iftttwall

With whispers that the November jobs report would disappoint to various factors such as winter storms and rising jobless claims, moments ago the BLS reported that November payrolls indeed disappointed expectations, printing at 155K, below the 198K expectations, with the October number revised lower from 250K to 237K.

However, confirming that this number too was weather affected, the BLS reported that “workers unable to work due to bad weather” came at a substantial 129K, well above prior November months (2017 was 84K, 2016 was 19K, 2015 was 97K).

The unemployment rate remained unchanged, as expected at 3.7%, already the lowest since 1968.

And while hourly earnings rose at a hottish 3.1% year over year, and as consensus expected, on a monthly basis, the increase was 0.2%, below the 0.3% expected, and potentially adding fuel to any dovish reversal by the Fed.

Developing

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As Beijing’s outrage over the arrest of Huawei CFO Wanzhou Meng simmers ahead of her Friday arraignment in a Canadian court, Bloomberg has shed some light on how news of her arrest has resonated with different factions in the Chinese leadership.

The upshot is that while officials in charge of managing China’s trade negotiations believe China shouldn’t allow Wanzhou’s arrest to impact trade negotiations, hardline national security officials believe the arrest is an embarrassment to Chinese leader Xi Jinping, who reportedly had ‘no idea’ that the daughter of a Chinese business icon and Communist Party member had been arrested in Canada – and that China should use trade talks as leverage to demand that she be released.

Western media outlets have reported that, while White House officials and National Security Advisor John Bolton knew about Wanzhou’s arrest before Saturday’s meeting between Trump and Xi, the president somehow had no idea.

Now, BBG is reporting that Xi similarly had no idea that one of his country’s most prominent executives had been taken into custody hours before he sat down with Trump. This asymmetry is viewed as deeply embarrassing to China’s leader, and many believe that simply letting trade negotiations to move forward as plan would be an unconscionable capitulation – particularly if (as many analysts believe) the Trump Administration intends to use her arrest as leverage.

Still others believe that Wanzhou’s arrest is a “gift” for Xi, because it gives cover for the Chinese to dig in their heels and accuse the US of using the trade war as a pretext to stymie China’s ascent as a global superpower. In light of Wanzhou’s arrest, such a stance would likely garner more sympathy from the rest of the world.

As China contemplates how to respond, at least there is one silver lining: It helps China appear sincere to the world in wanting to resolve the trade war. He can say he is trying to resolve the issue but the US has an entrenched strategy to cut off China’s rise as a global power – a theme that state-run media picked up on Friday.

“The Huawei arrest gives China’s leaders a huge gift,’ said Barry Naughton, a professor at the University of California in San Diego who studies China. “It makes super plausible the narrative they’ve been trying to promote all along: ‘The U.S. just can’t stand our rise, they can’t stand to lose their dominance, they can’t treat anybody like an equal.'”

But one salient fact has been agreed on by all sides: Wanzhou’s arrest doesn’t bode well for a trade detente.

Officials concerned about the economy warned a collapse in trade talks would hurt China more than the Huawei arrest. Trump has threatened to raise tariffs to 25 percent on $200 billion worth of Chinese goods if a deal isn’t reached in 90 days. In the worst case of a 25 percent duty on all Chinese goods, 2019 economic growth could slump about 1.5 percentage points to 5 percent, down from 6.6 forecast for this year, according to Bloomberg Economics.

“The detention of Huawei’s CFO is not an accidental incident and will cast a shadow over the trade talks, but both sides will work hard to avert that bad influence,” said Wei Jianguo, former vice minister of commerce and now a vice chairman of the China Center for International Economic Exchanges. “The negotiation between Chinese and U.S. working groups is going smoothly, and actually much better than people outside expected.”

Because even if President Xi does opt to continue negotiating as per Saturday’s deal, he will now need to extract even more concessions in order not to look powerless. And although Chinese officials have said they won’t retaliate by arresting US executives – well – we wouldn’t blame any US executives in China for grabbing their passports and chartering a flight to anywhere but China as quickly as humanly possible.

“Ms. Meng’s arrest threatens to make China’s leadership look powerless in securing the release of not only a citizen, but a senior executive and daughter of one of China’s business icons,” said Michael Hirson, Asia director at Eurasia Group and a former U.S. Treasury Department official. “Nationalist sentiment will thus make it harder for Beijing to offer major concessions to Trump.”

Publicly, at least, China is keeping the issues separate. On Thursday, commerce ministry spokesman Gao Feng told reporters that China is implementing agreements reached with the U.S. on agriculture, autos and energy. “In the next 90 days we will work in accordance with the clear timetable and road map” to negotiate in areas of mutual benefit, he said.

Then on Friday, foreign ministry spokesman Geng Shuang dismissed concerns that China would retaliate against U.S. companies.

“China always protects the legal rights and interests of foreigners in China, but they should also abide by all Chinese laws and regulations,” Geng said.

The upshot: If the US tries to use Whenzhou’s arrest as leverage, they could wind up killing a promising deal.

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There is a sense of almost detached resignation amid trading desks as we enter the last trading day of a chaotic, volatile week that has whipsawed and stopped out virtually everyone after the Nasdaq saw the biggest intraday reversal since Thursday and pattern and momentum trading has become impossible amid one headline tape-bomb after another.

