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Following Europe’s disappointing downturn this morning (and UK), US’ final Manufacturing PMI print for 2019 was expected to confirm a slight deceleration in the late-year rebound.

However, it was a disappointment, as the final US Manufacturing data dipped from 52.6 in November (and 52.5 in flash December data) to 52.4…

Source: Bloomberg

Chris Williamson, Chief Business Economist at IHS Markit said:

“The US manufacturing sector continued to recover from the soft-patch seen in the summer, ending 2019 with its best quarter since the early months of 2019.

“The overall rate of expansion nevertheless faltered somewhat in December and remains well below that seen this time last year, suggesting producers are starting 2020 on a softer footing than they had enjoyed heading into 2019.

“Business sentiment about the outlook remains especially subdued compared to a year ago, reflecting ongoing worries about geopolitics and trade wars, especially the impact of tariffs, as well as fears that political and economic uncertainty surrounding the 2020 elections could dampen demand.

“The impact of tariffs was clearly evident via higher prices, while the relatively subdued level of business confidence manifested itself in a pull-back in hiring, hinting at risk aversion and cost-cutting.”

The bottom-line is that despite an increase in client demand and stock markets, output expectation towards the coming year remained relatively muted at the end of 2019.

Authored by Ryan McMaken via The Mises Institute,

On December 29, an armed gunman entered the West Freeway Church of Christ in Texas and shot two members of the congregation. Within six seconds, a third member of the congregation drew a weapon and shot the gunman dead.

The events were captured on live-streamed video, with the dramatic events — in the minds of many observers — highlighting the benefits of privately-owned firearms as a defense against armed criminals. Moreover, the gunman, who had a criminal history, obtained his gun illegally, and demonstrated one of the central pitfalls of the gun-control narrative: namely, that those with criminal intent are not easily restrained by laws controlling access to firearms.

Nonetheless, many media outlets were unable to bring themselves to admit that privately owned firearms in this case were the key in preventing a wider massacre. After all, had the congregation waited around for the police to arrive, it is unknown how effective a police response could have been. Nor is it clear that had the police arrived quickly, they would have immediately engaged the shooter or even engaged the right person.

These considerations were not sufficient to divert many media observers from their insistence that private gun ownership is helpful in situations like these. Both government agents and their media boosters continue to insist that even well-meaning ordinary citizens ought not be trusted with firearms and that what is really needed are “experts” with government-approved police training.

Elvia Diaz at the Arizona Republic demonstrated this premise well when she wrote :

The reality of Wilson’s heroism is a lot more complex. He wasn’t just an ordinary parishioner, as gun advocates may want you to believe. The church’s volunteer security team member is a firearms instructor , gun range owner and former reserve deputy with a local sheriff’s department, according to a New York Times detailed account.

In other words, he’s exactly the kind of man you want around with a firearm. But we know nothing about the at least six other parishioners who also appeared to draw their handguns at West Freeway Church of Christ in White Settlement, Texas.

And that’s terrifying.

To many people who aren’t left-leaning journalists, it is hardly “terrifying” that some other private citizens of unknown expertise were armed in the congregation. After all, these people never fired a shot once they saw the shooter had been incapacitated. None of them provided any reason to suspect they pose any risk to anyone else.

On the other hand, 2019 has provided plenty of reminders of what sort of “expertise” and heroism government-provided security forces offer.

In the Spring of 2019, the parents of victims of the Parkland school shooting are sued the Broward County school board and the sheriff’s office for failing to take timely action against the school shooter who killed 17 people at the school in February 2018. According to the South Florida Sun-Sentinel , police officers repeatedly sought to protect themselves rather than the victims in the school. An analysis of communications among law enforcement officers at the site of the massacre confirmed there were “at least two times a Broward deputy urges another officer to protect themselves, not confront the killer.”

Meanwhile, 2019 provided reminders police officers will shoot citizens dead in their own homes for no justifiable reason, as was the case with Atatiana Jefferson on October 12. According to multiple accounts the shooter — a now-former-cop named Aaron Dean — entered Jefferson’s private property unannounced in the middle of the night. He peered into Jefferson’s windows, and within seconds, the officer had shot Jefferson dead. Jefferson had been playing video games with her nephew.

