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The pre-dawn arrest of former Trump adviser Roger Stone in connection with the Mueller investigation has many scratching their heads over how it went down. Not only did the FBI surprise Stone at 6am Friday morning with a knock on his door – as opposed to simply notifying his attorney and letting Stone turn himself in, but CNN was there to film the entire thing going down. 

Wow wow wow.

CNN got video of the FBI making the Roger Stone arrest before 6AM. pic.twitter.com/iDBSYUKKzF

— Erick Fernandez (@ErickFernandez) January 25, 2019

FBI arrested my neighbor Roger before my morning jog, I’ve only seen shit like that in movies, crazy to start to my Friday

— Chad Johnson (@ochocinco) January 25, 2019

This begs the question; did the FBI tip off CNN for their dramatic “takedown” of Stone? 

Former Fox News host Greta Van Susteren certainly thought so on first take, tweeting: “CNN cameras were at the raid of Roger Stone…so FBI obviously tipped off CNN…even if you don’t like Stone, it is curious why Mueller’s office tipped off CNN instead of trying to quietly arrest Stone;quiet arrests are more likely to be safe to the FBI and the person arrested.” 

CNN cameras were at the raid of Roger Stone…so FBI obviously tipped off CNN…even if you don’t like Stone, it is curious why Mueller’s office tipped off CNN instead of trying to quietly arrest Stone;quiet arrests are more likely to be safe to the FBI and the person arrested

— Greta Van Susteren (@greta) January 25, 2019

Others shared her sentiment: 

The FBI special ops-style predawn raid of Roger Stone for process crimes and the tipoff of CNN is a sad day for America

CNN is literally on the side of the police state left

Perp walks are a feature of witch hunts

— Jack Posobiec 🇺🇸 (@JackPosobiec) January 25, 2019

It’s possible this tip-off came from FBI rather than Mueller’s office, but either way, nobody should be comfortable having law enforcement engineer with media outlets the filming of someone’s arrest at their home like a reality TV circus. But it’s Roger Stone, so few will care. https://t.co/H7VvltkoCE

— Glenn Greenwald (@ggreenwald) January 25, 2019

CNN claims that they staked out Stone’s house based on “unusual grand jury activity in Washington yesterday” along with other information.  

That would be @davidgshortell. He said on air that he got to Stone’s house early this morning after they noticed some unusual grand jury activity in Washington yesterday. https://t.co/4ohoaMTdCe

— Kaitlan Collins (@kaitlancollins) January 25, 2019

CNN producer David Shortell admitted that he was “waiting” outside Roger Stone’s house at 5am, an hour before FBI agents and police arrived to arrest the former Donald Trump associate. https://t.co/DzSpuOFVqz

— Paul Joseph Watson (@PrisonPlanet) January 25, 2019

Van Susteren, upon further reflection, acknowledged that there were others would could have tipped off CNN, including Stone himself. 

Upon reflection, there are others who could have tipped off CNN …others knew, maybe even Stone suspected it and tippped them off…as an aside, if I worked for a news org and had the tip, I would have sent cameras https://t.co/aSaiBZ4LNL

— Greta Van Susteren (@greta) January 25, 2019

Meanwhile, many are questioning the decision to conduct a “heavy raid” on Stone for lying to Congress, while others connected to the Trump campaign such as Paul Manafort have been allowed to simply turn themselves in. 

Just shows me it’s all about the theatrics. I’m sure if Stone’s lawyers were notified of his arrest, he would have turned himself in. The same for Manafort. I don’t thing Shock and Awe works in these cases.

— Barry Butler (@barrybutler2008) January 25, 2019

Roger Stone indicted for lying to Congress

James Clapper is a CNN commentator on national security after blatantly lying to Congress about mass surveillance of American citizens

CNN considers him an expert

— Jack Posobiec 🇺🇸 (@JackPosobiec) January 25, 2019

via ZeroHedge News http://bit.ly/2TcK3H3 Tyler Durden

Authored by Mark Brandly via The Mises Institute,

In our Principles of Microeconomics courses, we sometimes consider whether a firm should shutdown some line of production. A firm shuts down when it ceases operations, when it closes down and stops its production. The firm stops spending money on everything except its fixed costs.

A federal government “shutdown” has a completely different meaning.

There has been much hand wringing over the current government shutdown that began on December 22 of last year. The Treasury department, with its Daily Treasury Statements, has provided us with details regarding federal spending through January 18. So we have the data on the first four weeks of the shutdown. Let’s try to determine the definition of a government shutdown.

In order to have some baseline for comparison, consider the budget for Fiscal Year 2018. The Treasury Department reports on all of the dollars withdrawn from federal accounts. In one sense, this is all federal spending. In FY 2018, withdrawals from federal accounts totaled $13,961.9 billion. That works out to a daily average of $38.3 billion.

In the first 28 days of the shutdown, the feds total withdrawals were $1,163 billion. That’s a daily average of $41.5 billion. If we define federal spending as the total withdrawals from federal accounts, then average daily spending during the shutdown is about 8.5% higher than it was in Fiscal Year 2018.

However, the federal government is rolling over a large amount of its debt. It is issuing new government securities and using the funds from this sale of these securities to pay for previous securities that have come due. These withdrawals are under the line item Public Debt Cash Redemptions. It’s analogous to a firm borrowing money to make the principal payments on its debt.

The bulk of federal spending is this type of spending. The reason this spending number is so high is because of this debt service.

Most everyone, all households and businesses, would classify loan payments as spending, even if they financed the loan payments by borrowing money. However, most analysts, when they discuss federal spending, omit this debt service. They usually only include the other types of spending. So let’s take a look at that.

