Futures Slide, Rally Fizzles Ahead Of Brexit Meaningful Vote

An overnight stock rally fizzled, futures dropped and the pound tumbled, erasing all of its Monday gains as the latest risk-on mood faded away after Theresa May struck a new deal ahead of today’s meaningless meaningful vote, which UK bookies still see May losing resulting in even more confusion over next steps.

European real estate and financial-services shares helped push the Stoxx 600 higher in early trading, although the rally faded away as the session progressed, with the index fading much of its overnight gains…

…. while Asian stocks headed for their biggest gain since January and emerging-market shares jumped. U.S. futures advanced after the S&P 500 and Nasdaq 100 indexes surged a day earlier, helped by news of a technology merger, an upgrade to Apple and signs of stabilization in American retail sales. MSCI’s broadest index of Asia-Pacific shares outside Japan closed up 1%. China’s Shanghai Composite pared early initial gains of as much as 1.9%, sliding back to unchanged, before a last hour bounce sparked perhaps by intervention from the National Team helped China eek out another day of modest gains, even as traders took profits; the CSI 300 Index also trimmed gains after rising as much as 2%, even so the index was up 25% this year while the ChiNext rose 1.1%, close to erasing 2018 losses.

Japan’s Nikkei stock index closed 1.8 percent higher, but Australian shares erased earlier gains to end down 0.1 percent.

A similar fizzle to early enthusiasm was observed on Wall Street futures, where the Emini erased all early losses, while Boeing stock resumed its slide as more countries banned the ill-fated Boeing 737 MAX.

Finally, gains were also faded in the U.K. pound which tumbled 250 pips from its Monday highs after UK’s Attorney General Geoffrey Cox trashed May’s Monday “deal”, saying legal risk of Brexit deal remains “unchanged” following last night’s revisions, though he also says the new deal does “reduce the risk” of the U.K. being locked in the contentious Irish backstop, the provision for avoiding a hard border in Ireland.

pound

Meanwhile, it was not clear if the changes agreed on by May would be sufficient to secure parliamentary support when lawmakers vote around  1900 GMT, having voted down May’s original deal by a record 230 votes in January. “This additional agreement to the existing contract does slightly increase the probability that by tonight the deal will go through, but only slightly increases it,” said Britt Weidenbach, head of European equities at DWS. “The market will probably only react to this in a more positive way once we know what the outcome is going to be. This might not be after tonight, it may be after Wednesday when we have a ruling on No-Deal and prolongation.”

In addition to the Brexit vote outcome, traders will be closely watching today’s US CPI print and Chinese production and retail sales as well as a Bank of Japan policy decision as investors seek to maintain their rediscovered risk apetite. Global stocks have been mostly on the rebound after their worst week since December.

In rates, Germany’s benchmark 10-year government bond yield rose 2.5 basis points to 0.09 percent — moving away from more than two-year lows hit last week in the wake of a dovish European Central Bank meeting. Benchmark 10-year Treasury note yields were at 2.6501 percent compared with a U.S. close of 2.641 percent on Monday.

The dollar index initially shed 0.3 percent before rebounding, while the euro was up 0.3 percent on the day. Cable, as noted, was all over the place.

In commodity markets, WTI (+0.9%) and Brent (+0.9%) futures continue edging higher on the back of heightened risk appetite wherein the former extended gains above USD 57.00/bbl whilst the latter gained a firmer footing above USD 67.00/bbl. Traders will be eyeing tonight’s release of API crude inventories following last-week’s much wider-than-expected build in stocks. Elsewhere, gold (+0.3%) posts marginal gains, aided by a mild pullback in the Greenback, copper (+1.4%) on the hand outperformed on the firmer risk sentiment.

On today’s calendar, expected data include inflation. Dick’s Sporting, Momo, and ZTO Express are among companies reporting earnings. 

Market Snapshot

  • S&P 500 futures up 0.2% to 2,795.50
  • STOXX Europe 600 up 0.1% to 373.98
  • MXAP up 1.1% to 158.87
  • MXAPJ up 1% to 523.41
  • Nikkei up 1.8% to 21,503.69
  • Topix up 1.5% to 1,605.48
  • Hang Seng Index up 1.5% to 28,920.87
  • Shanghai Composite up 1.1% to 3,060.31
  • Sensex up 1% to 37,414.86
  • Australia S&P/ASX 200 down 0.09% to 6,174.82
  • Kospi up 0.9% to 2,157.18
  • German 10Y yield rose 2.0 bps to 0.089%
  • Euro up 0.2% to $1.1270
  • Italian 10Y yield rose 5.6 bps to 2.206%
  • Spanish 10Y yield rose 1.3 bps to 1.167%
  • Brent futures up 0.8% to $67.10/bbl
  • Gold spot up 0.2% to $1,295.95
  • U.S. Dollar Index down 0.2% to 97.00

Top Overnight News

  • Theresa May didn’t get the power to unilaterally exit the much- hated backstop arrangement aimed at preventing a hard Irish border. Nor did she get a time limit placed on it; European Commission President Jean-Claude Juncker urged the U.K. parliament to approve the revised terms. “It is this deal, or Brexit may not happen at all,” he wrote on Twitter
  • China’s Vice Premier Liu He and his American counterparts decided on arrangements for the next stage of trade talks, state-run Xinhua News Agency reported; Liu, U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin also held specific negotiations over critical issues about the wording of an agreement in the phone call this morning, Xinhua said, without giving further details
  • The European Central Bank’s latest stimulus action remains a sketch that could keep investors guessing for months on its true potency
  • Hong Kong authorities have never failed to keep the local dollar at its peg, or since 2005 within a set band against the dollar, yet that hasn’t stopped someone from writing options on a black-swan event
  • BOJ’s Amamiya says rates, asset buys, monetary base among BOJ options; will carefully watch impact of sale tax hike; BOJ should do utmost to hit price goal

Asia equity markets traded mostly higher as the region took impetus from the M&A inspired tech-led rally on Wall St and with sentiment also underpinned on Brexit related optimism after UK PM May’s last-ditch effort to reach an agreement with the EU resulted in legally binding changes that is said to strengthen and improve the withdrawal agreement. ASX 200 (+0.1%) was led higher by the energy sector following recent strength in oil prices but with gains eventually pared by weakness in gold miners and financials, while the Nikkei 225 (+1.9%) outperformed with the JPY-risk dynamic in full swing. Elsewhere, Hang Seng (+1.0%) and Shanghai Comp. (+1.8%) conformed to the heightened risk appetite and tech-kindled momentum, while China’s tax commissioner reiterated to enact significant tax cuts and there were also reports that top US and China trade negotiation officials discussed key issues and set the next steps in working arrangements over the phone. Finally, 10yr JGBs were initially subdued with demand sapped as focus was centred on riskier assets and with participants tentative ahead of a 5yr JGB auction, although prices then found mild support on return from the lunch break and after the auction results printed relatively inline with the previous.