After yesterday furious tumble and sharp, last hour rebound, US equity futures are once again lower expecting fresh developments in the Huawei CFO arrest and trade war saga while today’s payroll report may redirect the Fed’s tightening focus in wage growth comes in hotter than the 3.1% expected; at the same time European stocks have rebounded from their worst day in more than two years while Asian shares posted modest gains as investors sought to end a bruising week on a more upbeat note. While stock trading was far calmer than Thursday, signs of stress remained just below the surface as the dollar jumped, Treasuries rose and oil whipsawed amid fears Iran could scuttle today’s OPEC deal.

The MSCI All-Country World Index, which tracks shares in 47 countries, was up 0.3% on the day, on track to end the week down 2%.

After Europe’s Stoxx 600 Index sharp drop on Thursday, which tumbled the most since the U.K. voted to leave the EU in 2016, Friday saw Europe’s broadest index jump 1.2% as every sector rallied following the cautious trade in the Asia-Pac session and the rebound seen on Wall Street where the Dow clawed back nearly 700 points from intraday lows. European sectors are experiencing broad-based gains with marginal outperformance in the tech sector as IT names bounce back from yesterday’s Huawei-driven slump.

Technology stocks lead gains on Stoxx 600 Index, with the SX8P Index up as much as 2.3%, outperforming the 1.1% gain in the wider index; Nokia topped the sector index with a 5.9% advance in Helsinki after Thursday’s public holiday, having missed out on initial gains from rival Huawei’s troubles that earlier boosted Ericsson. Inderes said the arrest of Huawei CFO over potential violations of American sanctions on Iran will benefit Nokia and Ericsson, who are the main rivals of Huawei and ZTE. Similarly, Jefferies wrote in a note on Chinese networks that China may have to offer significant concessions to buy Huawei an “out of jail” card and reach a trade deal, with China’s tech subsidies and “buy local” policies potentially under attack. “For example, why would Nokia and Ericsson have only 20% share in China’s 4G market,” analysts wrote.

Meanwhile, energy names were volatile as the complex awaits further hints from the key OPEC+ meeting today. In terms of individual movers, Fresenius SE (-15.0%) fell to the foot of the Stoxx 600 after the company cut medium-term guidance, citing lower profit expectations at its clinics unit Helios and medical arm Fresenius Medical Care (-7.8%). The news sent Fresenius BBB- rated bonds tumbling, renewing fears of a deluge of “fallen angels.”  On the flip side, Bpost (+7.5%) and Tesco (+4.8%) are hovering near the top of the pan-Europe index amid broker upgrades.

Earlier in the session, Japanese equities outperformed as most Asian gauges nudged higher. MSCI’s broadest index of Asia-Pacific shares outside Japan nudged up 0.2%, though that followed a 1.8 percent drubbing on Thursday. Japan’s Nikkei added 0.8 percent. Chinese shares, which were up earlier in the day, slipped into negative territory with the blue chips off 0.1 percent.

 

E-Mini futures for the S&P 500 also started firmer but were last down 0.4 percent. Markets face a test from U.S. payrolls data later in the session amid speculation that the U.S. economy is heading for a tough patch after years of solid growth.

Will the last employment report released this year (the December report comes out in early January) help markets to continue to form a base? The consensus for nonfarm payrolls today is for a 198k print, following the stronger-thanexpected 250k reading last month. Average hourly earnings are expected to rise +0.3% mom which should be enough to keep the annual reading at +3.1% yoy while the unemployment rate is expected to hold steady at 3.7%. DB’s economists are more or less in line with the consensus with a 200k forecast and also expect earnings to climb +0.3% mom, however that would be consistent with a small tick up in the annual rate to +3.17% and the fastest pace since April 2009. They also expect the current pace of job growth to push the unemployment rate down to 3.6% which would be the lowest since December 1969.

Meanwhile, Fed Chairman Jerome Powell confused traders when late on Thursday, he emphasized the strength of the labor market, throwing a wrench into trader expectations the Fed is poised to pause tightening – arguably the catalyst for Thursday’s market-closing ramp following a WSJ article which reported Fed officials were considering whether to signal a new wait-and-see mentality after a likely rate increase at their meeting in December.

While Friday’s market has stabilized, for many the recent gyrations are just too much. For Dennis Debusschere, head of portfolio strategy at Evercore ISI, there’s still far too much risk to wade back into a market this riven by volatility. “Overall still untradeable in our opinion, until we get more clarity on trade and we think it will pay to wait this out,” he wrote in a note to clients Thursday. “That being said, our desk is open for business if you’re feeling up to trading this backdrop.”

Meanwhile, the big question is what happens next year: “The big question mark still is what’s going to happen in 2019” with the Fed, Omar Aguilar, CIO of equities and multi-asset strategies at Charles Schwab, told Bloomberg TV. “The jobs report could easily be the catalyst that will tell us a little more about what the path may be.”

Expecting that a big slowdown is coming, interest rate futures rallied hard in massive volumes with the market now pricing in less than half a hike next year, compared to just a month ago when they had been betting on more than two increases.  Treasuries extended their blistering rally, driving 10-year yields down to a three-month trough at 2.8260 percent, before last trading at 2.8863 percent. Yields on two-year notes fell a huge 10 basis points at one stage on Thursday and were last at 2.75 percent. Investors also steamrolled the yield curve to its flattest in over a decade, a trend that has historically presaged economic slowdowns and even recessions.

