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President Trump just retweeted the following ‘anonymous’ op-ed from The Daily Caller saying it is “worth the read.”

Worth the read.

I’m A Senior Trump Official, And I Hope A Long Shutdown Smokes Out The Resistance https://t.co/6ahfOlyl5K via @dailycaller

— Donald Trump Jr. (@DonaldJTrumpJr) January 14, 2019

The Daily Caller is taking the rare step of publishing this anonymous op-ed at the request of the author, a senior official in the Trump administration whose identity is known to us and whose career would be jeopardized by its disclosure. We believe publishing this essay anonymously is the only way to deliver an important perspective to our readers. We invite you to submit a question about the essay or our vetting process here.

As one of the senior officials working without a paycheck, a few words of advice for the president’s next move at shuttered government agencies: lock the doors, sell the furniture, and cut them down.

Federal employees are starting to feel the strain of the shutdown. I am one of them. But for the sake of our nation, I hope it lasts a very long time, till the government is changed and can never return to its previous form.

The lapse in appropriations is more than a battle over a wall. It is an opportunity to strip wasteful government agencies for good.

On an average day, roughly 15 percent of the employees around me are exceptional patriots serving their country. I wish I could give competitive salaries to them and no one else. But 80 percent feel no pressure to produce results. If they don’t feel like doing what they are told, they don’t.

Why would they? We can’t fire them. They avoid attention, plan their weekend, schedule vacation, their second job, their next position — some do this in the same position for more than a decade.

They do nothing that warrants punishment and nothing of external value. That is their workday: errands for the sake of errands — administering, refining, following and collaborating on process. “Process is your friend” is what delusional civil servants tell themselves. Even senior officials must gain approval from every rank across their department, other agencies and work units for basic administrative chores.

Process is what we serve, process keeps us safe, process is our core value. It takes a lot of people to maintain the process. Process provides jobs. In fact, there are process experts and certified process managers who protect the process. Then there are the 5 percent with moxie (career managers). At any given time they can change, clarify or add to the process — even to distort or block policy counsel for the president.

Saboteurs peddling opinion as research, tasking their staff on pet projects or pitching wasteful grants to their friends. Most of my career colleagues actively work against the president’s agenda. This means I typically spend about 15 percent of my time on the president’s agenda and 85 percent of my time trying to stop sabotage, and we have no power to get rid of them. Until the shutdown.

Due to the lack of funding, many federal agencies are now operating more effectively from the top down on a fraction of their workforce, with only select essential personnel serving national security tasks. One might think this is how government should function, but bureaucracies operate from the bottom up — a collective of self-generated ideas. Ideas become initiatives, formalize into offices, they seek funds from Congress and become bureaus or sub-agencies, and maybe one day grow to be their own independent agency, like ours. The nature of a big administrative bureaucracy is to grow to serve itself. I watch it and fight it daily.

When the agency is full, employees held liable for poor performance respond with threats, lawsuits, complaints and process in at least a dozen offices, taking years of mounting paperwork with no fear of accountability, extending their careers, while no real work is done. Do we succumb to such extortion? Yes. We pay them settlements, we waive bad reviews, and we promote them.

Many government agencies have adopted the position that more complaints are good because it shows inclusion in, you guessed it, the process. When complaints come, it is cheaper to pay them off than to hold public servants accountable. The result: People accused of serious offenses are not charged, and self-proclaimed victims are paid by you, the American taxpayer.

The message to federal supervisors is clear. Maintain the status quo, or face allegations. Many federal employees truly believe that doing tasks more efficiently and cutting out waste, by closing troubled programs instead of expanding them, “is morally wrong,” as one cried to me.

I get it. These are their pets. It is tough to put them down and let go, and many resist. This phenomenon was best summed up by a colleague who said, “The goal in government is to do nothing. If you try to get things done, that’s when you will run into trouble.”

But President Trump can end this abuse. Senior officials can reprioritize during an extended shutdown, focus on valuable results and weed out the saboteurs. We do not want most employees to return, because we are working better without them. Sure, we empathize with families making tough financial decisions, like mine, and just like private citizens who have to find other work and bring competitive value every day, while paying more than a third of their salary in federal taxes.

President Trump has created more jobs in the private sector than the furloughed federal workforce. Now that we are shut down, not only are we identifying and eliminating much of the sabotage and waste, but we are finally working on the president’s agenda.

President Trump does not need Congress to address the border emergency, and yes, it is an emergency. Billions upon billions of hard-earned tax dollars are still being dumped into foreign aid programs every year that do nothing for America’s interest or national security. The president does not need congressional funding to deconstruct abusive agencies who work against his agenda. This is a chance to effect real change, and his leverage grows stronger every day the shutdown lasts.

The president should add to his demands, including a vote on all of his political nominees in the Senate. Send the career appointees back. Many are in the 5 percent of saboteurs and resistance leaders.

A word of caution: To be a victory, this shutdown must be different than those of the past and should achieve lasting disruption with two major changes, or it will hurt the president.

The first thing we need out of this is better security, particularly at the southern border. Our founders envisioned a free market night watchman state, not the bungled bloated bureaucracy our government has become. But we have to keep the uniformed officers paid, which is an emergency. Ideally, continue a resolution to pay the essential employees only, if they are truly working on national security. Furloughed employees should find other work, never return and not be paid.

Secondly, we need savings for taxpayers. If this fight is merely rhetorical bickering with Nancy Pelosi, we all lose, especially the president. But if it proves that government is better when smaller, focusing only on essential functions that serve Americans, then President Trump will achieve something great that Reagan was only bold enough to dream.

The president’s instincts are right. Most Americans will not miss non-essential government functions. A referendum to end government plunder must happen. Wasteful government agencies are fighting for relevance but they will lose. Now is the time to deliver historic change by cutting them down forever.

The author is a senior official in the Trump administration.

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When we reported Wells Fargo’s Q3 earnings back in October, we drew readers’ attention to one specific line of business, the one we have repeatedly dubbed the bank’s “bread and butter“, namely mortgage lending, and which as we then reported was “the biggest alarm” because “as a result of rising rates, Wells’ residential mortgage applications and pipelines both tumbled, sliding just shy of the post-crisis lows recorded in late 2013.”