Top Asian News

  • Mahathir Is Weighing Shutdown or Sale of Malaysia Airlines

European equities are somewhat mixed having waned off opening highs [Euro Stoxx 50 Unch] following a relatively upbeat Asia-Pac session. Sector wise, energy stocks lag their peers alongside telecom names, whilst consumer discretionary outperforms. FTSE 100 (Unch) has been fluctuating with the Pound ahead of tonight’s Brexit Meaningful Vote (analysis available on the headline feed).UK banks are faring well with RBS (+1.5%), Lloyds Group (+2.5%) and Barclays (+1.0%) shares all higher on the latest Brexit developments where PM May secured “legally binding” assurances on the NI backstop. Upside in UK homebuilders [Persimmon +3.9%, Taylor Wimpey +2.7%] are also attributed to Brexit progress. Elsewhere, German Union Verdi has disapproved the proposed merger between Deutsche Bank (-1.4%) and Commerzbank (-1.4%), although share prices were little moved as the news hit the wires. Volkswagen (-0.7%) reported their final numbers which were largely in-line with the prelim report. Finally, State-side, Boeing (-2.0%) shares resumed its decline after Australia became the latest country to ground the Boeing 737 Max 8.

Top European News

  • Shell Says It Can Be World’s Top Power Producer and Make Money
  • Germany Paralyzed by Trump’s Attacks on World That Made It Rich
  • VW Boosts EV Plan to 22 Million Cars as Key Brands Squeezed

In FX, first we look at GBP where some volatility around the raft of UK data that was mostly better than expected, but ultimately it’s all about the looming Meaningful Vote after PM May managed to secure last minute legally binding assurances to the Irish backstop. Sterling remains elevated across the board, though some way off best levels as Cable pivots 1.3200 vs almost 1.3290 at one stage and Eur/Gbp rebounds from circa 0.8475 lows towards 0.8550 awaiting several potentially key and game-changing events before the debate starts in Parliament and the ballot begins from 19.00GMT. In terms of the aforementioned major factors that could have a bearing on the outcome, the Attorney General’s verdict on the addendums to the WA appear paramount and are expected before 11.30GMT when the ERG is scheduled to meet and formulate opinions. On that note, independent legal advice for the Group concludes that the assurances still fall short of providing the UK with a get out from the contingency arrangement, but the DUP decision could sway the ERG’s final judgement.

  • NZD/CHF/EUR/AUD All firmer vs the Greenback that remains soft in wake of Monday’s mixed US retail sales release and due to Sterling’s extended recovery from sub-1.3000 lows, as the DXY straddled 97.000. The Kiwi is hovering just below 0.6850 and Franc is back above 1.0100, while the single currency has consolidated its comeback from post-ECB levels under 1.1200 to trade nearer the top of a 1.1245-90 range. Note, several big option expiries in Eur/Usd are close enough to influence trade into today’s NY cut, with 1.4 bn at 1.1250, 2.2 bn at 1.1225 and 1.9 bn at 1.1200 vs 1 bn at 1.1300. The Aussie has also benefited from a general improvement in risk sentiment within 0.7058-80 parameters, but still lagging its NZ peer as the Aud/Nzd cross remains capped ahead of 1.0350.
  • SEK/NOK Mixed fortunes for the Scandi Crowns as softer than forecast (overall) Swedish inflation data contrasts with recent Norwegian CPI and the Nok also derives momentum from firm oil prices along with an upbeat Norges Bank regional survey. Hence, Eur/Sek sits around 10.5700 vs Eur/Nok circa 9.7350, +0.15% and -0.15% on the day respectively

In commodities, WTI (+0.9%) and Brent (+0.9%) futures continue edging higher on the back of heightened risk appetite wherein the former extended gains above USD 57.00/bbl whilst the latter gained a firmer footing above USD 67.00/bbl. Traders will be eyeing tonight’s release of API crude inventories following last-week’s much wider-than-expected build in stocks. Elsewhere, gold (+0.3%) posts marginal gains, aided by a mild pullback in the Greenback, copper (+1.4%) on the hand outperformed on the firmer risk sentiment.

US Event Calendar

  • 8:30am: US CPI MoM, est. 0.2%, prior 0.0%; CPI YoY, est. 1.6%, prior 1.6%
    • US CPI Ex Food and Energy MoM, est. 0.2%, prior 0.2%; CPI Ex Food and Energy YoY, est. 2.2%, prior 2.2%
  • 8:30am: Real Avg Weekly Earnings YoY, prior 1.93%; Real Avg Hourly Earning YoY, prior 1.7%
  • 8:45am: Brainard Speaks at Community Reinvestment Conference in DC

DB’s Jim Reid concludes the overnight wrap

I get home last night to hear screaming and crying from the bathroom. I wondered upstairs to see what all the fuss was about only to hear Maisie scream that she didn’t want her hair washed. My wife was getting increasingly exacerbated and eventually said, “Maisie! You have to have your hair washed otherwise it will all fall out and you’ll end up looking like Daddy. You wouldn’t want that would you?” As unnecessary as I thought it was it seemed to do the trick and we had a deal.