The seismic shock spread far and wide. Yields on 10-year paper sank to the lowest in six months in Germany, almost 12 months in Canada and 16 months in Australia. Italian debt climbed as European bonds largely drifted.

The greenback advanced against most of its Group-of-10 peers ahead of U.S. jobs data that are expected to show hiring slowed last month. The pound fell as U.K. Prime Minister Theresa May was said to be weighing a plan to postpone the vote on her Brexit deal.

In commodity markets, gold firmed to near a five-month peak as the dollar eased and the threat of higher interest rates waned. Spot gold stood 0.1 percent higher at $1,239.49 per ounce. Oil was less favored, however, falling further as OPEC delayed a decision on output cuts while awaiting support from non-OPEC heavyweight Russia. Brent futures fell 0.5 percent to $59.77 a barrel, while U.S. crude also lost half a percent to $51.19. Cryptocurrencies continued their collapse with fresh losses after U.S. regulators dashed hopes that a Bitcoin exchange-traded fund would appear before the end of this year.

Market Snapshot

• S&P 500 futures down 0.4% to 2,680.00
• STOXX Europe 600 up 1.3% to 347.69
• MXAP up 0.2% to 151.21
• MXAPJ up 0.2% to 485.67
• Nikkei up 0.8% to 21,678.68
• Topix up 0.6% to 1,620.45
• Hang Seng Index down 0.4% to 26,063.76
• Shanghai Composite up 0.03% to 2,605.89
• Sensex up 0.9% to 35,631.53
• Australia S&P/ASX 200 up 0.4% to 5,681.49
• Kospi up 0.3% to 2,075.76
• German 10Y yield rose 0.8 bps to 0.244%
• Euro down 0.05% to $1.1368
• Italian 10Y yield rose 13.9 bps to 2.835%
• Spanish 10Y yield unchanged at 1.46%
• Brent futures up 0.2% to $60.16/bbl
• Gold spot up 0.2% to $1,239.70
• U.S. Dollar Index little changed at 96.88

Top Overnight News from Bloomberg

• The arrest of Huawei Technologies Co. Chief Financial Officer Meng Wanzhou in Canada over potential violations of American sanctions on Iran has triggered a debate in China over whether to carry on with trade talks with the U.S. or link the two issues and retaliate; Meng will have a bail hearing Friday to determine whether she is a flight risk and should remain in detention during proceedings on extradition to the U.S.
• Oil extended losses near $51 a barrel after OPEC entered a second day of talks in an attempt to draw up a deal to cut output. Iran sees no possibility of agreeing to reduce its output, Oil Minister Bijan Zanganeh said Friday
• Theresa May met with her top ministers in London on Thursday to discuss options of delaying the Dec. 11 Parliamentary vote on her Brexit deal to avoid a landslide defeat that would risk a major U.K. political crisis, according to a person familiar with the matter
• EU leaders are poised to turn their next summit into a Brexit crisis meeting, but so far, it doesn’t look like they’re willing to offer her anything that could help to break the deadlock in the U.K. Parliament
• Angela Merkel’s long exit from politics begins Friday when her party gathers in Hamburg to decide whether to appoint her chosen successor as its new leader or break with the legacy of her 13 years in charge of Germany
• Italian Finance Minister Giovanni Tria has complained that he is the victim of one ambush after another as his future is called into question amid tensions with populist leaders over a spending spree to fund election policies, according to newspaper Il Giornale

Asian stocks saw cautious gains with the region getting an early tailwind after the sharp rebound on Wall St, where most majors inished lower albeit off worse levels as tech recovered and the DJIA clawed back nearly 700 points from intraday lows. ASX 200 (+0.4%) and Nikkei 225 (+0.8%) were both higher at the open but gradually pared some of the gains as the risk tone began to turn cautious heading into today’s key-risk NFP jobs data. Hang Seng (-0.3%) and Shanghai Comp (U/C) were indecisive amid further PBoC inaction in which it remained net neutral for a 5th consecutive week and with the upcoming Chinese trade data over the weekend adding to tentativeness, while pharmaceuticals were the worst hit due to concerns of price declines from the government’s centralized procurement program. Finally, 10yr JGBs were flat amid a similar picture in T-note futures and although early selling pressure was seen in Japanese bonds alongside the strong open in stocks, prices later recovered as the risk appetite somewhat dissipated.

Top Asian News

• China’s FX Reserves Rose Despite Intervention, Outflow Signs
• Hong Kong May Slip Into Recession in 2019, Deutsche Bank Warns
• SoftBank Seeks to Assuage Investors on Pre-IPO Mobile Outage
• Southeast Asia Reserves Recover a Bit in November as Rout Eases

European equities extended on gains from the cash open (Eurostoxx 50 +1.2%) following the cautious trade in the Asia-Pac session and the rebound seen on Wall St where the Dow clawed back nearly 700 points from intraday lows. European sectors are experiencing broad-based gains with marginal outperformance in the tech sector as IT names bounce back from yesterday’s Huawei-driven slump. Meanwhile, energy names are volatile (currently marginally underperforming) as the complex awaits further hints from the key OPEC+ meeting today. In terms of individual movers, Fresenius SE (-15.0%) fell to the foot of the Stoxx 600 after the company cut medium-term guidance, citing lower profit expectations at its clinics unit Helios and medical arm Fresenius Medical Care (-7.8%). On the flip side, Bpost (+7.5%) and Tesco (+4.8%) are hovering near the top of the pan-Europe index amid broker upgrades.