Well, unfortunately for Wells, despite the sharp drop in yields in Q4 which many had expected would boost mortgage lending or at least refi activity for the bank that was until recently America’s largest mortgage lender, the decline in mortgage activity has continued,  because buried deep in its presentation accompanying otherwise unremarkable Q4 results (modest EPS best; sizable revenue miss), Wells just reported that its ‘bread and butter’ is once again missing, and in Q4 2018 the amount in the all-important Wells Fargo Mortgage Application pipeline shrank again, dropping to $18 billion, the lowest level since the financial crisis.

Meanwhile, Wells’ mortgage originations number, which usually trails the pipeline by 3-4 quarters, was just as bad, dropping a whopping $12BN sequentially from $46 billion to just $38 billion, and effectively tied for the lowest print since the financial crisis.  Putting this number in context, just six years ago, when the US housing market was actually solid, Wells was originating 4 times as many mortgages, or about $120 billion.

And since this number lags the mortgage applications, we expect it to continue posting fresh post-crisis lows in the coming quarter especially if rates resume their rise.

Going back to the headline numbers, here is a recap of the key metrics:

• 4Q adj. EPS $1.21, est. $1.19
• 4Q revenue $20.98 billion, Exp. $24.7BN
• 4Q net interest income $12.64 billion
• 4Q loans $953.11 billion vs. $942.3 billion q/q
• 4Q mortgage non-interest income $467 million
• 4Q residential mortgage originations $38 billion
• 4Q margin on residential held-for-sale mortgage originations 0.89%
• 4Q non- performing assets $6.95 billion
• 4Q net charge-offs $721 million, estimate $736.8 million (BD)
• 4Q total avg. deposits $1.27 trillion

There was more bad news for Wells, whose Net Interest Margin managed ended its recent streak of increases, and was unchanged at 2.94% resulting in $12.644 billion in Net Interest Income, and missing expectations of an increase to 2.95%. This is what Wells said: “NIM of 2.94% stable LQ as a benefit from higher interest rates and favorable hedge ineffectiveness accounting results were offset by the impacts of all other balance sheet mix and lower variable income.“

There was another problem facing Buffett’s favorite bank: while NIM failed to increase, deposits costs are rising fast, and in Q4, the bank was charged an average deposit cost of 0.55% on $914.3MM in interest-bearing deposits, double what its deposit costs were a year ago.

There was a silver lining however: amid concerns over the ongoing slide in the scandal-plagued bank’s deposits, which declined 3% or $40.1BN in Q3 Y/Y (down $2.3BN Q/Q) to $1.27 trillion, in Q4 Wells finally succeeded in getting a modest increase in deposits, which rose to $1.286 trillion, if still down 4% Y/Y. This was driven by growth in Wealth & Investment Management deposits driven by higher retail brokerage sweep deposits, “partially reflecting a change in our customers’ risk appetite, as well as higher private
banking deposits.” Offsetting this were declines in small business banking deposits, partially offset by growth in retail banking consumer deposits.

And some more good news: the recent ongoing shrinkage in the company’s balance sheet appears to have finally reversed, because one quarter after average loans declined from $944.3BN to $939.5BN, the lowest in years, and down $12.8 billion YoY, average loans outstanding increased fractionally to $946.3BN, up $6.8BN, or 1% Q/Q. This rebound was entirely due to commercial loans , which were up $7.7 billion LQ on higher commercial & industrial loans. Meanwhile, consumer loans continued to decline, and were down $835 million LQ as growth in nonconforming first mortgage loans and credit card loans was more than offset by declines in legacy consumer real estate portfolios including Pick-a-Pay and junior lien mortgage loans due to run-off and sales, as well as lower auto loans.

And finally, there was the chart showing the bank’s overall consumer loan trends: these reveal that the troubling broad decline in credit demand continues, as consumer loans were down a total of $13.7BN Y/Y across most product groups.

What these numbers reveal, is that the average US consumer can barely afford to take out a new mortgage even at a time when rates are once again sliding. It also means that if the Fed is truly intent in engineering a parallel shift in the curve of 2-3%, the US can kiss its domestic housing market goodbye.

Source: Wells Fargo Earnings Supplement

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After China’s dismal deflationary impulse (PPI/CPI slumping), US Producer Prices also disappointed, dropping 0.2% MoM – the biggest drop since Aug 2016.

Final Demand Producer Price growth YoY is at its weakest since August 2017…

However while Core PPI disappointed more, printing +2.7% YoY vs +3.0% YoY expectations (and fell 0.1% MoM against expectations of a 0.2% rise), it remains near its highest since 2011…

Finally, we note that Final Demand Consumption fell 0.2% MoM.

So disappointments but Core PPI still high – What Will Jay Powell Do?

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As the battle over President Trump’s border wall drags on for its fourth week, President Trump is warning about a new migrant caravan forming in Honduras and will soon be on it way to the Southern border.

In his tweet, Trump mocked Democratic leaders Nancy Pelosi and Chuck Schumer, warning that “a drone flying around will not stop” the advancing migrant hordes. Once the next wave arrives, “Only a Wall, or Steel Barrier, will keep our Country safe!”

A big new Caravan is heading up to our Southern Border from Honduras. Tell Nancy and Chuck that a drone flying around will not stop them. Only a Wall will work. Only a Wall, or Steel Barrier, will keep our Country safe! Stop playing political games and end the Shutdown!

— Donald J. Trump (@realDonaldTrump) January 15, 2019

Polls are now showing that people are beginning to understand the Humanitarian Crisis and Crime at the Border. Numbers are going up fast, over 50%. Democrats will soon be known as the Party of Crime. Ridiculous that they don’t want Border Security!

— Donald J. Trump (@realDonaldTrump) January 15, 2019

Trump added that polling shows more than 50% of Americans now understand the link between immigration and crime, and that Trump’s quest to build a border wall is a “humanitarian issue.” Meanwhile, the Democrats are risking becoming the “Party of Crime” due to their opposition.

The issue of several migrant caravans heading to the US from Central America became a flashpoint during the days and weeks before the midterms, with Trump regularly weighing in on their progress and US media organizations monitoring their progress. On Tuesday, Fox reported that the caravan – nearly 500 strong – left Honduras on Monday.

