European Euphoric Expansion Caption Contest

Ukraine’s President Petro Poroshenko (C) poses with European Commission President Jose Manuel Barroso (L) and European Council President Herman Van Rompuy (R) at the EU Council in Brussels June 27, 2014 following the singing of Ukraine’s trade agreement with EU. Euphoria ensues.

Incidentally, those curious to learn more about Poroshenko are urged to read “Hillary Clinton, NATO, Yanukovich, Uranium: What Wiki-Leaked Cables Reveal About Ukraine’s New President

Photo credit: Reuters

via Zero Hedge Tyler Durden

Frontrunning: June 27

  • Yellen Spending Recipe Lacking Key Ingredient: Bigger Wage Gains (BBG)
  • Ukraine signs trade agreement with EU, draws Russian threat (Reuters)
  • GM Documents Show Senior Executive Had Role in Switch (WSJ)
  • Australian Report Postulates Malaysia Airlines Flight 370 Lost Oxygen (WSJ)
  • World’s Biggest Debt Load Lures Distressed Funds to China  (BBG)
  • GPIF Rushing Into Riskier Assets Before Ready, Okina Says (BBG)
  • Japan Prices Rise Most Since ’82 on Tax, Utility Fees (BBG)
  • Italian Debt Swells to Rival Germany as Bond Yields Slide (BBG)
  • China’s Manhattan Project Marred by Ghost Buildings (BBG)
  • BOE’s Carney Says Rates Won’t Rise to Levels Previously Considered Normal (WSJ)
  • Bondholders paying BNP’s fine: BNP Plans to Slash Dividend, Sell Multibillion Euro Bond Next Week (WSJ)
  • Looted Banks Fund Iraq Fighters Eyeing Wealth Al-Qaeda Never Had (BBG)
  • Fastest-Growing Metro Area in U.S. Has No Crime or Kids (BBG)


Overnight Media Digest


** The German government on Thursday said it would end a contract with Verizon Communications Inc because of concerns about network security, one of the most concrete signs yet that disclosures about U.S. spying were hurting American technology companies overseas. (

** Chinese Internet giant Alibaba Group Holding Ltd said it would list its American depositary shares on the New York Stock Exchange under the symbol “BABA.” (

** GoPro Inc’s shares rose 31 percent in their stock-market debut, showing the promise of consumer-electronics companies. But skepticism remained about the video-camera maker’s longer-term prospects. (

** Federal prosecutors are issuing grand jury subpoenas in connection with General Motors Co’s years-long delay in responding to a deadly defect, as new documents raise questions about the auto maker’s assessment of which employees were at fault. (

** Molson Coors Brewing Co Chief Executive Peter Swinburn said he wouldn’t rule out buying SABMiller Plc’s 58 percent stake in their U.S. joint venture MillerCoors if it becomes available. (

** Norfolk Southern Corp has become the first big American freight railroad to require its customers to give the railroad legal protection against damages from fires, explosions or the release of hazardous materials carried in tank cars that don’t meet the rail industry’s latest standards. (

** Foursquare Labs Inc said it would begin charging some businesses for access to its database of restaurants, shops and other local venues, as it tries to make money from information it has gathered from user “check-ins” in the five years since its founding. (

** Alcoa Inc said Thursday it would buy Firth Rixson Ltd from private-equity firm Oak Hill Capital Partners LP for $2.35 billion in cash and $500 million in common shares. Alcoa agreed to pay as much as an additional $150 million, depending on the Sheffield, England, manufacturer’s performance through 2020. (

** Google Inc on Thursday started removing results from its search engine under Europe’s new “right to be forgotten,” implementing a landmark May ruling by the European Union’s top court that gives individuals the right to request removal of results that turn up in Internet searches for their own names. (



Investors have started pulling out of Barclays’ “dark pool” after New York’s top securities regulator sued the British bank.

Berlin ended a contract with Verizon over concerns about the security of its systems in the first sign of serious commercial repercussions in Europe from the Snowden revelations of mass U.S. government spying on its allies.

The Bank of England imposed limits on mortgage borrowing to try to prevent a new credit boom from derailing the economic recovery. The central bank predicted that surging house prices will rise further still.

The United States increased its role in the long-running and bloody civil conflict in Syria after the Obama administration proposed funding to provide U.S. military training and equipment for the Syrian opposition for the first time.

Wall Street banks, including Goldman Sachs and JPMorgan Chase, are seeking to maintain their hold on the business of trading U.S. companies’ debt while boosting liquidity in the $10 trillion market by creating a new trading platform for U.S. corporate bonds.