I don’t believe Mrs May and Mr Juncker’s negotiations progressed in quite the same manner yesterday but something seemed to click after a day where the omens looked very bad indeed. By late last night, the two politicians had finally agreed on a new deal, which includes three new documents intended to provide additional legal guarantees that the UK can’t be trapped indefinitely inside the backstop arrangement. The new deal doesn’t give power to the UK to unilaterally exit the Irish backstop arrangement nor does it place a time limit on it as many Brexiteers wanted. It does however include a unilateral declaration by the UK regarding the backstop which, which Mrs May suggests has the same legal power as the existing framework. The new addition will give the UK some authority to walk away if the EU doesn’t do enough to replace it with a full trade deal. It gives the independent arbitration panel (comprising senior judges) authority to rule that the EU is acting in such a way as to make the backstop last indefinitely and in the case of “persistent failure” to comply with a ruling “it may result in temporary remedies” for the UK. However, Attorney General Cox’s formal opinion is due later this morning. Pro-Brexit MP and deputy ERG leader Steve Baker  has criticised the deal overnight, saying it falls “far short” of what he was looking for. The key now will be the position of the DUP, with Deputy Leader Dodds saying last that “all of this will need to be taken together and analysed very carefully.” So we’ll have to see how the new deal is received by parliament, but the initial reception from the financial markets has been positive, with the pound trading +0.418% stronger overnight after its +1.04% rally during yesterday’s trading session.

So the main event today will be the vote on the Withdrawal Agreement and its new accompanying unilateral declaration by the UK. It will likely be voted on shortly after 7pm London time (3pm New York). May’s coalition has a 16-vote majority, so she can afford to lose up to 15 votes before her deal fails. She lost 128 votes, split between her own Conservative Party and the DUP, in the last vote on her deal. So a tall order, and I’d imagine that she may still lose but if so can she reduce the loss to a manageable total her deal still may have some legs.

Ahead of this crucial vote, the good news is that markets have kicked off the new week in a decidedly better mood compared to the last few days thanks to a bit of M&A and some green shoot signs in the latest US retail sales data. Indeed the S&P 500 rose +1.47% yesterday after declining every day last week and also in eight of the last nine session prior to yesterday. We’re now back to only being down -0.46% since the start of that negative run. NVIDIA (+6.97%) was the biggest mover on a percentage basis after agreeing to buy chipmaker Mellanox. Other chipmakers also rallied, with the Philadelphia semiconductor index up +2.40%. The NASDAQ also rose +2.02% while the DOW (+0.79%) lagged behind after Boeing (-5.33%) fell by the most since October after select airlines grounded flights in the wake of the tragic weekend crash in Africa. Shares were down as much as -13.40% at the open so in fairness they recovered well, and we should also add that the share price is only back to where it was early last month. Cash bonds were fairly calm too, with the 2.8% 24s down less than half a point. In any case, when it was all said and done, yesterday turned out to be a decent case study of the difference in performance of a (nonsensically) price weighted index versus a market cap weighted index. The outperformance of the S&P over the DOW, at 0.68% yesterday, was the most since January 31st this year (which was impacted by a big fall for DowDuPont), however it’s a pretty rare occurrence to see as big a divergence, with only eight such instances of such outperformance since 2010.

The tone was better in Europe too although it played second fiddle somewhat to deciphering what on earth was going on in and around Downing Street. The STOXX 600 closed up +0.78% and European Banks rebounded +2.06%, which pares the month to date loss to a slightly more palatable -4.32%. HY credit spreads were -3bps tighter in Europe and -4bps tighter the US while rates were a bit less active. Bunds touched what would’ve been a new 29-month low of 0.059% but closed unchanged around 1bp higher. Treasuries were up +1.1bps post the latest retail sales data, while BTPs (+5.7bps) also underperformed following comments from Salvini warning against “colonizing Italy”. EM FX (+0.29%) also had a better day with the wider risk on move, although was also helped by the move for oil with WTI (+1.37%) boosted by reports that Saudi Arabia was to extend deep supply cuts into next month.

Overnight markets in Asia are also moving higher following Wall Street’s lead with the Nikkei (+1.95%), Hang Seng (+1.40%), Shanghai Comp (+1.81%) and Kospi (+0.87%) all up. Elsewhere, futures on the S&P 500 are up +0.26% and 10y treasury yields are up +1.6bps. In other news, China’s state-run Xinhua News Agency reported that China’s Vice Premier Liu He and the US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin have decided on arrangements for the next stage of trade talks while adding that they also had specific negotiations over critical issues about the wording of an agreement in a phone call this morning.

Looking back on the US data from yesterday now. Headline retail sales in January rose +0.2% mom which was slightly ahead of expectations for a flat reading, however there were notably bigger beats for the core (+1.2% mom vs. +0.6% expected) and control group (+1.1% mom vs. +0.6% expected) readings. That said, the data did come with significant downward revisions to the prior two months. Our US economists made the point that the decline in retail control in December, at -2.3% mom, is now the second largest on record and the biggest since January 2000. So that should weigh on Q4 GDP by 0.1 to 0.2 percentage points, but at least it points to improvement moving forward.

Prior to this in Germany the January industrial production print disappointed at -0.8% mom (vs. +0.5% expected) however there was a decent upward revision to the data in December. Staying with data, we should also note that yesterday Turkey entered a technical recession following a second consecutive negative quarter on quarter GDP reading (-2.4% qoq for Q4). The Turkish Lira was little changed which goes to show that a slowdown is fully priced in.

Also yesterday, President Trump’s administration released their budget blueprint for the 2020 fiscal year. It included a $54 billion cut to discretionary spending, a cut of around 9% versus this year’s budget. The proposal would also cut social spending on healthcare programs, and shift funding to the departments of Homeland Security and Defense. With Democrats in control of the House, his proposal is basically irrelevant to the budget process. That said, it does provide a useful window into President Trump’s priorities and reelection campaign strategy, which looks likely to focus on national security and immigration.