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After months of fraught negotiations – first with the EU, then with her eurosceptics in Parliament – mere hours remain before Prime Minister Theresa May brings her Brexit withdrawal agreement up for a vote in the House of Commons on Tuesday. And with analysts and MPs alike anticipating an overwhelming defeat – the latest estimates put the margin of defeat at around 225 votes – Theresa May is under pressure to bring all of her “Project Fear” powers to bear to try and coerce MPs to back her deal, though now that MPs have wrested some of the control over the process away from the PM, her threats of “her deal, no deal or no Brexit” have largely been robbed of their bite. ‘

But that doesn’t mean stories and images about the chaotic fallout from a ‘no deal’ Brexit can’t still stoke anxieties among the voting public.

Enter the Guardian, which published on Tuesday a story documenting the phenomenon of the newly minted Brexit doomsday prepper. A reporter for the paper traveled to different parts of the country interviewing members of Facebook groups and other social media cliques dedicated to preparing for the worst case scenario. May’s government has offered a nightmarish vision of the fallout, complete with lorries backed up at the border, bare cupboards and supermarket shelves and medicine shortages.

In an interesting twist, the Brexit preppers documented by the Guardian don’t fit the stereotype of the rugged libertarian-leaning individualist. instead, they are mostly housewives and working women worried about their children going without essential medications.

Jo Elgarf, a member of the group ‘48% Preppers’ (so named for the percentage of Britons who voted to remain a part of the European Union), told the Guardian that she had agreed to participate in the story because her doctor told her she couldn’t stock up on two essential medications that help her child avoid daily seizures.

Because it’s not just about food for Elgarf and her family. One of her four-year-old twins, Nora, who has been sitting happily on her mum’s lap as we talk, has a rare brain condition called polymicrogyria. She has lots of prescriptions, but without two of them – Epilim and Keppra – for her epilepsy, she would have multiple seizures a day. “She can’t do without them,” says Elgarf. Both Epilim and Keppra are imported.

If she could stockpile these medicines, she would. But they are controlled, and she can only get a month’s supply at a time. “It should be all right,” she has been told by doctors and the pharmacists. But when it’s your daughter’s life that’s at stake, “it should be all right” isn’t good enough.

Many of the people who join the Facebook group have concerns about medicines, Elgarf says. There are a lot of diabetics and coeliacs among them. What they need is some reassurance. “We need to know for certain they have got a proper plan in place for anybody who depends on meds.” She has heard rumours that the most critical medicines may have to be collected from central hubs, which would be stocked on the basis of lists provided by GPs.It’s clearly something she has given thought to.

Elgarf is also clear about why she is talking to me. “So come April and there’s no Epilim in the country, I’ll say:  ‘Where’s that Guardian man?’ And you guys are going to be interested because this little child you saw in January now has no meds.” Nora has fallen asleep on her mum.

Even if she never uses the supplies, most of which could be donated to a local food bank, Elgarf tried to frame her stockpile of food as a generally prudent decision. After all, in Switzerland, the government cautions residents in the Alps to always have two weeks worth of supplies stockpiled in the event of a snowstorm.

“In Switzerland, they tell people to have, I think, two weeks’ stuff,” she says. People are vulnerable there, not just because they’re more likely to get snowed in, but also because they have a hard border. Elgarf’s degree was in European studies. And she worked in the food industry; she knows how just-in-time it operates. Chris Grayling’s little lorry exercise didn’t reassure her. Nor the chief executive of the Association of the British Pharmaceutical Industry saying that a no-deal Brexit “should be avoided at all costs”.

One woman who stockpiled everything from food, to potable water to makeup said she wasn’t only prepping for herself – she was doing it for her dog as well.

Helena is not just prepping for herself. She is doing it for her dog, Charlie, too. And while she has about three months’ worth of supplies for herself, she is looking at more like a year for the dog, as she doesn’t see that pet food will be a priority. “I don’t really trust the government to look after me; I certainly don’t trust them to look after my dog,” she says. As well as dog food, there are treats and toys on the spreadsheet. Charlie is going to enjoy a hard Brexit.

Helena sees it as an insurance policy. “Unless there’s enormous panic buying, I don’t think there’s going to be nothing on the shelves at Asda,” she says. “But I do think there’s a very good chance that choice is going to be limited.”

Another woman interviewed by the Guardian was an accomplished economist who said her knowledge of how supply chains worked inspired her to start stockpiling.

In Cambridge, Diane says she is also stockpiling, though she doesn’t want to go into too much detail. “I’m a bit cautious about being presented as an idiot who has a cupboard full of stuff,” she says. She’s OK about using her surname, though: she is Diane Coyle, OBE, FACSS, the economist, Bennett professor of public policy at the University of Cambridge, former adviser to the Treasury, vice-chair of the BBC Trust, member of the Competition Commission, winner of the Indigo prize…in short, really not an idiot.

“The point about supply chains,” she explains, “is that the things you buy in the supermarket today were on the road last night. Supermarkets now don’t have warehouses full of stuff. If we have a no deal and the delays go up even by 12 hours – although I see there’s a new report saying it is going to be much more – then things will stop being put on the shelves. They will run out. And it’s not just stuff we buy from the EU, and it’s not just fresh produce – it’s quite a lot of things.”

Coyle knows that she can’t get by without a cuppa and doesn’t want to run out of teabags or coffee because she didn’t get any in before a no-deal exit. “It’s things that matter to me, that we import, and it’s a bit of insurance.”

Some believe that the fallout from a ‘no deal’ Brexit could linger longer than many expect.

In north Cornwall, Nevine Mann believes we will leave the EU without a deal, and that’s what she is preparing for. “We’re expecting it to be pretty horrendous for at least a couple of months, hopefully settling down and becoming less horrendous over time,” says the former midwife. “Long term, we expect what’s available to be more expensive and different.”

But while much remains uncertain, UK citizens might enjoy some more clarity after Tuesday’s vote…

…or they could find themselves right back at square one if it is defeated by a wider than expected margin.

