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Authored by Lance Roberts via RealInvestmentAdvice.com,

On December 25th, I penned “My Christmas Wish” where in I stated that is was “now or never” for the bulls to make a stand.

“If we take a look back at the markets over the last 20-years, we find that our weekly composite technical gauge has only reached this level of an oversold condition only a few times during the time frame studied. Such oversold conditions have always resulted in at least a corrective bounce even within the context of a larger mean-reverting process.”

“What this oversold condition implies is that ‘selling’ may have temporarily exhausted itself. Like a raging fire, at some point the ‘fuel’ is consumed and it burns itself out. In the market, it is much the same.

You have always heard that ‘for every buyer, there is a seller.’  

While this is a true statement, it is incomplete.

The real issue is that while there is indeed a ‘buyer for every seller,’ the question is ‘at what price?’ 

In bull markets, prices rise until ‘buyers’ are unwilling to pay a higher price for assets. Likewise, in a bear market, prices will decline until ‘sellers’ are no longer willing to sell at a lower price. It is always a question of price, otherwise, the market would be a flat line.”

We now know where the buyers were willing to start buying again.

Let’s take a look at that same technical indicator just one month later.

Now, let me remind you this is a WEEKLY indicator and is therefore typically very slow moving. The magnitude of the advance from the December 24th lows has been breathtaking.

Short-term technical indicators also show the violent reversion from extreme oversold conditions back to extreme overbought.

The McClellan Oscillator also swung from record low readings to record high readings in the same time frame as well.

But it isn’t just the technical change that has had a violent reversion but also the rush back into equities by investors.

Oh wait, that didn’t actually happen.

As noted by Deutsche Bank’s Parag Thatte noted recently:

“While the S&P 500 rallied +15% since late December, equity funds have continued to see large outflows. As Thatte elaborates, “US equity funds in particular have continued to see large outflows (-$40bn) since then, following massive outflows (-$77bn) through the sell-off from October to December.”

This confirms our concern the recent rally has primarily been a function of short-covering and repositioning in the markets rather than an “all-out” buying spree based on a “conviction” the “bull market” remains intact.

David Rosenberg recently confirmed the same:

“Let’s go back to December for a minute. This was the worst December since 1931, mind you, followed by the best January since 1987. This is nothing more than market that has gone completely manic.

To suggest that there is anything fundamental about this dead-cat bounce in equities is laughable. This is an economy, and a market, that couldn’t even sustain a 3% yield on the 10-year T-note. It sputtered at the thought of the Fed taking the funds rate marginally above zero on a ‘real’ basis, even as it feasted on unprecedented stimulus for a such a late-cycle economy.

Yes, Powell et al. helped trigger this latest up-leg, not just at last week’s meeting, but in the lead-up to the confab as well. The Fed has been crying uncle for weeks now.”

As I discussed previously, this also highlights the importance of long-term moving averages.

“Again, as noted above, given that prices rise and fall due to participant demand, long-term moving averages provide a good picture of where demand is likely to be found. When prices deviate too far above, or below, those long-term averages, prices have a history of reverting back to, or beyond, that mean.”

Well, as we now know, the market found support at the 200-week (4-year) moving average. As you will notice, with only a couple of exceptions, the 200-week moving average has acted as a long-term support line for the market. When the market has previously confirmed a break below the long-term average, more protracted mean-reverting events were already in process. Currently, the “bull case” remains intact as that long-term average has held…so far.

However, just because the initial test of the trend has held, it doesn’t mean the correction is over. As was seen in late 2015 and early 2016, the market held that trend during two sequential tests of the lows. While the bulls remain in charge for the moment, it will be whether the bulls can successfully manage a retest of lows without breaking the long-term trend.

The same goes for the 60-month (5-year) moving average. With the market currently sitting just above the long-term trend support line, the “bull market” remains intact for now.

Again, a monthly close below 2280 would suggest a more protracted “bear” market is underway.

