to the US data. Our own DB SIREN-Surprise index hit 2012 lows on Friday. So although markets have stabilised in the last 2-3 weeks, it’s clear that Europe seems to be losing momentum over a period where the banking industry is under pressure with the risks that this could spill over into the wider economy. As such the pressure is still on the ECB to deliver next week even if markets have stabilised. The question mark is whether a straight cut deeper into negative deposit rate territory would be counterproductive or not alongside amendments to QE. So they may need to be innovative as to how they ease policy further.

As we’ll see in the week ahead we have the all important global manufacturing PMIs/ISM on Tuesday and non-manufacturing equivalents on Thursday. The keys things to watch out for are any stabilising in global manufacturing and whether services continue to trend down towards them but whether a notable (albeit narrowing) gap can be maintained. Obviously services typically make up 80-90% of DM economies and whether this part of economies can withstand the various shocks thrown at it of late will be key to asset prices going forward.

Over the weekend we saw the latest G20 meeting conclude with nice sound bites but without much obvious substance. The group agreed to use “fiscal policy flexibility to strengthen growth, job creation and confidence” and reiterated that “monetary policy alone cannot lead to balanced growth”. However as an example of the issues, UK Chancellor Osbourne warned on Friday of imminent and renewed spending cuts in his budget in two weeks and there is no obvious sign of notable loosening of the fiscal spigots anywhere else. However it does seem the debate is slowly shifting back towards fiscal over monetary policy which in our opinion is healthy. It may take a recession to focus minds properly though.

The underwhelming G20 meeting is contributing to a soft start to the week in Asia with Chinese equities leading the way (Shanghai Comp -3.5%) with the Yuan edging lower for the 7th successive session. Comments on Friday from PBoC chief Zhou that there was room for more easing had led some to hope they would announce more stimulus over the weekend but this didn’t materialise. Elsewhere the Hang Seng is -1.2% and the Nikkei is -0.2%.

Looking back to Friday, we saw European equity markets ignore weak numbers out of Europe (see below) and ride a rally in mining and oil shares on the back of a recovery in the commodities complex. The STOXX and the FTSE300 closed up +1.53% and +1.72% respectively while the FTSE100 stocks posted gains of +1.38%, as markets ended the week in positive territory despite Wednesday’s slump. In bond markets, European yields continued to be firm as weak inflation data out of Europe further raised expectations for next week’s ECB meeting. German 10Y yields (+0.9bp) were largely flat on the day but yields were cumulatively tighter on the week. This signified the sixth consecutive weekly gain for 10yr bunds. iTraxx Senior (-9.1bp) and Sub (-25.1bp) spreads also tightened on Friday, ending the week -8bps and -25bps respectively. In the US the S&P 500 closed -0.19% after edging steadily lower all day from a bright open.

Staying with the US and adding to the recent positive surprises discussed above, economic data out of the US on Friday generally exceeded expectations, albeit with some caveats. Annualised Q4 GDP growth was revised up to +1.0% qoq (vs. +0.4% expected) from the previous estimate of +0.7% on the back of an upward adjustment to business inventories. Although positive, the growth mix encouraged the Atlanta Fed to lower its Q1 GDPNow forecast to 2.1% from 2.5% after the expected inventory component fell -0.6% offsetting a +0.2% increase in consumer spending. Back to Friday’s data, while personal consumption growth for January missed expectations (+2.0% vs. +2.2% expected), personal spending rose by the most in eight months (+0.5% vs. +0.3% expected vs. 0.0% previous) and the PCE Deflator returned to inflationary territory (+0.1% mom actual vs. +0.0% expected; -0.1% previous). Consumer sentiment for February (as measured by the UMichigan Sentiment indicator) also improved more than projected, as the index hit 91.7 (vs. 91.0 expected; 90.7 prior). A negative mark amid the positive data was the US advance goods trade balance for January which saw the trade deficit widen to -U$62.2bn (vs. -U$61.2bn expected; -U$61.5bn previous) on the back of weaker global economic activity.