Also in October, former police officer Amber Guyger was sentenced to ten years in prison for unlawfully shooting Botham Jean in his own apartment. At the time, Guyger was a police officer returning home from work. She illegally entered the wrong apartment and promptly shot Jean — the unit’s lawful resident — dead.

If there is anything that ought to be “terrifying” to ordinary Americans, it is not the idea that some law abiding citizens might be carrying firearms. Rather, the far-more terrifying thought is the knowledge some police officers are so eager to murder residents in their own living rooms.

More Guns, More Crime?

These facts will no doubt fail to derail the usual media narrative that there are too many guns, and the police — the same people who shoot residents in their homes or cower behind cars when faced with real danger — will ensure public safety through weapons prohibitions and by generally “keeping us safe.”

Fortunately, the facts certainly offer little to support the idea that more legal gun ownership is a problem in terms of homicides.

According to 2019’s gun manufacturing data from the BATF, total gun production and importation in the US has increased significantly over the past twenty years. If we look at total guns produced in the US (not counting those exported) and added to total guns imported, we find new gun production increased from around 4.5 million in 1998 to more than twelve million in 2017.1 Over that same period, homicide rates decreased from 6.3 per 100,000 to 5.3. In fact, after years of rising gun production, the US homicide rate fell to a 50-year low in 2014. This correlation doesn’t prove more guns reduce crime, of course. But this relationship strongly suggests the benefits of increased gun ownership — namely greater self-defense capability on the part of private citizens — are greater than the potential costs.

Moreover, new data on homicides released in September 2019 shows the homicide rate in the US has fallen two years in a row since 2016, and is nearly down to half of the national homicide rates reported during the early 1990s.

Many states with weak gun-control laws are also among the states with the lowest homicide rates. For instance, Vermont, New Hampshire, and Maine — all of which have few gun restrictions — report remarkably low homicide rates. Other gun-permissive states like Utah, Iowa, and South Dakota all have homicide rates comparable to Canadian provinces, although we’re told Canada only has low homicide rates because of gun restrictions. Clearly there’s more behind the reality of violent crime than is suggested by the usual “more gun control means less crime” claims.

Many anti-private-gun-ownership activists continue to insist that only police officers and other government personnel ought to be carrying firearms, and that the police will protect the people from violence criminals. Yet, it’s unclear why the public ought to accept this rather strained claim. In 2019, police were repeatedly shown to endanger the public while pursuing their own safety. Meanwhile, the end of the year brought another case of private gun owners stopping a murderous gunman far more effectively than police ever could have. Nor was the Texas church case the only notable example we can recall this year. It is entirely possible, of course, that cases like these are not typical or representative examples of police behavior or what happens when armed criminal gunmen attack innocents. But there’s no denying the optics this year were bad for the pro-gun-control side. Faced with the choice of owning a gun for protection, or trusting in police for protection, many apparently continue to choose the former.

Taiwan’s top military leader and two major generals were among eight senior officers who were killed Thursday morning when their Black Hawk helicopter crashed in a mountainous region in the north part of the island. There were five survivors.

Chief of Staff Shen Yi-ming, Political Warfare Bureau deputy director Yu Chin-wen, and deputy chief of staff for intelligence Hung-chin were among the dead. Also killed were a lieutenant colonel, a captain, a major and two senior master sergeants, according to AFP.

The 62-year-old military leader was on a routine mission with his entourage to visit soldiers in northeast Yilan county for the upcoming Lunar New Year.

One of the five survivors, Lieutenant-general Tsao Ching-ping told rescuers “I am okay… two others are injured and only I can walk,” according to local television.

“There is one more person who’s more seriously wounded and two or three people in the cabin … while two more with no signs of life.”

The other survivors include new deputy chief of logistics Huang Yu-min and military news agency reporter Chen Ying-ju.

President Tsai Ing-wen’s office said that she will cancel all campaign activities for three days after the tragedy. The ruling Democratic Progressive Party will also suspend campaigning for three days.