In FY 2018, federal withdrawals (spending) not including the debt service (PDCR) totaled $4,757.8 billion. That’s a daily average of $13 billion. (As an aside, please note that two-thirds of federal spending in FY 2018 was debt payments. This should make us uneasy regarding the federal government’s long term financial viability.)

For the first four weeks of the shutdown, December 22, 2018 to January 18 of this year, withdrawals less PDCR totaled $338.5 billion for a daily average of a little more than $12 billion.

So by this measure of federal spending, the feds are spending on average 7.3% less per day during this shutdown than they did in FY 2018.

Regardless of your position on the shutdown, we should recognize the deceit involved in calling this a shutdown. Spending $12 billion per day is not a shut down. Spending 7% less than you spent last year is not a shutdown.

Calling the current budget impasse a shutdown is just another example of the political corruption of our language.

via ZeroHedge News http://bit.ly/2RMZ0TE Tyler Durden

Given that algos aren’t widely regarded for their ability to detect nuance, Wilbur Ross’s comment yesterday that the US and China remained “miles and miles” apart on trade (though he clarified that this “shouldn’t be too surprising” since the most important talks had yet to take place) ignited a selloff that prompted one of the worst daily selloffs in US stocks since the earliest trading days of the year.

It was only the latest example of Trump administration officials seemingly taking turns talking up – and talking down – the prospects for a trade deal. But with the administration fearful of a sustained selloff – particularly when trade optimism is seemingly the only bulwark against more market chaos – the White House has found a way to reassure investors once again that everything is as it should be with the deadline for a trade agreement looming in the not too distant future.

And ironically, the news that’s sparking optimism in the equity space on Friday is confirmation that a delegation led by two senior Chinese ministers would head to Washington next week to prime the pump for a visit by Liu He, China’s top trade negotiator, and a group of other senior officials later this month.

Though they would seem to undermine the credibility of all future trade-related denials, the report published by Bloomberg, which follows denials by both the White House and Beijing of an  FT report claiming that the US had cancelled the meeting (which sent markets into a tailspin early this week), has helped renew optimism in the trade-talk process on Friday.

A Chinese delegation including deputy ministers will arrive in Washington on Monday to prepare for high-level trade talks led by Vice Premier Liu He, according to people briefed on the matter.

Vice Commerce Minister Wang Shouwen and Vice Finance Minister Liao Min will arrive in the U.S. on Jan 28, according to two of the people who asked not to be named as the discussions aren’t public. China’s central bank governor Yi Gang will join the talks, one of the people said. It wasn’t immediately clear which other officials will attend.

Liu will arrive in the US on Jan. 30 to meet with Trade Rep Robert Lighthizer for talks that the US has billed as “very, very important”. At that point, with only five weeks remaining until the deadline for escalating tariffs on $200 billion in Chinese goods, investors should start to get an idea of the likelihood of an amicable outcome.

As of Friday, the US and China did not appear close to agreement on a range of key issues, from China’s handling of intellectual property to China’s trade surplus with the US. It’s unclear what other Chinese officials will accompany Liu, but what China threatening to crash US markets if Trump doesn’t make a deal, one thing is clear: The situation is growing more dire every day.

via ZeroHedge News http://bit.ly/2UgEI1D Tyler Durden

Over the weekend, we showed the one chart that every trader should have “taped to their screen“, namely Nomura’s latest recap of the key Fed balance sheet roll-off dates, or those days in which there is a tangible decline in system liquidity as billions in Fed holdings of Treasurys and MBS mature, and the resultant proceeds as the Treasury repays the Fed in cold, hard cash are subsequently destroyed by the Federal Reserve which, as part of Quantiative Tightening, is now in the process of shrinking the money currently in the system.

Well, it now appears that the chart above may have to be substantially truncated, because according to a d anticipated. That is, assuming the bank’s top policy makers follow through on speculation reported Friday morning by the Wall Street Journal report, the Fed might acquiesce to President Trump’s demands that they “stop with the 50 Bs” – a reference to the central bank’s monthly peak balance sheet runoff, which as we explained previously is really 36.2 Bs…

… sooner than many investors had anticipated.

Just a few weeks after Fed Chair Jerome Powell backtracked on his claim, articulated during the press conference that followed the December Fed meeting, that the runoff of the Fed’s balance sheet was on “autopilot”, the WSJ said Friday that the central bank’s top policy makers are seriously considering maintaining a larger balance sheet than what the central bank had initially anticipated when it stopped reinvesting the proceeds from expiring holdings.

Federal Reserve officials are close to deciding they will maintain a larger portfolio of Treasury securities than they’d expected when they began shrinking those holdings two years ago, putting an end to the central bank’s portfolio wind-down closer into sight.

Officials are still resolving details of their strategy and how to communicate it to the public, according to their recent public comments and interviews. With interest rate increases on hold for now, planning for the bond portfolio could take center stage at a two-day policy meeting of the central bank’s Federal Open Market Committee next week.

Yet nothing is certain yet, as Kansas City Fed President Esther George in a Jan. 15 interview: “A lot of the heavy lifting has been done. We’re waiting for the committee to be satisfied that they have reached sufficient understanding of what all the moving pieces are.”

Curiously, when the balance sheet unwind began, few – and certainly not Chicago Fed president Charles Evans – expected it would become such an important issue in the eyes of the market… which is of course bizarre considering it was the expansion of said balance sheet from under $1 trillion to its peak of $4.5 trillion that was the key catalyst behind the market’s rebound from the “generational low” in 2009.

The Fed began gradually shrinking its mortgage and Treasurys portfolio in 2017 by allowing securities to mature without reinvesting the proceeds into other assets. At the time officials said the slow unwind would fade into the background – the equivalent of watching paint dry.