Top European News

• LandSec, Undeterred by Brexit, Makes New Bet on London Offices
• Danske Says It’s Looking Into Selling Its Swedish Pension Assets
• Chinese Group Agrees to Buy Amer Sports in $5.2 Billion Deal
• Bad Air Warnings in London And Paris Peak With Fish And Chips

Currencies: 

• DXY – Typically rangebound trade in the run up to US labour data, and with markets also monitoring OPEC+ headlines as a decision on whether to cut output and if so by how much remains highly uncertain. The index is hovering just under the 97.000 handle within a 96.767-96.931 band, and well within nearest technical support and resistance levels at 96.300 and 97.311 respectively.
• GBP – A marginal G10 underperformer as Cable retreats back below 1.2750 from just above 1.2800 at one stage, but this could be more flow-related rather than anything fundamental as Eur/Gbp rallied towards 0.8930 peaks from just under the big figure into the Frankfurt fixing before drifting back again. However, Halifax house prices were much weaker than expected and latest Brexit news is hardly Sterling supportive given more speculation about delaying the meaningful vote to try and avoid a resounding rejection, even though the Government appears to be resolute and standing firm on December 11.
• NZD/AUD – The Kiwi is at the opposite end of a relatively narrow Usd/Major spectrum, and like the Pound also impacted by indirect factors to a degree, if not in the main. Indeed, Nzd/Usd remains capped ahead of 0.6900, but Aud/Nzd is pivoting 1.0500 as the Aussie unit continues to feel the adverse effects of recent bearish impulses, namely softer than forecast Q3 GDP and a more dovish RBA via Debelle. Hence, Aud/Usd is softer between 0.7210-40 parameters and bound to be wary of huge option expiries from 0.7250-60 in 6.6 bn that form a formidable barrier ahead of circa 1.2 bn up at 0.7300.
• EUR/JPY – In the pre-NFP ‘hiatus’ and awaiting anything further on the Italian budget front, option expiries may also exert directional impetus on Eur/Usd and Usd/Jpy, as the former faces 2+ bn at the 1.1400 strike and latter is flanked by 1+ bn at 112.50 and 113.00.
• CAD – The Loonie has pared a bit more lost ground from recent lows, albeit partly due to a broad Usd retracement, eyeing OPEC and also Canada’s jobs report given latest BoC guidance indicating even greater data dependency. Usd/Cad currently just shy of the 1.3400 mark vs 1.3440+ at one stage yesterday.

In commodities, WTI (+0.2%) and Brent (+0.9%) are choppy in what was a volatile session thus far as comments from energy ministers emerged ahead of the key OPEC+ meeting, after yesterday’s OPEC talks ended with no deal for the first time in almost five years. Brent rose after source reports noted that Moscow are ready to cut output by 200k BPD (below OPEC’s desire of 250k-300k but above Russia’s prior “maximum” of 150k) if OPEC are willing to curb production by over 1mln BPD. Prices then fell to session lows following a less constructive tone from Saudi Energy Minister who reiterated that he is not confident there will be a deal today, which came after delegates noted that OPEC talks are focused on a combined OPEC+ cut of 1mln BPD (650k from OPEC and 350k from Non-OPEC). Markets are awaiting the start of the OPEC+ meeting after delegates stated that talks are at deadlocked as Iran appears to be the main sticking point to an OPEC deal, though sources emerged stating that Iran, Venezuela and Libya are set to get exemptions from cuts, adding that OPEC and Russia are looking for a symbolic production commitment from Iran as fears arise that Iran may not be able to follow-through on curb pledges due to US sanctions. In terms of metals, gold hovers around session highs and is set for the best week since August with the USD trading in a tight range ahead of the key US jobs data later today, while London copper rose over a percent is underpinned by the positive risk tone.

US Event Calendar

• 8:30am: Change in Nonfarm Payrolls, est. 198,000, prior 250,000
  • Unemployment Rate, est. 3.7%, prior 3.7%; Underemployment Rate, prior 7.4%
  • Average Hourly Earnings MoM, est. 0.3%, prior 0.2%; YoY, est. 3.1%, prior 3.1%
• 8:30am: Average Weekly Hours All Employees, est. 34.5, prior 34.5
• 10am: Wholesale Inventories MoM, est. 0.7%, prior 0.7%; Wholesale Trade Sales MoM, prior 0.2%
• 10am: U. of Mich. Sentiment, est. 97, prior 97.5; Current Conditions, prior 112.3; Expectations, prior 88.1
• 3pm: Consumer Credit, est. $15.0b, prior $10.9b

DB’s Jim Reid concludes the overnight wrap

The age of innocence has truly gone in financial markets after a turbulent 24 hours but one that saw a spectacular rally after Europe closed last night and one that has steadily carried on in Asia overnight (more on this below). Before we get to that I’m on an intense client marketing roadshow at the moment on the 2019 Credit outlook and there are a litany of worries out there from investors. Maybe I’m trying to be too cute here but I think the problems we’re seeing in credit at the moment are more of a “ghost of Xmas future” rather than a sign of an imminent disaster scenario. However my overall confidence that credit will blow up around the end of this cycle has only intensified in the last couple of weeks. Liquidity is awful in credit and it’s been a broken two way market for several years (probably as long as I’ve worked in it – 24 years). However this has got worse this cycle as the size of the market has grown rapidly but dealer balance sheets have reduced. As such you can buy massive size at new issue but your ability to sell in secondary is constrained to a small percentage of this. This didn’t matter much when inflows dominated – as they mostly did in this cycle pre-2018 – but in a year of outflows across the board the lack of a proper two way  market is increasingly being felt. As discussed I don’t think this is the start of the crisis yet but be warned that when this economic cycle does roll over or even starts to operate at stall speed the credit market will be very messy and will influence other markets again.