Tsai is seeking a second term against Kaohsiung city mayor Han Kuo-yu of the Kuomintang (KMT) party in the January 11 elections when Taiwan will also elect a new parliament. -AFP

The UH-60M Black Hawk helicopter was carrying 13 passengers when it disappeared from radar less than 15 minutes after takeoff at 7:54 a.m., according to Air Force Commander Hsing Hou-chi. At 8:07 a.m. the pilot issued a weather report before contact was abruptly lost. A military task force has been established to determine the cause of the crash. 

“We are investigating whether (the cause) was environmental or mechanical,” Hsing told the press.

This is the latest in a string of Black Hawk helicopter crashes in Taiwan using equipment purchased from the United States.

In 2018 a chopper belonging to a government rescue agency crashed during a medical mission off outlying Orchid Island, killing six people on board in an incident attributed to human error.

There were also two crash landings in 2016 and 2018 with no casualties.

Washington has remained Taipei’s most powerful unofficial ally and its leading arms supplier despite switching diplomatic recognition to Beijing in 1979.

“We hope that our steadfast commitment to supporting Taiwan’s security will honour their memory,” US de facto embassy, the American Institute in Taiwan (AIT), said in a statement. -AFP

Ground troops and rescue helicopters were dispatched to the crash site in northeastern Taiwan, and survivors were carried off the mountains instead of air-lifted due to bad weather.

Beijing’s communist mouthpiece, Global Times editor-in-chief Hu Xijin, pointed to the crash as an example of the “poor reliability of Taiwan’s military equipment.”

Eight people died, this is unfortunate. Even the chief of general staff couldn’t escape the misfortune, which reflects the poor reliability of Taiwan’s military equipment. It doesn’t look like an army that has good combat capability. https://t.co/GcSCLu4dWd

— Hu Xijin 胡锡进 (@HuXijin_GT) January 2, 2020

Authored by Bruce Wilds via Advancing Time blog,

While pondering the current economy that is becoming more of a conundrum every day, I stumbled upon an analogy I would like to share. The global economy is like a giant “Rube Goldberg” machine. It is a ridiculously complicated contraption built to perform what should normally be a simple task. Rube Goldberg machines often mimic the real world in that they are goal-oriented with many parts coming together to complete a task.

In the real world, things are usually not intentionally designed to be complicated but the reality is that they just are. It is an understatement to say the global financial system is not a well-oiled machine. More often than we would like to admit various systems and parts are thrown or “cobbled together” in a haphazard way to get the job done. We tend to try and explain events in terms of cause and effect but in doing so the bigger picture has a way of getting lost. Often hidden away is the nature of the risk that results from complexity and systems becoming codependent upon others. Bestselling author Nassim Taleb who wrote, “The Black Swan” detailed in his book how when something is highly complicated highly improbable and unpredictable events can and do occur.

Some of this is playing out right now and can be seen in the Fed’s key reversal in policy. In an effort to avoid a crisis the Fed has been forced to deal with a liquidity issue in repo rates since a sudden and dramatic surge began in September. While it is difficult to see the difference between QE and an injection aimed at maintaining liquidity, in this case, several reasons exist to believe this is not QE but something far more disturbing. While many of us predicted central banks had painted themselves into a corner and would never be able to bring down their balance sheets this could be considered as proof. Still, how this will play out is yet to be seen. 

History shows we often have no idea what is driving events until long after they have transpired and even then the picture is blurred by interpretation. The lens by which we peer at events is firmly controlled by those with an agenda. Even when control occasionally slips from their grasp such as when Donald J. Trump was elected President of America that does not mean the puppet masters have surrendered power it merely represents a temporary lapse in their dominance. An effort to be realistic brings us back to the fact that government, big business, and mainstream media hold the cards and control. With this in mind, it is disturbing to look at the individuals leading these various factions, such a look gives me little reason for faith or calm.

The Direction In Which Things Fall Does Matter

Returning to the analogy of a giant Rube Goldberg machine it should help us realize the problem with getting a good handle on life is complicated by the massive number of variables built into it. If you take the economy, for example, guessing what a central bank might do is one thing, however, how do you make allowances for the money created to stimulate the nation’s economy rushing out of the country at the tap of a button or companies using the money to buy back stock or pursuing a leveraged hostile takeover rather than investing in a new plant and equipment.

