Here We Go: Wal-Mart Cuts Guidance, Blames Foodstamps, Weather

That didn’t take long. Moments ago the world’s largest retailer (sorry AMZN) WoeMart (sic) just confirmed what everyone who is not an economist knows – the US consumer is barely alive. The reasons: cut in foodstamps, and of course, the weather: ““Despite a holiday season that delivered positive comps, two factors contributed to lower comp sales performance for the 14-week period for Walmart U.S. First, the sales impact from the reduction in SNAP (the U.S. government Supplemental Nutrition Assistance Program) benefits that went into effect Nov. 1 is greater than we expected. And, second, eight named winter storms resulted in store closures that impacted traffic throughout the quarter.

And all this just half an hour before we learn just how little savings US consumers have left with which to provide the same kind of one-time boost we saw in early Q4 before it all went to hell.

From the release:

The company provided fourth quarter diluted earnings per share from continuing operations (EPS) guidance of $1.50 to $1.60, which included a $0.10 per share impact from two discrete items, which resulted in an underlying1 EPS guidance range of $1.60 to $1.70. For the full year, the company expected to deliver EPS of $5.01 to $5.11 and accounting for the $0.10 of discrete items, the range for underlying EPS was between $5.11 and $5.21.

 

We now anticipate that our underlying EPS for the fourth quarter of fiscal 2014 will be at or slightly below the low end of our range of $1.60 to $1.70,” said Charles Holley, Wal-Mart Stores, Inc. chief financial officer. “For the full year, we expect underlying EPS to be at or slightly below the low end of our range of $5.11 to $5.21.

 

“Today, we are providing updated information on previously disclosed items, as well as new additional discrete items that were not anticipated when we provided our fourth quarter and full year guidance. These discrete items will impact EPS results for the fourth quarter and the year,” said Holley.

It wasn’t just the weather though. The company also listed the following factors:

Detailed explanation on discrete items:

  • Brazil and China store closures: Approximately 50 underperforming units between these two markets were closed.
  • India transaction: Walmart terminated the franchise and supply agreements related to retail stores. The estimated charge for this transaction is now approximately $0.05 per share versus the previous estimate of $0.04 per share.
  • Brazil non-income tax contingencies: The company is subject to tax examinations for non-income taxes in Brazil. A number of these examinations are ongoing, and in certain cases, have resulted in assessments from taxing authorities, some of which we are currently contesting. As part of the company’s standard review process and as a result of changing conditions and circumstances, the company expects to record additional liabilities related to these loss contingencies.
  • Brazil employment claim contingencies: We expect to record additional charges related to employment claims. Walmart Brazil has experienced a significant increase in employment claims in recent years as a result of company efforts to improve productivity and reduce costs. The company has performed a detailed review of potential liabilities related to these claims, as well as a review of our historical processes and practices related to accounting for court deposits required to litigate such claims. As a result of this review, the company expects to record charges to increase our liabilities and account for settlements of historical employment claims.
  • China store lease expense charges: We identified a historical lease accounting practice that did not conform to our U.S. GAAP-based global policies. As a result, the company expects to record a charge to conform to this accounting practice.
  • Sam’s Club U.S restructuring and club closure.: Sam’s Club is implementing a new in-club leadership and staff structure to better align U.S. club teams with the sales volume of each club, and expects to record a charge for severance-related costs. Additionally, one club is being closed.

Well, there’s always a reason.


    



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

Frontrunning: January 31

  • Even Obama’s fans has turning on him: “The Decline and Fall of ‘Hope and Change‘”
  • European Stocks Drop, Head for Worst January Since 2009 (BBG)
  • Euro-Area Inflation at 0.7% Builds Rate Pressure on ECB (BBG)
  • Japan’s Inflation Accelerates as Abe Seeks Wage Gains (BBG)
  • Unpossible – this is the USSA: Detroit Debt Proposal Favors Pension Funds (WSJ)
  • Keystone Report Said Likely to Disappoint Pipeline Foes (BBG)
  • YHOO still pretending someone cares about it: Yahoo says detected hacking attempt on email accounts (Reuters)
  • How Google’s Costly Motorola Maneuver May Pay Off (WSJ)
  • Mexico Surpassing Japan as No. 2 Auto Exporter to U.S.  (BBG)
  • Microsoft Seen Testing Insider Nadella’s Will to Revamp (BBG)
  • Top Obama aide predicts drama-free U.S. debt ceiling increase (Reuters)
  • The Dong fallout: Danish PM Blindsided as Ministers Quit in Goldman Spat (BBG)
  • U.S. Says Syria Delaying Chemical Disarmament (WSJ)
  • Emerging market funds lose $9 billion in past week (Reuters)

 

Overnight Media Digest

WSJ

* Until this week, European emerging markets had largely dodged the vicious selloff that has swept through their peers elsewhere. But now they are cracking.

* Big banks are beginning to loosen their tight grip on lending, creating a new opening for consumer and business borrowing that could underpin a brightening economic outlook.

* Veteran Microsoft executive Satya Nadella has emerged as the leading candidate to be the software company’s next CEO, as directors wrestle with the role of Chairman Bill Gates.

* A potent mix of rising exports, consumer spending and business investment helped the U.S. economy end the year on solid footing.

* Holiday sales lifted Amazon.com Inc’s fourth-quarter revenue 20 percent over a year earlier, spurring profit but not enough to match Wall Street projections. The Seattle retailer’s shares tumbled in after-hours trading on the results and a disappointing outlook for its current quarter.

* Saks, under new ownership, is pushing into a higher luxury strata, but at the same time plans to expand its Off Fifth outlet stores-and muss them up a little.

* Google posted a 17 percent increase in revenue and a 17 percent increase in net income in the fourth quarter compared with the prior year, one day after it announced plans to sell its unprofitable Motorola smartphone unit to Lenovo Group Inc for $2.9 billion.

* Zynga Inc is making its biggest acquisition ever, pushing further into mobile videogames, while cutting its workforce for the third time in two years.

 

FT

European Union banks may have to hire more employees to cope with stress tests by regulators, accounting firm PwC said. The European Banking Authority has been conducting stress tests regularly in the past but has faced criticism for being too soft.

New-home building in Britain last year hit its highest level since the financial crisis but remains far too low to meet a strong recovery in demand, according to data from the National House Building Council released on Friday. New home registrations in the UK increased by 28 percent in 2013 to 133,670, the highest since 2007.

Anglo-Dutch oil company Royal Dutch Shell has suspended its controversial Arctic drilling programme as part of a wider drive to cut spending and streamline operations following a major profit warning.

Zynga said it will acquire NaturalMotion, which has created games like “Clumsy Ninja” for Apple mobile devices, for $527 million in cash and stock in a bid to grow its mobile game revenue.

Serco said 2014 profit could be as much as 20 percent below forecasts, a sign that the cost of rebuilding the outsourcing group from high-profile government contract failures is continuing to take its toll.

 

NYT

* While Amazon.com Inc’s revenue rose 20 percent to $25.59 billion, the company announced on Thursday that it was considering raising prices by as much as 50 percent on its $79 Prime shipping program.