The Bounce Hits Our Targets

As I noted in the Christmas report, we were looking for an oversold retracement rally to push stocks back toward the previous October-November closing lows of 2600-2650. The rally has hit, and slightly exceeded those original estimates.

But, we also said that on a monthly basis the rally could extend as high as 2700 which is roughly where January closed.

And, not surprisingly, it all turned out precisely as I stated:

“From yesterday’s closing levels that is a 12.7% to 14.8% rally. 

A rally of this magnitude will get the mainstream media very convinced the ‘bear market’ is now over.”

It is too early to suggest the “bear market of 2018” is officially over.

But, the rally has simply been “Too Fast, Too Furious,” completely discounting the deteriorating fundamental underpinnings:

• Earnings estimates for 2019 have sharply collapsed as I previously stated they would and still have more to go.

• Stock market targets for 2019 are way too high as well.

• Despite the Federal Reserve turning more dovish verbally, they DID NOT say they actually WOULD pause their rate hikes or stop reducing their balance sheet.

• Trade wars are set to continue as talks with China will likely be fruitless.

• The effect of the tax cut legislation has disappeared as year-over-year comparisons are reverting back to normalized growth rates.

• Economic growth is slowing as previously stated.

• Chinese economic has weakened further since our previous note.

• European growth, already weak, will likely struggle as well. 

• Valuations remain expensive

You get the idea.

But more importantly, as recently noted by Sven Henrich, it also resembles much of what was seen at the previous two bull market peaks.

“Note the common and concurrent elements of the previous two big market tops (2000, 2007) versus now:”

• New market highs tagging the upper monthly Bollinger band on a monthly negative RSI (relative strength index) divergence — check.

• A steep correction off the highs that breaks a multi-year trend line — check.

• A turning of the monthly MACD (Moving Average Convergence Divergence) toward south and the histogram to negative — check.

• A correction that transverses all the way from the upper monthly Bollinger band to the lower monthly Bollinger band before bouncing — check.

• A counter rally that moves all the way from the lower Bollinger band to the middle Bollinger band, the 20MA — check.

• A counter rally that produces a bump in the RSI around the middle zone, alleviating oversold conditions — check.

• All these events occurring following an extended trend of lower unemployment, signaling the coming end of a business cycle — check.

• All these events coinciding with a reversal in yields — check.

• All these events coinciding with a Federal Reserve suddenly halting its rate hike cycle — check.

The rally we “wished” for on Christmas has come to fruition. However, it isn’t a rally to become overly complacent in as there remain significant challenges coming from weaker economic growth, rising debt levels, and slowing earnings growth.

But as I concluded in this past weekend’s missive:

“While markets can certainly remain extended for much longer than logic would predict, they can not, and ultimately will not, stay overly extended indefinitely. 

The important point here is simply this. While the Fed may have curtailed the 2018 bear market temporarily, the environment today is vastly different than it was in 2008-2009.  Here are a few more differences:

• Unemployment is 4%, not 10+%

• Jobless claims are at historic lows, rather than historic highs.

• Consumer confidence is optimistic, not pessimistic.

• Corporate debt is a record levels and the quality of that debt has deteriorated.

• The government is already running a $1 trillion deficit in an expansion not half that rate as prior to the last recession.

• The economy is extremely long is a growth cycle, not emerging from a recession.

• Pent up demand for houses, cars, and other durables has been absorbed

• Production and Services measures recently peaked, not bottomed.

In other words, the world is exactly the opposite of what it was when the Fed launched “monetary accommodation”previously. Logic suggests that such an environment will make further interventions by the Fed less effective.

The only question is how long will it take the markets to figure it out?”

I suspect not too much longer.

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

It’s been a while since we posted an update on how “world-renowned commodity guru” Dennis Gartman sees the markets ever since his “watershed” – and correct – so far bullish call that “stocks are headed higher” following Jay Powell’s capitulation, made one month ago. And as one would expect, considering that the Fed has only gotten more dovish since then, there has been no change in Gartman’s stance, and if anything, the authord of the Gartman letter has only gotten more bullish.