While Brexit developments might dominate much of the spotlight today, there is also US CPI data to watch out for this afternoon. The consensus expects a +0.2% mom core reading which would be enough to likely hold the annual rate at +2.2% yoy for a fourth consecutive month. Away from this we’ll get the February NFIB small business optimism reading (+1.2pts to 102.5 expected) while in the UK this morning we’ll get the January trade balance, as well as the latest industrial production print and latest monthly GDP reading. Away from the data the ECB’s Lautenschlaeger is due to speak this morning while the Fed’s Brainard speaks this afternoon. The European Parliament is also due to vote on a measure tied to Huawei called “Security Threats Connected with the Rising Chinese Technological Presence”.

 

 

via ZeroHedge News https://ift.tt/2F6utbn Tyler Durden

Pound Tumbles As Attorney General Trashes May’s Last-Minute Deal With EU

For a brief moment, the notion that Theresa May had finally wrested a crucial concession from the EU – namely, that it had agreed to grant the UK “legally binding assurances” that it could unilaterally exit the Irish Backstop in the event of a deal deadlock – seemed too good to be true.

And as it turned out, it was.

After issuing a tensely anticipated legal advice on Tuesday, Attorney General Geoffrey Cox contradicted May and the rest of her cabinet by determining that the interpretive document offered the UK by the EU would grant no legally guaranteed right to exit the backstop.

In other words, Cox has confirmed the objections of May’s eurosceptic critics, who alleged last night after the text of the agreement had been released that nothing had changed.

The news sent the pound tumbling as it practically guarantees that a second vote on May’s deal, expected late Tuesday (though it may yet be cancelled), will fail.

pound

 

via ZeroHedge News https://ift.tt/2VYLDgZ Tyler Durden

New York AG Opens Probe Into Trump’s Failed Bid For Buffalo Bills

Even after Deutsche Bank senior executives – including Christian Sewing, who once ran the bank’s wealth management business but is now its CEO – decided during the 2016 campaign to curtail the bank’s relationship with the Trump, allegedly over worries that Trump, if elected, might default on a $350 million loan while in office – lawmakers and prosecutors have continued to bash the bank as “the biggest money laundering bank in the world” and threatened to leave no stone unturned in their examination of its relationship with the Trump family.

And as if investigations launched by the House Financial Services and House Intelligence Committees wouldn’t be comprehensive enough (it’s also believed that the Mueller probe has investigated Trump’s ties to the bank), New York State Attorney General Letitia James has launched a civil inquiry into the bank, demanding via subpoena more information about its involvement in Trump’s failed bid to buy the Buffalo Bills, among other dealings with the now-first family.

Trump

The inquiry, according to the New York Times, was prompted by Michael Cohen’s allegations that Trump would inflate his assets on financial statements, particularly when applying for loans (or trying to get his name on the Forbes List of wealthiest people).

Here’s more from the New York Times:

The new inquiry, by the office of the attorney general, Letitia James, was prompted by the congressional testimony last month of Michael D. Cohen, President Trump’s former lawyer and fixer, the person briefed on the subpoenas said. Mr. Cohen testified under oath that Mr. Trump had inflated his assets in financial statements, and Mr. Cohen provided copies of statements he said had been submitted to Deutsche Bank.

The inquiry by Ms. James’s office is a civil investigation, not a criminal one, although its focus and scope were unclear. The attorney general has broad authority under state law to investigate fraud and can fine — or in extreme cases, go to court to try to dissolve — a business that is found to have engaged in repeated illegality.

James’s subpeonas seek loan applications and information on mortgages, lines of credit and other financing involving Deutsche Bank and New Jersey-based Investors Bank, which also received subpoenas. In addition to the failed Bills deal, James and her office are also looking into Trump Organization projects including the Trump International Hotel, The Trump National Doral, Trump International Hotel and Tower (in Chicago) and Trump Park Avenue.

The request to Deutsche Bank sought loan applications, mortgages, lines of credit and other financing transactions in connection with the Trump International Hotel in Washington; the Trump National Doral outside Miami; and the Trump International Hotel and Tower in Chicago, the person said.

Investigators also requested records connected to an unsuccessful effort to buy the Bills, the person said. Mr. Trump gave Deutsche Bank bare-bones personal financial statements in 2014 when he planned to make a bid for the team, The New York Times has reported. The deal fell through when the team was sold to a rival bidder for $1.4 billion.

Mr. Trump worked with a small United States-based unit of Deutsche Bank that serves ultra-wealthy people. The unit lent Mr. Trump more than $100 million in 2012 to pay for the Doral golf resort and $170 million in 2015 to transform the Old Post Office Building in Washington into a luxury hotel.

New Jersey-based Investors Bank was subpoenaed for records relating to Trump Park Avenue, a project it had backed.
Deutsche Bank and Investors Bank declined to comment. The Trump Organization did not respond to requests for comment.

Keep in mind that this inquiry is civil, not criminal – so the stakes for Trump aren’t very high. If anything, the inquiry will send a chilling message to any banks that still have the temerity to deal with the Trump Family during and after his tenure in office: Prosecutors will be watching their every step.

via ZeroHedge News https://ift.tt/2HfkB1k Tyler Durden

Australia, Singapore Ground Boeing 737 MAX 8s As Doubts About Safety Grow

Despite a reassuring (for some) statement from the FAA affirming that Boeing’s 737 MAX 8 planes remain “safe” for flight, more countries on Tuesday have opted to ground the planes, including Singapore and Australia, in a rare break with US air-travel regulators.

Jet

Australia’s Civil Aviation Safety Authority said on Tuesday that it had suspended the operation of all Boeing 737 MAX aircraft flying to or from the country. Since no Australian airlines fly the aircraft (though its Virgin Air recently ordered dozens of new MAX 8s), the decision only impacts the Singaporean airlines SilkAir and Fiji Airlines, according to the FT.

“This is a temporary suspension while we wait for more information to review the safety risks of continued operations of the Boeing 737 MAX,” said CASA’ chief executive and director of aviation safety, Shane Carmody, in a statement to the Sydney Morning Herald.

Meanwhile, Virgin Australia has 40 MAX aircraft on order, and said it was “closely watching the situation”, and hinted that it could change its order depending on the outcome of the investigation.