As a result, the Fed expected the process to take up to four years to play out, with many expecting it to conclude some time in 2020. When the runoff began in October 2017, various officials estimated the portfolio—then around $4.5 trillion – could shrink to anywhere between $1.5 trillion and $3 trillion. New York Fed President John Williams went one better in April 2017, when he was the San Francisco Fed’s president, and said that runoff could last five years. Powell himself gave a tentaive ETA of 2020/2021.

“In about three or four years, we’ll be down to a new normal,” said Fed Chairman Jerome Powell at his Senate confirmation hearing in Nov. 2017.

But according to WSJ, the Fed now expects the runoff to end much sooner, though the paper hedged that many policy makers still “don’t understand why the market has placed so much emphasis on the balance sheet lately.” When Esther George surprised markets by calling for a pause on rate hikes, she added that it’s “unclear” whether the balance sheet shrinkage had accomplished much in the way of removing accommodation.

Apparently to the residents of the Marriner Eccles building, inflating the balance sheet is a major market stimulative effect, but its shrinkage should somehow be ignored by the market. And these are the people who set the price of money for the world’s biggest economy…

Whether Powell offers a similar take during the press conference after next week’s meeting will depend on the conversations that take place during the meeting. According to WSJ, the internal debate over the proper size of the balance sheet has focused on the necessary level of reserves in the banking system. Some believe that holding a large amount in reserve would help the Fed better control volatility in short-term credit markets.

Regardless of where the runoff ends, Lorie Logan, one of the officials responsible for managing the portfolio and an executive at the New York Fed, said in a speech last May that she saw “virtually no chance of going back to the precrisis balance sheet size”, which of course is logical: by 2020 there will be roughly $2 trillion in currency in circulation (and rising) which will be the new floor of the Fed’s balance sheet. Ultimately, the Fed hopes to dump practically all of the MBS it accumulated during QE and shift toward a portfolio consisting almost exclusively of Treasurys.

“The conversation is really about the relative amount of reserves,” she said.

This is a concept that many analysts believe isn’t well-understood by investors.

The idea that the Fed won’t return to its precrisis balance sheet size isn’t well appreciated by some stock investors, creating one potential source of market confusion, said Tom Porcelli, chief U.S. economist at RBC Capital Markets. “Equity investors think the runoff is going to continue in perpetuity,” he said.

Well, no. As we discussed last week, investors are only doing what they did during QE and POMO days, only in reverse, and on days when the Fed withdraws liquidity, the market drops, in what JPM’s Marko Kolanovic explained recently has become a self-fulfilling prophecy.

Ultimately, the WSJ report could just be a trial balloon to see how markets – and maybe the president – react to signs of a more dovish take to shrinking the balance sheet. If it works, that should tell markets – and the Fed – everything they need to know. and so far, futures are solidly in the green…

via ZeroHedge News http://bit.ly/2HvJpDb Tyler Durden

Submitted by Michael Every of Rabobank

As Davos wraps up today, what have we got so far so far from the cockpit of globalisation? Warnings of rising nationalism. Fears of recession. Worries that everything could come tumbling down again. And a total rejection of any policy alternatives regardless. It’s as if the Captain of the Titanic admits to the passengers early into the journey that the ship is sinkable, and indeed they will all drown horribly when it goes down, but then reassures everybody he’s sticking to the same route towards the iceberg anyway. Before flying home in his private jet.

Exhibit A: SO ROSS. Billionaire US Commerce Secretary Ross coming across on TV as a “let them eat cake” kind of guy, when wondering why US government workers without pay don’t just go to a loan-shark to get them through the never-ending shut-down. It was a double-whammy from Ross: he also said the US and China are “miles and miles” away from an agreement on trade, meaning March madness looms, before being prodded to stay on message that it’s all good, even if the real issues over Chinese reforms are where this particular ship is likely to sink.

Exhibit B: SOROS. Emmanuel Goldstein George Soros boldly stating China’s Xi Jinping is: “the most dangerous opponent of those who believe in the concept of open society…Authoritarian regimes are proliferating all over the world and if they succeed, they will become totalitarian….I’ve been concentrating on China, but open societies have many more enemies, Putin’s Russia foremost among them….The first step is to recognize the danger…But now comes the difficult part…The reality is that we are in a Cold War that threatens to turn into a hot one. On the other hand, if Xi and Trump were no longer in power, an opportunity would present itself to develop greater cooperation between the two cyber-superpowers.” Soros openly talked about targeting China’s economy in order to bring down Xi, and that Trump is not going far enough in that regard! And Davos gave Xi a standing ovation two years ago.

It’s unclear how far Saudi Arabia’s “can-we-just-move-on-from-the-whole-hacking-a-man-to-death thing”? sales pitch is going so far at Davos, but China is lobbying intensely: it just announced ‘US banks can start operating there in six months’. I am sure useful-idiot headline-followers will say China is opening up. They probably won’t notice the PBOC also announced a Central Bank Bills Swap that will give primary dealers bills they can use as collateral in exchange for a flood of new perpetual bonds that Chinese banks are about to issue, following the lead of the Bank of China (which is offering CNy40bn at around 4.5% for people who never want to get their money back) In other words, Chinese banks, desperate for cash to keep the Ponzi scheme afloat, can issue perpetuals that nobody in their right mind would want to hold; and the PBOC will swap them for its bills. Add that to MLF operations already underway and chatter of outright QE and one finds it hard to see where the real business model for Wall Street is in China, or to argue the part of Soros’ speech where he underlines how fragile China really is (which is why it needs that Wall Street cash-flow).

On a related note, the Canadian ambassador to China, who just helpfully provided the Chinese with a list of legal arguments against the extradition to the US of the Huawei CFO –nothing at all to do with him having received USD73,000 of travel gifts from Chinese lobbying groups when he was a back-bench MP!– has now regretted that he “mis-spoke” his carefully prepared media statement. Let’s see if that has any impact ahead on the key Huawei tug-of-war.