** Public broadcaster Canadian Broadcasting Corp (CBC) plans to cut up to 20 percent of its staff by 2020, including a sharp reduction over the next year as it transitions to a leaner, mobile-first strategy aimed at keeping costs under control. (

** Elizabeth Dowdeswell, a former undersecretary-general of the United Nations with a long public service career, has been named Ontario’s new lieutenant-governor. (

Reports in the business section:

** An American proposal to hike the fees Canadian truckers pay for agricultural inspections when they cross the U.S. border violates the North American free trade agreement, the Canadian Trucking Alliance said. The industry group says the U.S. Department of Agriculture’s proposed fee increases would harm U.S.-Canada trade as well as the bottom lines of trucking businesses. (


** Former cabinet minister MP Helena Guergis has resumed her long-running and so-far unsuccessful lawsuit against the Conservatives she blames for ending her political career in fallout from the so-called “busty hookers” scandal. (

** For the first time, the Supreme Court of Canada has recognized a First Nation’s title to a specific tract of land – a historic decision with major implications for contentious energy projects such as the Northern Gateway pipeline. Thursday’s 8-0 decision, which overturned an appeal court ruling, will essentially make it easier for First Nations to establish title over lands that were regularly used for hunting, fishing and other activities. (


** Zara retail banner founder Amancio Ortega Gaona is buying into Toronto’s upscale Yorkville commercial district, paying more than a quarter-billion dollars for a 270,000-square-foot mixed retailing and office building. (

** The federal Justice department is taking steps to cut $52.2 million worth of legal services it provides government over the next three years with “two waves” of reforms that will eliminate jobs, change the working relationship with client departments and, it hopes, improve efficiency. The department, often called Canada’s largest law firm, is introducing several changes following a year-long review. (




– Western Securities Co. Ltd said it plans to raise up to 5 billion yuan ($805.28 million) from private share placements to increase the company’s working capital for expansion.

– China Development Bank Corp will establish a housing finance department to support renovation of old and dilapidated housing. The plan was approved by China Banking Regulatory Commission.


– China Telecom plans to sell 100 million mid-and high-end 4G phones to consumers in 2014 after getting licenses for its FDD-LTE technology from the government, the country’s No. 3 telecom provider said. China Telecom has 180 million users.


– Low-cost carriers are set to take off in China as more companies look to cash in on rising passenger numbers to offset rising costs and low profit margins. Budget airlines, which currently account for only 5 percent of the aviation market in China, are expected to post strong growth in the next few years, said an executive from Boeing commercial airplanes.


The Telegraph



Housebuilders, banks and markets were lifted on Thursday after the Bank of England decided against taking draconian steps to cool the housing market.



Barclays shares slumped to their lowest level for 19 months on Thursday after the bank was accused by U.S. authorities of defrauding investors.

The Guardian



Tesco, the UK’s largest supermarket chain, is hoarding land and buildings covering an area big enough to build 15,000 homes, a Guardian analysis has revealed.



Standard Chartered warned that profits will fall this year and said the head of its worst-performing business had gone on a long-term break from the Asia-focused bank.

The Times



Hurricane Energy said it successfully drilled the first exploration well into granite rock beneath the Atlantic waters close to Britain. It said the gusher at its Lancaster field in the West of Shetlands proved that oil could be produced from “fractured basement reservoirs”, describing it as a “game-changer” for the UK.



Glencore has appointed Patrice Merrin, a Canadian mining veteran, as a non-executive director, becoming the last FTSE 100 company to appoint a woman on its board.

The Independent



The internet giant Yahoo is vying to win control of Fullscreen, a media group which creates content for thousands of YouTube channels, amid a land grab for key digital audiences.



The chief executive of the City watchdog is to defer his annual bonus amid an ongoing probe into a briefing it organised which wiped billions of pounds from the value of UK insurers.


Fly On The Wall 7:00 AM Market Snapshot


Domestic economic reports scheduled today include:
U of Mich. consumer sentiment index for June at 9:55–consensus 81.9



AmSurg (AMSG) upgraded to Outperform from Neutral at RW Baird
Brooks Automation (BRKS) upgraded to Buy from Hold at Stifel
H.B. Fuller (FUL) upgraded to Buy from Hold at Deutsche Bank
IPC The Hospitalist Co. (IPCM) upgraded to Outperform from Sector Perform at RBC Capital
Intel (INTC) upgraded to Market Perform from Underperform at Bernstein
Lukoil (LUKOY) upgraded to Overweight from Equal Weight at Barclays
Manitowoc (MTW) upgraded to Hold from Underperform at Jefferies


HollyFrontier (HFC) downgraded to Neutral from Outperform at Credit Suisse
LaSalle Hotel (LHO) downgraded to Hold from Buy at MLV & Co.
Manitowoc (MTW) downgraded to Market Perform from Outperform at BMO Capital
QLT Inc. (QLTI) downgraded to Sector Perform from Outperform at RBC Capital
Sasol (SSL) downgraded to Equal Weight from Overweight at Barclays
VeriSign (VRSN) downgraded to Market Perform from Outperform at Wells Fargo