On the positive side and despite a very steep mid-session selloff, US markets ultimately closed well off the lows. The DOW, S&P 500 and NASDAQ finished -0.32%, -0.15% and +0.42% respectively, though they traded as low as -3.14%, -2.91%, and -2.43% respectively, around noon in New York. At its lows, the S&P 500 was on course for its worst two-session stretch since February, and before that you’d have to go back to August 2015 or 2011 to find the last episode with as steep a two-day drop. The DOW and S&P 500 dipped into negative territory for the year again, but clawed back and are now +0.92% and +0.84% YTD (+3.16% and +2.69% on a total return basis). The NASDAQ has clung to its outperformance, as it is now up +4.13% this year, or +5.20% on a total return basis, though of course the difference is narrower in the low-dividend paying, high-growth tech index.

Unsurprisingly, the moves yesterday coincided with higher volatility with the VIX climbing as much as +5.2pts to 25.94 and pretty much back to the October highs, though it too rallied alongside the equity market to end close to flat at 21.15. Meanwhile, the price action was even uglier in Europe as the US lows were around the close. The STOXX 600 plunged -3.09% and is down -4.22% in two days – the most in two days since June 2016. Nowhere was safe. The DAX (-3.48%), CAC (-3.32%), FTSE MIB (-3.54%) and IBEX (-2.75%) all saw huge moves lower. The DAX has now joined the Italy’s FSTEMIB in bear market territory, as it is now -20.49% off its highs earlier this year. The FTSEMIB is down -24.04% from its highs. European Banks – which were already down nearly -27% YTD going into yesterday – tumbled -4.29% for the biggest daily fall since May and the third biggest since immediately after Brexit. The index is now at the lowest since October 2016 and within 17% of the June 2016 lows all of a sudden. US Banks fell -1.87%, though they had dipped -4.3% at their troughs to touch the lowest level since September 2017.

As for credit, HY cash spreads in Europe and the US were +8.5bps and +14.8bps wider respectively. For context, US spreads are now at the widest since December 2016 and this is the best performing broad credit market over the last couple of years. In bond markets, 10y Treasuries rallied-2.4bps but was as much as 9bps lower intra-day. Thanks to an outperformance at the front end (two-year fell -3.7bps), the 2s10s curve actually ended a shade steeper at 13.0bps (+1.3bps on the day). However that move for the 10y now puts it at the lowest since September at 2.89%, and only +48.6bps above where we started the year. The spread on the Dec 19 to Dec 18 eurodollar contract – indicative for what is priced into Fed hikes for next year – is down to just 16bps. It was at 60bps in October. This certainly appears to be too low, though a Wall Street Journal article yesterday seemed to signal a willingness by the Fed to moderate its pace of rate hikes. Finally, in Europe, Bunds closed -4.1bps lower at 0.236%.

Quite amazing moves with Bunds continuing to defy all fundamental logic and trading instead as a risk-off lightning rod. There was some talk that the sharp moves lower at the open yesterday were exaggerated by the unexpected midweek close for markets in the US which resulted in futures systems failing to be programmed to adjust and orders backing up. However the combination of a -2.25% drop for WTI (-5.2% at the lows) post the OPEC meeting (more below) and the Huawei story that we mentioned yesterday certainly aided to the initial malaise. There was some talk that both the Chinese and US authorities would have been aware of the arrest before last weekend’s talks and as such this story shouldn’t be necessarily a threat to the truce, though Reuters reported last night that President Trump did not know about the planned arrest. The implications of this are unclear, since it could mean that Trump has less direct control over the arresting agency, but it could also indicate that the move is not part of trade policy. Either way, how this development will be key for the market moving forward, especially any response from Chinese officials.

This morning in Asia markets are largely trading higher with the Nikkei (+0.60%), Hang Seng (+0.21%), Shanghai Comp (+0.08%) and Kospi (+0.51%) all up. Elsewhere, futures on the S&P 500 (-0.11%) are pointing towards a flattish start. Meantime crude oil (WTI -0.39% and Brent -0.60%) prices are continuing to trade lower this morning. It wouldn’t be an EMR worth it’s place in the daily schedule without an Italy and Brexit update. As we go to print Italian daily La Stampa has reported that the Italian Premier Conte and Deputy Premier Di Maio are in favour of the resignation of Finance Minister Tria while Deputy Premier Salvini is against his resignation. So signs of tension. In the U.K. a few press articles (like Bloomberg) are suggesting that PM May is considering postponing Tuesday’s big vote. There doesn’t seem to be a lot of substance to the story at the moment but it mentions going back to the EU for concessions on the Irish backstop as one possibility. How the EU will feel would be the obvious question.

As mentioned earlier, oil had a difficult session yesterday, falling back to its recent lows with WTI touching a $50 handle and Brent trading back below $60 per barrel. The first day of the OPEC summit did not appear promising for the odds of a new production deal, as the ministers apparently discussed a 1 million barrel per day cut, below the 1.5 million needed to balance the market.The Libyan oil minister abruptly left before the day’s meetings concluded, and the organization canceled their scheduled press conference. The Russian delegation will join the OPEC contingent today in an effort to finalize a deal, but Saudi Energy Minister al-Falih said that “Russia is not ready for a substantial cut.” Watch this space today.