Exhibit C: SO RASH. Davos being brightened by the cadaverous smile of multi-millionaire Tony Blair against a backdrop of mountains that matched his dazzling enamel, who brushed aside all suggestions the 2003 Iraq War, the GFC, and the response to the GFC might have led us to the edge of a populist backlash. And US billionaires publicly laughing out loud at the idea floated by US political shooting star Alexandra Ocasio-Cortez that the US should raise marginal tax rates for those earning more than USD10 million to 70%. (And we should laugh: everyone knows you need to tax capital, not income to soak the rich! How ‘gauche’ to think they pay income tax!) Oh, and BOE Governor Carney saying that threats of jail for bankers are “a total bluff” and the real weapon to hit where it hurts is “deferred compensation and the ability for it to be clawed back.” That’s exactly what the Occupy Wall Street gang wrote on their signs, of course.

Ironically, given how poorly the British ship of state is being piloted, it fell to UK Chancellor Hammond to try to tell UK firms that they had to accept that free movement was coming to an end and hence rethink business models based on cheap, low-skilled labour (and low productivity and wages). Likewise, Italian Prime Minister Conte appeared to sell his administration’s populist vision: “We are radical, but we are radical because we want to bring power back to where it was supposed to be, according to our Constitution, its people,” he said. In short, even in avoiding one iceberg we just hit another.

Meanwhile, rashness in large-iceberg goes on elsewhere. Yesterday we noted a worst-case scenario for Venezuela would be the US backing the ‘new president’ and Russia and China backing the ‘old president’ (A “Gentlemen Prefer Bombs” Monroe Doctrine): well, guess what is happening? And the local military is also siding with the ancient regime for now too.

Rather forlorn in this global picture, the ECB met, did nothing, and tried to show it sees things are getting worse while still believing that actually everything is doing just fine: all very ‘Davos’. Risks to the growth outlook were assessed as being tilted to the downside – mostly because of persisting uncertainties, which may ultimately weigh on confidence; but despite this downgrade of the balance of risks, no policy response was considered. Indeed, Mr. Draghi appeared reluctant to steer towards new policy measures, Draghi-ing his feet, one might say, even as the Council may need to act if the economic weakness persists. And if that does happen, we expect TLTROs, now raised by “several” members, may be the preferred first policy response if data remains weak. For more on that, please see here from Messers de Groot and van Geffen.

via ZeroHedge News http://bit.ly/2MwOhH9 Tyler Durden

It’s a sea of green across global markets, which resumed their rally overnight with European stock and US equity futures following Asian peers higher, shrugging off softer numbers from tech giant Intel and weaker German IFO data, buoyed by strong earnings and optimism from some positive trade-related comments by U.S. officials ahead of next week’s meeting, while tech shares rallied. Gold and oil climbed, while the dollar hit session lows following news Trump advisor Roger Stone was arrested for witness tampering.

European markets opened higher, led by automakers and tech stocks which rose 1.5% and 1%, respectively. Europe’s STOXX 600 index hit its highest since Dec. 4, up 0.8% on the day.  Trade optimism received a fresh boost of optimism after Bloomberg reported that a Chinese delegation including deputy ministers will arrive in Washington on Monday to prepare for high-level trade talks led by Vice Premier Liu He.

The euro gained even as German business sentiment measured by the IFO Survey fell for the 5th month in a row to 99.1 its weakest level in almost three years, while the expectations component tumbled to the lowest level since 2012; confirming a recession in Europe’s biggest economy is closer than most expect; core European sovereign bonds stabilized after rallying for most of the week.

On Thursday, the euro fell to its lowest in six weeks following Thursday’s European Central Bank meeting in which Mario Draghi painted an increasingly downbeat picture of the European economy.

Europe’s gains came as stocks rose overnight in Asia and the United States on the back of strong earnings from U.S. tech firms. The MSCI All-Country World Index was up 0.3% on the day, but the gauge was set to break a four-week winning streak as weak economic data and cautious soundings from central banks pulled the index half a percent down on the week. Chipmaker and software stocks led the way in Asia, shrugging off weaker 2019 forecasts from Intel, which fell in pre-market trading.

Global stocks are poised for their first weekly drop of 2019, with investors questioning the validity of the post-Christmas rally as the earnings season rolls on. Traders are grasping at straws for hints at progress on trade ahead of discussions next week in Washington, while also assessing the economic impact of the 35-day government shutdown that’s hampering the normal flow of official data: “I’m reasonably positive,” Axel Merk, chief investment officer at Merk Investments LLC in San Francisco, told Bloomberg TV. “I don’t think we have an imminent recession which is usually one of the key ingredients to a real bear market, but it’s prudent to diversify.”

Markets reversed losses from earlier in the week even though according to the latest Reuters polls of hundreds of economists from around the world, a synchronized global economic slowdown is underway and any escalation in the U.S.-China trade war would trigger a sharper downturn, and despite a downgrade of US stocks to Neutral by Citi.

Offsetting the economic gloom, in a note to clients, UBS Global Wealth Management’s CIO Mark Haefele said that rhetoric on U.S.-China trade has become more positive, and that Beijing has taken steps to stimulate its economy.

“While economic and earnings growth is slowing, we believe it is unlikely that growth will drop far below trend,” he said. “At the same time, there are reasons to be cautious about policymakers’ ability to follow through on their rhetoric.”

Chinese Vice Premier Liu He will visit the United States on Jan. 30 and 31 for the next round of trade negotiations with Washington. The two sides are “miles and miles” from resolving trade issues but there is a fair chance they will get a deal, U.S. Commerce Secretary Wilbur Ross said on Thursday.