Follows the excerpt from his latest Gartman letter.

We remain positive of equities because of what we have said time and time again each morning for the past several weeks and which needs to be re-said here this morning yet again for nothing has changed: the Fed has indeed “changed” its monetary policies and this change was made clear by Mr. Powell’s comments of now more than a month ago and made clearer midweek last week following the FOMC meeting. The comments made by Mr. Powell in the post-meeting press conference made it clear that the Fed’s balance sheet will continue to be run-off through the process of its debt securities maturing but that this process may be more “patiently” pursued than had been previously understood. In fact, this “subtraction by maturation” process, as we refer to it, may actually be reversed if economic realities demand that it be so; that is, if the economy did in fact turn for the worse rather than  the better then the Fed would begin QE again. Thus, rather than pursuing the steady, targeted course of action requiring that $50 billion be allowed to mature-off each and every month, the Fed shall be more “patient” in so doing.

Further, we continue to pay bullish homage to the decision by the Chinese government to cut reserve requirements and taxes made three weeks ago. However, given the lengthy Chinese New Year celebration at the present time, those changes shall
have a lesser effect for a while. Nonetheless, those actions, coupled with the Fed’s change in policy noted above, have had a clear positive effect upon global markets. We are therefore long of equities in generic US terms, but we fear we’ve failed badly in not having added to the initial position for we had considered that we’d done enough simply to have turned away from a bearish perspective at the very proper time and then to have turned bullish of equities properly shortly thereafter. We shall have no choice but to become more bullish and when we do we shall add to our position by buying Chinese shares in ETF form. We’ll wait, however, until the Chinese New Year celebrations are nearly over before taking real action.

All of that said to this point, we still note that our International Index is down a rather material 1,133 “points” or -8.8% from the highs made last January 29th. However, those numbers are rather obviously growing smaller by the day. Too, for the year-to-date our Index is +845 “points” or +7.8%. More importantly, it is now a very material 1,134 “points” above the lows made on December 26th of last year or 10.7% from there. That, as we’ve said repeatedly of late, is indeed impressive for we have held to the investment thesis that market moves of 7% divide what are mere, common corrections… both higher and/or lower… from real, material trend changes. Further, we have held and we have promoted the thesis that until markets have gone past that 7% threshold with some real “sense of authority” we could not say that the trend has changed. So, for a while we were obviously concerned that stocks had risen clearly through that 7% “Maginot line” but had done so on less-than-stellar volume. Further, given the comments attendant to the chart at the upper left of p.1 this morning we are concerned that volumes have once again waned a bit.

At this point, we note that the CNN Fear & Greed Index…which until four weeks ago had been at uncommonly low, single-digit  levels for so much of the previous two months… has made its way to and slightly through 60 and is approaching over-bought territory, having closed yesterday at 64. However, it is not in true overbought territory yet. That requires that this index makes its way to at least 70 and preferably makes its way above 75 and then turns lower.

The history of this index strongly suggests that when it has been to single digits… and especially when it’s been there for some protracted period of time as it was for most of the last two months of last year, culminating on very late December when for a few brief moments of sheer, unmitigated panic it actually fell to 2!!! …a rally of some material nature follows. The CNN Index is continuing to prove its worth and so until it rises above 70…and then turns down….we’ve really no choice but to remain bullish. History continue to tell us that that is the proper course of action and as we said here yesterday and as we said last Friday, we are not of the mind to argue with History for once again History is a harsh mistress.

And there you have it: Gartman will remain bullish until everyone else is just as bullish.

via ZeroHedge News http://bit.ly/2UK2Aep Tyler Durden

Bridgewater Associates’ commitment to the principle of “radical transparency” has been widely hyped in the press coverage of the world’s largest hedge fund almost since its inception – and even more so since founder Ray Dalio published a book codifying the book’s “principles”.