The argument could be made that central banks can stack the deck but when it gets too high and begins to fall they may not be able to control the direction or who it will crush. While history is important to remember it does not define the future. Just because a market or investors have reacted in a certain way in the past is no guarantee that faced with a similar situation their response will be the same or that once we hit a tipping point a self-feeding loop will not develop and take control. We have become very complacent and accepted the idea those in power will continue being creative enough to keep the economy moving forward and prolong current trends.

When building a Rube Goldberg machine the designer takes a great deal of effort to complicate the task in an entertaining way by adding far more steps than are necessary. This creates a machine with many moving parts, the failure of just one piece to perform as expected can alter the way events unfold. History is littered with many caution signs as to just how difficult it is to interpret current events and their possible impact on tomorrow. This makes it clear that looking in the rear-view mirror gives us a better image of events than predictions as to what might happen in the future. My point is, don’t have a great deal of faith in our economic system because it is severely flawed and does not even meet the criteria of a well designed Rube Goldberg machine.

Earlier this week, we provided several updates on the status of Carlos Ghosn, the ousted Nissan boss and now an international fugitive, who fled Japan to Lebanon on Monday to escape what he called a “rigged” justice system. Here is the latest.

The former Nissan chairman, who is facing trial in Tokyo for alleged financial crimes, landed in Beirut on Monday via a private jet operated by a subsidiary of Turkey’s MNG Holding, said Bloomberg, citing a senior Turkish official. The official said Ghosn first landed in Istanbul via an MNG aircraft on Monday morning and was transferred to another airplane headed to Lebanon. 

🇯🇵🇱🇧🇹🇷 Carlos Ghosn in Beirut : seven arrests in Turkey, including 4 MNG Jet pilots. pic.twitter.com/acX6iztkvI

— air plus news (english) (@airplusnews_EN) January 2, 2020

Government officials in Lebanon said Ghosn entered legally on a French passport. Ghosn’s Japanese lawyers were unaware of the smuggling and said he had given up three passports under the terms of his bail. However, he was able to keep a spare French passport. 

Turkish broadcaster NTV said on Thursday, Turkish police arrested seven people in connection to the smuggling, including four pilots. Meanwhile, Japanese authorities raided Ghosn’s Tokyo home on Thursday. 

Ghosn’s great escape to Lebanon is primarily due to the country has no extradition agreement with Japan. It’s also his home country where he has substantial investments in real estate. 

Reuters noted that sources said Ghosn met with Lebanese President Michel Aoun after landing in Beirut and received a warm welcome. 

Turkish authorities are attempting to shed some light on the interworkings of how to smuggle a top executive across the world, even though he’d been stripped of his primary passports. 

Authored by Charles Hugh Smith via OfTwoMinds blog,

One day the stock market ‘falcon’ will no longer hear the Fed ‘falconer’, and the Pavlovian magical thinking will break down as the market goes bidless.

The past decade has shown that when the Federal Reserve creates trillions of dollars out of thin air (QE), U.S. stocks rise accordingly. The correlation is very nearly perfect.

This has given rise to the belief that buyers of stocks will always be rewarded because “the Fed has our backs.” The evidence for this belief is the near-perfect correlation of Fed money-printing and stocks soaring.

This near-universal belief in the omnipotent Fed raises an interesting question: how much actual control does the Fed have on the U.S. stock market? One way to approach this question is to plot the size (to scale) of the Fed’s current money-printing campaign of $60 billion per month, “Not-QE,” to the market cap (total value) of U.S. stocks, using the Wilshire 5000 as the measuring stick and the St. Louis Federal Reserve database (FRED) as the data source.

This first chart shows the Fed’s $60 billion per month “Not-QE” in relation the $33 trillion market value of U.S. stocks.

The nearly invisible thin red line is $60 billion in relation to $33 trillion. So exactly how does this signal-noise sum translate into “the Fed has our backs”?