“With our first aircraft delivery not due until November this year, we believe there is sufficient time to consider the outcome of the investigation and make an assessment,” a Virgin spokeswoman said.

So far, more than half of the airlines flying the 737 MAX 8 have grounded the planes. Yesterday, China, Ethiopia and Indonesia grounded said they would wait for more details of Sunday’s crash to emerge, while a few Latin American countries followed suit. The plane only entered service in 2017, have grounded the aircraft, according to the New York Times.

SN

Though Southwest Airlines and American Airlines have continued to use the aircraft, following the FAA’s advice, they said they would be keeping an eye on events.

The planes are typically used for international flights, or covering long distances domestically:

Plane

Boeing has delivered 350 of the aircraft since it entered service, and has a backlog of more than 5,000 orders.

Boeing shares closed off the lows on Monday, but appeared to be headed lower once again in pre-market trading.

via ZeroHedge News https://ift.tt/2J7C3qq Tyler Durden

Italeave Looms As Rome Rides China’s New Silk Road

Authored by Pepe Escobar via The Asia Times,

All roads seem to lead to Rome as Italy expresses its love for China’s Belt and Road Initiative…

President Xi Jinping is due to arrive in Italy for an official visit on March 22. The top theme of discussion will be the New Silk Road, or the Belt and Road Initiative (BRI).

A day earlier, in Brussels, the EU is to debate a common strategy related to Chinese investments in Europe.

A substantial part of the EU is already linked de facto with BRI. That includes Greece, Portugal, 11 EU nations belonging to the 16+1 group of China plus Central and Eastern Europe and, for all practical purposes, Italy.

And yet it takes an undersecretary in the Italian economic development ministry, Michele Geraci, to tell the Financial Times that a memorandum of understanding supporting BRI will be signed during Xi’s visit, for all (White House) hell to break loose.

The FT is not shy of editorializing, calling BRI a “contentious infrastructure program.” BRI is a vast, far-reaching, long-term Eurasia integration project, and the only quasi-global development program in the market, any market. It’s especially “contentious” to Washington – because the US government, as I detailed elsewhere, decided to antagonize it instead of profiting from it.

A White House National Security Council spokesperson deriding BRI as a “made by China, for China” project does not make it so. Otherwise, no less than 152 – and counting – nations and international organizations would not have formally endorsed BRI.

China’s semi-official response to the White House, eschewing the usual diplomatic remarks by the Ministry of Foreign Affairs, came via a scathing, unsigned editorial in the Global Times which accuses Europe of being subjected to Washington’s foreign policy and a transatlantic alliance that is not coherent with its 21st century needs.

Geraci states the obvious; the BRI link will allow more of Made in Italy to be exported to China. As someone who lives between Europe and Asia, and always discusses BRI while in Italy, I see that all the time. The appeal of Made in Italy for the Chinese consumer – food, fashion, art, interior design, not to mention all those Ferraris and Lamborghinis – is unrivaled, even by France. Chinese tourists just can’t get enough of Venice, Florence, Rome – and shopping in Milan.

Washington can build no case lecturing Italians that a BRI link undermines the US side in the trade war – considering that some sort of Xi-Trump deal may be imminent anyway. Brussels for its part is already deeply divided, especially because of France.

German business knows that China is the present and future market of choice; besides, one of the top terminals of the New Silk Road is Duisburg, in the Ruhr valley.

We’re talking about the 11,000 km-long Yuxinou container cargo train connection, active since 2014; Chongqing, Kazakhstan, Russia, Belarus, Poland, all the way to Duisburg. Yuxinou (short for Chongqing-Xinjiang-Europe), one of the key corridors of the New Silk Roads, is bound to be upgraded to high-speed rail status in the next decade.

Nearly a year ago I explained in some detail on Asia Times how Italy was already linked to BRI.

Essentially, it’s all about Italy – the number three European nation on naval trade – configured as the top southern European terminal for BRI; the entry door for connectivity routes from east and south while also serving, in a cost-effective manner, scores of destinations west and north.

Absolutely key in the project is the current revamping of the port of Venice – channeling supply lines from China via the Mediterranean towards Austria, Germany, Switzerland, Slovenia and Hungary. Venice is being configured as an alternative superport to Rotterdam and Hamburg – which are also BRI-linked. I called it the Battle of the Superports.

Whatever Washington, the City of London and even Brussels may think about it, this is something that Rome – and Milan – identifies as a matter of Italian national interest. And considering the undying Chinese love affair with all manifestations of Made in Italy, win-win, once again, wins.

via ZeroHedge News https://ift.tt/2TIQ8yp Tyler Durden

Iran’s Rouhani Makes First Ever Visit To Iraq To “Bypass Unjust US Sanctions”

What Iran is billing as President Hassan Rouhani’s first “historic” and landmark visit to Iraq, both the United States and Israel are seeing as a provocative move to solidify Iran’s influence over Baghdad

Just prior to arriving in Iraq Monday, Rouhani said on state television that his country is determined to “strengthen its brotherly ties” with neighboring Iraq. It’s expected that the the three-day visit will result in a wide range of economic deals in fields such as energy, transport, and agriculture; however, as Israel’s Haaretz writes based on a Reuters report:

The visit is a strong message to the United States and its regional allies that Iran still dominates Baghdad, a key arena for rising tension between Washington and Tehran.

Iran’s Rouhani began a three day visit to Iraq on Monday. Image source: Reuters

Reuters further noted that Shi’ite Iran will is using the official visit to gain all the trade and energy export deals it can as Tehran suffers amidst US-led international sanctions, and as it continues to demand more concrete action from Europe in the wake of last year’s US pullout of the JCPOA nuclear deal. 

“We are very much interested to expand our ties with Iraq, particularly our transport cooperation,” Rohani said at Tehran’s Mehrabad airport. “We have important projects that will be discussed during this visit.” 

Crucially, a senior Iranian official who is accompanying Rohani on the trip told Reuters:

Iraq is another channel for Iran to bypass America’s unjust sanctions imposed on Iran. This trip will provide opportunities for Iran’s economy.