In US political news, President Trump said he wants a prorated down payment on the wall in any short-term government funding bill and that if Senate Majority Leader McConnell and Minority Leader Schumer can reach an agreement on government funding, he would support it. However, US House Speaker Pelosi said the idea of including a down payment on wall is a non-starter and Democrats were said to not support any kind of border wall funds which was made clear to McConnell, while Pelosi was later reported to postpone a press conference concerning counter offer to President Trump.

In central bank news, ECB dove Benoit Coeure said he sees a lot of political uncertainty and that economic slowdown is a surprise to the ECB, adds jury still out on how persistent slowdown will be and that rate guidance may have to be adjusted at some point. While, ECB’s Villeroy (Dovish) stated they remain committed to keeping interest rates low and ECB will probably downgrade the GDP forecast in March. Finally ECB’s Vasiliauskas (Hawkish) stated that there is no reason to change ECB guidance at the moment.

In currencies, the dollar fell 0.2%, hitting session lows shortly after news that Trump advisor Roger Stone had been arrested by the FBI. The euro rebounded 0.36% at $1.1345, recovering from a six-week low hit in the wake of ECB President Mario Draghi’s downbeat comments on Thursday. The ECB’s post-meeting statement for the first time since April 2017 alluded to “downside risks” to growth.

The British pound was also higher, rising 0.2 percent to $1.3076 after brushing a two-month high of $1.3140, lifted after The Sun reported on Thursday that Northern Ireland’s Democratic Unionist Party has privately decided to back May’s Brexit deal next week if it includes a clear time limit to the Irish backstop.

10-year U.S. Treasurys yields were slightly higher at 2.729% after dropping to a one-week low as pessimism over global growth supported safe-haven government debt.

In commodities, Brent (-0.1%) and WTI (+0.2%) prices are mixed and off of session highs, just under USD 62/bbl and USD 54/bbl respectively; in spite of yesterday’s unexpected EIA crude inventory build of 7.97mln vs. Exp. -0.042mln draw. Elsewhere, Russia was China’s largest crude oil supplier for December and 2018; with Russia being the largest crude supplier to China for the third year in a row. Gold (+0.3%) is marginally higher on the weakness in dollar, in spite of the positive risk sentiment reducing safe haven demand for the yellow metal. Copper prices are benefiting from market sentiment, whilst palladium has lost over 8% since reaching a high of just under USD 1400/oz last week.

Today’s publication of durable goods orders and new home sales is postponed by government shutdown. AbbVie and Colgate-Palmolive are reporting earnings.

Market Snapshot

• S&P 500 futures up 0.6% to 2,650.75
• STOXX Europe 600 up 0.7% to 358.16
• MXAP up 1% to 154.44
• MXAPJ up 1.2% to 503.03
• Nikkei up 1% to 20,773.56
• Topix up 0.9% to 1,566.10
• Hang Seng Index up 1.7% to 27,569.19
• Shanghai Composite up 0.4% to 2,601.72
• Sensex down 0.6% to 35,985.79
• Australia S&P/ASX 200 up 0.7% to 5,905.61
• Kospi up 1.5% to 2,177.73
• German 10Y yield rose 0.8 bps to 0.188%
• Euro up 0.2% to $1.1330
• Italian 10Y yield fell 9.1 bps to 2.303%
• Spanish 10Y yield fell 2.0 bps to 1.22%
• Brent futures little changed at $61.13/bbl
• Gold spot up 0.2% to $1,283.61
• U.S. Dollar Index down 0.2% to 96.43

Top Overnight News

• A Chinese delegation including deputy ministers will arrive in Washington on Monday to prepare for high-level trade talks led by Vice Premier Liu He, according to people briefed on the matter
• Commerce Secretary Wilbur Ross said the U.S. and China are eager to end their trade war, but the outcome will hinge on whether Beijing will deepen economic reforms and further open up its markets. “We’re miles and miles from getting a resolution,” he said in an interview on CNBC on Thursday
• U.K. Chancellor of the Exchequer Philip Hammond warned that leaving the European Union without a deal would betray voters who were promised a “more prosperous future” if they chose Brexit. EU ties itself in knots on Irish border amid Brexit tension
• Senators began a new effort to end the 34-day partial government shutdown after blocking two rival spending bills. The White House signaled President Donald Trump was open to a plan to reopen agencies for three weeks, but at a price
• The Greek parliament’s historic vote on the agreement with the Republic of Macedonia over the latter’s name, was pushed to Friday, with not enough time for all listed lawmakers to speak Thursday
• Oil rose for a third day as a deepening crisis in Venezuela that threatens to complicate OPEC’s task of balancing world oil supplies outweighed a surprise jump in U.S. crude inventories
• Bank of England Governor Mark Carney said threats of jail for bankers are just a bluff and the real weapon to improve behavior is hitting pay packets
• U.K. Chancellor of the Exchequer Philip Hammond suggested he could quit the government in protest if the U.K. plunges out of the European Union with no-deal in nine weeks’ time
• Benoit Coeure and Francois Villeroy de Galhau — two of the top contenders to become the next ECB president — said they don’t know if the institution will be able to raise interest rates this year

A jubilant tone was observed across the Asia-Pac majors heading into the weekend, which followed the mostly positive performance of their global peers amid firmer US PMI data and a dovish tone from the ECB. ASX 200 (+0.7%) and Nikkei 225 (+1.0%) were buoyed by broad gains across the sectors and with Japanese exporters supported by favourable currency flows, although not all was rosy as healthcare lagged in Australia and steep losses in AMP Capital. Elsewhere, Hang Seng (+1.6%) and Shanghai Comp. (+0.4%) advanced as the 2nd phase of the PBoC’s RRR cut took effect and with outperformance seen in tech names including Tencent after regulators approved 2 of the Co.’s mobile phone games. However, gains in the mainland were initially capped after the PBoC‘s continued inaction resulted to a net weekly drain of CNY 770bln, in which it cited high liquidity levels due to the RRR cut. Finally, 10yr JGBs remained close to this week’s best levels after the prior day’s extended gains and with the BoJ also present in the market for government bonds with 5yr-10yr maturities, although prices have slightly eased with demand for bonds subdued by the risk appetite.