European data on the other hand largely disappointed across the board and continued setting the stage for further ECB easing. First, the relatively good news: French Q4 GDP grew at +0.3% qoq (vs. +0.2% expected) as household spending rebounded faster than expected. Now for the bad news – and there’s lots of it. Germany and France both saw deflation with HICP numbers clocking in at -0.2% YoY (vs. 0.0% expected) and -0.1% YoY (vs. +0.1% expected) respectively. Euro Area economic confidence slumped to its lowest level since June (103.8 actual vs. 104.3 expected; 105.0 previous) while the business climate indicator (0.07 actual vs. 0.27 expected; 0.29 previous), industrial confidence (-4.4 actual vs. -3.6 expected; -3.2 previous) and services confidence (10.6 actual vs. 11.4 expected; 11.6 previous) all declined more than expected.

Kicking off proceedings this morning is the UK where we’ll get the January net consumer credit and mortgage approvals data. Shortly following that will be the February estimate for Euro area CPI (+0.1% mom expected) along with the same data out of Italy. This afternoon in the US there will be a lot of focus on the February Chicago PMI number, while the Dallas Fed manufacturing activity index and January pending home sales data will also be released.

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

A little under one year after the ECB launched its own QE of €60 Billion/month in bond purchases in early March 2015, a process which has resulted in the ECB monetizing over €670 billion in European – mostly German – sovereign paper, moments ago Eurostat reported European February inflation (even though the month is not over yet), and it was a shock, with headline inflation tumbling form +0.3% Y/Y in January to a depressing -0.2% in February, the worst print since January 2015. It was expected to drop to “only” 0.0%.

The decline is largely due to a big decrease in energy costs, which were 8 percent lower in the year to February against the previous month’s 5.4 percent drop. However, the core rate, which strips out the volatile items of energy, food, alcohol and tobacco, was weak too, falling to 0.7 percent from 1 percent. That shows how weak price pressures from such things as higher wages are in the eurozone economy.

And here comes the paradox: as the AP reports, this disturbing report will boost expectations that the European Central Bank will unveil another stimulus package at its next policy meeting on March 10.

So, since Europe’s annual inflation is now lower than the month it launched QE, the “only logical response” is to do even more: as AP wryly observes, “since the ECB aims for inflation just below 2 percent, February’s negative rate could mean it cuts interest rates further or expands its bond-buying program — inflation has been below target since February 2013.”

“Poorly anchored inflation expectations and the cooling economy will prompt the ECB to ease already-accommodative monetary policy,” said Tomas Holinka, economist at Moody’s Analytics. Ah yes, because it wasn’t ECB’s already accommodative policy that unleashed the global currency war which has resulted in global inflation expectations, and not to mention rates, plunging to record lows and pushing over $6 trillion in debt into negative rate territory.

Som more monetary humor:

When falling prices become entrenched they can weigh heavily on an economy, as Japan’s experience over the past quarter of a century can testify to. So-called deflation can become a vicious cycle and push prices down further. Falling prices could prompt consumers to delay purchases and businesses to shy away from investments.

 

By keeping interest rates low and pumping money into the economy via its bond-buying program worth over a trillion euros, the ECB is hoping to generate enough economic activity to get prices rising.

Instead, what will happen is that the ECB, after boosting its QE in ten days, will end up with even lower inflation in February of 2017.

Timo del Carpio, European economist at RBC Capital Markets, says those on the ECB’s policymaking body who have been at best reticent over a further stimulus, whether it be a further cut in the deposit rate or an expansion in the bond-buying program, will likely be concerned by the pronounced decline in the core inflation rate. “Against this backdrop, a ‘wait-and-see’ approach simply does not appear to be a viable policy option at this stage,” he said.

He’s right: what makes sense is to finally normalize the monetary idiocy gripping the world since 2009. 

Will it happen? Of course not. Expectations of further action from the ECB weighed on the euro. Europe’s single currency was down 0.3 percent on the day at $1.09.

via Zero Hedge http://ift.tt/1Rzz6cs Tyler Durden

Hold your real assets outside of the banking system in a private international facility  –>  http://ift.tt/1M1FiG5 

USA: The New Switzerland?