But as it turns out, these principles don’t only apply to the firm’s investing process. Employees who fail to inform management of personal developments like, say, a relationship with a colleague (something we’re told is fairly common at Bridgewater), risk being handed a pink slip and exiled from the firm’s Westport, Conn. office. And apparently, the firm is adamant about this.

Perhaps due to the increased scrutiny facing the firm’s senior employees following an embarrassing lawsuit over a relationship between co-CIO (then co-CEO) Greg Jensen and a former unnamed female employee (who has since left the firm after receiving a $1 million settlement), Bob Elliott, who was until very recently the fund’s head of foreign-exchange research, has reportedly been fired for failing to properly disclose a relationship he had with a female coworker.

According to Bloomberg, Elliott, a 13-year veteran of the firm, informed his superiors about the relationship with a female colleague, but was dismissed anyway for cause, apparently for not informing them quickly enough. The woman, who had been at the firm for three years, was also let go.

Neither Elliott or Bridgewater would comment on reports of his dismissal, though his LinkedIn page was recently updated to reflect his departure.

Elliott said on his page that “after 13 years at Bridgewater,” he is “looking for new challenge in a different professional environment.” He first joined the firm in 2005 after graduating from Harvard with a degree in history and science.

 

via ZeroHedge News http://bit.ly/2GnxhC5 Tyler Durden

Blain’s Morning Porridge, submitted by Bill Blain

It will be a short comment this morning as I play catch up and try to figure out if we should be worried that it’s the Year of the PIG. Sounds great, but I’m supposed to be on a diet.

Reason for catch up is I’ve just spent a week with 300 or so like-minded bankers, brokers, fund managers and tech-experts at Interbourse; the largest annual Ski event across the financial services sector. It’s been running for over 50 years. All the major markets were represented – and aside from great skiing in Squaw Valley and Alpine Meadows, California, there were some great (liquid-fuelled) discussions on markets. The 2020 event will be in Switzerland.

Let me sum up the week with some of the strands of opinion heard in the resort:

The Europeans don’t understand why the UK is so keen on Economic Suicide via Brexit. The Brits don’t understand why the Europeans are so keen on the EU and Euro. The Hedge Fund managers reckon the real effects of Brexit are being massively overestimated and see value across markets. The Tech sector analysts think we’re on the cusp of massive upside in Tech Stocks. Everyone is worried about populism. The Canadians had more fun than anyone else. The Germans took it quite seriously. Everyone was fine and dandy with the Fed applying the brakes to policy normalisation. Everyone was looking to earnings. I still don’t understand Coin-Token Driven IPOs. No one could quite understand why Trump is so keen on the Wall – liberal doses of Tequila proved a great way of easing strained muscles.

Yep, the usual kind of conference. Lots of people happily explaining their views to people happy to listen. However, I do understand markets continued without me last week – and am still playing catch up on what I missed. Some great stuff in the papers (from Bill Gross, Deutsche Bank, Airlines, Saudi, and whatever else) and some excellent commentaries, but I think I’ll ring round clients for the real stuff. 

BUT…

Turning the mood on its head – and no doubt attracting much comment for the hypocrisy of commenting about a luxury ski trip and then poverty – I have to comment on the contrast between the skiing and spending some time in San Francisco.

I hope my American hosts will forgive me for raising this, but the squalor we saw in The City was frightful. San Francisco has always been one of favourite US cities, but the degree of homelessness, mental illness and drug abuse we saw on this trip was truly shocking. Walking round SF on a Sunday Morning and we saw sights we couldn’t believe. This must be one of the richest cities in the world – home to 4 of the 10 richest people on the planet according to Wiki. I asked friends about it, and they shrugged it off.. “The City has always attracted the homeless because of the mild weather,”.. “It’s a drug thing”.. “its too difficult”… “you get used to it..”

Well, I didn’t.