* Microsoft’s search for a new leader appears to be focusing increasingly on an internal candidate from the company, including Satya Nadella, a longtime executive who has led the company’s initiatives in cloud computing.

* In yet another reminder of the importance of using different passwords across different websites, Yahoo Inc said Thursday that attackers had attempted to gain access to Yahoo Mail accounts using usernames and passwords collected from a breach on a third-party site.

* Lenovo Group Ltd, already the world’s biggest PC maker, is a company in a hurry. It entered into a deal to buy IBM’s low-end server business that will remain in demand for years, and Motorola Mobility, which makes it the trusted partner of Google.

* Toyota Motor Corp has told its dealers to stop selling about 36,000 vehicles of its most popular models because a component on the heated seats does not comply with a federal safety standard for flame retardant, the automaker said on Thursday.

* Goldman Sachs Group Inc’s board granted its chief executive, Lloyd Blankfein, restricted shares worth $14.7 million as part of his pay package for 2013, according to a filing made public on Thursday.

* Libya’s sovereign investment fund has filed a lawsuit against Goldman Sachs Group Inc in London’s High Court, claiming that the bank made more than $1 billion in derivatives trades that became worthless, but left Goldman with a profit of $350 million.

* This year, a new kind of advertising – personalized and based on physical location down to a matter of feet – will greet fans in Times Square and MetLife Stadium, where the Super Bowl will be played this weekend.

* Eight years after its inception, the biggest private equity fund in history has yet to meet its own minimum expectations. The investment performance of the fund, a $21.7 billion war chest raised by the Blackstone Group LP, remains below a threshold that it must clear in order for Blackstone to start collecting profit from it, according to a disclosure on Thursday.

* As the economy shrugged off the effects of the government shutdown and debt standoff, economists said President Obama faced an uphill battle to burnish his economic legacy before leaving office.

* President Obama, supported by many Republicans and business groups, has met opposition from labor and many Democrats on his push for fast-track approval of trade deals with Pacific Rim nations and Europe.

* There are groundbreaking business deals. And then there are ones that threaten to break up governments. When Denmark gave the global financial giant Goldman Sachs Group Inc the go-ahead on Thursday to buy a stake in its state utility, the move was not exactly followed by a celebratory signing ceremony.

* Southwest Airlines Co and JetBlue Airways Corp said on Thursday that they had bought the takeoff and landing rights at Ronald Reagan National Airport in Washington that the Justice Department required American Airlines Group Inc and US Airways Group Inc to sell as a condition of their merger.

* JD.com, one of China’s biggest e-commerce companies, said in a regulatory filing on Thursday it plans to raise $1.5 billion this year in an initial public offering in the United States.

* Box, an online storage and document-sharing provider, has filed confidential paperwork to go public, a person briefed on the matter said on Thursday.

* The video camera maker, GoPro, known for its users’ adrenaline-soaked exploits has its sights set on becoming a media company.

 

Canada

THE GLOBE AND MAIL

* Ontario will hike its minimum wage for the first time in four years on June 1, opening a growing gap with other provinces and territories amid an uncertain economy. Premier Kathleen Wynne will raise the wage to C$11 from C$10.25, tying Ontario with Nunavut for the highest in the country.

* Canada’s electronic eavesdropping agency, Communications Security Establishment Canada, reportedly tracked the wireless devices of thousands of travellers by using information gleaned from free Internet service at a major Canadian airport. The revelation is contained in a top secret document retrieved by U.S. whistleblower Edward Snowden.

Reports in the business section:

* Ontario is demanding the federal government do more to protect automakers in a new free-trade agreement with South Korea, arguing the deal as it currently stands would “negatively impact” the industry in the province. Economic Development Minister Eric Hoskins says he wants Ottawa to secure protections similar to ones the United States received in its own deal with South Korea in 2011.

* Electronics retail giant Best Buy Canada is cutting 950 jobs at its namesake and Future Shop stores as it streamlines its business to take on tougher competition.

NATIONAL POST

* Toronto city council’s final budget session played out much like the rest of this tumultuous term, with insults hurled across the chamber floor. In the end, Mayor Rob Ford managed to squeeze C$726,000 in immediate savings in a C$9.6-billion budget that passed 35 to 9 Thursday night, and which he ridiculed as “the worst budget that has ever been presented.”

FINANCIAL POST

* Some of Toronto’s biggest Bay Street law firms are now actively recruiting clients of Heenan Blaikie LLP as word spreads that the firm may soon take drastic action to deal with financial challenges.

* As anticipation builds over the imminent release of two major reports that could seal the fate of Keystone XL pipeline, Gary Doer, Canada’s ambassador to the United States, remains confident the long-delayed project is primed for presidential approval.

 

Britain

The Telegraph

ZYNGA BUYS BRITISH GAME MAKER NATURALMOTION FOR $527 MILLION

Zynga, which is known as much for its struggles as a public company as for its hits such as Farmville, will acquire NaturalMotion, the company behind hit mobile games such as Clumsy Ninja for $527 million.

BUSINESS LENDING CHANNELS ‘DAMAGED’, SAYS BCC, AS NET LENDING FALLS

Business lending fell in December, Bank of England data showed on Thursday, in what business groups described as proof that corporate funding channels were “damaged”. Net lending to non-financial firms declined 1.9 billion pounds in December, following November’s sharp drop of 4.6 billion pounds, which represented the biggest fall since records began in 2011.

The Guardian

SANTANDER UK STOCK MARKET FLOTATION ‘WILL NOT HAPPEN IN 2014’

Santander UK will await clarification on new rules relating to capital levels and the “ringfencing” of banking business before it goes ahead with a flotation of its UK arm. The long-awaited listing of the UK business – first mooted in 2010 – has been deemed a medium-term prospect by the Spanish-based bank and is not expected to take place this year.

BARCLAYS TO CUT HUNDREDS OF JOBS

Hundreds of jobs are being lost at Barclays under changes in its corporate banking division, it has been announced. Around 400 posts will go, and the Unite union said a further 120 were being placed at risk this year.

The Times

ASTRAZENECA TURNS ITS BACK ON “DISEASES OF THE POOR” AstraZeneca has abandoned any scientific effort to search for new medicines to tackle many of the world’s deadliest diseases by shutting down its drug discovery work into neglected tropical diseases, tuberculosis and malaria. Britain’s second-largest drugs company has decided that infectious diseases are “not a priority” as Pascal Soriot, its chief executive, cuts costs and scrambles to halt a slide in profits.

SFO SEEKS 19 MILLION POUNDS EMERGENCY CASH AS TCHENGUIZ PUTS PRESSURE ON FUNDING

The Serious Fraud Office has asked Parliament for an emergency cash injection of 19 million pounds in order that it can continue with blockbuster investigations and clean up bungled cases. The white collar crime-fighting agency said that it needed the money before the end of March to finance investigations into Libor-rigging, alleged bribery by Rolls-Royce in Asia and Barclays’ dealings with the Qatari Government in 2008.

Sky News

PRODUCT GROWTH HELPS BSKYB BEAT FORECASTS

Strong growth in on-demand and home communication products helped BSkyB beat City forecasts despite growing competition for pay-television viewers, the company said.