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Authored by Mike Krieger via Liberty Blitzkrieg blog,

You don’t need me to tell you how completely crazy and distorted the financial markets have become over the last decade. Anyone reading this already knows that, which is partly why I stopped writing on the topic several years ago. I came to the conclusion there was no point in constantly screaming at the top of my lungs about what a farce the global financial system was. Instead, I decided to step back, let things play out to their predictably tragic end, and then play closer attention as the curtains started to come down. As has been made clear in my recent commentary, I think we’re now reaching that point.

I’ve begun reflecting a little more about the lessons I’ve learned over the past several years of status quo stupidity, and one particular conversation I had a while ago with a friend who was a portfolio manager at a major hedge fund came to mind. I searched my old emails to find exactly what I had written, and the response became the inspiration for the title of today’s post.

The correspondence occurred nearly four years ago, in February 2015. His initial message highlighted a FT article about the fact that Nestlé bond yields had turned negative. This was my response to his email:

Once you enter certifiably “crazy” territory it becomes almost impossible to bet against crazy until it is obvious it is all unraveling. Once in crazy territory it can easily get more crazy since crazy has already been established. 

The above is why you should never bet money against crazy simply because it’s crazy. Crazy can go on for a long time, especially when the people in charge see themselves as gods sent from the heavens to deliver the planet from the horrors of declining asset prices and lower financial industry bonuses.

But crazy always ends at some point, and the crazier the period preceding the reckoning, the more intense and disruptive the subsequent period will be.

Did the last 10 years represent the biggest global asset bubble in world history?

— Michael Krieger (@LibertyBlitz) January 14, 2019

I tend to think yes when thinking about the above, and if that’s right, then the consequences of the largest asset bubble in history would likewise be historic. At the least we’re going to have a total change to the global financial system, the sort of thing that typically happens only once a lifetime. That’s the conservative take.

The more radical assessment would be that the largest asset bubble in world history will be followed by a level of disruption and change that only happens every few hundred years. The period of time that seems most similar to this one in (sorta) recent history would be the late 18th century, when we witnessed revolutions in the 13 American colonies and in France that changed the world dramatically for centuries to come. That’s the level of change I suspect we’ll see, and even that could be conservative given the pace of technological change we’re living through.

Central bank policy can stay crazy longer than the social structure can remain stable.#Paybacktime

— Michael Krieger (@LibertyBlitz) January 14, 2019

We’ve already seen the warning shots, as the social and political structures of many countries are already pretty far along the path of major transformation. Trump’s election, Brexit, the Yellow Vest and the Italy’s elections, just to name a few. Significantly, many of these things went down while the financial market bubble was still propped up and inflating. What will happen on the social and political level when the market cycle really turns is anybody’s guess, but you can be assured it won’t be business as usual.

So what should you do? I think the worst thing you can do is look at the current world and try to do all the things conventional wisdom tells you to do. Rather, look around, think about what’s terminally broken around you and think about how things could be different in the future. If you’re particularly motivated and talented, don’t just think about these problems, try to come up with the most conscious, beneficial and revolutionary solutions you can and then give it a shot.

Not everyone can be Satoshi Nakamoto, but you get the point.

*  *  *

If you liked this article and enjoy my work, consider becoming a monthly Patron, or visit our Support Page to show your appreciation for independent content creators.

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To anyone who carefully read yesterday’s dismal Citi earnings report, which was a major disappointment in virtually every way and especially in the bank’s FICC group, with the exception of Citi’s core lending business which traders decided to focus on and push Citi’s stock price 4% higher, today’s disappointing JPMorgan results should not come as a surprise.

Actually, JPMorgan Q4 results were even worse than Citi’s as they were a disappointment across the board, with both reported revenue of $26.1BN and “managed” revenue of $26.8BN missing consensus expectations of $26.9BN, while EPS of $1.98 was not only well below the $2.20 consensus, but was also the first JPM earnings miss in nearly five years.

While JPM also posted a modest increase in Net Interest Income, which rose $1.2BN Y/Y to $14.5BN, noninterest income for the largest US bank declined $0.1BN to $12.3BN Y/Y and also declined $1.5BN Q/Q.

JPMorgan also reported 4Q compensation expenses $7.81 billion, right on top of the estimate $7.81 billion; while the 4Q provision for credit losses of $1.55 billion was surprisingly higher than the estimate $1.31 billion. The bank also reported a firmwide net reserve build of $15mm – net build in Consumer of $54mm and net release in Wholesale of $39mm.

But while the top and bottom-line miss were hardly what the market was expecting, what has slammed JPM stock this morning is the huge miss in the bank’s trading group, with 4Q FICC sales & trading revenue of just $1.86 billion, down $361MM from a year ago (and $1.0BN from Q3) and far below the estimated $2.29 billion. And while equity sales & trading revenue was in line, printing at $1.32 billion or right on top of the estimate $1.32 billion (if also down $278MM from Q3), the FICC plunge stole the show with the worst Q4 FICC trading revenue since the financial crisis.

Elsewhere in the bank’s investment bank group, 4Q investment banking revenue of $1.72 billion also missed estimates of $1.77 billion, virtually unchanged from a year ago.

Commenting on these disappointing trading results, JPM said that markets revenue of $3.2B was down 6% YoY, or down 11%YoY adjusted for the impact of tax reform and a loss on a margin loan in the prior year. Adjusted, Fixed Income Markets revenue was down 18% YoY, and Equity Markets revenue was up 2% YoY.

Surprisingly, JPM also reported a $243MM Credit Adjustments loss “reflecting higher funding spreads on derivatives.” We hope to learn more on what this was for during the earnings call.

Meanwhile, even as trading revenue tumbled, JPM reported Ibanking expense of $4.7B, up 3% YoY reflecting investments in the business and higher volume-related transaction costs, which however were offset by lower FDIC charges and lower performance-based compensation.

While the rest of the earnings were generally uneventful, it is worth noting (especially with Wells about to report) that JPM’s Q4 mortgage origination volume was $18.7BN in Q4, down 30% from $26.6BN in Q4 2017 as mortgage activity continues to collapse across the industry.

And in another potential warning sign, home Lending numbers were also unexpectedly weak, with net revenue down 8 percent to $1.3 billion, “driven by lower net production revenue on margin compression and lower volumes.”