Written by Jeff Thomas (CLICK FOR ORIGINAL) 

At one time, tax havens took great pride in calling themselves just that, since low-tax jurisdictions provide people with freedom from oppressive taxation.

But, in recent decades, the Organisation for Economic Cooperation and Development (OECD, based in France, but largely funded and controlled by the US) has been on a rampage to crush tax havens. The attacks have been regular and forceful and, although tax havens still exist around the world, every one of them has caved to a greater or lesser degree to ever more stringent OECD “international practices.” Presently, all tax havens live in fear of the OECD and its powerful enforcer, the US.

No measure has been more devastating to freedom from taxation than the US Foreign Account Tax Compliance Act (FATCA). The secret of its success is that the US fines banking institutions for not following the arbitrary FATCA guidelines. How can one country fine a bank in another country if that bank is following the laws of the country in which it’s located? Well, failure to pay the fine may result in the US cutting the bank out of international transfers in the SWIFT system, which would collapse the bank.

Essentially, this is a “shakedown” operation, purported to focus on tax evasion, but, in fact, focused primarily on demanding protection money from international banks. (More than eighty Swiss banks have been subject to roughly five billion dollars in penalties and fines imposed by the US.)

Not surprisingly, the OECD has spent decades castigating the very existence of tax havens, declaring them to exist solely for the purposes of money laundering, terrorism funding, tax evasion and even “international prostitution” (no kidding).

In spite of the OECD’s condemnation of tax havens, the US has, in recent years, created tax havens in several states, and is being dubbed “the new Switzerland.” Of particular interest here, is that the US itself has not signed on to the OECD’s “international standards.” The US is therefore imposing more stringent restrictions on others than it is willing to comply with itself. (Had Attila the Hun gotten into banking, this is the approach he might have used.)

Recently, the US has lifted the veil on their ambitions by announcing further, more dramatic inroads into becoming a tax haven. In September of 2015, Andrew Penney, a managing Director of Rothschild & Co. in San Francisco, announced that the world’s wealthy can avoid paying tax by moving their wealth to the US. As the US banks will not be subject to the draconian limitations that the US/OECD have forced on the world’s other tax havens, the US will (presumably) take over the tax haven business.

In one fell swoop, the sanctimonious position taken by the US, portraying tax avoidance as unpatriotic and even criminal, has been turned on its head.

Rothschild, a dominant banking name worldwide, since the eighteenth Century, has opened a company in Reno Nevada, just down the road from casinos such as Harrah’s and the Eldorado, placing their new tax haven where “high rollers” might be found. Mister Penney has described the US as “effectively, the biggest tax haven in the world,” although Rothschild & Co. have cautioned him not to publicise this view.

Now, it’s important in assessing this development not to point any undeserved criticism at the US. They should not be criticised because:

• They offer client privacy
• They offer freedom from US taxation for non-US citizens
• They offer a haven for those who are subjected to excessive taxation elsewhere

These are laudable practices. However, criticism may justifiably be made because the US has spent decades vilifying these very practices, as practiced by other tax havens. Further, the US has then done all it could to destroy those freedoms in the existing tax havens, even to the point of endangering the economies of those countries, then hypocritically offering the very same opportunities itself.

So…will the US be “the new Switzerland?” it’s claiming to be? I think not.

First, Americans cannot make use of the haven. That will mean that the US government will be providing tax advantages to non-US nationals that it does not provide to its own citizens. (The Isle of Jersey has a similar tax structure, which has allowed the OECD to come down heavily on them, crippling Jersey’s economy.)

In addition, this fact will not sit well with Americans, who will resent foreigners being more greatly advantaged in America than Americans themselves. The great majority of Americans have declared in polls that they already distrust their own politicians across the board. “Tax discrimination” will most certainly aggravate that existing resentment.

Second, the OECD have been fairly successful in their campaign to remove privacy from tax havens, through the characterisation of tax havens as centres for money laundering, terrorism-funding and tax evasion. For the US-led OECD to accept the US adopting the very same business practices that are the model for tax havens, the OECD loses its one effective weapon – the concept of tax avoidance as shameful.