SERCO SHARES DOWN 17 PERCENT ON PROFIT WARNING

Troubled outsourcing firm Serco has seen its shares drop 17 percent after it issued a profit warning. The company said its 2014 profit may be 20 percent lower than market forecasts, due to implementation of a business overhaul following contract disputes with its biggest revenue stream, the UK Government

 

Fly on The Wall 7:00 AM Market Snapshot

ECONOMIC REPORTS

Domestic economic reports scheduled for today include:
Personal income for December reported at 8:30–consensus up 0.2%
Consumer spending for December reported at 8:30–consensus up 0.2%
Core PCE price index for December reported at 8:30–consensus up 0.1%
Chicago PMI business barometer for January reported at 9:45–consensus 59.5
UMich consumer sentiment final read for January reported at 9:55–consensus 81.0

ANALYST RESEARCH

Upgrades

CSC (CSC) upgraded to Neutral from Underweight at JPMorgan
Citrix (CTXS) upgraded to Overweight from Neutral at JPMorgan
Computer Programs (CPSI) upgraded to Buy from Neutral at B. Riley
Cracker Barrel (CBRL) upgraded to Buy from Hold at Miller Tabak
Domtar (UFS) upgraded to Buy from Hold at Deutsche Bank
EPL Oil & Gas (EPL) upgraded to Buy from Hold at Stifel
Ericsson (ERIC) upgraded to Buy from Neutral at UBS
Generac (GNRC) upgraded to Outperform from Neutral at RW Baird
Gigamon (GIMO) upgraded to Overweight from Equal Weight at Barclays
Glatfelter (GLT) upgraded to Buy from Hold at Deutsche Bank
Hillshire Brands (HSH) upgraded to Market Perform from Underperform at Wells Fargo
IDEX Corp. (IEX) upgraded to Buy from Hold at Brean Capital
ITT Educational (ESI) upgraded to Equal Weight from Underweight at Morgan Stanley
International Rectifier (IRF) upgraded to Buy from Neutral at Citigroup
JDSU (JDSU) upgraded to Outperform from Market Perform at William Blair
Linear Technology (LLTC) upgraded to Buy from Neutral at Citigroup
MainSource Financial (MSFG) upgraded to Outperform from Market Perform at Raymond James
Marathon Petroleum (MPC) upgraded to Outperform from In-Line at Imperial Capital
Netflix (NFLX) upgraded to Equal Weight from Underweight at Morgan Stanley
Newfield Exploration (NFX) upgraded to Buy from Hold at Stifel
PulteGroup (PHM) upgraded to Outperform from Market Perform at Raymond James
Raytheon (RTN) upgraded to Buy from Hold at Drexel Hamilton
SunCoke Energy Partners (SXCP) upgraded to Outperform from Neutral at Credit Suisse
Tetra Tech (TTEK) upgraded to Outperform from Neutral at RW Baird

Downgrades

ADT Corp. (ADT) downgraded to Hold from Buy at Stifel
ADTRAN (ADTN) downgraded to Neutral from Buy at Goldman
AkzoNobel (AKZOY) downgraded to Neutral from Outperform at Exane BNP Paribas
CARBO Ceramics (CRR) downgraded to Sell from Neutral at Guggenheim
Capstead Mortgage (CMO) downgraded to Market Perform at Keefe Bruyette
Chef’s Warehouse (CHEF) downgraded to Hold from Buy at Canaccord
Deutsche Bank (DB) downgraded to Equal Weight from Overweight at Barclays
Kennametal (KMT) downgraded to Neutral from Buy at Longbow
Midstates Petroleum (MPO) downgraded to Equal Weight at Morgan Stanley
Silicon Image (SIMG) downgraded to Hold from Buy at Needham
TIBCO (TIBX) downgraded to Underweight from Equal Weight at Barclays

Initiations

AmREIT (AMRE) initiated with a Buy at SunTrust
Gas Natural (EGAS) initiated with a Hold at Wunderlich
Headwaters (HW) initiated with a Buy at Deutsche Bank

HOT STOCKS

Zynga (ZNGA) to acquire NaturalMotion for about $527M, announced 15% workforce reduction
Sanofi (SNY) filed patent infringement suit in U.S. against Eli Lilly (LLY)
E-Trade (ETFC) announced Jefferies (JEF) alliance, increased access to IPO, secondaries
Amazon (AMZN) considering $20-$40 increase in Prime membership
Broadcom (BRCM) raises quarterly dividend by 9% to 12c per share
Chubb (CB) announced repurchase program of up to $1.5B of shares
Wesco Aircraft (WAIR) to acquire Haas Group for $550M
Chipotle (CMG) said strong traffic trend from Q4 continuing in Q1

EARNINGS

Companies that beat consensus earnings expectations last night and today include:
Eastman Chemical (EMN), Minerals Technologies (MTX), Reinsurance Group (RGA), PerkinElmer (PKI), Manitowoc (MTW), Symetra Financial (SYA), Emulex (ELX), JDSU (JDSU), NetSuite (N), C.R. Bard (BCR), Robert Half (RHI), Chubb (CB), Broadcom (BRCM), Zynga (ZNGA), Wynn Resorts (WYNN)
Companies that missed consensus earnings expectations include:
Mattel (MAT), Validus (VR), Celadon Group (CGI), Ikanos (IKAN), Green Dot (GDOT), Brightcove (BCOV), McKesson (MCK), Amazon.com (AMZN), Google (GOOG)

Companies that matched consensus earnings expectations include:
MICROS (MCRS), Riverbed (RVBD), Virtusa (VRTU), Chipotle (CMG), Sterling Financial (STSA)

NEWSPAPERS/WEBSITES

Microsoft (MSFT) preparing to name Satya Nadella CEO, may name Thompson chairman, Bloomberg reports
Lenovo (LNVGY) likely to receive regulatory approval for IBM (IBM), Google deals (GOOG), Reuters reports
Goldman Sachs (GS) sued by Libya’s sovereign wealth fund, FT reports
Rowan (RDC) battling out-of-control gas well in Gulf of Mexico, Bloomberg reports
China’s JD.com filed for a U.S. listing, Reuters reports
Blackstone (BX) hired to consider TI Automotive IPO or sale, Reuters reports
Target (TGT) representative guarded in U.S. panel briefing, Reuters reports

SYNDICATE

Celsus Therapeutics (CLTX) 1.126M share Secondary priced at $6.00
CytRx (CYTR) files to sell common stock
EXCO Resources (XCO) files to sell 135.35M shares of common stock for holders
Intra-Cellular (ITCI) 6.142M share Secondary priced at $17.50
Intrawest Resorts (SNOW) 15.625M share IPO priced at $12.00
Malibu Boats (MBUU) 7.143M share IPO priced at $14.00
Medley Capital (MCC) files to sell 6M shares of common stock
Montage Technology (MONT) 5.3M share Secondary priced at $21.00
Rexnord (RXN) 15M share Secondary priced at $25.75
Rocket Fuel (FUEL) 5M share Secondary priced at $61.00
SMTP, Inc. (SMTP) 1.6M share Secondary priced at $6.25
Southcross Energy Partners (SXE) 8M share Secondary priced at $16.50
Top Image Systems (TISA) files to sell ordinary shares
Trevena (TRVN) 8.5M share IPO priced at $7.00
Tsakos Energy (TNP) files to sell common stock
Ultragenyx Pharmaceuticals (rare) 5.76M share IPO priced at $21.00
XPO Logistics (XPO) 15M share Secondary priced at $25.00


    



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

European Unemployment By Country

While the biggest surprise out of Europe this morning was the fourth consecutive sub-1% inflationary print…

…  lack of soaring prices is hardly a bad thing for the millions of Europe’s unemployed (if not so good for its banks drowning in trillions of non-performing loans which they desperately need to inflate away).