Overnight, the Fed Chair Powell delivered an upbeat message on the US economy and the Job market ahead of today’s payrolls release. He said, “our economy is currently performing very well overall, with strong job creation and gradually rising wages,’’ while adding, “in fact, by many national-level measures, our labour market is very strong.’’ Elsewhere, the Fed’s John Williams said yesterday that the biggest challenge which the policy makers are facing is achieving a soft landing. He said, “we have a pretty strong economy — unemployment pretty low, inflation near our goal — it’s just managing a soft landing, keeping this expansion going for the next few years.”

So will the last employment report released this year (the December report comes out in early January) help markets to continue to form a base? The consensus for nonfarm payrolls today is for a 198k print, following the stronger-thanexpected 250k reading last month. Average hourly earnings are expected to rise +0.3% mom which should be enough to keep the annual reading at +3.1% yoy while the unemployment rate is expected to hold steady at 3.7%. Our US economists are more or less in line with the consensus with a 200k forecast and also expect earnings to climb +0.3% mom, however that would be consistent with a small tick up in the annual rate to +3.17% and the fastest pace since April 2009. They also expect the current pace of job growth to push the unemployment rate down to 3.6% which would be the lowest since December 1969.

Going into that, yesterday’s ADP employment change report for November was a tad disappointing at 179k (vs. 195k expected) while more interestingly the recent tick up in initial jobless claims held with the print coming in at 231k. The four-week moving average is now 228k and the highest since April having gotten as low as 206k in September. So the climb, while not yet at  concerning levels, is certainly notable and worth watching now on a week to week basis. As for the other interesting data points yesterday, the October trade deficit was confirmed as reaching a new cyclical wide. The ISM non-manufacturing print for November was a relative positive after coming in at 60.7, up 0.4pts from October and ahead of expectations for a decline to 59.0. Worth noting is that the three-month moving average of non-manufacturing ISM is now the highest on record which is a fairly reliable lead indicator for private nonfarm payrolls. US durable goods orders for October were revised slightly higher to -4.3% mom  from -4.4%, though the core measures stayed at 0.0% mom. Factory orders declined -2.1% mom, though both were nevertheless higher year-on-year.

As for the day ahead, the aforementioned November employment in the US will no doubt be front and centre, however, prior to that, we’ve October industrial production prints in Germany and France, along with Q3 labour costs in the former, and the final Q3 GDP revisions for the Euro Area (no change from +0.2% qoq second reading expected). We’ll also get the monthly inflation reporting for November in the UK. Also due out in the US is October wholesale inventories and trade sales, the preliminary December University of Michigan survey and October consumer credit. November foreign reserves data in China is also expected out at some point. Away from that the OPEC/OPEC+ meeting moves into the final day while the ECB’s Coeure and Fed’s Brainard are scheduled to speak. Today is also the day that Germany’s ruling CDU party elects a new chair to succeed Merkel. Our FX strategists noted yesterday that according to polls, the result should be a close call between general secretary Annegret Kramp-Karranbauer (AKK) and Friedrich Merz. Broadly speaking, AKK stands for a continuation of the Merkel-era strategy of positioning the CDU at the centre of the political spectrum, whereas Merz stands for a sharpening of the party’s traditional profile as a centre-right party. Last night our German economics team put out a piece explaining the event and suggesting that Merz would be good for the DAX and AKK good for the Euro.

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With only hours to go before Special Counsel Robert Mueller is expected to file two key sentencing documents related to the Russia probe that would outline the possible punishments facing former Trump Campaign executive Paul Manafort and former Trump attorney (and admitted liar) Michael Cohen, President Trump embarked on what may be his widest-ranging tweet storm in months, criticizing the FBI’s questionable handling of the Russia investigation and warned of a massive surge in illegal immigrant crossing at a “NON-WALLED” area in Arizona.

Trump also touted “smooth communications and good cooperation” with China over trade talks (ignoring Beijing’s simmering outrage over the arrest of Huawei CFO).

Statement from China: “The teams of both sides are now having smooth communications and good cooperation with each other. We are full of confidence that an agreement can be reached within the next 90 days.” I agree!

— Donald J. Trump (@realDonaldTrump) December 7, 2018

Following his attempt to reassure stock traders, Trump moved on to one of his favorite topics: attacking the news media and pro-immigration Democrats for leaving the Arizona border vulnerable to infiltration. He also demanded that Democratic leaders Nancy Pelosi and Chuck Schumer agree to funding for his border wall (Trump is expected to meet with the two leaders next week).

FAKE NEWS – THE ENEMY OF THE PEOPLE!

— Donald J. Trump (@realDonaldTrump) December 7, 2018

Arizona, together with our Military and Border Patrol, is bracing for a massive surge at a NON-WALLED area. WE WILL NOT LET THEM THROUGH. Big danger. Nancy and Chuck must approve Boarder Security and the Wall!

— Donald J. Trump (@realDonaldTrump) December 7, 2018

As BI pointed out, Trump appeared to be referencing the border patrol’s training exercise in Tucson, Arizona, where agents prepared “to deal with the potential of large crowds and assaultive behavior by caravan members, should a situation arise.”