Top Asian News

• Goldman, Morgan Stanley Are Said to Ask to Cancel Jardine Trades
• Sinopec Says It Lost $688m on ‘Misjudged’ Oil Prices
• It’s Happy Friday Mode for Asia Traders as Stock Rally Lives On
• Yuan- Free FX Strategies for Betting on China. Or Against It

Major European indices are in the green [Euro Stoxx 50 +1.1%], the FTSE 100 (+0.4%) is the underperforming index given the impact of yesterday’s dovish ECB, alongside overnight sterling strength following reports that the DUP may agree to PM may’s deal if the Irish backstop has a time limit. The index is also weighed on by poor performance in Vodafone (-2.2%) who missed on their Q3 service revenue. Sectors are in the green, with underperformance in telecom names given the aforementioned earnings from Vodafone. Other notable movers include Telia (-3.3%) who are at the bottom of the Stoxx 600 after the Co. missed on Q4 revenue and adjusted EBITDA. Similarly, Givaudan (-3.3%) are near the bottom of the Stoxx 600 following a miss on Q4 revenue and adjusted EBITA.

Top European News

• ECB Presidential Contenders Wary on Chance of 2019 Rate Hike
• German Business Confidence Deteriorates Amid Heightened Risks
• Maersk Ready to Move Ahead With Drilling Unit IPO, CEO Says
• EU Ties Itself in Knots on Irish Border Amid Brexit Tension
• Russia Central Bank to Boost FX Buying as Ruble Steadies

In FX, the Dollar and overall index retraced some of yesterday’s trade and ECB-induced gains in which DXY reached highs just shy of 96.700. The index fell back below its 50 DMA at 96.549 and through the 96.500 level to currently hover nearer the bottom of a 96.300-530 range, with a 96.680 Fib also keeping the upside capped. Meanwhile, the US government shutdown is set to notch its 35th day after the US Senate blocked two competing proposals (although this was expected) and as a result today’s US building permits, durable goods and new home sales data will be postponed.

• EUR – Staging a recovery from post-ECB lows, when EUR/USD briefly lost the 1.1300 handle. Back above the level now, the single currency was largely unreactive to unsurprising narratives from ECB’s Coeure and Villeroy, while the release of an overall downbeat German ifo survey and downgrades in the ECB SPF also did little to wobble the Euro. EUR/USD now close to the top of a 1.1300-50 range ahead of a Fib level at 1.1351. In terms of option expiries, the pair sees EUR 1.96bln scattered around 1.1300-25, EUR 1.5bln between 1.1350-60 and EUR 2.8bln between 1.1375-1.1400.
• CAD – Rising oil prices and an easing buck sent USD/CAD back below its 50 DMA at 1.3350 to an intraday low of 1.3311 ahead of the psychological 1.3300 level with reported bids around the figure. A marginal pullback in energy sent USD/CAD back up to around the middle of a 1.3311-3361 band ahead of the Canadian budget balance release later today.
• GBP –Tumultuous day for the Pound after a Sun article provided Cable with the fuel to sky rocket past the 1.3100 handle to a high just shy of 1.3140, well above the December low of 1.2477. The article reported that PM’s coalition party, the DUP, are willing to back her Brexit deal if the Premier can get an expiry date to the backstop, though is widely expected to be rejected by the EC. Nonetheless, the idea of unity in the government aided the Pound to set fresh yearly highs vs. the buck. However, Cable has pared back most of the overnight gains, albeit holding just above its 200 DMA (1.3055-60) and closer to the bottom of 1.3057-3139 parameters.
• JPY – Choppy session thus far, but overall back on a decline amid the broad upturn in risk appetite around the market after USD/JPY rose above its 30 DMA at 109.79 to reach intraday highs of 109.91 (vs. low of 109.52) ahead of USD 1.2bln of option expiries at the 110.00 strike for the NY cut.

In commodities, Brent (-0.1%) and WTI (+0.2%) prices are mixed and off of session highs, just under USD 62/bbl and USD 54/bbl respectively; in spite of yesterday’s unexpected EIA crude inventory build of 7.97mln vs. Exp. -0.042mln draw. Elsewhere, Russia was China’s largest crude oil supplier for December and 2018; with Russia being the largest crude supplier to China for the third year in a row. Looking ahead we have the Baker Hughes rig count, where last week total rigs decreased by 25 to 1050. Gold (+0.3%) is marginally higher on the weakness in dollar, in spite of the positive risk sentiment reducing safe haven demand for the yellow metal. Copper prices are benefiting from market sentiment, whilst palladium has lost over 8% since reaching a high of just under USD 1400/oz last week.

US Event Calendar

• 8:30am: Durable goods orders data postponed by govt shutdown
• 10am: New home sales data postponed by govt shutdown

DB’s Jim Reid concludes the overnight wrap

As I finish this off I’m on the earliest train out of Davos and back to Zurich before travelling home. We had a DB drinks reception for our clients last night and one said to me that in 11 years of coming here the best advice would be to trade in the opposite direction to the main theme of the conference over the next 12 months. If you believe that then you should trade if favour of a return to globalisation trends in 2019 as the conference was generally concerned about its immediate path. Our CEO overheard this and said that on the main panel he was on, the head of the WTO was the contrarian. He said that 2019 will end up being around the lowest tariff year on record and an improvement on 2018. Clearly this relies on China and US either sorting out their differences or at least announcing a truce. However, it’s a reminder that although global trade has come off the peak, tariffs are still historically low outside of the main dispute. Personally, I think globalisation is in reverse but whether it’s a soft landing or not depends on policy. All to play for.