Which incidentally is the topic of this post:  for those curious how the most devastation depression in the history of the Eurozone is “improving” some four years after the first Greek bailout, look no further than these charts. For those who live in Spain and Greece – we know you have no job, but please ask your government to change not only the definition of GDP but also unemployment. After all that is the only way things will ever improve in your country.


    



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

Futures Tumble As "Deflation Monster" Rages In Europe; EMs Continue To Rumble

The wild volatility continues, with markets set to open well in the negative wiping out all of yesterday’s gains and then some, only this time the catalyst is not emerging market crashing and burning (at least not yet even though moments ago the ZAR weakened to a new 5 year low against the USD and the USDTRY is reaching back for the 2.30 level) but European inflation, where the CPI printed at 0.70%, dropping once again from 0.8%, remaining under 1% for the fourth straight month and missing estimates of a pick up to 0.9%. Perhaps only economists are surprised at this reading considering last night Japan reported its highest (energy and food-driven) inflation print in years: so to explain it once again for the cheap seats – Japan is exporting its “deflation monster”, Europe is importing it. It also means Mario Draghi is again in a corner and this time will probably have to come up with some emergency tool to boost European inflation or otherwise the ECB will promptly start to lose credibility – is the long awaited unsterilized QE from the ECB finally imminent?

European equities have traded in the red from the get-go with underperformance in financials, after being put under pressure by Banco Popular in Spain, whose bad loan ratio soared further, compounding fears of a weak credit market in the periphery after recent M3 data showed private sector credit contracting at the fastest pace on record.

The latest Eurozone CPI release came in at 0.70% vs. Exp. 0.90% and has presented ECB President Draghi with a headache, raising the prospect of more policy easing by the ECB. This led to a bull flattening of the Euribor curve and downward pressure on EUR/JPY and USD/JPY despite earlier support being provided for EUR through monthended buying by the Buba in EUR/GBP. Elsewhere, Bunds have been provided support following the CPI reading and month-end buying.

Looking at the day ahead, the focus comes back to the data beginning with  Eurozone inflation for January which may have some bearing ahead of next week’s ECB meeting. The consensus is that the headline will print at 0.9% YoY (vs 0.8% previous) while the core estimate will be slightly lower at 0.8%. Euroarea unemployment data for December will also be released today. In the US the focus will be on the Chicago PMI ahead of next week’s ISM. Personal income/spending and the final Univ of Michigan consumer confidence reading round out this week’s US data calendar. Note that China’s official manufacturing PMI will be released early on Saturday morning (London 1am) – consensus is expecting a print of 50.5. This will be closely watched following the deceleration suggested by the HSBC manufacturing PMI (49.5). Mastercard and Simon Property Group will report earnings prior to the US market open today.

Overnight Headine Bulletin from Bloomberg and RanSquawk

  • European equities have remained in the red from the open after being put under pressure by financials following Banco Popular’s pre-market update.
  • The latest Eurozone CPI release came in softer than expected and has consequently raised the prospect of further ECB policy easing.
  • Looking ahead for the session there is the release of Canadian GDP, US Personal Income, PCE Deflator, Chicago PMI and Univ. of Michigan Confidence.
  • Treasuries gain for fifth day, 10Y yield falls to new low since Nov. overnight, headed for biggest monthly gain in a year as selloff in EM currencies resumes.
  • Euro-area consumer prices rose 0.7% in Jan., the fourth straight reading below 1%; ECB’s target for inflation is just under 2%
  • Japan’s inflation accelerated in December, industrial output gained and a measure of demand for workers strengthened, signaling gains for Abe’s campaign to end two decades of stagnation
  • The largest banks in Europe will have to show their capital won’t dip below 5.5% of assets in an economic crisis, the European Union’s top banking regulator said
  • Ukraine’s opposition accused President Viktor Yanukovych of foul play as he took sick leave and his Defense Ministry asked for “urgent” steps to counter what it said was an escalation the nation’s political crisis
  • Sovereign yields decline. EU peripheral spreads widen. Asian equity markets mixed, with Nikkei and Shanghai lower, European  markets and U.S. stock-index futures fall. WTI crude and copper lower; gold higher

US Data Docket

  • 8:30am: Employment Cost Index, 4Q, est. 0.4% (prior 0.4%)
  • 8:30am: Personal Income, Dec., est. 0.2% (prior 0.2%); Personal Spending, Dec., est. 0.2% (prior 0.5%); PCE Deflator m/m, Dec., est. 0.2% (prior 0.0%)
  • 9:45am: Chicago Purchasing Managers, Jan., est. 59 (prior 59.1, revision 60.8)
  • 9:55am: UofMich. Confidence, Jan. Final, est. 81.0 (prior 80.4)
  • 11:00am: Fed to purchase $3.75b-$4.75b in 2018 sector

Asian Headlines

Japanese National CPI (Dec) Y/Y 1.6% vs. Exp. 1.5% (Prev. 1.5%) (BBG) Core CPI posted the first annual rise in 5 years, a sign that the Bank of Japan’s QQE policy is working.

China began their Lunar New Year holiday today, with the Shanghai Comp to remain closed until February 7th. (RANsquawk)

EU & UK Headlines

ECB has asked Europe’s biggest banks to disclose loans on balance sheets that are at risk of default as part of its asset quality review, according to a document. (BBG) The move will provide the ECB with a clear view of diverging bank practices in different Euro states and allow better comparisons across the monetary union. The results could show which banks in the Euro-area will be forced to raise capital in order to meet the ECB’s standards.

ECB’s Nowotny said the Euro Area is expected to move to positive, albeit still very weak growth this year. (RTRS)

Eurozone CPI Estimate (Jan) Y/Y 0.70% vs. Exp. 0.90% (Prev. 0.80%)
– Eurozone CPI Core (Jan A) Y/Y 0.80% vs. Exp. 0.80% (Prev 0.70%)

Eurozone Unemployment Rate (Dec) M/M 12.0% vs Exp. 12.1% (Prev. 12.1%, Rev. 12.0%)
German Retail Sales (Dec) M/M -2.5% vs. Exp. 0.2% (Prev. 1.5%, Rev. 0.9%)
German Retail Sales (Dec) Y/Y -2.4% vs. Exp. 1.9% (Prev. 1.6%, Rev. 1.1%)
Barclays preliminary pan-Euro agg month-end extensions: +0.13y (12m avg. +0.07y)
Barclays preliminary Sterling month-end extensions:+0.19y (12m avg. +0.06y)

US Headlines

Barclays preliminary US Tsys month-end extensions:+0.06y (12m avg. +0.07y)

Equities

European equities have remained in the red from the open after being put under pressure by financials following Banco Popular’s pre-market update which revealed a significant increase in their bad loan ratio. Elsewhere, underperformance has been observed in the DAX following negative broker recommendations for Deutsche Bank and Fresenius. In terms of stock specific movers, LVMH and BT Group are seen up around 6% and 2% respectively after their positive pre-market reports, with BT raising their EBITDA outlook.