I found it quite shocking the number of folk sleeping rough on the sidewalks, the smell of weed and drug impedimenta everywhere, the filth, mental illness and degradation on view just a few meters from the financial centre driving Silicon Valley. It’s a city where the destitute seem to have become invisible to the Uber hailing elites. We found ourselves hopping on one of the beautiful F-Route Trolley Buses to find nearly every seat occupied by someone lugging around their worldly possessions around in a plastic bag. It was desperately sad.  

I read an article from Businessweek  speaking about the success of a $5mm 50-employee scheme launched last year seeking to identify and address the problems of the City. $5mm? Really. Same article says I read there are around 7500 homeless in the City – which I reckon must be a massive underestimation. It says homelessness in Los Angeles is over 60,000.

What has homelessness and urban poverty in San Francisco got to do with markets you might ask?

Everything. Absolutely everything.

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

Despite yesterday’s disappointing Google results, which saw the search giant beat estimates but its stock slump as investors were concerned by surging costs and expenses, global stocks extended their red hot start to 2019, hitting a 2 month high, boosted by Europe’s miners and banks while the dollar gained for a fourth day as traders waited for U.S. President Donald Trump’s State of the Union address following news the president had unexpectedly had dinner with Fed Chair Powell and Vice Chairs Clarida.

After initially dipping, S&P futures gradually turned higher on Tuesday, tracking shares in Europe where the Stoxx 600 Index headed for the sixth advance in a row, even as chip suppliers Infineon Technologies and AMS issued warnings about future growth, boosted by strong earnings from oil giant BP, which reported that its profits had doubled, while another move higher in crude prices overnight pushed the oil and gas sector up 1.5%. Also helping were euro area PMIs, which were revised slightly upward. Still, the common currency was lower as disappointing data from Italy hung over the region. Sterling fell slightly following a weak services report.

Miners were also up sharply as traders reacted to news that Brazil had ordered Vale, the world’s largest iron ore miner, to close eight of its dams following a deadly collapse that killed over 300 people last month. As a result, iron ore prices continued their surge and are now at a near 2-year high.

“Our fundamental view is there no reason for this incredible move, so is it just speculation, a frenzy about possible stimulus in China?,” said Saxo Bank’s head of FX Strategy John Hardy. “What should we do with it? I don’t know, but it should be noted.”

In Asia, the overnight session remained muted as China and large parts of Asia were closed for Lunar New Year celebrations overnight but what markets were open continued to push higher. Japan’s Nikkei marked its highest level in seven weeks at one point before fading to finish slightly lower. Australian shares suffered no such fatigue, jumping 2%, with long-battered financials surging on short-covering after a special government-appointed misconduct inquiry left the structure of the country’s powerful banks in place, while the RBA kept the Cash Rate Target unchanged at 1.50% as expected while reiterating that low rates are supporting the economy and that progress on inflation and unemployment is expected to be gradual. Furthermore, the RBA noted that the labour market remains strong and that it sees a gradual inflation pick up over next couple of years but added that the central scenario for GDP growth is to average around 3% this year and to slow in 2020 vs. Prev. forecast of around 3.5% growth for the next 2 years back at the December meeting.

With Europe continuing to rally, the MSCI index of global stocks reached a two-month high, after enjoying its best January on record, rising more than 13% from a near two-year low hit in late December.

On Wall Street, the S&P 500 gained on Monday, with technology and industrials the biggest winners, 100-day moving averages sliced through and the VIX dropping to its lowest in four months. As noted earlier, the Fed took the unusual step of issuing a statement on Monday saying that its head Jerome Powell had told President Donald Trump and Treasury Secretary Steven Mnuchin that “the path of policy will depend entirely on incoming economic information.”