Back to the real (financial) world and yesterday lived up to the billing of being a busy day in markets with much weaker-than-expected European PMIs initially setting the tone. Draghi and the ECB then played for time – given March is where they get their latest staff forecasts – but acknowledged that risks were now to the downside. Elsewhere, Wilbur Ross downplayed expectations that a US-China trade deal is any closer, US jobless claims hit the lowest since around the time man first walked on the moon, and it was also a day where the government shutdown looked likely to continue for some time yet, even if there have been overnight attempts to find a deal to temporarily open government. So plenty to discuss.

However, by the end of play the main US equity indices hadn’t moved much as the S&P 500 eked out a +0.14% gain while the DOW dropped -0.09%. More positively, tech stocks rallied with the NASDAQ up +0.68%. The Philadelphia Semiconductor index advanced +5.73% on the back of strong earnings from Texas Instruments, Lam Research, and Xilinx. The STOXX 600 pared gains of as much as +0.49%, heading into negative territory after the ECB before closing +0.22%. Rates fell across the continent, as 10y Bunds and OATs finished -4.4bps and -5.0bps lower. BTPs outperformed, with yields down -9.3bps, to 2.66% and to the lowest level since last July. Treasuries rallied as well, with 10-year yields ending -2.5bps lower while the dollar rallied +0.45%.

The euro experienced sharp moves amid the data and ECB meeting. First, the single currency weakened around -0.44% following the soft PMI data (details below). It then held its level around 1.1340 as the ECB policy statement kept policy unchanged, which maintained forward guidance (“interest rates to remain at their present levels at least through the summer”) and said reinvestments will continue for an extended time beyond the first rate hike.

The euro then took another leg lower to 1.1307 after Draghi said the risks to the outlook have “moved to the downside.” However, this shift was ultimately viewed as somewhat incremental and the euro retraced all its moves to return to flat on the session as the press conference continued. Draghi confirmed that the Council decision was unanimous on changing the outlook but that the Council “didn’t discuss policy implications”. There was apparently “unanimity” among the council supporting the view that the “likelihood of recession is low”, but DB’s Mark Wall thinks the Governing Council is divided on the outlook, between one camp who expect uncertainties (Brexit, trade, etc.) to be resolved positively and another who is more worried about European domestic demand. The tension between these two views will probably not be resolved until the ECB publishes new staff forecast at its March meeting. Mark’s full thoughts are available here.

On other policy questions, there was also no decision made on TLTRO, although it was mentioned by several officials and clearly talked about, while the positive side effects were talked up by Draghi later on. That perhaps leaves the option open for March but didn’t provide any insight beyond that. The issue of negative rates and their impact on banks was also posed to Draghi, however, it was mostly a repeat of the line he used in December. Draghi specifically said that “we have to see how the continuation of negative rates will affect this balance” in response to a question on if the ECB would have to do something about it. Again a non-committal answer.

As highlighted earlier, in the midst of Draghi speaking, headlines also hit the wires from across the pond and specifically comments from US Trade Secretary Ross. He said that the US and China were “miles and miles” away from a resolution, which caused a kneejerk reaction in markets but then followed by saying that there is a “fair chance” that the two countries would arrive at a trade deal. He also added that it was “unlikely” that next week’s meetings between the two sides would result in a final solution. Crystal clear then. Later on, Director of the National Economic Council Larry Kudlow said that President Trump was optimistic about talks with China, so no shortage of noise on the trade front.

President Trump himself tweeted later in the session about the ongoing government shutdown, saying “We will not Cave!” and escalating the tension. The senate voted on two bills to reopen government, but neither received enough support to pass. Overnight, the debate has seemingly moved on as to whether government could reopen for three weeks if Mr Trump received a down payment for the wall. Pelosi has already poured cold water on the idea but it perhaps shows that negotiations aren’t completely breaking down. In the background, the Washington Post reported that White House Chief of Staff Mick Mulvaney has asked all executive departments and agencies for lists of their highest-impact programs which could be negatively affected if the shutdown continues into March or April. Probably always good to prepare for the worst, but such a long shutdown, if realised, would have serious implications for the US economy.

In Asia this morning, technology stocks are leading markets higher, with the Nikkei (+1.06%), Hang Seng (+1,34%), Shanghai Comp (+0.57%) and Kospi (+1.49%) all moving upwards. Other significant news overnight has come from the UK, where sterling rose 0.5% against the dollar to its highest level in over two months, after the Sun reported that the DUP would be prepared to back Prime Minister May’s Brexit deal if there were a time limit to the Irish backstop. The news comes ahead of Tuesday’s debate in the House of Commons, where Parliament will have the opportunity to vote on a variety of amendments put forward by MPs to May’s Brexit plan.

Back to the details of the PMIs, which actually ended up requiring a bit of digging through such was the disparity between sectors and countries. However, the bottom line is that momentum is certainly weaker. The composite reading for the Euro Area for instance came in at 50.7 compared to expectations for 51.4. That’s also down 0.4pts from the soft December reading and is the lowest now since July 2013. The data is also consistent with GDP growth of just +0.1% qoq, which paints downside risks to the consensus forecast for 2019 growth of around 1.3% (DB 1.2%). In terms of sectors, manufacturing slumped more, by 0.9pts to 50.5 (vs. 51.4 expected) while the services reading fell 0.4pts to 50.8 (vs. 51.5 expected). As you can see though both were much softer than expected.