FX

EUR/JPY and USD/JPY were put under pressure, with the move lower being triggered by the release of softer than expected Eurozone CPI data which prompted broad based EUR weakness. However, EUR/USD later completely reversed the move after being supported by month-end buying of EUR/GBP by Buba. Elsewhere, credit indicators such as FRA rates remain contained near yesterday’s levels for TRY and ZAR, while 3×6 FRA is bid (highest since August 2013), with EUR/HUF also bucking the trend and trading close to 2y highs.

Commodities

Asian buyers of Iranian oil have reduced their purchases of the nations crude by 15% in 2013, with shipments only expected to recover marginally despite the easing of sanctions by the West on Iran. (RTRS)

Japan’s December crude imports down 1.1% Y/Y,
according to data released by Ministry of Economy, Trade and Industry. (BBG)

SPDR Gold Trust GLD said its holdings rose 0.08% to 793.16 tonnes on Thursday from 792.56 tonnes on Wednesday, to post its first 2-day gain since 2012. (BBG/RTRS)

India’s Finance Ministry said the government and RBI are vigilant and all steps will be taken to ensure stability in financial markets in the wake of the US Fed’s decision to further trim its monetary stimulus. (PTI)

* * *

We conclude with Jim Reid’s overnight summary

The S&P500 (+1.13%) posted its best performance of 2014 yesterday, on the back of a “less bad” day for emerging markets, an in-line US GDP print and a generally positive corporate earnings tape. But most of that momentum faded after the US closing bell, as the combined earnings disappointments from techheavyweights Amazon and Google took S&P500 futures down 9 points shortly after the closing bell.

Though the sentiment felt a little better in emerging markets, there were still pockets of instability across the EM complex. On the fixed income side, the CDX EM index continued to widen (+2.5bp) and there was a persistent flight to quality theme as core 10yr bond yields firmed at the expense of Hungary (+12bp), Turkey (+10bp) and South Africa (+2bp). EM FX bellwethers including the ZAR (+0.95%) and RUB (+0.63%) had much needed relief rallies against the USD, but pressure continued to mount on the Turkish lira (-0.36%) and the lesser-reported Hungaran forint (-0.87%). The latter has lost almost 7% in value against the USD in January alone. Turkey’s finance minister ruled out capital controls yesterday leaving the market wondering exactly what other Plan B measures that Prime Minister Erdogan was planning to announce in the coming weeks. Meanwhile, the Reserve Bank of India’s governor Rajan warned about that global central bank coordination had broken down, and said that his developed market counterparts had a part in restoring that cooperation.

Looking at Asian markets this morning, it has been fairly quiet with Hong Kong, Singapore, Mainland China, Taiwan and South Korea closed for Chinese New Year. Most of these markets will only gradually return early-to-mid next week, so liquidity will continue to be fairly patchy during the Asian time zone. Of the equity markets which are open, there’s been some focus on the Nikkei which dropped sharply after the lunch break and is currently at session lows of -1.5% – dragging with it US equity futures (-0.2%). Today’s losses in Japan have been attributed to a several disappointing quarterly earnings and month end rebalancing. Indeed, it’s been a fairly uninspiring reporting season so far for Japanese stocks with less than half of Nikkei constituents beating/meeting analyst expectations on the earnings line, compared with the approximately two-thirds who did so last reporting season. In terms of macro data, preliminary Japanese industrial production numbers for December came in at +1.1% MoM which was slightly below the 1.3% expected. Japanese CPI was a bit higher than forecast at 1.6% (vs 1.5% expected).

Before we review the US dataflow, we should note that the Bloomberg Economic Surprise Index has fallen back into negative territory. The index started the year at 6 month highs, but has fallen sharply in recent weeks as a few disappointments on the housing, payrolls and durable goods fronts bring market expectations back down. On that note, US pending homes sales (released yesterday) fell 8.7% MoM (vs a fall of 0.3% expected) and initial jobless claims were higher than expected at 348k (vs 330k expected). Q4 GDP printed at 3.2% which was consistent with Bloomberg median expectations. In the detail of the report, the strongest components included consumption which grew 3.3% which was the second strongest rate since the end of the recession.

A surge in Q4 exports (11.4% vs. 3.9% previously) amid soft import growth (0.9% vs. 2.4%) pushed net exports to the highest reading since the end of the recession. Meanwhile, the softer components of the report were residential investment (-9.8% vs. +10.3% previously) and federal government spending and investment (-12.7% vs. -1.5%). There were also no major surprises in terms of the Core PCE which came in at 1.1% (Bloomberg consensus 1.1%). The WSJ’s Hilsenrath points out that this is well below the Fed’s December 2012 prediction that Core PCE would range between 1.6% to 1.9%.

On the topic of US inflation, DB’s economists Hooper et al write in their latest Global Economic Perspectives that recent core inflation has been depressed by both temporary and fundamental factors. On the temporary side, a one-time sequester-related decline in health care inflation reduced core inflation by about 0.15% points this past year. Fundamentally, a stronger US dollar and substantial domestic and global slack have reduced inflation pressures. Peter believes, however, that inflation should turn the corner this year. As US economic activity remains above trend, economic and labor market slack should decline, and rising wage pressures along with stable and more elevated inflation expectations should exert upward pressure on inflation. With unemployment trending towards the Fed’s guidance hurdles, the Fed has made it clear that its policy decisions going forward will place increased weight on low core inflation. Hooper et al believe that this inflation outlook could lead the Fed to quicken the pace of QE reduction from current expectations of $10bn per meeting after mid-year.

In our own 2014 outlook (‘The taper-bubble tightrope’), we outlined a view that policy makers will likely walk a very fine line this year between withdrawing liquidity too quickly and facilitating problems in markets/economies that have become addicted to central bank activity. We continue to think we may see a few wobbles first that encourage central banks to err more on the side of caution. So in our forecasts we thought H2 would be better than H1 as by then we may have European QE (or equivalents), an increase in BoJ purchases and potentially the Fed pausing from their seemingly preordained tapering path. We would have a more bearish view if we thought central banks would not be so market friendly in 2014 as a number of unresolved global issues remain.

Looking at the day ahead, the focus comes back to the data beginning with  Eurozone inflation for January which may have some bearing ahead of next week’s ECB meeting. The consensus is that the headline will print at 0.9% YoY (vs 0.8% previous) while the core estimate will be slightly lower at 0.8%. Euroarea unemployment data for December will also be released today. In the US the focus will be on the Chicago PMI ahead of next week’s ISM. Personal income/spending and the final Univ of Michigan consumer confidence reading round out this week’s US data calendar. Note that China’s official manufacturing PMI will be released early on Saturday morning (London 1am) – consensus is expecting a print of 50.5. This will be closely watched following the deceleration suggested by the HSBC manufacturing PMI (49.5). Mastercard and Simon Property Group will report earnings prior to the US market open today.