In the currency markets, the dollar fluctuated and was trading unchanged following recent gains against its major peers as investors continued to weigh last Friday’s strong payrolls number offset by disappointing production and capex data. The Bloomberg Dollar index was steady, holding a three-day advance; U.S. and European sovereign yield curves bear steepened with Treasuries outperforming Bunds. The euro edged lower, touching a day low versus the dollar after weak PMIs out of Italy and France; euro-area PMI releases beat estimates, while German ones came close to expectations. Cable dropped 0.2% to a 1.3013 day low after the worse-than-forecast U.K. services PMI data. The krona slipped against all G-10 peers apart from the Swiss franc, with the Swedish currency touching a day low after services and composite PMIs slipped in January; USD/CHF rose to 1.0011, an 11-week high

The Australian dollar gained 0.5% to $0.7260, erasing earlier losses amid short covering, after the Reserve Bank of Australia left policy unchanged at its first meeting this year but sounded less dovish than the markets had expected. The Aussie had earlier fallen fell as much as 0.5 percent after a slump in retail sales reinforced concerns about the health of the economy.

Traders will next focus on today’s main event, President Donald Trump’s delayed State of the Union address, due at 2100 ET Tuesday as well as U.S. ISM non-manufacturing figures, also due later in the day. Trump told a White House event over the weekend that he might declare a national “emergency” because Democrats in Congress weren’t moving toward a deal to provide money to build a wall on the border with Mexico. Such a step would likely prompt a court challenge from Democrats.

“If President Trump persists in his long-promised wall along the U.S.-Mexico border in the upcoming address, it would cap the dollar’s rally,” said Kengo Suzuki, chief FX strategist at Mizuho Securities.

Also late on Monday, Trump’s inaugural committee said it received a subpoena for documents. Elsewhere, there were separate reports that US Rep. Neal is building a case to subpoena US President Trump’s tax returns.

In Brexit news, Europe’s top official offered Britain a legal guarantee that it would not be trapped by the Irish backstop last night but was swiftly rejected by Brexiteer MPs. As a reminder, UK PM May is heading to Northern Ireland in a bid to salvage her Brexit deal by finding an alternative to the “toxic” backstop proposal. UK Ministers are secretly planning to unilaterally cut tariffs on all imports to zero in the event of a no-deal Brexit, in a move that could flood the market with cheap goods and “ruin” industry, according to a HuffPost UK exclusive.

In geopolitical news, the UN sanctions monitor report said North Korea nuclear and ballistic missile program remains intact and that North Korea is working to protect those capabilities from military strikes. Furthermore, it added that North Korea is violating UN arms embargo and is breaching sanctions through illegal ship-to-ship transfers of petroleum products and coal.

Elsewhere, West Texas oil climbed as traders weighed output cuts from the OPEC producer group and its partners against expectations for rising U.S. crude inventories. Emerging-market shares and currencies drifted. Looking at today’s key events, President Trump will deliver a delayed State of the Union address. Scheduled earnings include Disney, Suncor Energy, Estee Lauder.

Market Snapshot

• S&P 500 futures up 0.1% to 2,724.00
• STOXX Europe 600 up 0.8% to 362.64
• MXAP up 0.3% to 156.79
• MXAPJ up 0.4% to 513.34
• Nikkei down 0.2% to 20,844.45
• Topix up 0.1% to 1,582.88
• Hang Seng Index up 0.2% to 27,990.21
• Shanghai Composite up 1.3% to 2,618.23
• Sensex up 0.2% to 36,657.21
• Australia S&P/ASX 200 up 2% to 6,005.92
• Kospi down 0.06% to 2,203.46
• German 10Y yield rose 2.1 bps to 0.198%
• Euro down 0.2% to $1.1417
• Brent Futures up 0.5% to $62.85/bbl
• Italian 10Y yield fell 1.3 bps to 2.376%
• Spanish 10Y yield rose 0.2 bps to 1.246%
• Brent Futures up 0.5% to $62.85/bbl
• Gold spot down 0.06% to $1,311.47
• U.S. Dollar Index up 0.1% to 95.96