Moving on from immigration, Trump referenced a report about the FBI’s decision to press ahead with its FISA warrants to spy on the Trump campaign despite knowing that its key piece of evidence – the infamous Steele Dossier – was “bogus”. Musing about Mueller, Trump wondered whether the Special Counsel’s many ‘conflicts of interest’, the ‘vicious’ record of his prosecutors and the “many contributions” made by the 17 Angry Democrats to the Clinton campaign would also be deserving of a mention.

Robert Mueller and Leakin’ Lyin’ James Comey are Best Friends, just one of many Mueller Conflicts of Interest. And bye the way, wasn’t the woman in charge of prosecuting Jerome Corsi (who I do not know) in charge of “legal” at the corrupt Clinton Foundation? A total Witch Hunt…

— Donald J. Trump (@realDonaldTrump) December 7, 2018

….Will Robert Mueller’s big time conflicts of interest be listed at the top of his Republicans only Report. Will Andrew Weissman’s horrible and vicious prosecutorial past be listed in the Report. He wrongly destroyed people’s lives, took down great companies, only to be……..

— Donald J. Trump (@realDonaldTrump) December 7, 2018

…..overturned, 9-0, in the United States Supreme Court. Doing same thing to people now. Will all of the substantial & many contributions made by the 17 Angry Democrats to the Campaign of Crooked Hillary be listed in top of Report. Will the people that worked for the Clinton….

— Donald J. Trump (@realDonaldTrump) December 7, 2018

….Foundation be listed at the top of the Report? Will the scathing document written about Lyin’ James Comey, by the man in charge of the case, Rod Rosenstein (who also signed the FISA Warrant), be a big part of the Report? Isn’t Rod therefore totally conflicted? Will all of….

— Donald J. Trump (@realDonaldTrump) December 7, 2018

The president also referenced a story  by Fox Business’s Trish Reagan that quoted Roger Stone ally Jerome Corsi, who said the FBI and Mueller had demanded he lie to help aid their investigation and implicate the president and Stone.

Jerome Corsi: ”This is not justice, this is not America. This is a political prosecution. The Special Prosecutor (Counsel), to get this plea deal, demanded I lie and violate the law. They’re the criminals.” He is not alone. 17 Angry Dems. People forced to lie. Sad! @Trish_Regan

— Donald J. Trump (@realDonaldTrump) December 7, 2018

With President Trump already firing off more tweets – even as the market remains on edge over what Trump will say, potentially unleashing another furious selloff – one imagines the stream-of-consciousness bursts will continue throughout Friday as Mueller releases his sentencing guidelines for Manafort and Cohen, and setting the stage for the final showdown with the president.

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Update (6:30 am ET): Boom…

• OPEC TALKS IN VIENNA ARE DEADLOCKED: DELEGATE

Reports of the deadline followed headlines claiming that Iran had demanded that an exemption must be included in any agreement about production cuts.

* * *

Update (6:20 am ET): Expressing dissatisfaction with the terms of whatever deal has been discussed, Iran is reportedly holding out for language about an exemption for the struggling producer to be included in the agreement following three hours of talks on Friday.

It would be ironic if Iran – which has been blamed, along with Saudi Arabia and Russia, for triggering the collapse in oil prices due to the sanctions ‘exemptions’ on its oil exports extended by the US – ends up killing the deal, because the only less-desirable outcome for oil markets than a ‘baseline’ cut scenario would be ‘no deal’.

Oil prices are all over the place as the perceived prospects for a deal change with each new headline.

* * *

Oil traders pushed crude prices 5% lower on Thursday after OPEC+ members failed to reach an agreement on production cuts – and outcome that helped stoke rumors that Russia and Saudi Arabia, the bloc’s two most influential members, had struck an agreement to keep production elevated to placate President Trump. But given the intensifying political pressure that threatens to fracture the decades old cartel, leaked reports from Friday’s meeting suggest that Russia and Saudi may have accepted that cuts are necessary –  though doubts remain about whether the 1 million b/d figure that has been bandied about would have any enduring impact on prices amid fears that global markets would remain hopelessly oversupplied.

The dominant rumor following Friday morning’s meeting suggested that OPEC was leaning toward total cuts of 1 million b/d (or more) with members contributing 650k and non-OPEC members (mostly Russia) contributing 350k. Iran, Venezuela and Libya each demanded an exemption from the cuts, citing economic hardship (yet Saudi Arabia has resisted calls for it to shoulder the bulk of the cuts, and insisted instead that they be evenly spread throughout the bloc, and reports later Friday said OPEC and Russia would seek a “symbolic” commitment to cuts from Iran).

Still, in one sign that the bloc’s two most dominant members might not be willing to cooperate, Russia and Saudi Arabia have refused to jawbone the market lower: Russian Energy Minister Alexander Novak said that while Russia would consider cuts of 100k-150k b/d, this deceleration would need to be short-lived, with production possibly ramping back up after three months because “market conditions may change.”

And even if they do relent, analysts have expressed doubts about whether 1 million b/d in cuts would remove enough supply from the market. One analyst with Commerzbank said oil would “likely fall further” if OPEC+ only cut production by 1 million b/d because “this will not be sufficient to rebalance the market.” An analyst at Jeffires agreed, saying cuts of 1m b/d oil could lead to a sell-the-news reaction in the short term, particularly if details are “sketchy.”