What was interesting was the split between Germany and France. In France the services reading tumbled further by 1.5pts to 47.5 (vs. 50.5 expected) and to the lowest in nearly 5 years. The manufacturing reading bounced back in contrast to 51.2 (vs. 50.0 expected) from 49.7, however, the extent of the drop in the services reading left the composite at 47.9 versus 48.7 in December. So rather worryingly there was little sign of a rebound after recent protests. In Germany the pain was reserved for the manufacturing sector, which tumbled to 49.9 from 51.5. That’s the first sub-50 reading since November 2014. The services reading did, however, rise 1.4pts to 53.1, which left the composite at 52.1 and up 0.5pts from December. Our economists also highlight that the implied non-core PMI numbers aren’t pretty with the implied non-core composite down 1pt equally, shared by the manufacturing and services sectors. Manufacturing PMIs for Italy and Spain will print next Friday alongside the final readings across the globe.

The associated statement with the PMIs highlighted “ongoing auto sector weakness, Brexit worries, trade wars and the protests in France” as reasons dampening growth in both sectors but also that the survey responses “indicate that a deeper malaise has set in at the start of the year” and that “companies are concerned about a wider economic slowdown gathering momentum, with rising political and economic uncertainty increasingly affecting risk appetite and demand”. With the manufacturing reading for the Euro Area and Germany now down in 12 of the last 13 months, a quick refresh of our equity versus PMI regression analysis shows that the STOXX and DAX are still around 14% and 17% ‘cheap’ respectively and that implied PMIs are actually more like 46.0 for the Euro Area and 43.7 for Germany based on equity markets. France looks 16% ‘cheap’ by the same measure. So despite the decline in PMIs, equity markets have oversold by this basic measure in Europe. However, for there to be a sustainable rebound, the PMIs need to find a base. Something they have struggled to do for over a year now.

In the US, initial jobless claims fell to 199k, the lowest level since 1969, as the US labour market continues to strengthen. Continuing claims fell from 1,737k to 1,713k, near the cyclical and multi-decade lows. The US PMIs, while not as significant as the European vintages, showed some improvement with the manufacturing index up to 54.9 from 53.8. The services reading fell 0.2pts to 54.2, while the composite print ticked up to 54.5 from 54.4. The Kansas City Fed’s manufacturing index rose to 5 from 3, though the anecdotal details suggested some concerns over both tariffs and the government shutdown. Altogether, the PMIs and KC Fed index did not move the needle for our expectations of next Friday’s ISM manufacturing report.

Finally, the day ahead will feature the January IFO survey in Germany this morning along with the January CBI reported sales survey in the UK. The US session is meant to feature the December durable and capital goods orders data, as well as the January new home sales print, however, the government shutdown will delay that once more. The earnings calendar features AbbVie and Colgate-Palmolive, as well as Ericsson in Europe.

via ZeroHedge News http://bit.ly/2FNp6j9 Tyler Durden

As we reported late last year, shares of Canada Goose – which had previously been one of the best performing stocks listed in Toronto – slumped after China’s domestic press called for a boycott of the brand following the arrest of Huawei CFO Meng Wanzhou in Canada, just as the company was preparing to open its first mainland-based stores.

Unfortunately for Canada Goose shareholders hoping for a quick rebound, CG has continued to struggle into the new year, which has been bad news for the big banks who underwrote the retailers late-2018 IPO. And of those banks, none have been hit quite as hard as Credit Suisse, the lead underwriter on the IPO, which lost about $60 million late last year when it was left holding the bag after CG’s shares shed more than 20% in a dizzying selloff.

More details from Bloomberg:

Credit Suisse, which acted as underwriter on the sale of 10 million shares by Canada Goose Holdings Inc. stockholders in late November, saw the value of the stock tumble after the arrest of Huawei Technologies Co’s finance chief in Canada prompted a diplomatic dispute between the two countries, the people said, asking to not to be identified as the loss isn’t public.

The offering was priced at $65.15 a share, a 1.85 percent discount to the previous close, a person familiar with the matter said at the time of the deal in late November. The arrest of Huawei Technologies Co.’s finance chief in Vancouver on Dec. 1 prompted Chinese websites to call for a boycott of Canadian brands and a 20 percent four-day losing streak for the stock later that month.

Instead of sticking it out, CS sold the shares at a loss (after all, CS was one of the first big investment banks to warn that markets might be underestimating the ramifications of slowing economic growth in China). After selling the shares in a block trade, CS said its full-year guidance for 2018 remained unchanged.

The bank eventually sold the Canada Goose shares it held at a loss, the people said. Credit Suisse declined to comment on the details of the trade but said that its full-year guidance for reported pretax profit of 3.2 billion francs to 3.4 billion francs for 2018 remains unchanged.

The blowback from the IPO fiasco is one more reminder why CS has been scaling back its trading business to focus on wealth management.

Credit Suisse has scaled down its trading business to focus on wealth management. The lender, led by Tidjane Thiam, just completed a sweeping three-year restructuring program and is now trying to convince investors to stick with the bank by pledging capital returns and growth in profits.

The relationship between Ottawa and Beijing has further deteriorated since late last year, and with the US reportedly planning to formally request Meng’s extradition, there could be more pain ahead for CG.

via ZeroHedge News http://bit.ly/2Dwzlpp Tyler Durden

Former Trump advisor Roger Stone, who has been under scrutiny by Special Counsel Robert Mueller over his alleged contacts with Wikileaks, has been arrested In Ft. Lauderdale, Fla. on a seven-count indictment: One count of obstruction, five counts of making false statements and one count of witness tampering.

BREAKING: Roger Stone has been arrested following an indictment by Robert Mueller pic.twitter.com/pFmAigDmNU

— kadhim (＾ｰ^)ノ (@kadhimshubber) January 25, 2019

The arrest isn’t exactly a surprise: Stone has long said he expected to be indicted by a grand jury convened by Mueller.

 

 

 

 

via ZeroHedge News http://bit.ly/2sJgnG7 Tyler Durden