 

Not surprisingly after what was easily the worst earnings report for JPM in over four years, the stock has tumbled.

And as we await Wells Fargo’s earnings due out shortly, here is JPM’s full earnings presentation.

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One week after unveiling its latest monetary easing in the form of an RRR cut, China unveiled yet more stimulus, this time fiscal, announcing it will cut taxes “on a larger scale,” increasingly relying on tax cuts as the first line of defense against a slowing economy, in a departure from the infrastructure binges of the past. And while this was sufficient to boost global equities overnight, and helped push most global markets into the green…

… much of the rally fizzled as US equity futures trimmed half of their overnight gains…

… while European stocks were almost unchanged after starting off sharply higher.

Earlier, Asian stocks rose on Tuesday, supported by a bounce in Chinese shares amid hopes for government stimulus following the latest dismal Chinese trade data. MSCI’s index of Asia-Pacific shares ex-Japan recovered from early losses and advanced 1.3%. South Korea’s Kospi hit a one-month high and Japan’s Nikkei added 1 percent as the USDJPY rebounded in early trading.

In China, the CSI300 index of Shanghai and Shenzhen shares was up 1.7% amid expectations of more government policy measures to prop-up a slowing economy while lending data from the country beat estimates in December. The Shanghai Composite closed at session highs, up 1.4%.

China’s state planning agency said on Tuesday it will aim to achieve “a good start” in the first quarter for the economy in a signal of more growth-boosting steps. State television also quoted Chinese Premier Li Keqiang as saying the government is seeking to establish conditions helpful to meeting this year’s economic goals.

As Bloomberg notes, the potential stimulus in China and warm welcome it received from markets reflects the delicate balance underpinning 2019’s risk-asset rebound: The same weak macro data that prompted a sell-off at the end of last year has the potential to spur looser monetary policies and therefore ignite a rally.

Cyclical shares led the gains in Asia-Pacific, with Australian financial shares at their highest since early December while Japanese electronics and machinery makers shares rose to their best levels in six weeks. “It is interesting that cyclicals are leading the gains today. It appears some contrarian investors are starting to buy cyclicals, looking beyond the last economic slowdown,” said Nobuhiko Kuramochi, chief strategist at Mizuho Securities. “But I would suspect there will be heavy selling if we go up further, to around 2,650 in the S&P500 and 21,500 in the Nikkei,” Kuramochi added.

The rally carried over to Europe with the Stoxx Europe 600 Index still higher for the fifth day in six, though the rally fizzled as the session progressed as traders discounted China’s latest promise stimulus.

Gauges in Hong Kong and Shanghai were among the biggest gainers after senior Chinese officials vowed tax cuts to boost growth,

Contracts on the S&P 500, Nasdaq and Dow Jones indexes all rose, with the EMini briefly breaching the 2,600 resistance level before heading lower.

The dollar strengthened and the yen fell. The euro dropped after German data confirmed the weakest year for growth since 2013 although after German GDP dipped 0.2%, the Federal Statistics Office said the country had narrowly avoided a recession.

Treasuries edged higher as most European bonds gained. The sterling braced for the vote in parliament over the British government’s plan to exit the European Union.

However, despite a barrage of bank earnings, the British pound is expected to steal the limelight later in the day as the Britain’s parliament votes on the proposed Brexit deal. On Monday, May urged lawmakers to take a “second look” at her deal, which lawmakers are expected to reject. Such a result could produce a wide range of outcomes, from a disorderly exit from the union to a reversal of Brexit.

“Markets have priced in a rejection of May’s plan and there are many scenarios after that. Still I’d think the most likely outcome is to extend the (March 29) deadline of Brexit,” said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management.

Indeed, currency option markets are barely pricing in the chances of sharp moves in sterling. The pound’s one-month implied volatility stood at 12.625 percent, above the average for the past year of around 8.8 percent well off 20-percent plus levels seen in the days just before the UK referendum on June 23, 2016.

The pound dropped below $1.29, having hit a two-month high of $1.2930 on Monday after a report, subsequently denied, that a pro-Brexit faction of lawmakers could support May’s deal. Additionally, Germany denied reports that German Chancellor Merket offered concessions to UK PM May; following reports that German Chancellor Merkel has offered PM May certain last-minute assistance, while reports also noted that PM May is considering a 2nd vote on Brexit deal if first one is rejected. German Foreign Minister Maas later said that if the current deal is rejected by UK parliament there could be new talks with the EU. UK cabinet ministers suggested that PM May will be expected to stand down if she is heavily defeated in the Brexit vote, according to source report.

UK Labour MP Benn has confirmed he has pulled amendment this morning as part of an effort by Labour party to table vote of no confidence this evening. The amendment, if passed, would reject the withdrawal agreement, convey a lack of support for no deal and pave the way for MPs to put forward alternative plans for Brexit. Opposition for the amendment comes from Labour leadership believing that it’s passage would offer PM May the opportunity to pull her deal, therefore sparing her a crushing defeat. Furthermore, Sky analysis believes that the UK Government are to lose the meaningful vote by 226 votes.

In geopolitical news President Trump is said to have sent a letter to North Korea leader Kim and reports also noted North Korean official Kim Yong Chol may visit Washington D.C. this week regarding a 2nd Trump-Kim summit. Furthermore, it was also reported that US Secretary of State Pompeo may conduct talks this week with North Korea. Additionally, US President Trump tweeted that he spoke with Turkish President Erdogan in which topics discussed included economic development between US and Turkey, while he also suggested that there is great potential for a significant expansion.

China’s Foreign Ministry says facts show China is safe and Canada has arbitrarily detained foreign citizen; adding that the Canadian side can abandon prejudices and quit making irresponsible remarks. Adding that it is clear the Huawei Executive Meng’s case is not normal and is an abuse of legal procedures

Elsewhere in commodities, oil prices also rebounded on supply cuts by producer club OPEC and Russia. International Brent crude oil futures were at $59.80 per barrel, or 1.37 percent from their last close.