    



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Futures Tumble As “Deflation Monster” Rages In Europe; EMs Continue To Rumble

The wild volatility continues, with markets set to open well in the negative wiping out all of yesterday’s gains and then some, only this time the catalyst is not emerging market crashing and burning (at least not yet even though moments ago the ZAR weakened to a new 5 year low against the USD and the USDTRY is reaching back for the 2.30 level) but European inflation, where the CPI printed at 0.70%, dropping once again from 0.8%, remaining under 1% for the fourth straight month and missing estimates of a pick up to 0.9%. Perhaps only economists are surprised at this reading considering last night Japan reported its highest (energy and food-driven) inflation print in years: so to explain it once again for the cheap seats – Japan is exporting its “deflation monster”, Europe is importing it. It also means Mario Draghi is again in a corner and this time will probably have to come up with some emergency tool to boost European inflation or otherwise the ECB will promptly start to lose credibility – is the long awaited unsterilized QE from the ECB finally imminent?

European equities have traded in the red from the get-go with underperformance in financials, after being put under pressure by Banco Popular in Spain, whose bad loan ratio soared further, compounding fears of a weak credit market in the periphery after recent M3 data showed private sector credit contracting at the fastest pace on record.

The latest Eurozone CPI release came in at 0.70% vs. Exp. 0.90% and has presented ECB President Draghi with a headache, raising the prospect of more policy easing by the ECB. This led to a bull flattening of the Euribor curve and downward pressure on EUR/JPY and USD/JPY despite earlier support being provided for EUR through monthended buying by the Buba in EUR/GBP. Elsewhere, Bunds have been provided support following the CPI reading and month-end buying.

Looking at the day ahead, the focus comes back to the data beginning with  Eurozone inflation for January which may have some bearing ahead of next week’s ECB meeting. The consensus is that the headline will print at 0.9% YoY (vs 0.8% previous) while the core estimate will be slightly lower at 0.8%. Euroarea unemployment data for December will also be released today. In the US the focus will be on the Chicago PMI ahead of next week’s ISM. Personal income/spending and the final Univ of Michigan consumer confidence reading round out this week’s US data calendar. Note that China’s official manufacturing PMI will be released early on Saturday morning (London 1am) – consensus is expecting a print of 50.5. This will be closely watched following the deceleration suggested by the HSBC manufacturing PMI (49.5). Mastercard and Simon Property Group will report earnings prior to the US market open today.

Overnight Headine Bulletin from Bloomberg and RanSquawk

  • European equities have remained in the red from the open after being put under pressure by financials following Banco Popular’s pre-market update.
  • The latest Eurozone CPI release came in softer than expected and has consequently raised the prospect of further ECB policy easing.
  • Looking ahead for the session there is the release of Canadian GDP, US Personal Income, PCE Deflator, Chicago PMI and Univ. of Michigan Confidence.
  • Treasuries gain for fifth day, 10Y yield falls to new low since Nov. overnight, headed for biggest monthly gain in a year as selloff in EM currencies resumes.
  • Euro-area consumer prices rose 0.7% in Jan., the fourth straight reading below 1%; ECB’s target for inflation is just under 2%
  • Japan’s inflation accelerated in December, industrial output gained and a measure of demand for workers strengthened, signaling gains for Abe’s campaign to end two decades of stagnation
  • The largest banks in Europe will have to show their capital won’t dip below 5.5% of assets in an economic crisis, the European Union’s top banking regulator said
  • Ukraine’s opposition accused President Viktor Yanukovych of foul play as he took sick leave and his Defense Ministry asked for “urgent” steps to counter what it said was an escalation the nation’s political crisis
  • Sovereign yields decline. EU peripheral spreads widen. Asian equity markets mixed, with Nikkei and Shanghai lower, European  markets and U.S. stock-index futures fall. WTI crude and copper lower; gold higher

US Data Docket

  • 8:30am: Employment Cost Index, 4Q, est. 0.4% (prior 0.4%)
  • 8:30am: Personal Income, Dec., est. 0.2% (prior 0.2%); Personal Spending, Dec., est. 0.2% (prior 0.5%); PCE Deflator m/m, Dec., est. 0.2% (prior 0.0%)
  • 9:45am: Chicago Purchasing Managers, Jan., est. 59 (prior 59.1, revision 60.8)
  • 9:55am: UofMich. Confidence, Jan. Final, est. 81.0 (prior 80.4)
  • 11:00am: Fed to purchase $3.75b-$4.75b in 2018 sector

Asian Headlines

Japanese National CPI (Dec) Y/Y 1.6% vs. Exp. 1.5% (Prev. 1.5%) (BBG) Core CPI posted the first annual rise in 5 years, a sign that the Bank of Japan’s QQE policy is working.

China began their Lunar New Year holiday today, with the Shanghai Comp to remain closed until February 7th. (RANsquawk)

EU & UK Headlines

ECB has asked Europe’s biggest banks to disclose loans on balance sheets that are at risk of default as part of its asset quality review, according to a document. (BBG) The move will provide the ECB with a clear view of diverging bank practices in different Euro states and allow better comparisons across the monetary union. The results could show which banks in the Euro-area will be forced to raise capital in order to meet the ECB’s standards.

ECB’s Nowotny said the Euro Area is expected to move to positive, albeit still very weak growth this year. (RTRS)

Eurozone CPI Estimate (Jan) Y/Y 0.70% vs. Exp. 0.90% (Prev. 0.80%)
– Eurozone CPI Core (Jan A) Y/Y 0.80% vs. Exp. 0.80% (Prev 0.70%)

Eurozone Unemployment Rate (Dec) M/M 12.0% vs Exp. 12.1% (Prev. 12.1%, Rev. 12.0%)
German Retail Sales (Dec) M/M -2.5% vs. Exp. 0.2% (Prev. 1.5%, Rev. 0.9%)
German Retail Sales (Dec) Y/Y -2.4% vs. Exp. 1.9% (Prev. 1.6%, Rev. 1.1%)
Barclays preliminary pan-Euro agg month-end extensions: +0.13y (12m avg. +0.07y)
Barclays preliminary Sterling month-end extensions:+0.19y (12m avg. +0.06y)

US Headlines

Barclays preliminary US Tsys month-end extensions:+0.06y (12m avg. +0.07y)

Equities

European equities have remained in the red from the open after being put under pressure by financials following Banco Popular’s pre-market update which revealed a significant increase in their bad loan ratio. Elsewhere, underperformance has been observed in the DAX following negative broker recommendations for Deutsche Bank and Fresenius. In terms of stock specific movers, LVMH and BT Group are seen up around 6% and 2% respectively after their positive pre-market reports, with BT raising their EBITDA outlook.