Rouhani was welcomed and escorted by Iraqi President Barham Salih and Foreign Minister Mohamed Ali Hakim after the Iranian president touched down in Baghdad on Monday. The official itinerary begins with a visit to a Shia shrine in the Iraqi capital.

The timing of Rouhani’s visit is further interesting in light of the US-led coalition’s anti-ISIL campaign, which is fast wrapping up just across the border in Syria’s Baghouz.

Iraq’s President Barham Salih and Iranian President Hassan Rouhani, via Reuters.

Over the past year immense tension has grown between allies Baghdad and Washington over Iraq’s reliance on Iran-backed Iraqi Shiite paramilitary units to wage war against ISIS and other Sunni terror groups.

As Al Jazeera notes

Since Rouhani’s election in 2013, Iraq has relied on Iranian paramilitary support to fight ISIL following the group’s capture of the Iraqi city of Mosul and other territories in both Iraq and Syria.

Now, with the armed fighters facing a final territorial defeat in the Syrian village of Baghouz, Iran is looking for Iraq’s continued support as it faces a maximalist pressure campaign by President Donald Trump after his decision to withdraw the United States from Tehran’s nuclear deal with world powers. 

But this is ultimately the lasting legacy of Bush and Cheney’s 2003 regime change war and toppling of Saddam Hussein: they overthrew a Sunni Baath secular dictator in exchange for entrenching pro-Iran influence in Baghdad, to the delight of the Ayatollahs. 

Washington can now behold the fruits of its neocon interventionist labor as Iran’s president is granted a hero’s welcome in the heart of Baghdad (this after Iran and Iraq were very recently bitter enemies)  all the while US officials in the same city will look on helplessly from the sidelines. 

via ZeroHedge News https://ift.tt/2O02ahA Tyler Durden

Is Norway’s Oil & Gas Selloff A Mistake?

Authored by Cyril Widdershoven via Oilprice.com,

Another big step has been taken to end the hydrocarbon era, if the decision by Norway’s sovereign wealth fund to dump oil stocks and investments is a sign on the wall. After the news broke, “fossil free” NGOs and others declared the Norwegian SWF Government Pension Fund (or “Oil Fund”) decision to divest as a major victory for the Green Movement. Norway’s official reaction is, however, that the pension fund has chosen to divest its oil and gas related stocks the coming years due to financial considerations.

No links have been made to environmental or climate change issues in the decision making process. Still, there are signals that oil companies are facing a steep uphill battle, if the Norwegian decision is translated into policy in the next couple of months. Norway’s “Oil Fund”, holding assets of around $1 trillion worldwide, is seen by institutional investors as a beacon. Still, the Norwegian decision needs to be assessed on its merits, and not on political statements or NGO assessments, forgetting the fact that the full financial structure of the fund has been, and partly is still, based on Norway’s enormous oil and gas revenues. At the same time, Norway’s decision-making process also seems to be influenced by national elections. 

The decision by the “Oil Fund” was already in the offing since 2017, when Norway’s Central Bank  called for the divestment of oil stocks in order to reduce the Norwegian state’s exposure to the volatile oil sector. The official statement that the decision has been made on purely financial arguments is however disputable. The oil and gas sector has been rather volatile the last couple of years, but overall, the returns on investments in international oil and gas companies and services have been in principle very good. At the same time, most pension funds have been very active the last decades in oil and gas futures markets, where hefty profits were sometimes even the main basis for the yields on investments being presented to the respective shareholders, aka the contributors and pensioners.

Norwegian officials also have been referring to the fact that there is a major threat to the sustainability of the global oil and gas sector. To hold this assessment of the global oil market as a real and possibly main factor to divest oil-related stocks and bonds is very strange. The profitability of the hydrocarbon sectors in the world is still not under pressure. Some even argue that due to current lack in investments in upstream, or divestments of assets by institutional investors, the remaining operators and service companies are looking at very profitable short- and mid-term future. With higher oil prices expected in the mid-term, the yields on investments are not at all under pressure. Most analysis even predict a possible supply gap in the next few years as demand is still set to increase to maybe 120-130 million bpd. Investments in high-tech service providers and E&Ps could still churn out fat profits.

Some aspects are maybe playing a much bigger role than currently is being addressed. The Norwegian fund has been showing low returns on investments. As reported several days ago, the fund released its results over 2018. In the report, the fund stated that it returned -6.1% in 2018, largely due to weak equity markets. This resulted in a loss of 485 billion kroner, bringing total assets to 8.25 trillion Norwegian kroner or $945 billion in total, in comparison to a return of 13.6% in 2017. Overall net returns for the five years ended Dec. 31 was 4.75% and 8.3% over the 10-year period. In 2018 the fund made a return of -9.5% on its equities (63% of the fund’s allocation), in comparison to 19.4% in 2017. A fixed-income allocation of 30.7% added 0.6% for the year vs. a 3.3% gain for 2017.  Analysts indicated at that time that changes will be made soon inside of the fund.

The oil fund holds $37bn of shares in oil companies such as BP, Shell and France’s Total. The first indications given by Norwegian officials are that the fund will not be divesting yet its stakes in these large oil majors which both explore for and refine oil, such as Shell, BP, Exxon and Total. The main focus of this divestment will be smaller independent oil firms. The fund holds around $8 billion in them. Even though NGOs and fossil free investors are hailing the decision by the fund as a major victory, it should not be forgotten that the Norwegian fund holds 67% of Equinor, Norway’s oil and gas giant, formerly known as Statoil. In stark contrast to this, the fund will be gradually phase out its investments in companies such as Chesapeake Energy and China’s CNOOC.

The fund’s divestments also will take several years to be completed. The main reason for this slow divestment policy is a pure financial one. By slowly pushing the stocks on to the market, the fund hopes to be able not to destroy too much value or disrupt the market.