Market Snapshot

• S&P 500 futures up 0.3% to 2,588.75
• STOXX Europe 600 up 0.4% to 349.02
• MXAP up 1.1% to 152.24
• MXAPJ up 1.4% to 492.62
• Nikkei up 1% to 20,555.29
• Topix up 0.9% to 1,542.72
• Hang Seng Index up 2% to 26,830.29
• Shanghai Composite up 1.4% to 2,570.34
• Sensex up 1.2% to 36,281.60
• Australia S&P/ASX 200 up 0.7% to 5,814.56
• Kospi up 1.6% to 2,097.18
• German 10Y yield fell 2.6 bps to 0.205%
• Euro down 0.3% to $1.1432
• Italian 10Y yield fell 1.1 bps to 2.483%
• Spanish 10Y yield fell 3.5 bps to 1.384%
• Brent futures up 0.9% to $59.52/bbl
• Gold spot down 0.3% to $1,288.12
• U.S. Dollar Index up 0.2% to 95.84

Top Overnight News

• British and European Union diplomats are now working on the assumption that the U.K. will leave the bloc later than the planned exit date of March 29 if Prime Minister Theresa May loses Tuesday’s Brexit deal vote in Parliament
• China’s government is turning increasingly to tax cuts as the first line of defense against a slowing economy, in a departure from the infrastructure binges of the past
• China’s credit growth exceeded expectations in December, with the second acceleration in a row indicating the government and central bank’s efforts to spur lending are having an effect
• Germany’s economy narrowly avoided a recession at the end of 2018 after a slump in industry raised concerns over Europe’s growth engine
• Swedish Social Democrat leader Stefan Lofven has one day to form consensus for a new government
• Donald Trump and Turkish President Recep Tayyip Erdogan spoke by phone and tamped down their public rhetoric Monday after the U.S. president warned the country risked economic ruin if it defies him. Wild lira ride awaits if the central bank cut rates
• OPEC and its allies plan to hold a meeting in March to assess their oil-production accord in Azerbaijan, and then ministers will gather to set policy in April, according to the organization’s top official
• Kim Jong Un told the world this month that North Korea took steps to stop making nuclear weapons in 2018, a shift from his earlier public statements. The evidence shows production has continued, and possibly expanded

Asian equity markets were mostly higher as sentiment in the region recovered from the recent China-triggered weakness that had been due to disappointing trade data which dragged the US major indices to their first consecutive loss of the year. Nonetheless, risk appetite improved overnight with both ASX 200 (+0.7%) and Nikkei 225 (+0.9%) positive, in which the latter recovered from early selling pressure as it initially tracked the prior day’s losses on return from its long weekend. Elsewhere, Shanghai Comp. (+1.4%) and Hang Seng (+2.0%) were underpinned amid a deluge of comments from Chinese agencies including the Finance Ministry which stated that China will implement larger tax and fee cuts, while the NDRC said China will continue implementing proactive fiscal policies. In addition, the PBoC conducted a respectable liquidity injection of CNY 180bln but expects a rapid decline of banking liquidity in the approaching days, while there were also hopes for an improvement in the trade environment after reports that super tankers carrying 6mln bbls of crude left the Texas coast and are likely heading to China. Finally, 10yr JGBs were subdued as the gains in stocks sapped demand for safe-havens and following the recent similar pressure in T-notes, but with losses stemmed amid the BoJ’s presence for JPY 1tln of JGBs with maturities spread across the curve.

Top Asian News

• China’s Yuan Defies Dismal Economy to Head for Six-Month High
• China Is Making Tax Cuts the Key Weapon Against the Slowdown
• China Adding Stimulus Emboldens Asia Stock Traders to Hit ‘Buy’
• UBS Asset Turns Bullish on Junk China Property Dollar Bonds

Major European indices are relatively flat [Euro Stoxx 50 +0.1%] as equity markets gave up initial gains post German FY GDP of +1.5%. Marginal underperformance is seen in the FTSE MIB (-0.2%) where banking names such as UBI Banca (-5.7%), Bper Banca (-4.3%) and Banco BPM (-3.8 %) are at the bottom of the index following the ECB asking Italian banks to set aside additional money to fully cover impaired loans by 2026. Sectors are similarly all in the green, with outperformance in materials and industrials. Other notable movers include gambling names after the US Justice Department stated that all online gambling is now illegal; as such William Hill (-1.6%) and Paddy Power (-1.8%) are in the red. At the bottom of the Stoxx 600 are Provident Financial (-18.0%) following the Co stating that they expect 2018 profits to report towards the lower end of market expectations.

Top European News

• Draghi Readies for First New Year Speech as Economy Falter
• Brexit Donor Hargreaves Says U.K. May’s Deal Should Be Rejected
• Hungary Faces Price Dilemma as Core Inflation Quickens Again
• Russia Has Room to Cut Dollar Reserves by Another $35b, ING Says

In FX, EUR largely on the backfoot amid a strengthening Dollar and following the release of German annual GDP which printed in-line with forecasts at 1.50% Y/Y, the weakest performance in five years with market participants noting that a German technical recession could have been narrowly missed (with the Q4 release scheduled on 14th Feb). EUR/USD sits around the bottom of a 1.1423-91 band ahead of a double-Draghi day, his first speech however provided little in way of monetary policy commentary. Back to the dollar, DXY received a wave of demand shortly after the German numbers with DXY spiking to highs of around 95.900 from overnight lows of 95.450 with State-side news flow on the light side.

JPY, CHF – Conforming more to the bout of dollar strength rather than an unwind in safe-haven positions with both USD/JPY and USD/CHF higher by around 0.4% on the day ahead of the Brexit meaningful vote. USD/JPY advances further above 108.00 after having reclaimed the handle during overnight trade and currently resides nearer to the top of a 108.15-75 range ahead of a Fib a 109.16 with little to report on the options expiry front. Similar action with the Franc as USD/CHF breached 0.9850 to the upside ahead of its 100 and 200 DMAs at 0.9878 and 0.9889 respectively.