FX

EUR/JPY and USD/JPY were put under pressure, with the move lower being triggered by the release of softer than expected Eurozone CPI data which prompted broad based EUR weakness. However, EUR/USD later completely reversed the move after being supported by month-end buying of EUR/GBP by Buba. Elsewhere, credit indicators such as FRA rates remain contained near yesterday’s levels for TRY and ZAR, while 3×6 FRA is bid (highest since August 2013), with EUR/HUF also bucking the trend and trading close to 2y highs.

Commodities

Asian buyers of Iranian oil have reduced their purchases of the nations crude by 15% in 2013, with shipments only expected to recover marginally despite the easing of sanctions by the West on Iran. (RTRS)

Japan’s December crude imports down 1.1% Y/Y, according to data released by Ministry of Economy, Trade and Industry. (BBG)

SPDR Gold Trust GLD said its holdings rose 0.08% to 793.16 tonnes on Thursday from 792.56 tonnes on Wednesday, to post its first 2-day gain since 2012. (BBG/RTRS)

India’s Finance Ministry said the government and RBI are vigilant and all steps will be taken to ensure stability in financial markets in the wake of the US Fed’s decision to further trim its monetary stimulus. (PTI)

* * *

We conclude with Jim Reid’s overnight summary

The S&P500 (+1.13%) posted its best performance of 2014 yesterday, on the back of a “less bad” day for emerging markets, an in-line US GDP print and a generally positive corporate earnings tape. But most of that momentum faded after the US closing bell, as the combined earnings disappointments from techheavyweights Amazon and Google took S&P500 futures down 9 points shortly after the closing bell.

Though the sentiment felt a little better in emerging markets, there were still pockets of instability across the EM complex. On the fixed income side, the CDX EM index continued to widen (+2.5bp) and there was a persistent flight to quality theme as core 10yr bond yields firmed at the expense of Hungary (+12bp), Turkey (+10bp) and South Africa (+2bp). EM FX bellwethers including the ZAR (+0.95%) and RUB (+0.63%) had much needed relief rallies against the USD, but pressure continued to mount on the Turkish lira (-0.36%) and the lesser-reported Hungaran forint (-0.87%). The latter has lost almost 7% in value against the USD in January alone. Turkey’s finance minister ruled out capital controls yesterday leaving the market wondering exactly what other Plan B measures that Prime Minister Erdogan was planning to announce in the coming weeks. Meanwhile, the Reserve Bank of India’s governor Rajan warned about that global central bank coordination had broken down, and said that his developed market counterparts had a part in restoring that cooperation.

Looking at Asian markets this morning, it has been fairly quiet with Hong Kong, Singapore, Mainland China, Taiwan and South Korea closed for Chinese New Year. Most of these markets will only gradually return early-to-mid next week, so liquidity will continue to be fairly patchy during the Asian time zone. Of the equity markets which are open, there’s been some focus on the Nikkei which dropped sharply after the lunch break and is currently at session lows of -1.5% – dragging with it US equity futures (-0.2%). Today’s losses in Japan have been attributed to a several disappointing quarterly earnings and month end rebalancing. Indeed, it’s been a fairly uninspiring reporting season so far for Japanese stocks with less than half of Nikkei constituents beating/meeting analyst expectations on the earnings line, compared with the approximately two-thirds who did so last reporting season. In terms of macro data, preliminary Japanese industrial production numbers for December came in at +1.1% MoM which was slightly below the 1.3% expected. Japanese CPI was a bit higher than forecast at 1.6% (vs 1.5% expected).

Before we review the US dataflow, we should note that the Bloomberg Economic Surprise Index has fallen back into negative territory. The index started the year at 6 month highs, but has fallen sharply in recent weeks as a few disappointments on the housing, payrolls and durable goods fronts bring market expectations back down. On that note, US pending homes sales (released yesterday) fell 8.7% MoM (vs a fall of 0.3% expected) and initial jobless claims were higher than expected at 348k (vs 330k expected). Q4 GDP printed at 3.2% which was consistent with Bloomberg median expectations. In the detail of the report, the strongest components included consumption which grew 3.3% which was the second strongest rate since the end of the recession.

A surge in Q4 exports (11.4% vs. 3.9% previously) amid soft import growth (0.9% vs. 2.4%) pushed net exports to the highest reading since the end of the recession. Meanwhile, the softer components of the report were residential investment (-9.8% vs. +10.3% previously) and federal government spending and investment (-12.7% vs. -1.5%). There were also no major surprises in terms of the Core PCE which came in at 1.1% (Bloomberg consensus 1.1%). The WSJ’s Hilsenrath points out that this is well below the Fed’s December 2012 prediction that Core PCE would range between 1.6% to 1.9%.

On the topic of US inflation, DB’s economists Hooper et al write in their latest Global Economic Perspectives that recent core inflation has been depressed by both temporary and fundamental factors. On the temporary side, a one-time sequester-related decline in health care inflation reduced core inflation by about 0.15% points this past year. Fundamentally, a stronger US dollar and substantial domestic and global slack have reduced inflation pressures. Peter believes, however, that inflation should turn the corner this year. As US economic activity remains above trend, economic and labor market slack should decline, and rising wage pressures along with stable and more elevated inflation expectations should exert upward pressure on inflation. With unemployment trending towards the Fed’s guidance hurdles, the Fed has made it clear that its policy decisions going forward will place increased weight on low core inflation. Hooper et al believe that this inflation outlook could lead the Fed to quicken the pace of QE reduction from current expectations of $10bn per meeting after mid-year.

In our own 2014 outlook (‘The taper-bubble tightrope’), we outlined a view that policy makers will likely walk a very fine line this year between withdrawing liquidity too quickly and facilitating problems in markets/economies that have become addicted to central bank activity. We continue to think we may see a few wobbles first that encourage central banks to err more on the side of caution. So in our forecasts we thought H2 would be better than H1 as by then we may have European QE (or equivalents), an increase in BoJ purchases and potentially the Fed pausing from their seemingly preordained tapering path. We would have a more bearish view if we thought central banks would not be so market friendly in 2014 as a number of unresolved global issues remain.

Looking at the day ahead, the focus comes back to the data beginning with  Eurozone inflation for January which may have some bearing ahead of next week’s ECB meeting. The consensus is that the headline will print at 0.9% YoY (vs 0.8% previous) while the core estimate will be slightly lower at 0.8%. Euroarea unemployment data for December will also be released today. In the US the focus will be on the Chicago PMI ahead of next week’s ISM. Personal income/spending and the final Univ of Michigan consumer confidence reading round out this week’s US data calendar. Note that China’s official manufacturing PMI will be released early on Saturday morning (London 1am) – consensus is expecting a print of 50.5. This will be closely watched following the deceleration suggested by the HSBC manufacturing PMI (49.5). Mastercard and Simon Property Group will report earnings prior to the US market open today.


    



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Brickbat: Without a Prayer

Azizul Raheem
Awalludin, who works for Tourism Malaysia in Sweden, and his wife
Shalwati Murshal have spent more than a month in a Swedish
jail
 awaiting trial for hitting one of their sons on his
hands for not saying his prayers. The two have not been allowed
contact with any of their children, who have been placed in a
foster home, since they were arrested. If convicted, they face at
least nine months in prison each. And even if they are found not
guilty they will still lose custody of their children and must
petition a court to get them back.