Still, one can bet on it that most oil and gas CFOs will be having a short and tiring weekend. After the news emerged that the “Oil Fund” is considering to become the “Green Fund”, red lights will have gone on inside of the headquarters of Schlumberger, Halliburton, Aker and others. A continuing build-up of NGO and governmental pressure in the West is trying to end the ‘oil and gas era’. The Norwegian decision is not the first, as an ever-growing list of pension funds and institutional investors in the US, UK and EU, are openly ending their support for the fossil sector. This movement will put increased pressure on privately owned companies looking for financing of their future projects. This development is not only impacting the financing of future projects but is also putting increased pressure on the overall share value of these companies. At a time of immense demand for energy and petroleum products, these movements are not the right ones.

Some even could state that pension funds, set up to support future financial returns for their major shareholders, the pensioners, are shooting themselves in their own feet. The movement to divest in fossil fuel companies puts not only future energy supplies at risk, but also the financial situation of the funds themselves. Without going into an ideological discussion, pension funds should be taking a prudent and future proof investment strategy, in which the financial situation of their main stakeholders should not be risked. Following a global divestment hype of fossil shares and bonds, these very returns could be at risk. Not only by destroying shareholder value, as share prices will plunge, but also by disrupting affordable future energy supplies. Maybe it will be best, as a shareholder, to use your voting rights to entice or force companies to address future energy supplies and a sustainable economic future at the same time. By ruling out fossil fuels as a whole, these goals are not going to be met.

via ZeroHedge News https://ift.tt/2UxawzV Tyler Durden

Where Cash Is King In Europe

How much cash do you have with you at the moment?

As Statista’s Martin Armstrong explains,  the answer to this question will probably depend, not only on your bank balance, but also on the country in which you live.

As figures from the Access to Cash Review show, there are significant cultural differences in the use of cash in Europe.

Infographic: Where Cash is King in Europe | Statista

You will find more infographics at Statista

In Greece and Spain, the vast majority of in-person purchases are made with cash – 88 and 87 percent respectively. While in Sweden, Denmark and the UK, most items are paid for digitally.

In the report, which focuses on the UK, despite the relatively low share of people relying on cash in their everyday lives, it was found that over 8 million adults – about 17 percent of the population – would struggle to cope in a cashless society.

via ZeroHedge News https://ift.tt/2F6GYUC Tyler Durden

Could Brexit Trigger The Demise Of Sterling As A Reserve Currency? – Part Two

Authored by Steven Guinness,

In part one of this series we looked briefly into the history of sterling crises that originated after the end of World War II.

Two important aspects were highlighted. The first is that over the past seventy years, a depletion of international sterling reserves has routinely coincided with exchange rate crises, whilst the second indicates that a slew of sterling downturns since 1945 have weakened substantially its role as a reserve currency.

We will now examine why Britain leaving the European Union through a ‘hard‘ Brexit may prove a harbinger for the first major sterling crisis of the 21st century.

In 2018 the media began publishing what mutated into incessant warnings about the dangers of leaving the EU with no withdrawal agreement. The majority were and continue to be focused on possible disruptions to food and medical supplies, the UK’s beleaguered car industry and the prospect of a Brexit induced recession.

What has not been given the same degree of analysis is the impact a no deal scenario could have on the position of sterling as a reserve currency. Ever since the post referendum decline of the pound, it generally only attracts attention if its value against the dollar rises significantly above daily fluctuations, or declines a percentage point or more amidst fears of a ‘disorderly‘ exit.

Let’s briefly summarise the few occasions where the pound’s reserve status has been called into question since 2016, as well as matters interconnected with the subject.

May 2016

A month before the referendum, ratings agency Standard and Poor’s issued a warning that sterling could cease to be a reserve currency if the UK left the EU. They also declared that Britain’s triple A credit rating could come under pressure. The line was that national governments might seek alternatives to the pound as a store of value should a leave vote materialise. As for why they could do this, a breakdown in existing trading arrangements, a depreciation of sterling and an increasing current account deficit were all cited as reasons by S&P.

July 2016

With S&P having stripped the UK of its triple A credit rating (as they suggested would happen following a leave vote), Reuters reporter Jamie McGeever penned an article which detailed how the decline of sterling since the referendum had so far been the biggest of any of the world’s four major currencies since the collapse of the Bretton Woods system in the early 1970s.

The day after the vote (June 24th) saw sterling’s value drop by 8%, marking the largest one day fall in the pound since the introduction of free-floating exchange rates following the collapse of Bretton Woods.

October 2016

Five months before Article 50 was invoked, Standard and Poor’s issued a new warning about the pound’s reserve status.  Ravi Bhatia, the director of sovereign ratings for Britain, was reported by The Independent as saying a ‘hard‘ Brexit eventuality could jeopardise sterling’s reserve currency role. Bhatia summarised reserve status as countries having trust in a currency, with governments and traders content to hold assets in a particular denomination.

At the time of S&P’s latest intervention, the pound was down 17% against the dollar since June 2016.

S&P were at it again later in the month, with the Financial Times detailing that pronounced falls in sterling could end up ‘reducing confidence and eventually threaten its role as a global reserve currency.’ They added that sterling would no longer be considered a reserve currency by the S&P if its share of reserves dropped below 3%. They currently stand at 4.49%.

On top of this, S&P warned of further cuts to Britain’s credit rating should they ‘conclude that sterling will lose its status as a reserve currency or if public finances or GDP per capita weaken markedly beyond our current expectations‘.

November 2016

Reuters Jamie McGeever followed up his article from July 2016 by questioning the pound’s position in global foreign exchange reserves. Here, McGeever linked sterling’s role as a reserve currency to the UK’s current account deficit, which to this day remains one of the largest in the world. He pointed out that this particular deficit requires hundreds of billions of overseas capital inflows every year to balance Britain’s books. According to McGeever, central bank demand for sterling reserves are a vital and stable source of these inflows. He went on to report that the amount the UK needs to attract in order to balance its books is around £100 billion a year.

S&P’s fellow ratings agency Moody’s were credited by McGeever as warning about the danger of ‘substantial and persistent‘ capital outflows, and how this would raise serious doubts about the pound’s reserve status.

McGeever also quoted Brad Setser, a senior fellow at the Council on Foreign Relations and former economist at the U.S. treasury, as saying that a fall in reserve share to 3% would be sterling ‘punching a little below its weight‘.