• GBP – Choppy session for the Pound thus far as traders eye the long-awaited House of Commons meaningful vote scheduled for later today (full schedule available on the headline feed), as PM May attempts to accumulate MP backing to pass her deal. According to the Sun’s Political Editor, Senior Tories believe the Premier is poised for a 150-160 vote defeat tonight, though a list of amendments will be released at the start of the Parliamentary session around 12.45GMT with special focus on Murrison amendment (setting an expiry date of 31st December 2021 to the NI backstop) as a way of snatching a narrow defeat. Tory Brexiteers and the DUPs are known to not support a deal which includes a timeless backstop or a unilateral exit clause, Murrison’s amendment seeks to readdress this and if passed, may shore up some support from the rebels, DUP are said to have rejected this amendment in belief the EU will not be bound by the expiry date. Earlier in the day Hilary Benn’s amendment was pulled out amid the opposition leaders’ desire for PM May to suffer a crushing defeat (the amendment, if it was to be passed, would have rejected the withdrawal agreement, convey a lack of support for no deal and pave the way for MPs to put forward alternative plans for Brexit). As such, Cable pared back overnight gains and gave up the 1.2900 handle to test the psychological (and 50 HMA) at 1.2850 to the downside and currently resides at the bottom of a 1.2831-1.2915 intraday range. Meanwhile, Morgan Stanley assumes that Cable at current levels is pricing in a lot of uncertainty and assumes GBP/USD to reach 1.30 in around 6-month and 1.50 by year-end as Cable’s PPP fair value estimate stands at 1.40.

In commodities, Brent (+1.7%) and WTI (+1.6%) are higher as the risk tone improves from the Chinese-trade sparked downturn seen in yesterday’s session, with prices just under the USD 60/bbl and USD 51/bbl respectively. Focus is on the API weekly release later in the day, where crude oil inventories are expected to have declined by 2.5mln/bbl; separately, the EIA are to release their Short-Term Energy Outlook today which contains their expanded forecast discussion. Saudi Energy Minister Al Falih says he sees oil demand growth for the foreseeable future, and that the 1.2mln BPD OPEC+ cut will have a strong impact which will take some time to be reflected within the market. Gold (-0.1%) prices are down as the demand for safe havens has declined with the improvement in risk sentiment; with the yellow metal trading towards the bottom of its USD 5/oz range. Elsewhere, the US Senate are to begin voting today on a resolution which criticises the Trump administration’s decision to reduce sanctions on companies which are connected to Russian oligarch Deripaska; which includes aluminium company Rusal.

US Event Calendar

• 8:30am: Empire Manufacturing, est. 10, prior 10.9
• 8:30am: PPI Final Demand MoM, est. -0.1%, prior 0.1%; PPI Ex Food and Energy MoM, est. 0.2%, prior 0.3%
• 8:30am: PPI Ex Food, Energy, Trade MoM, est. 0.2%, prior 0.3%;PPI Ex Food and Energy YoY, est. 2.95%, prior 2.7%

DB’s Jim Reid concludes the overnight wrap

If you want to depress yourself this morning read the guidance from the British Nutrition Foundation released yesterday which suggested that for optimum health food portion sizes should be measured by hands, thumbs and fists. After reading it I indeed wanted to use my fists but not for the reason intended by the author.

As examples, if you’re having jacket potatoes the correct portion size is a clenched fist (I might try to use Mike Tyson’s). For cheese it should be the size of two thumbs (I note that the largest thumb ever recorded was a Chinese man who had one measuring 10.2 inches), for pasta or rice two handfuls is the recommended amount (I shall resort to wearing wicket keeping or baseball gloves while cooking). All rather depressing. Maybe instead you should join me in “Dry January”. Yes this month I shall only be indulging in dry white wine, dry champagnes, dry martinis, dry sherry and dry gins and tonics.

You may need a stiff drink to work out what happens next after tonight’s Brexit vote in the House of Commons. On timings the vote is due to take place after the debate finishes at 7pm GMT with votes on amendments coming first. In all likelihood the vote looks set to fail given that PM May has failed to secure the necessary support from MPs in recent weeks. DB’s Oliver Harvey estimates a 20% probability of May resigning post the vote (or cabinet collectively withdrawing support) and an 80% chance of her staying on as leader. In the case of the latter, the government will have to provide an updated strategy by Monday after last week’s surprise amendment that voted to shorten it from over three weeks to three days.

Throwing all the balls into the air, DB’s Oli Harvey believes there are five corresponding scenarios. The most likely scenario (at a 30% probability) is May pivots towards a cross party consensus on a new mandate which would instruct the government to renegotiate the Political Declaration on the Future Relationship towards a softer relationship. For this to be reached, it might be necessary for the Labour Party to call, and lose, a vote of no confidence in the government first. A small extension on Article 50 is probably necessary for this scenario as well as another round of EU negotiations. The other four scenarios are; a 10% chance of May using multiple votes to force through the existing deal in the face of a crash Brexit, a 15% chance of a second referendum, a 15% chance of a new election and a 10% chance of no deal/crash Brexit. Regarding the worst case latter scenario, the news that the EU appears prepared to extend Article 50 to July or beyond does appear to be a material positive to lowering the odds of no deal at all. Anyway more in Oli’s note from yesterday here .

Ahead of vote today on PM May’s deal, the Commons Speaker, John Bercow will select amendments from those suggested by MPs. The amendments to be considered range from Labour’s, which rejects the current deal while also repudiating a no-deal Brexit and calling for the Government to examine all available options, to the Lib-Dem’s, which calls for a second referendum. A vast majority of others are related to the Northern Ireland backstop arrangement with the Conservative MP Andrew Murrison calling for an amendment that would put a time limit on the Northern Ireland backstop, aimed at reducing the scale of the expected government defeat. Meanwhile, Labour MP Hilary Benn is withdrawing his amendment, which had cross-party support and rejected both the current deal and a no-deal outcome (similar to Labour’s proposal). Mrs May is reportedly considering amendments which would put time limits on the Northern Ireland backstop, in an effort to regain support from the DUP. Such a framework has already been rejected by the EU, so it’s not clear how useful a winning vote on this would be. Sterling is up +0.26% in early trade this morning ahead of today’s vote.