Actavis (ACT) initiated with a Buy at Canaccord
Aetna (AET) initiated with a Neutral at Sterne Agee
Allscripts (MDRX) initiated with a Hold at Topeka
Ampio (AMPE) initiated with a Buy at Jefferies
Analog Devices (ADI) initiated with a Buy at Sterne Agee
Aviv REIT (AVIV) initiated with a Hold at MLV & Co.
BioMed Realty (BMR) initiated with a Hold at MLV & Co.
Centene (CNC) initiated with a Buy at Sterne Agee
Cerner (CERN) initiated with a Buy at Topeka
Cigna (CI) initiated with a Buy at Sterne Agee
Colfax (CFX) initiated with a Buy at Goldman
Computer Programs (CPSI) initiated with a Buy at Topeka
Datawatch (DWCH) initiated with an Outperform at Imperial Capital
Ecopetrol (EC) initiated with an Underweight at Barclays
Endo (ENDP) initiated with a Buy at Canaccord
Flowserve (FLS) initiated with a Sell at Goldman
Health Net (HNT) initiated with a Buy at Sterne Agee
Humana (HUM) initiated with a Neutral at Sterne Agee
ITT Corp. (ITT) initiated with a Neutral at Goldman
InterXion (INXN) initiated with an Outperform at Raymond James
LTC Properties (LTC) initiated with a Buy at MLV & Co.
Molina Healthcare (MOH) initiated with a Buy at Sterne Agee
Pacira Pharmaceuticals (PCRX) initiated with a Buy at Canaccord
Pentair (PNR) initiated with a Neutral at Goldman
Physicians Realty Trust (DOC) initiated with a Buy at MLV & Co.
Sabra Health Care (SBRA) initiated with a Buy at MLV & Co.
Salix (SLXP) initiated with a Buy at Canaccord
Teva (TEVA) initiated with a Hold at Canaccord
UnitedHealth (UNH) initiated with an Underperform at Sterne Agee
WellCare (WCG) initiated with an Underperform at Sterne Agee


BP (BP), Rosneft signed a $1.5B oil deal. The terms of transaction provide for export deliveries of oil products with possible substitution with oil of up to 12 million tons within 5 years in bulk on a pre-paid basis
Citrix (CTXS) said President and CEO Mark Templeton will not retire as planned
Relational reported an 8.52% stake in Manitowoc (MTW), urges spin-off of food business
Aware (AWRE) announced a $1.75 per share special cash dividend
Nike (NKE) said it is on track to returning China to double digit revenue growth
Bob Evans (BOBE) says Sandell ‘spurned’ efforts to settle proxy fight


Companies that beat consensus earnings expectations last night and today include:
AZZ Inc. (AZZ), Progress Software (PRGS), Nike (NKE)

Companies that missed consensus earnings expectations include:
Franklin Covey (FC)

DuPont (DD) sees Q2 EPS ‘moderately below’ $1.28, consensus $1.46
DuPont (DD) lowers FY14 EPS outlook to $4.00-$4.10, consensus $4.30
Nike (NKE) sees FY15 revenue growth at high single digit rate, consensus $30.09B
Progress Software (PRGS) sees FY14 EPS $1.38-$1.45, consensus $1.38
Progress Software (PRGS) sees Q3 EPS 32c-35c, consensus 33c


GM (GM) documents show senior executive had role in ignition switch, WSJ reports (DLPH)
General Motors (GM) recalling 29K 2013-2014 Chevrolet Cruze vehicles due to airbag issue, CNBC reports
BNP Paribas (BNPQY) expected to plead guilty, pay $8.9B fine, NY Times reports
eBay’s (EBAY) Magneto killing Go product, Re/code reports
Alcoa (AA) acquisition should push stock higher, Barron’s says
A Seeking Alpha contributor, who is short ISIS Pharmaceuticals (ISIS), said that the poor long-term safety and tolerability of Kynamro may also effect the company’s entire second generation antisense pipeline


AmSurg (AMSG) 8.5M share Secondary priced at $45.00
Descartes Systems (DSGX) 9.5M share Secondary priced at $13.50
Karyopharm (KPTI) 2.65M share Secondary priced at $42.50
MOKO Social Media (MOKO) 1.1M share IPO priced at $7.50
Michaels Stores (MIK) 27.8M share IPO priced at $17.00
Silvercrest Asset (SAMG) files to sell 6.72M shares for holders
Teekay Offshore Partners (TOO) files to sell $500M of common units

via Zero Hedge Tyler Durden

Japanese Economic Collapse Dislodges USDJPY Tractor Beam, Pushes Futures Lower

Abe’s honeymoon is over. Following nearly two years of having free reign to crush the Japanese economy with his idiotic monetary and fiscal policies – but, but the Nikkei is up – the market may have finally pulled its head out of its, well, sand, and after last night’s abysmal economic data from Japan which saw not only the highest (cost-push) inflation rate since 1982, in everything but wages (hence, zero demand-pull) – after wages dropped for 23 consecutive months, disposable income imploded – but a total collapse in household spending, the USDJPY  appears to have finally been dislodged from its rigged resting place just around 102. As a result the 50 pip overnight drop to 101.4 was the biggest drop in over a month. And since the Nikkei is nothing but the USDJPY (same for the S&P), Japan stocks tumbled 1.4%, their biggest drop in weeks, as suddenly the days of the grand Keynesian ninja out of Tokyo appear numbered. Unless Nomura manages to stabilize USDJPY and push it higher, look for the USDJPY to slide back to double digits in the coming weeks.