August 2018

As no deal Brexit coverage gathered momentum in the press, an article again published by Reuters on sterling’s future as a reserve currency gained next to no attention. This time it was the turn of Bank of America Merrill Lynch (BAML), who made a connection between the UK leaving the EU with no withdrawal agreement and central banks selling the pound in response. BAML estimated that a 1% decline in sterling’s share of international reserves would equate to upwards of £100 billion of selling. This calculation was based on the pound’s average share of 3.6% of reserves since 1995. Should banks re-denominate their holdings in line with this long term average, the theory goes that this would point to over a £100 billion reduction in reserves.

BAML stressed that this potential scenario would be off the back of a no deal exit from the EU. ‘Central bank flows are an important source of flow which could determine whether sterling succumbs to a more protracted current account crisis‘.

December 2018

As demonstrated above, both Jamie McGeever at Reuters and Bank of America Merrill Lynch have touched on the subject of Britain’s current account deficit. Latest figures released in December showed that the deficit in the third quarter of 2018 was the highest in two years at £ – 26.5 billion (4.9% of GDP).

When you look at how this was interpreted within the financial media, the link back to sterling’s position as a reserve currency – although not raised directly – lingers in the background. The current account deficit has not only called into question its sustainability, but also whether foreign investors will continue to finance the deficit to the same level by purchasing UK assets after Brexit.

Other noteworthy data released at the same time as the current account numbers included a cut in investment by firms of 1.1% from July to September. This represented three consecutive quarters of cuts, the first time this has occurred since 2008-2009. Households were shown as net borrowers for the eighth straight quarter – the biggest stretch since the 1980s. Lastly, the UK’s household savings fell to 3.8%, the lowest on record.

Conclusions

Looking back on the EU referendum of 2016, my perspective is that the depreciation of sterling in the aftermath cannot be construed as a crisis. Before the result was confirmed, the pound was trading as high as $1.50. Once the reality of the leave vote had dawned, an initial sharp drop of 8% was followed by further declines leading to a low of $1.19 recorded in January 2017. In seven months, sterling had shed as much as 20% of its value (for a limited time at least).

The reason why this is not befitting of a crisis is due to global reserves of sterling remaining consistent throughout the period. Indeed, international reserves of the pound grew in 2018 amidst the rising uncertainty of the Brexit withdrawal process.

At no stage so far have the Bank of England acted to defend the currency from speculators or central banks adapting their compositions. Their initial reaction post referendum was to cut interest rates by 0.25% and expand quantitative easing by £60 billion.

Fifteen months later, with inflation running at over 3% and the value of sterling remaining suppressed, the BOE raised interest rates for the first time in a decade. They followed this up with another quarter point hike in August 2018.

It is logical to think that the impact of a ‘hard‘ Brexit on sterling would precipitate a far steeper decline than witnessed three years ago. Consider that the fall witnessed then was simply off the back of a referendum result. Nothing material had changed in the relationship between the UK and EU.

I believe it is also logical to surmise that in response to a renewed depreciation, not only would inflation pick up once more, but the Bank of England would defy conventional wisdom and raise interest rates. The bank themselves have indicated that the most likely ramifications of a no deal Brexit would be inflationary. They continue to state publicly that the response to such a scenario would likely be to tighten rather than loosen monetary policy.

However, this does not account for what would happen to global reserves of sterling. Historically, exchange rate crises have seen a depletion in reserves of the pound. Whereas inflationary pressures take time to feed through the system, a run on sterling can materialise in a matter of minutes. Therefore, it is conceivable that the Bank of England could raise interest rates in response to try and stabilise the currency, a measure entirely separate to their mandate of 2% inflation.

Allied to this measure would likely see the BOE convert foreign currency holdings into sterling to counteract international holders dumping the pound.

As documented in part one, the BOE hold close to $150 billion in foreign currency total reserves. Total reserve assets amount to around $180 billion. The majority of these assets are denominated in dollars and euros.

How sustained any selling could be is impossible to gauge at this stage, as is the scale of damage which may be inflicted on sterling reserves.

If warnings issued by Standard and Poor’s and Bank of America Merrill Lynch are taken at face value, the pound is in danger of diminishing to the level of no longer being a global reserve currency should a ‘disorderly‘ Brexit happen. Only if this does occur would we be able to assess the validity of their warnings.

Anyone who regularly follows communications emanating from national central banks, the IMF and the Bank for International Settlements will have seen a developing narrative of ‘money in the digital age‘ and how currencies in future could be provided. The combination of a possible ‘hard‘ Brexit and an escalation in the ‘trade war‘ between the United States and China may not only put sterling at risk, but also the role of the dollar as world reserve currency. Brexit is one strand of what I have suspected for some time is an attempt by globalists (think the IMF and the BIS) to administer institutional reforms in the manner of a currency framework, which would mean a realignment in currency compositions with the IMF’s Special Drawing Rights part of this process.

As ever, to achieve this scale of reform globalists would require sustained crises events to distract away from what are long held intentions. Will Brexit and actions stemming from the Trump administration prove to be to their benefit? 2019 will surely begin to answer that question.

via ZeroHedge News https://ift.tt/2Cg6FQq Tyler Durden

Yellow Vests Ransack Masonic Lodge 

A group of Yellow Vest protesters ransacked a Masonic lodge in the French village of Tarbes during the 17th straight weekend of anti-government demonstrations, according to La Dépêche

After around 450 protesters gathered in Tarbes, a small group split off around midnight – reportedly shouting “We’re going to be freemasons!” – as they threw rocks at the lodge and broke down the door of the secretive organization’s meeting place. 

The group flipped over furniture and generally made a mess, however it does not appear they defaced any of the lodge’s wall hangings.

Four ceremonial swords were stolen, however they were later returned. 

In a statement, the Grand Lodge of France condemned the “unspeakable acts that are part of a context of surreptitious threats and hate speech against Freemasons.”

French interior minister Christophe Castaner reacted over Twitter on Sunday, writing: “After the Jews, the Freemasons … When stupidity competes with intolerance the worst.”

via ZeroHedge News https://ift.tt/2Jak9mS Tyler Durden