But wait, you say; it’s not the monthly total that counts, it’s the annual total of Fed money-printing that counts. Your wish is my command: the second chart plots the relative size of $60B X 12 = $720 billion, should the Fed extend “Not-QE” for an entire year, compared to the $33 trillion U.S. stock market.

Hmm, $720 billion isn’t very much compared to the stock market. This raises the same question: how much direct control does the Fed have on U.S. stocks?

Every month there is buying and selling of stocks, in relatively low volumes. If there’s more buying volume than selling volume, we can say there is X buying volume net of selling volume. If there’s more selling volume than buying volume, we can say there is X selling volume net of buying volume.

By way of a thought experiment, let’s say sellers unload 3% of the U.S. stock market market cap, net of buying, in the course of a month. This 3% equals about $1 trillion. Now 3% isn’t that much; a real sell-off could see owners dumping far higher percentages of the stock market’s total valuation.

The third chart plots one month of the Fed’s “Not-QE” ($60 billion) compared to $1 trillion in net selling over one month. Hmm… even when compared to a mere 3% of the stock market’s market value, the Fed’s $60 billion is a popgun, not a bazooka, much less a nuclear detonation.

In claiming “the Fed has our backs,” buyers are claiming that $60 billion in Fed money-printing has essentially total control of a $33 trillion market. Looking at these sums to scale should raise some doubt about the direct control the Fed exerts on the stock market.

What’s actually driving stocks higher is the psychology of buyers anticipating everyone else buying because of Fed money-printing, not the money-printing itself. It’s clear that any sort of even modest selling pressure will completely overwhelm the Fed’s “Not-QE” popgun.

We might productively recall that there is no law requiring the currency the Fed creates to flow into the stock market. The $60 billion might flow into bonds, or commodities, or some other form of financial asset (mortgage backed securities, bat guano derivatives, etc.).

Understood in this fashion–the modest size of “Not-QE” compared to the $33 trillion stock market, and the complete absence of direct Fed control of the stock market–the psychology of buying in anticipation of others buying in a Pavlovian response to Fed money-printing is fundamentally a form of magical thinking that reflects the durability of the Pavlovian reaction, not actual Fed control of the stock market.

The difference between the two will start to matter when a sell-off overwhelms the Fed’s “Not-QE” popgun. Don’t think it won’t happen just because it hasn’t happened yet.

As per Yeats, Turning and turning in the widening gyre, The falcon cannot hear the falconer; one day the stock market ‘falcon’ will no longer hear the Fed ‘falconer’, and the Pavlovian magical thinking will break down as the market goes bidless.

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*  *  *

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The first trading day of 2020 has started where 2019 left off: with global markets blasting off in a continuation of the powerful meltup that sent US equity futures up 18 points to 3,250 on Thursday, just shy of all time highs.

Contracts for US equity futures all rose in the wake of the best year for American stocks since 2013, and the Stoxx Europe 600 Index advanced for the first session in three as every sector traded in the green.

European shares started the new decade on a strong note on Thursday, jumping 1.1% on Thursday ignoring the latest data showing factory activity in the bloc contracting for the eleventh straight month, instead rising on fresh monetary stimulus from Beijing where the PBOC slashed its  required reserve ratio for commercial banks  by 0.50bps, injecting $115BN into the economy…

… as well as – you guessed it – “growing China-U.S. trade optimism” in the words of Reuters. German shares rose 0.7%, shrugging off figures that showed the manufacturing sector contracted further in December, with the rate of decline in production accelerating for the first time in three months.

Airbus jumped after a report it toppled Boeing to become the world’s biggest planemaker. The European giant was set for its best day in three months after Reuters reported it delivered a forecast-beating 863 aircraft in 2019. The stock helped lift the wider French index by 1.3%. The European Stoxx 600 index was up 0.9%, after declining for two straight sessions as caution crept in about how long a U.S.-China trade truce would last; however the mood brightened on Tuesday after President Trump said the Phase 1 agreement would be signed on Jan. 15 at the White House. Trade-sensitive miners .SXPP led gains on the main index on Thursday, followed by European banks .SX7P.