European equities sit in minor positive territory, as core indices look to trim some of the losses of the week, but remain down 1.0-1.5% lower since Monday’s open. The periphery is slightly outperforming the core, as a series of positive broker moves for small- and mid-cap stocks lifts the FTSE-MIB and IBEX-35. Financials are faring better than yesterday’s poor performance, as the weight in Barclays and Standard Chartered after yesterday’s sell-off abates

The tone in overnight markets is soft with weakness across credit and equities. In equities, there is a clear risk-off tone led by the HSCEI (-0.8%). In credit, the Australian and Asian IG indices are quoted around 3bp wider and Chinese USD investment grade bonds are trading more than 5bp wider. USD weakness is a major theme in Asia as the impact of Bullard’s comments and US personal spending data washes through Asia. USDJPY is down 0.4%, taking the Nikkei (-1.05%) down with it. The other beneficiaries of the stronger dollar are KRW (+0.26%), MYR (+0.3%) and the AUD (+0.25%). Japan reported May CPI today (+3.7% YoY) which was in line with market consensus, but is the highest level since 1991. Adding to the weak sentiment, Bloomberg reports that another Chinese property developer (Yuehue) is facing funding pressure and has halted construction at one of its mixed use developments in Shanghai.

Commodities are mixed with natural gas, platinum outperforming, while gold, silver decline. French, German bond yields rise.

The only thing on the US docket is the UMich confidence index – the third confidence reading of the week, which we expect to track the Conference Board and soar, while ignoring the Gallup print, which had confidence tumble to the lowest in 2014. After all, if one is manipulating and fabricating economic “data”, may as well go all in.

Market Wrap

  • S&P 500 futures down 0.2% to 1944.9
  • Stoxx 600 up 0.1% to 342.1
  • US 10Yr yield down 1bps to 2.52%
  • German 10Yr yield up 1bps to 1.25%
  • MSCI Asia Pacific down 0.3% to 145.1
  • Gold spot down 0.1% to $1315.1/oz

Bulletin headline summary from Bloomberg and Ransquawk

  • Treasuries gain, 10Y and 30Y yields headed for biggest weekly declines since five days ended May 16 amid increasing Middle East violence and concern over Ukraine, weaker than forecast U.S. economic data.
  • The Fed is finally succeeding in their efforts to generate higher inflation. Now they must do the same for wages to prevent U.S. households from getting squeezed
  • Japan’s consumer prices climbed at the fastest pace in 32 years, boosted by higher utility charges and a sales-tax increase that contributed to the biggest slide in household spending since the March 2011 earthquake
  • U.K. Prime Minister David Cameron sharpened his attacks on Jean-Claude Juncker as unsuitable to run the EC, mounting a final push to convince fellow leaders in Europe to halt the former Luxembourg premier’s appointment
  • Spain will increase cash advances to regions by almost EUR3.9b, will create a tax on bank deposits, Budget Minister Cristobal Montoro told reporters in Madrid
  • U.S. Secretary of State John Kerry’s Mideast trip this week has been a lesson in the limits of U.S. power as Iraq PM Maliki rejected calls to step aside and the president of the semi-autonomous Kurdistan region told CNN that the time may have come to break with Baghdad and pursue independence
  • About 50,000 Christians have fled from towns near Mosul in the past two days, amid fighting in the region between Iraqi security forces and an al-Qaeda splinter group, the city’s senior cleric said 
  • Obama asked Congress to approve $500m to arm and train“appropriately vetted elements of the moderate Syrian armed opposition” as the administration seeks to rein in the al-Qaeda splinter group whose fight has spilled into Iraq
  • The wave of children showing up on the U.S. southern border has caught Obama between his allies who want him to do more on immigration and critics who blame him for causing the sudden surge
  • A cease-fire called by Ukraine’s government in its fight against rebels in the east expires today, as European Union leaders prepare to sign a pact tying Ukraine closer to the bloc with President Petro Poroshenko
  • North Korean leader Kim Jong Un oversaw the test firing of new “ultra-precision” guided missiles, according to the official Korean Central News Agency
  • Sovereign yields mixed. EU peripheral spreads wider. Asian stocks mostly lower, European stocks gain. U.S. stock futures decline. WTI crude unchanged, gold falls, copper rises