According to the Financial Times, influential Saudi energy minister Khalid Al Falih said he was “not confident” of an agreement. Others have said they still believe an agreement for a 1 million b/d cut could still be reached.

Oman, which is not an Opec member but plays an influential role as a go-between among the different factions, cautioned countries against being “macho” late Thursday, arguing that production cuts were in everybody’s interest. Alexander Novak, Russia’s energy minister had reportedly met with Vladimir Putin following the start of the Vienna meeting to discuss Russia’s position on cuts (the Russian leader said last month that he was “fine” with prices at $60 a barrel). Novak and Falih reportedly met Friday, though the details of what was said were unclear.

As production in the Permian Basin relentlessly accelerates, other producers worry that any revenue they gain from cuts will be offset by ceding more market share to their American competitors. And hopes that a rebound in oil prices (due to its connotations for capex spending and, more broadly, economic growth) might rescue the equity market have added another possible repercussion to the dilemma.

Brent crude futures swiftly priced in this uncertainty, falling 3% to trade below $60 a barrel early Friday before chatter about a possible larger-than-expected deal helped push prices back into the green.

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Authored by Mike Shedlock via MishTalk,

Congratulations are in order. France just topped Denmark as the most taxed nation.

The OECD reports Tax Revenues Rise.

The 2018 edition of the OECD’s annual Revenue Statisticspublication shows that the OECD average tax-to-GDP ratio rose slightly in 2017, to 34.2%, compared to 34.0% in 2016. The OECD average is now higher than at any previous point, including its earlier peaks of 33.8% in 2000 and 33.6% in 2007.

France Overtakes Denmark

The tax collection blue ribbon now goes to France. Congratulations!

Vs the OECD average of 34.2%, French taxes amount to 46.2% of GDP. Denmark, Sweden, Italy, and Greece round out the top five.

In addition to the blue ribbon, what else does France get?

Riots

Amusingly, it was a promise delivered: Macron Promised a Revolution, He Got One, Against Himself

In response, I offer this bit of political advice: Politicians Beware: It’s Best Not to Deliver What You Actually Promise.

How Did This All Start?

Good question.

Macron raised diesel taxes to pay for the global warming reduction effort that he campaigned for.

​

Where Are We Now?

That’s another good question.

In response to the riots, please note: France Suspends Diesel Tax Hike.

Musical Tribute

I am certain readers would like a fitting musical tribute to these events. I posted this before but who can resist another Beatles tribute?

Comment of the Day

https://t.co/tvCn5CrZfj

Comment of the day from my blog

“A bunch of rich people get together and decide that they need to fight climate change. They decide the best way to achieve this is by taxing poor people. Utter shock when the poor people start rioting.”

— Mike Mish Shedlock (@MishGEA) December 4, 2018

You say you want a revolution. Well, you know. We all want to change the world.

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Deutsche Bank shares have continued to break through successive all-time lows following news that Frankfurt prosecutors are pursuing charges against DB employees (and possibly the bank itself) over allegations that the bank’s wealth management unit helped launder money for criminals and other tax cheats – allegations that surfaced in the infamous ‘Panama Papers’ leak from 2016. Meanwhile, a parallel scandal has been brewing over DB’s involvement in the Danske Bank money laundering scandal – one of the biggest in European banking history.

Last month, the Danske whistleblower who helped lead regulators to the endemic processing of ‘suspicious’ money flowing out of Russia, Moldova and into Western capitals suggested that Deutsche Bank helped clear $150 billion of the $234 billion deemed suspicious by a Danske internal audit (some clients of Danske’s Estonian branch are believed to have had ties to Russian President Vladimir Putin) . And on Thursday, press reports added another $35 billion to that figure. According to the Financial Times, which cited an internal DB memo, Deutsche cleared a total of nearly $200 billion for Danske’s Estonian branch between 2007 and 2015. This means that Deutsche Bank cleared more than 4/5ths of the purportedly suspicious funds flowing out of the Danish bank’s Estonian branch. Over the eight year period, DB processed some 1 million transactions, according to the memo, and never once bothered to question the provenance of these massive sums of money, which dwarfed the annual GDP of Estonia.

This revelation follows reports that regulators in the US and Europe are looking into Deutsche Bank’s role in the scandal. A Deutsche spokesman said the bank is cooperating with all inquiries. Howard Wilkinson, the former Danske executive-turned-whistleblower, told the Danish Parliament last month that Deutsche cleared roughly $150 billion through a US-based subsidiary.

Deutsche stopped clearing money for Danske’s Estonian branch in 2015, two years after JP Morgan dropped Danske Estonia as a client, after complaining that its compliance department had flagged too many examples of suspected money laundering. But the memo obtained by the FT revealed that even as DB stepped away from dollar clearing, it continued to process payments denominated in euros, totaling some 225 million euros ($256 million) between 2015 and 2018 (though Deutsche’s membership in the Single Euro Payments Area means that it was obliged to process these payments).

This means that Deutsche could face further legal penalties related to three separate scandals: The infamous Russian mirror-trading scandal (Deutsche paid more than $600 million in fines to US and UK authorities last year but US authorities are continuing their investigation), the ‘Panama Papers’ AML violations and the Danske scandal.

Despite these mounting legal risks, Deutsche affirmed on Thursday that it would not raise its provisions for legal judgments, likely leaving the bank vulnerable to more fines (Deutsche has already paid some $18 billion in fines since the financial crisis), which could seriously impact future earnings.

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