“The markets are still broadly riding high on the goodwill generated by the announcement that a Phase-1 trade agreement will be signed on Jan. 15,” said Connor Campbell, financial analyst at Spreadex. “(Beyond that) a lack of further escalation might be all investors can expect for the moment.”

And in another continuation of 2019, markets roundly ignored the only actual news of the day, which saw Europe’s manufacturing PMIs accelerate their slump even deeper into contractionary territory.

The UK wasn’t exempt either: its manufacturing output matched its sharpest downturn in more than seven years in December and orders for new work from domestic and overseas clients plunged. IHS Markit said Thursday that the industry as a whole shrank for an eighth straight month.

Earlier in the session, markets in Hong Kong and Shanghai jumped more than 1% after the PBOC said it will increase the supply of cheap funding to banks, in line with market expectations, even if the yuan barely reacted. Asian stocks gained broadly, led by the communications and IT sectors, with activity picking up following the holiday season lull. The region’s benchmark stock gauge rose 0.3% on Thursday after ending flat in the previous session, with most markets in the region advancing. Hong Kong’s Hang Seng Index gained 1.3%, the Shanghai Composite rose 1.1%, though South Korea’s Kospi Index dropped 1%. India’s S&P BSE Sensex Index was up 0.7%. Elsewhere, North Korean leader Kim Jong Un declared he was no longer bound by a pledge to halt missile tests.

Signaling that it stood pat to boost a flagging economy, China’s central bank on Wednesday lowered the reserve requirement ratio for banks for the eighth time since 2018, with the latest cut freeing up around 800 billion yuan ($115 billion).

Emerging-market currencies and stocks continued to fluctuate near their strongest levels since June 2018, starting the year with optimism over a trade truce between the U.S. and China. MSCI Inc.’s measure of developing-nation stocks snapped three days of declines, climbing back toward last month’s highs.

After a stellar 2019 across most major assets, focus now shifts to the year ahead. Thursday gave investors the latest read on Chinese manufacturing, with the Caixin PMI dipping slightly from its November level but remaining in the expansionary zone.

“One of the biggest risks today may be that stocks have already priced in much of the good news,” said Nuveen portfolio manager Bob Doll. “Stock prices can still climb higher, but we don’t expect results anywhere near 2019.”

In FX, the dollar reversed its sharp December losses, and traded higher versus most major peers: the Bloomberg dollar index rose 0.2%, halting a four- session decline. The pound dropped against most major peers as new-year flows triggered stop-loss orders and amid concern the improving optimism toward Brexit masks the fact that many uncertainties remain. The euro slipped after data showed a deepening downturn in euro-zone manufacturing. In EM, the South African rand lead gains while the Thai baht fell as much as 1.8% overnight, its biggest drop since 2007, amid speculation the Bank of Thailand could be intervening to curb the currency’s strength.

Investors are also keeping an eye on geopolitical tensions, including in North Korea, where Kim Jong Un said he was no longer bound by his pledge to halt major missile tests and would soon debut a “new strategic weapon.” In Baghdad, an Iran-backed Iraqi militia broke up its encampment outside the U.S. embassy after an attack on the compound threatened to spiral into a broader confrontation.

In commodities, crude oil climbed alongside gold. WTI and Brent firmed by around $0.30/bbl; supported by the risk-on tone across markets this morning, particularly in European stocks. Focus for the complex remains on geopolitical issues, with an Iran-backed Iraqi militia leaving their encampment at the US embassy in Baghdad. Turning to metals, where spot gold is modestly firmer this morning with the yellow-metal comfortable well above the $1500/oz mark at $1521/oz at best for the session thus far, continuing to be bolstered by the significant downside in the DXY over the holiday period.

On the US calendar, initial jobless claims and manufacturing PMI data are due.