US Event Calendar

  • 9:55am: UofMich Consumer Sentiment, June final, est. 82 (prior 81.2)


  • 11 out of 19 Stoxx 600 sectors rise; real estate outperforms, media underperforms
  • 50.7% of Stoxx 600 members gain, 47.2% decline
  • Eurostoxx 50 +0.1%, FTSE 100 +0.1%, CAC 40 +0.2%, DAX +0.2%, IBEX +0.1%, FTSEMIB -0.1%, SMI +0.1%


  • Asian stocks fall with the Nikkei underforming
  • MSCI Asia Pacific down 0.3% to 145.1
  • Nikkei 225 down 1.4%, Hang Seng up 0.1%, Kospi down 0.3%, Shanghai Composite down 0.1%, ASX down 0.4%, Sensex up 0.2%
  • 1 out of 10 sectors rise with consumer, industrials, infotech underperforming


Asia-Pacific equities slumped overnight, with the Nikkei 225 falling 1.4% on a sharp decline in household spending data (-8% vs. exp. -2%) as April’s sales tax hike had a far larger impact that analysts initially expected. This, allied with the highest inflation rate since 1982 giving the BoJ less room to ease policy strengthened the JPY beyond the 200DMA against the USD – weighing on exporters. EUROPE German regional CPIs have confirmed expectations of a mild rise in CPI inflation over June, prepping for the national number to follow suit at 1300BST/0700CDT. Nonetheless, a sustained uptick in CPI is yet to be confirmed as higher crude prices suggest cost-push as opposed to demand-pull inflation. UK GDP was revised slightly lower by 0.1ppts to 3.0%, however total business investment climbed at the fastest rate in two years, suggesting the UK recovery is becoming more broad-based. BoE’s Carney was back on the wires, reiterating that markets can expect a rate hike from the BoE ‘either this year or next’, but providing little new information.

Prelim Barclays month end extensions show Pan-Euro Agg at +0.09y (Prev. +0.04y)


Newsflow out of the US remains light with attention now turning to the University of Michigan data due at 1455BST/0855CDT Exp. 82 vs. Prev. 81.2.

Prelim Barclays month end extensions show US Treasury at +0.08y (Prev. +0.12y)


European equities sit in minor positive territory, as core indices look to trim some of the losses of the week, but remain down 1.0-1.5% lower since Monday’s open. The periphery is slightly outperforming the core, as a series of positive broker moves for small- and mid-cap stocks lifts the FTSE-MIB and IBEX-35. Financials are faring better than yesterday’s poor performance, as the weight in Barclays and Standard Chartered after yesterday’s sell-off abates


NZD/USD briefly touched the highest level since August 2011 following the largest trade surplus in 20 years, keeping the RBNZ on track to continue their rate-tightening cycle in 2014. Nonetheless, a spell of profit-taking has brought NZD off the best levels ahead of the US crossover.


Brent crude futures remain on track for their worst weekly performance since March as the gradual process of Libya bringing their production back online and the belief that ISIS action in Iraq will not affect Basra’s oil throughput. Elsewhere, gold’s recent resilience ebbed somewhat overnight, with physical demand remaining lacklustre in Asia as prices hold above USD 1,300/oz, however the week’s poor performance in equities has kept a floor under prices heading into the weekend.

* * *

DB’s Jim Reid concludes the overnight Summary

Those looking for volatility got a brief taste of that with the S&P 500’s drop of about 0.8% almost immediately after the opening bell yesterday. The index recovered to close at -0.12% on the day but many were struggling to explain what caused the brief dip. There was talk of a big month-end portfolio reallocation but some also highlighted the hawkish comments from St Louis Fed President Bullard. Bullard remarked that a first rate hike at the end of Q1 2015 would be appropriate and that it has become “more and more difficult to argue that credit markets remain in a state of disrepair, and thus harder and harder to justify continued low real rates”. Bullard also said that he thought the market, and perhaps also the FOMC, had not fully grasped how close the Fed is to achieving its mandate, in his opinion. As we’ve noted in the past, this is a turnaround since the June 2013 FOMC when Bullard dissented to policy because he thought that “a more prudent approach would be to wait for more tangible signs that the economy was strengthening and inflation was on a path to return toward target”.

The dip in equities also came just after the release of the US personal income and spending report. Consumer spending grew at +0.2%, which was lower than the +0.4% expected, while the savings rate rose to an eight month high. Partly because of this, a number of Street forecasters downgraded their expectations for Q2 GDP growth, which comes a day after markets digested the sharp downgrade to Q1 GDP growth. In terms of the inflation indicators, the headline and core PCE deflators both rose +0.2% in the month. In year-on-year terms, the PCE deflator rose 1.8% (vs 1.6% in April) and the core PCE posted a gain of 1.5% (1.4% in May). We wrote yesterday that the PCE data would feed the next hawks vs doves debate and it appeared that the data leant itself more to the doves, though the PCE indices came largely in line with expectations. UST yields rallied 4bp following the data and 10yr closed 3bp lower on the day at 2.53%. The combination of relatively benign PCE data and lower UST yields created a fairly supportive environment for LATAM EM sovereign cash which tightened 3-5bp in yield.