More and more, the existing legitimate tax havens of the world have been bristling at the ever-increasing “international standards” demanded by the OECD. Many have outright refused to adopt standards that have not been adopted by OECD member-countries. With the Americans jumping into the tax haven pool at the deep end, the tax havens of the world are likely to refuse to honour existing agreements, let alone take on more stringent trumped-up standards.

Third, with the US going full-blown into the tax haven business, it can be expected that they’ll welcome clients from France, Germany, the UK, etc. – countries whose wealthier citizens are the primary clients of existing tax havens. In doing so, the US’s allies in the OECD will cry foul. It’s likely that they’d create their own tax havens in order to compete. This would mean that Germans would be making deposits in the US, whilst Americans would be making deposits in Germany. (The US would end up as the greater loser, and the once-allied countries would be like a group of cats fighting over the same bone.)

Finally, there’s the question as to whether those who possess wealth would be attracted to the US haven. To be sure, some would reason, “What could be safer? They’re the world’s most powerful country.” Others, though, would think it through more carefully. Already, many of them view the US as though it has a sign at its entry, reading:

DANGER! Depositing your wealth in a US financial institution will subject you to the whims of the US government, which has recently passed considerable legislation for capital controls and confiscation of bank deposits.

They regard the US as being deeply suspect, as the US has been the world’s foremost danger to the retention of wealth in recent years. To them, the deposit of any wealth in a US institution is paramount to placing their heads in the lion’s mouth.

The US has fined the banks in the world’s tax havens of billions of dollars under a bogus premise, therebyendangering depositors . Will those same depositors now trust the US to honour their deposits in the same way as the victim-banks did?

Historically, tax havens have been smaller countries, whose economies were based largely on the success of their tax haven services. This simple fact is critical to trust. It means that they would collapse if they failed to honour their commitment to depositors. Those who have held wealth for generations understand that larger countries cannot be trusted as holders of their wealth, as they can pull out the rug at any time.

As long as taxation exists, there will be tax havens. The wealth will flow to those that are most likely to honour their commitments over the long term.

Please email with any questions about this article or precious metals HERE

USA: The New Switzerland?

Written by Jeff Thomas (CLICK FOR ORIGINAL) 

via Zero Hedge http://ift.tt/1XUMMkL Sprott Money

In the “uninspiring” communique delivered following the G20 in Shanghai, officials pledged to “consult closely” on FX markets.

Presumably that was a reference to China’s “surprise” August 11 deval and the PBoC’s move in December to adopt a trade weighted basket as a reference point for the RMB, a move that telegraphed lots of downside for the currency.

Well, we’re not sure whether there was any “close consulting” between the PBoC and its counterparts around the world on Monday, but China just announced another RRR cut (50 bps), the fifth such move since early last year.

To be sure, it’s not surprising that Beijing resorted to more easing. They’ve got all kinds of counter-cyclical breathing room compared to their DM counterparts. It is, however, somewhat surprising that they would move to ease just a day after the G20 when everyone in attendance pledged to avoid competitive currency devaluations on the way to acknowledging that “monetary policy alone cannot lead to balanced growth.”

Following the RRR cut, the offshore yuan fell further and swaps fell the most in nearly two months.

Recall what we said on Saturday: “… the great yuan devaluation will continue unabated as will the competitive easing.”

We’ll now get a chance to see what the half-life on PBoC easing is these days. Here’s what Chen Jiahe, a strategist at Cinda Securities, said in Shanghai: “There’s a big chance that A shares will open higher tomorrow morning after the RRR cut. The cut in banks’ reserve-requirement ratios will help offset the reduction in base money caused by a decline in funds outstanding for foreign-exchange reserves and ease liquidity conditions. The move will definitely lift stock market sentiment. Blue-chip stocks may get a boost tomorrow due to their high correlation to the economy.” That’s good, because Chinese equities just fell 3% overnight to start the week. 

Summing things up nicely is this rather amusing tweet:

“The world needs to look beyond easy monetary policy for growth- oh, screw it.”

— Haidi Lun ??? (@HaidiLun) February 29, 2016

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