Onto markets and for only the third time this year US equities closed lower across the board yesterday as that soft trade data out of China in the morning, in addition to a bit of general fatigue for risk assets following the recent strong run, appeared to be enough of an excuse for investors to pull back a little. The S&P 500, NASADQ and DOW closed -0.53%, -0.94% and -0.36% respectively although at one stage it looked like it might have been worse firstly with PG&E (-53.36%) taking the wider utilities sector (-2.23%) down after announcing plans to file for Chapter 11 and then Citigroup reporting lower than expected Q4 revenues. However, the latter never really fed its way through to the wider banks sector with Citi’s shares, actually closing up +3.95% after the CEO said that conditions have improved so far in January. Plus, digging into the results, credit quality improved for both corporate and consumer loans, and expenses declined. The wider S&P Banks sector ending +1.36% in what was a rare bright spot for the broader index. JP Morgan and Wells Fargo, two of the three largest US banks by market cap, are due to report earnings later today.

Meanwhile, US HY cash spreads edged +4bps wider, while 10-year Treasury yields traded flat. Two-year yields rallied -0.6bps, helping the 2s10s curve to steepen slightly at 16.5bps and more or less in the middle of the range since the start of December. The USD was a touch weaker, as Fed Vice Chair Clarida reiterated his recent guidance in an interview. He said the Fed can afford to be patient and assess policy “meeting by meeting”, so continuing to signal no immediate urgency to raise rates. WTI oil ticked down -1.61% to mark the first two-day decline for oil this year.

A quick refresh of our screens this morning indicates that risk-on is back in Asia with the Nikkei (+0.80%), Hang Seng (+1.54%), Shanghai Comp (+0.96%) and Kospi (+1.31%) all up as China indicated that it will cut taxes “on a larger scale” to help support its slowing economy, according to agreements reached by top leadership at the economic work conference last month. China’s onshore yuan is up +0.23% alongside most Asian currencies. Elsewhere, futures on the S&P 500 are up +0.58% while crude oil prices (WTI +1.15% and Brent +1.12%) are also trading higher.

Aside from the China data yesterday, the only other major release of note came in Europe with the November industrial production reading for the Euro Area. The data was worse than feared at -1.7% mom (vs. -1.5% expected) and means the year-on-year reading is now down to -3.3% and the lowest since 2012. In Germany, wholesale prices fell -1.2% mom, the sharpest drop since 2014 and the second sharpest since 2009. There is increasing chatter about a technical recession being possible in Germany for Q4 and Q1 so data like this isn’t helping rule that out.

To the day ahead now, where the early data releases in Europe this morning include the final December CPI revisions in France and the final 2018 GDP reading for Germany. For the latter the consensus is expecting a 1.5% increase in real GDP after 2.2% in 2017 (our economists forecast 1.6%). Also out this morning is the November trade balance for the Euro Area, while this afternoon in the US, we’ve got the January empire manufacturing print and December PPI report. The latter is expected to show a -0.1% mom decline in the headline and +0.2% mom increase for the core. Away from the data, we’re due to hear from ECB President Draghi this afternoon, followed by Fed officials Kashkari, George and Kaplan later on. Needless to say the aforementioned Brexit vote this evening will be a big focus while the key companies reporting earnings include JP Morgan, Wells Fargo, Delta Airlines and UnitedHealth.

via RSS http://bit.ly/2RTtEtE Tyler Durden

As more Western governments turn their backs on Huawei and blocked the use of its pioneering 5G technology over concerns about its close ties to Chinese intelligence, Huawei’s reclusive founder Ren Zhengfei has broken a years-long silence to speak out during a meeting with foreign reporters at the company’s headquarters in Shenzen on Tuesday.

Ren’s comments come after a host of senior executives, including rotating chairman Ken Hu, have denied rumors about the company’s complicity in Ministry of State Security espionage efforts. Notably, Ren met with reporters a few days after Polish authorities arrested a Chinese national and Huawei executive on espionage charges, prompting Huawei to fire the man.

In what was his first interview with the foreign press since 2015, Ren repudiated accusations that Huawei takes orders from Beijing, while praising President Trump (who once suggested he might intervene to pardon Ren’s daughter, Huawei CFO Meng Wanzhou, who was arrested in Canada last month and will likely be extradited to the US) and disclosing that he owns only a 1.14% stake in Huawei (a firm that is privately owned by its employees) – putting his net worth at close to $2 billion.

According to the FT, Meng, a former officer in the People’s LIberation Army, said the government had never asked him to provide “improper information” and that he missed his daughter “very much.”

And although he loves China and supports the CPC, he would never do anything to harm another nation.

“I still love my country, I support the Communist party, but I will never do anything to harm any country in the world,” he said, echoing earlier dismissals of allegations that Huawei was involved in espionage.

[…]

“Huawei firmly stands on the side of customers when it comes to cyber security and privacy,” Ren said.

In light of Trump’s comments about possibly pardoning Meng if it would help resolve the US-China trade dispute, Ren offered effusive praise for Trump, saying he is a “great” leader and that his tax cuts have been good for the US economy, according to Bloomberg.

“Huawei is only a sesame seed in the trade conflict between China and the U.S.,” Ren said from the company’s campus in Shenzhen. “Trump is a great president. He dares to massively cut taxes, which will benefit business. But you have to treat well the companies and countries so that they are willing to invest in the U.S. and the government will be able to collect enough tax.”

Ultimately, Ren said he wanted to spread a message about the importance of “collaboration” and “shared success”. And despite the pushback against Huawei in the developed world, Ren still expects the company’s revenues to swell to $125 billion by 2025, from $100 billion on Tuesday.

“The message to the US I want to communicate is: collaboration and shared success. In our world of high tech, it’s increasingly impossible for any single company or country to sustain or to support the world’s needs,” Mr Ren said.

The backlash against Huawei followed a landmark year for the company. In 2018, it overtook Apple as the world’s second largest smartphone maker…

…The company also generates more sales than Alibaba Group and Tencent combined.

Its leadership in 5G remains a point of envy for US telecoms companies. According to the Treasury Department, Huawei holds about 1/10th of the patents for 5G technology.

“I’m a strong supporter of the world building a unified technology standard,” Ren said.

Ren officially retired from the firm in 2011, after founding it in 1987 with three other former Army officers. He used strong words to reject the notion that Huawei does the bidding of the Chinese government describing these claims as an “affront.”

As tensions between Huawei and the US continue to simmer, we imagine this strategic PR blitz from the typically quiet company isn’t over yet.

via RSS http://bit.ly/2DawHpb Tyler Durden