The tone in overnight markets is soft with weakness across credit and equities. In equities, there is a clear risk-off tone led by the HSCEI (-0.8%). In credit, the Australian and Asian IG indices are quoted around 3bp wider and Chinese USD investment grade bonds are trading more than 5bp wider. USD weakness is a major theme in Asia as the impact of Bullard’s comments and US personal spending data washes through Asia. USDJPY is down 0.4%, taking the Nikkei (-1.05%) down with it. The other beneficiaries of the stronger dollar are KRW (+0.26%), MYR (+0.3%) and the AUD (+0.25%). Japan reported May CPI today (+3.7% YoY) which was in line with market consensus, but is the highest level since 1991. Adding to the weak sentiment, Bloomberg reports that another Chinese property developer (Yuehue) is facing funding pressure and has halted construction at one of its mixed use developments in Shanghai.

In Europe, we should note the underperformance of bank risk yesterday. Banks were (-1.05%) were one of the worst performing sectors in the Stoxx600 (-0.02%). This was largely driven by the headlines surrounding Barclays, with the bank’s senior bonds widening by about 5bp yesterday and its stock losing 6.5%. This dragged the iTraxx Senior financials credit index wider by around 3bp and weighing on iTraxx Main (+1bp) in the process. There was more detail on potential restrictions that may imposed by the US Dept of Justice on BNP Paribas. Bloomberg reported that in addition to fines, the bank could face restrictions on the ability to clear US dollar transactions for as long as a year. However the bans might only affect specific business lines, such as oil and gas transactions, and certain offices, such as Geneva, according to the Bloomberg article, therefore limiting the risk of wider market disruptions. Beyond the broader weak sentiment, core European bonds were supported by a report that the ECB may not have reached the lower bound on key rates, but that the central bank will wait at least 6 months to assess the impact of its latest policy measures.

Elsewhere on the micro side, Lennar Corp the largest US homebuilder by market cap reported earnings which beat Street estimates and it was paired with some fairly upbeat housing market commentary. The company said that the homebuilding recovery was continuing at a “slow and steady pace” and fundamentals are being driven by high affordability while demand continues to outstrip supply. The company’s orderbook climbed 8% in Q2 in terms of volume and 21% in terms of value. After the market closed, Nike reported Q4 EPS of 0.78 vs 0.75 expected and there were some positive trends in the company’s North American sales.

Looking at the day ahead, it will be worth watching the preliminary June CPI data for Germany and Spain in the context of the ECB’s recent policy announcements. According to Bloomberg Ukraine’s President Poroshenko is expected to sign a controversial free trade agreement with the EU. The final estimates of French and UK GDP are due today. The ONS is expected to revise its original 0.8% growth estimate up to around 0.9%, after recent construction data turned out better than expected. Across the Atlantic, a light data docket with the University of Michigan confidence index being the only data point of focus.


via Zero Hedge Tyler Durden

Weedless in Seattle: Washington’s Looming Pot Shortage

On July 8,
six months after Colorado retailers began selling marijuana to
recreational consumers, Washington’s state-licensed pot stores are
supposed to start opening. But as I explain in my latest
Forbes column, their shelves may not be stocked for
long. Here is how the how the column begins:

Washington’s state-licensed pot stores are expected to start
opening next month, but they won’t have much to sell. A slow state
licensing process for marijuana producers, combined with the
difficulty of obtaining local approval for grow operations, will
result in shortages that are apt to be more severe than
those seen
in Colorado
 after recreational sales began there in
January. The result could be prices almost twice as high as those
charged by medical marijuana dispensaries and black-market

The Washington State Liquor Control Board (LCB)plans to
award 20 or so retail licenses on July 7, meaning the first stores
could open as soon as July 8. Eventually there are supposed to be
334 outlets across the state, although that plan looks doubtful in
light of temporary
or permanent bans
 by about 90 local governments.
Meanwhile, as of last Tuesday, the LCB has awarded just
62 marijuana production licenses; more than 2,500 applications from
would-be growers are still pending.

Read the whole thing

from Hit & Run

Brickbat: Bible Belt

Bertram Dahl says city
officials in Beebe, Arkansas, originally supported his plans to
open a church in a building behind his home. Then they found out it
was a pagan
, not a Christian one, and he got a cease-and-desist
letter from the city code officer. The town’s mayor refused to talk
to a local TV station about Dahl’s plans, and when a reporter tried
to talk to Dahl’s alderman, the alderman responded, “That man’s God
isn’t my God.”

from Hit & Run

Oregonians Will Decide Whether to Legalize Marijuana This Year

the supporters of an Oregon initiative aimed at legalizing
marijuana for recreational use
signatures from 145,710 voters—”more than enough,”
according to the campaign, to qualify the
measure for the ballot this November. That makes Oregon the second
state, after
, that could follow the example set by Colorado and
Washington in 2012 by legalizing marijuana this year.