Market Snapshot

• S&P 500 futures up 0.6% to 3,249.00
• STOXX Europe 600 up 0.9% to 419.37
• MXAP up 0.3% to 171.19
• MXAPJ up 0.5% to 555.76
• Nikkei down 0.8% to 23,656.62
• Topix down 0.7% to 1,721.36
• Hang Seng Index up 1.3% to 28,543.52
• Shanghai Composite up 1.2% to 3,085.20
• Sensex up 0.7% to 41,610.44
• Australia S&P/ASX 200 up 0.1% to 6,690.58
• Kospi down 1% to 2,175.17
• German 10Y yield rose 1.1 bps to -0.175%
• Euro down 0.02% to $1.1210
• Brent Futures up 0.3% to $66.20/bbl
• Italian 10Y yield rose 3.8 bps to 1.241%
• Spanish 10Y yield rose 3.0 bps to 0.498%
• Brent futures up 0.3% to $66.20/bbl
• Gold spot up 0.2% to $1,520.75
• U.S. Dollar Index up 0.1% to 96.54

Top Overnight News

• China’s central bank trimmed the amount of cash that lenders must hold in reserve, and signaled continued action in 2020 to reduce borrowing costs for companies. The required reserve ratio will be lowered by 50 basis points from Jan. 6, releasing about 800 billion yuan ($115 billion) of liquidity, the People’s Bank of China said on its website Wednesday
• North Korea’s Kim Jong Un declared he was no longer bound by his pledge to halt major missile tests and would soon debut a “new strategic weapon,” adding to President Donald Trump’s foreign policy concerns in a politically charged election year
• Oil started 2020 on an upbeat note after posting its biggest annual gain in three years as tensions linger in the Middle East and on signs U.S. crude stockpiles extended declines
• An Iran-backed Iraqi militia broke up its encampment outside the U.S. embassy in Baghdad, a move that could ease tensions between Tehran and Washington that escalated after fighters attacked the compound
• Hong Kong began 2020 with a familiar sight: Tear gas, fires, vandalism and roadblocks in busy downtown areas as protesters vowed to maintain their fight for more democracy and less Chinese control
• Asia’s manufacturing industry finished 2019 with a modestly brighter outlook, with fewer economies signaling contraction at factories. Purchasing manager indexes for South Korea, Thailand and Taiwan all moved above 50 in December, data from IHS Markit showed
• U.S. President Donald Trump said he will sign the first phase of a trade deal with China on Jan. 15, sealing an agreement that sees the Asian nation raising purchases of American farm goods in exchange for lower tariffs on some of its products
• The euro area’s manufacturing downturn deepened in December despite renewed monetary stimulus and nascent signs the regional economy is stabilizing. IHS Markit’s gauge of factory activity weakened and posted an 11th consecutive month below 50, signaling contraction
• U.K. manufacturing output matched its sharpest downturn in more than seven years in December and orders for new work from domestic and overseas clients plunged. IHS Markit said Thursday that the industry as a whole shrank for an eighth straight month

Asian stocks gained, led by the communications and IT sectors, with activity picking up following the holiday season lull. The region’s benchmark stock gauge rose 0.3% on Thursday after ending flat in the previous session, with most markets in the region advancing. Hong Kong’s Hang Seng Index gained 1.3%, the Shanghai Composite rose 1.1%, though South Korea’s Kospi Index dropped 1%. India’s S&P BSE Sensex Index was up 0.7%. On Wednesday, the People’s Bank of China said it will increase the supply of cheap funding to banks, slashing the required cash reserve ratio for commercial lenders by 50 basis points. Elsewhere, North Korean leader Kim Jong Un declared he was no longer bound by a pledge to halt missile tests.

Top Asian News

• Kim Promises ‘Shocking’ Action and Says He Has New Weapon
• Jack Ma’s Ant Financial Joins Singapore Digital Banking Race
• Singapore’s Economy Slows at End of 2019 Amid Trade War