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via IFTTT

Dead-Cat-Bounce Dies As Nikkei Drops Over 400 Points From US Highs

Mixed data from Japan did nothing to excite and while markets oscillated for a few hours after the US close (and subsequent pile-driver from AMZN), they are now unwinding most of the dead-cat-bounce seen during the US day-session. Japanese stocks are back at fresh 2-month lows with the Nikkei 225 under 15,000 (down over 400 points from day-session highs) and testing debt-ceiling lows. JPY strength has driven USDJPY back below 102.50 and therefore US futures are re-tumbling – down 14 points from US day-session highs. EM FX is drifting lower. With China about to dark for a week for lunar new year, this could get interesting very fast.

 

Dow futures are pressing towards pre-Taper lows… and Japan has lost support back to the debt-ceiling lows…

 

Of course, it’s all about the JPY… for Japanese stocks (though the correlations are started to creak – which will be a huge worry for Abe)

 

and the same for US futures…

 

 

Charts: Bloomberg


    



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Need Heroin? Just Head To Your Friendly Neighborhood McDonalds

While we are sure it is hard to make ends meet on the minimum-wage-paying positions at fast food restaurants these days; the lengths that one McDonald’s employee in Pittsburgh went to subsidize her income could be a little much. As CNN reports, Shantia Dennis, 26, would drop a handy baggy of heroin in drive-thru customers’ boxes if they uttered the secret phrase “I’d like to order a toy” with their food order. Police recovered over 50 bags of heroin and a small amount of marijuana… brings a whole new meaning to the term “Happy Meal”.

 

 

Via CNN,

A McDonald’s employee in Pittsburgh was arrested Wednesday after undercover police officers said they discovered her selling heroin in Happy Meal boxes, according to a criminal complaint.

 

Shantia Dennis, 26, was arrested after undercover law enforcement officials conducted a drug buy, according to a statement from Mike Manko, communications director for the Allegheny County District Attorney’s Office.

 

Customers looking for heroin were instructed to go through the drive-through and say, “I’d like to order a toy.” The customer would then be told to proceed to the first window, where they would be handed a Happy Meal box containing heroin, Manko said.

 

 

During the drug buy, the undercover officers recovered 10 stamp bags of heroin inside of a Happy Meal box, according to the statement.

 

Officers immediately arrested Dennis and recovered an additional 50 bags of heroin, as well as a small amount of marijuana, according to the complaint.

 

We wonder what she did if the customers said “Supersize me”?

 

Of course, with the way McDonalds same store sales are going, perhaps they need to start thinking of “alternative” business lines? At least in Colorado and Washington?


    



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MyRA – More About Getting Votes Than Helping Middle Class

Submitted by Lance Roberts of STA Wealth Management,

During this week’s State of the Union address the President stated:

Let’s do more to help Americans save for retirement. Today, most workers don’t have a pension.  A Social Security check often isn’t enough on its own.  And while the stock market has doubled over the last five years, that doesn’t help folks who don’t have 401ks.  That’s why, tomorrow, I will direct the Treasury to create a new way for working Americans to start their own retirement savings: MyRA. It’s a new savings bond that encourages folks to build a nest egg.  MyRA guarantees a decent return with no risk of losing what you put in..”

While there are few details available about the actual structure and makeup of MyRA, here are the details we know so far.

  • MyRa’s would be structured like a Roth individual retirement account. Similar to savings bonds, the investments would be backed by the federal government.
  • Because the investments would be structured like savings bonds, there would be principal protection, meaning the account balance couldn’t go down.
  • There would be an initial pilot program for companies to sign up to offer the accounts to their employees, and firms have until the end of 2014 to participate in the initial phase.
  • Workers would be allowed to invest if they make less than $191,000 a year.
  • There would be NO tax penalty if the investments are withdrawn.
  • Initial investments could be as low as $25 with subsequent investments as low as $5.  These investments could be automatically deducted from an individual’s paycheck.
  • Once an individual accumulates $15,000, or they have the same account for 30 years, it would have to be rolled over into a traditional IRA.

Here are my initial thoughts.

1) While the President said that these “MyRA Savings Bonds” would offer a “decent” rate of return, he did not disclose how these investments would be structured.  However, if we assume that these accounts will offer the same variable interest-rate return as the Thrift Savings Plan Government Securities Investment Fund, that rate of return was 1.47% in 2012 while the rate of inflation, based on CPI, ticked up 2.08%.  With interest rates now bottoming, and many expect a continued rise in the future, that rate of return may continue to be less than the rate of inflation for the foreseeable future.

2) As I have discussed in the past, the large majority of American’s live paycheck to paycheck.  American’s do not lack for a vehicle to invest savings in for retirement (Roth IRA’s, IRA’s, 401k’s, SEP’s, etc.) but lack the ability to save.

3) The problem that needs to be addressed is from the economic front.  With 92.8 million individuals excluded from the work force, 1 in 3 American’s on some sort of Government assistance, stagnant wage growth over the last 5 years and 1 in 5 on food stamps, the issue is about employment rather than saving.  Solve the employment problem in America and the retirement savings dilemma will begin to resolve itself.

4) There is no real incentive for anyone to actually use the “MyRA” as it has a limit of $15,000 for retirement but rather a high-yield, government guaranteed, savings account.  Since there is no penalty to withdraw money from the MyRa at any time there is also no incentive to use it to actually save for retirement.  However, if we assume that the rate of return is equivalent to Thrift Savings Plan of 1.47% that is significantly higher than what banks currently pay.  The incentive will be to use the MyRA to save for future consumption rather than future retirement.

5) Investors have a VERY poor track record of investing in the financial markets and typically fall prey to the emotional mistake of “buying high and selling low.”  Given that the MyRA has to be transferred to an IRA after reaching $15,000, the guarantee of a “protected investment with a decent return” is gone.  Furthermore, there is a disincentive to reach the $15,000 level as it will change the account from a NO PENALTY withdrawal to one with a 10% withdrawal penalty prior to the age of 59 1/2.

6) Lastly, the limit of $15,000 on the MyRA is rather pointless.  If the goal is to help people fund their future retirement, the limit is rather ridiculous.  Today, if you assume that a portfolio of bonds could deliver an annualized living income of 4%, a retired couple could look forward to living a middle income lifestyle once you factor in social security income.  However, such an asset level only exists at the top 10% of the population leaving a large swath of individuals undersaved and underprepared for retirement.  A $15,000 MyRA account is going to do very little to change the dynamic of the lower 90%.

It seemed to me that the entire point of the MyRA was really more of about getting “votes” than actually helping middle class American’s substantially change their retirement futures.  While the entire State of the Union address was littered with “bodies of past ideas” there was little new about changing the direction of the economy, increasing employment opportunities for the younger generation or resolving the issues of spiraling health care costs.

While Obama did make it clear roughly 11 times during the speech that “he has a pen and a phone” to resolve issues on his own – maybe it is time to start working with Congress through the Constitutional process to deliver real ideas, real reform and a better future for middle income Americans.   But then again, that is likely to be considered radical thinking.

Hopefully, this time, “if you like your current retirement plan” you will actually be able to keep it.


    



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