Oregon initiative
, known as the Control, Regulation, and
Taxation of Marijuana and Industrial Hemp Act, combines elements of
Amendment 64
and Washington’s I-502.
Like both of those initiatives, it would allow adults 21 and older
to purchase and possess in public up to an ounce of marijuana at a
time. Like Amendment 64, it allows nonprofit transfers of up to an

The Oregon measure bans marijuana consumption in any
“public place,” defined as “a place to which the general public has
access.” By comparison, Colorado prohibits “consumption that is
conducted openly and publicly,” while Washington forbids
consumption “in view of the general public,” both of which seem to
cover less ground. Like Colorado (and unlike Washington), Oregon’s
initiative allows home cultivation, but with stricter limits: up to
four plants and eight ounces of usable marijuana per household,
compared to six plants and whatever amount they produce per adult
in Colorado.

The Oregon initiative takes a different approach to taxation
than Colorado or Washington, both of which imposed levies based on
a percentage of wholesale and retail prices. Oregon’s initiative
instead would impose taxes on cannabusinesses based on weight: $35
per ounce of buds and $10 per ounce of leaves, plus $5 per immature

One distinct advantage of the Oregon initiative is that it
would not change the standard for driving under the influence of
intoxicants (DUII, a.k.a. DUID). Under current law, convicting
someone of DUII
showing that he was “affected to a noticeable degree” by
marijuana or another controlled substance,
on the “totality of the circumstances.” By contrast,
Washington’s current rule, established by I-502, says any driver
whose blood contains five or more nanograms of THC per milliliter
is automatically guilty of DUID, a standard that in effect

driving by many daily consumers, including patients who use
marijuana as a medicine, even when they are not actually impaired.
Amendment 64 did not directly change Colorado’s DUID law, but after
it passed the state legislature approved a law that created a
” of DUID at five nanograms, which in practice
may have the same impact as Washington’s law. Oregon’s initiative
instead instructs the state Liquor Control Commission, which as in
Washington would be charged with regulating the newly legal
cannabis industry, to study “the influence of marijuana on the
ability of a person to drive a vehicle” and advise the legislature
on whether changing Oregon’s DUII rule is appropriate.

A previous Oregon legalization initiative failed in 2012,
when 53 percent of voters said no to Measure
. A recent
Survey USA poll
put support for legalization in Oregon at 51
percent, with 41 percent opposed and 8 percent undecided. In
Alaska, where voters will consider a legalization measure in
August, a March poll commissioned by the Alaska House Majority
Caucus found that 52 percent of voters favored it.

from Hit & Run

“My Credit Score Is Terrible…I’m Surprised They’d Give Me So Much [Credit]”

"Even though [those borrowers] could be considered subprime, they're still creditworthy," is the deja-vu all over again message from the Financial Services Roundtable, who proudly crow, they are "starting to see an environment where issuers are feeling more comfortable to extend credit." How great is that? What could go wrong? One credit union exec notes, "lenders in general have really saturated the higher-credit-quality market, so it is only natural that as they look for growth opportunities, they expand downward," and sure enough, as one new borrower exclaimed, "my credit score is probably terrible," adding "I was surprised they'd give so much." Exceptional America is back…


Sure enough Americans are slamming themselves into deeper and deeper debt – at lower and lower levels of credit quality – to attempt to maintain their exuberant iPad-eating lifestyles. As WSJ reports, Credit-card lenders are courting riskier borrowers more aggressively than they have since the financial crisis in a bid to jolt revenue in a period of sluggish growth and tight regulation.

Banks and other lenders issued 3.7 million credit cards to so-called subprime borrowers during the first quarter, a 39% jump from a year earlier and the most since 2008, according to data provided exclusively to The Wall Street Journal.



About one-third of all credit cards issued in that period were to subprime customers, the biggest share in six years, according to Equifax.


"Lenders in general have really saturated the higher-credit-quality market, so it is only natural that as they look for growth opportunities, they expand downward," said Randy Hopper, vice president of consumer lending at Navy Federal Credit Union, an institution based in Vienna, Va., that is the largest credit union in the U.S.

With banks sufferening from a collapse in trading revenues (thanks to the Fed), they are desparate for any sources of revenue and subprime borrowers are especially attractive to banks because they tend to pay higher interest rates and are more profitable as long as they pay their bills (agains in a perfect virtuous circle as the subprimes are not benefitting from the Fed's reverse-robin-hood poilicies)…

The average rate for such customers was 21.1% in the first quarter, up from 20.2% a year earlier, according to research firm In contrast, the highest-quality borrowers paid 12.9% on average in the first quarter, virtually unchanged from a year earlier.