Major European bourses are firmer this morning, Euro Stoxx 50 +1.0%, as more participants return from the Christmas period and after yesterday’s New Years Day close. Newsflow thus far for the session has been extremely light, with the main focus being on the PBoC cutting the RRR by 50bps which lent support to APAC equities overnight and continues to aid European peers and US futures; alongside the updates to the US-China trade deal signing schedule, though this is all largely as expected. Currently there is no clear under/out performer amongst European bourses, though the Dax did initially lag potentially as the bourse was closed on New Years Eve. Turning to sectors, the picture isn’t substantially different from the overall stock performance this morning with all sectors firmly in the green; banking sector mildly outperforms its peers, deriving support from the aforementioned PBoC action. It’s been a relatively quiet morning in terms of stock specific stories but Tullow Oil (-4.5%) are the laggard of the Stoxx 600 after reporting disappointing oil well data. Elsewhere, Osram Licht (U/C) shares are flat after AMS reported a final acceptance level of 59.9% for their takeover of Osram, which is below the final acceptance level of 75% which is necessary for a full takeover. At the other end of the Stoxx 600 spectrum things are a quieter, with stocks largely in-line with indices overall performance, whilst a number of banking names such as Deutsche Bank (+5.0%) reside towards the top of the Stoxx 600. Finally, 3 Axis Advisors states that GSK (+0.4%), Sanofi (1.0%) and Pfizer are to increase prices on over 200 drugs within the US.

Top European News

• Turkey’s Parliament Set to Approve Troop Deployment in Libya
• Airbus Outperforms on Report 2019 Deliveries Exceeded Target
• Kurz Seals Historic Pact With Austria’s Greens for Second Term
• Citi Recommends Investors to Be ‘Net Long’ in European Airlines

In FX, the DXY appears to have drawn a line in the sand just off 5 month lows following a sharp slide between Xmas and New Year amidst widespread Greenback declines and positioning for the turn of the year/decade. The index is currently holding a fraction above 96.600 within a tight 96.422-678 range with some support for the Buck gleaned via higher US Treasury yields and a steeper curve on a continuation of improved risk sentiment due to the US and China reaching a Phase 1 trade accord, with added impetus coming via the latter announcing another RRR reduction to take effect from next Monday.

• SEK/NOK – The Scandinavian Crowns have kicked off 2020 on the front foot, as Eur/Sek meanders between 10.5000-4500 or so parameters and Eur/Nok hovers within a circa 9.8550-8175 band in wake of a recovery in Sweden’s manufacturing PMI and acceleration in Norwegian activity from an already comfortable 50+ base.
• CAD/EUR/JPY/CHF/AUD/GBP/NZD – The Loonie is holding up better than G10 rivals and has retained the bulk of its pre-year end gains vs the Usd after advancing through the key/psychological 1.3000 level, while the Euro is struggling to keep its head above 1.1200 even though Eurozone manufacturing PMIs beat consensus or flash prints, bar Italy. Elsewhere, the Yen and Franc have also succumbed to the broad, albeit partial Dollar bounce, and aforementioned ongoing risk-on environment, with Usd/Jpy edging up towards 108.90 and Usd/Chf pivoting 0.9700. However, the Aussie, Pound and Kiwi have all lost momentum and seem vulnerable to deeper pull-backs/retracement from recent peaks, as Aud/Usd loses grip of 0.7000, Cable creeps closer to 1.3200 again and Nzd/Usd hovers a fraction over 0.6700.

In commodities, a similarly quiet session, with WTI and Brent firmer by around USD 0.30/bbl; supported by the risk-on tone across markets this morning, particularly in European stocks. Focus for the complex remains on geopolitical issues, with an Iran-backed Iraqi militia leaving their encampment at the US embassy in Baghdad; though this de-escalation is not likely to be a supportive factor for crude. Looking ahead, due to the holiday period the week’s EIA data will be released tomorrow at 16:00GMT with expectations for another headline draw at 3.167mln barrels. Turning to metals, where spot gold is modestly firmer this morning with the yellow-metal comfortable well above the USD 1500/oz mark at USD 1521/oz at best for the session thus far, continuing to be bolstered by the significant downside in the DXY over the holiday period. Separately, China’s largest steel making city Tangshen has issued a level 2 out of 3 smog alert; for reference, this alert requires non-exempt companies to cut emissions and/or output until the alert is reduced.

US Event Calendar

• 7:30am: Challenger Job Cuts YoY, prior -16.0%
• 8:30am: Initial Jobless Claims, est. 220,000, prior 222,000; Continuing Claims, est. 1.68m, prior 1.72m
• 9:45am: Bloomberg Consumer Comfort, prior 62.3
• 9:45am: Markit US Manufacturing PMI, est. 52.5, prior 52.5