Subprime borrowers are typically defined as those with FICO or Equifax Risk credit scores below 660 on scales that top out at 850. Such borrowers often have missed payments on debt, suffered foreclosures, filed for bankruptcy protection or have no credit history.

Even the borrowers themselves are stunned at banks willingness to blow money out the wazoo…

Stephanie Sannar said she and her husband, Toby, of Colorado Springs, Colo., sold their home for less than they owed on their mortgage in 2012. Mrs. Sannar, 42 years old, an emergency-room nurse, said her credit score fell to about 650 following this process since the mortgage was in her name.


Still, the couple has been receiving many credit-card offers in the mail, and Mrs. Sannar said she recently signed up for a Citigroup credit card with a credit limit of about $15,000.


"I was surprised they'd give so much," said Mr. Sannar. "The credit-card offers come every week."



Adam Wasdin, 31, of Raynham, Mass., said he has been behind on payments for about a year on four of his private student loans. He said he was surprised to see credit-card offers suddenly arrive in the mail from lenders including Bank of America and J.P. Morgan Chase over the last six months.


Mr. Wasdin, a distribution driver for a local newspaper in the area, said he hasn't signed up for any of the offers and is sticking with his debit card.


"It went from nothing to offers maybe once a month," he said. Mr. Wasdin is reluctant to check his credit score because he figures it is low given his missed payments.


"My credit score is probably terrible," he said.

And market participants will declare based on historical performance how this is sustainable…

Charge-offs, or losses from unpaid credit-card debt that banks have declared uncollectable, fell 13% to $27.7 billion in 2013 from a year earlier, according to data from the Federal Reserve compiled by At the peak in 2009, charge-offs totaled $85.4 billion.

We are not sure how useful it is to use 2013 default rates to justify lending on a revolving basis in 2014? How did that work in 2007/8? Maybe.. just maybem, th ebanks just hit their limit…

It isn't clear how long banks will keep wooing subprime borrowers. The Fed's April survey of senior loan officers found that lenders anticipate growth in outstanding loans to their most creditworthy customers this year, but only "a smaller net fraction" of banks expect more growth in loans to nonprime borrowers.

Though we suspect not…

"You're starting to see an environment where issuers are feeling more comfortable to extend credit," said Jason Kratovil, vice president of government affairs for payments at the Washington-based Financial Services Roundtable, which represents financial-services institutions. "Even though [those borrowers] could be considered subprime, they're still creditworthy."

Onward and upward leverage… what could go wrong.

via Zero Hedge Tyler Durden

When The Herd Turns

“In economics, [the mainstream] rely on experts who don’t know what they are talking about,” explains Professor Steve Keen in this brief but compelling documentary discussing ‘when the herd turns’. “Herd behavior is a fundamental aspect of capitalism,” Keen chides, but it is left our of conventional economic theory “because they don’t believe it;” instead having faith that investors are all “rational individuals” (e.g. willing to pay 112x for OpenTable), which he notes, means “[economists] can’t foresee any crisis in the future.” The reality is – “we do have herd behavior” and people will follow the herd off a cliff unless they are aware its going to happen. “Contrary to herd wisdom, financial crisis are not unpredictable black swans…


via Zero Hedge Tyler Durden

White House Embroiled in Scandal Turns to Senate Majority Leader Who Went After President In His Party

throwback thursdayHoward Baker died yesterday at the age of 88. He
was Tennessee’s first Republican elected to the U.S. Senate since
Reconstruction, eventually rising to the position of Senate
Majority Leader. He left in 1985 but returned to Washington in
1987, as reported at the time by TIME Magazine:

The circumstances were similar: the White House was embroiled in
scandal and a presidency tottered on the brink of disaster. At the
Senate Watergate Committee hearings during the summer of 1973, an
earnest Republican lawmaker from Tennessee became famous when he
framed the essential question concerning Richard Nixon: “What did
the President know, and when did he know it?” The answer led to
Nixon’s downfall.

Nearly 14 years later, another White House crisis is thrusting
Howard Baker back into the headlines. This time, however, he may be
the best hope to rescue a floundering President.

The White House has found itself once again—and perhaps has been
perpetually since Watergate—“embroiled in scandal” with a
presidency “totter[ing] on the brink of disaster.” Who are the
Democrats challenging President Obama on scandals ranging from the
IRS to Benghazi to the NSA?
Ron Wyden and Mark Udall
come to mind, at least on the NSA. The
Democrats speaking up about the IRS—now that that agency’s excuses are tough to
swallow even for some die hard partisans—happen to be up
for re-election
in November. And what Democrat in the Senate
could you imagine President Obama calling on to rescue his
presidency, rather than digging in further on the same tired
partisan rhetoric of the last generation?

from Hit & Run