Top Overnight News from BBG

• Trump’s inaugural committee is under scrutiny by federal prosecutors in New York, adding new legal woes for the president and his allies that stretch beyond the probe led by Special Counsel Robert Mueller
• The president’s second State of the Union promises to be one of the most dramatic moments in recent memory for the annual address to Congress. The appearance will be shadowed by the threat of another government shutdown, and he has hinted that he may make news — a national emergency declaration on the U.S. southern border, a proposal on drug prices or on AIDS, or dates and locations for summits with the leaders of China and North Korea
• The U.K.’s dominant services sector barely grew in January, bringing the economy to a near- halt. Companies said they were less likely to start new projects and that clients were spending more cautiously because of a lack of clarity around Brexit
• Danuta Huebner, head of the European Parliament’s constitutional-affairs committee, said the prospect of a U.K. withdrawal from the EU on March 29 without a divorce agreement is so alarming that Britain’s partners in the bloc would seriously consider a later date for departure to ensure it took place in an orderly fashion
• A manufacturing and export-led slump in Italy’s economy spilled into services at the start of the year, aggravating an already fragile economic situation in the euro area. Business activity among Italian services providers shrank in January and forced companies to reduce headcount for the first time in more than two years

Asia-Pac equity markets found some early support from the tech-led gains on Wall St, although later turned somewhat mixed amid focus on earnings and with most the region shut for the Lunar New Year. Nonetheless, ASX 200 (+2.0%) was the stellar performer due to strength in its largest weighted financials sector as banks seemingly made light of the Banking Royal Commission final report regarding misconduct in the industry. As such, Australia’s banking powerhouses all edged firm gains in the aftermath of the report which recommended against structural separation and referred 24 misconduct cases to regulators but did not suggest criminal charges, while many viewed the report as unlikely to result in fundamental reforms for the industry in the long-term and Moody’s also noted that the recommendations will likely preserve profitability in the industry. Nikkei 225 (-0.2%) shrugged off opening gains and traded flat as earnings remained the main driver for price action in Tokyo after Panasonic cut its outlook, while Yahoo Japan outperformed following an upward revision to its FY giudance. Finally, 10yr JGBs were initially pressured as they followed suit to the recent downside in T-notes, although prices later rebounded following the 10yr auction in which the b/c and accepted prices increased from prior, while the average yield slipped to negative territory. The RBA kept the Cash Rate Target unchanged at 1.50% as expected. The RBA reiterated that low rates are supporting the economy and that progress on inflation and unemployment is expected to be gradual. Furthermore, the RBA noted that the labour market remains strong and that it sees a gradual inflation pick up over next couple of years but added that the central scenario for GDP growth is to average around 3% this year and to slow in 2020 vs. Prev. forecast of around 3.5% growth for the next 2 years back at the December meeting

Top Asia News

• RBA Leaves Key Rate at 1.5% as Seen by All 32 Economists
• Polls Not a Risk to India’s Growth, Focus on Investment: SocGen
• Tycoons on the Run to Play Pivotal Role in World’s Largest Vote
• Overseas Funds Sour on Indian Bonds as Budget Math Weighs
• Norinchukin Bank Added 3 Trillion Yen of CDOs Since March

An upbeat session for European equities thus far following on from a holiday-thinned Asia-Pac session as the region is fuelled by a number of large-cap earnings. Major indices extended on opening gains and are firmly in positive territory (Euro Stoxx 50 +1.0%) with Britain’s FTSE 100 (+1.4%) leading the advances amid upbeat earnings from heavyweight BP (+5.2%), wherein the oil-giant beat on adjusted net and revenue forecasts while also expecting higher underlying production and lower refining margins this fiscal year. Sectors are experiencing broad-based gains with the energy sector the marked outperformer as earnings from BP lifts the likes of Royal Dutch Shell (+1.7%) and Total (+1.6%) in sympathy. Elsewhere, the tech sector is largely resilient to a guidance cut from AMS (-13.2%), as the rebound in Wirecard (+6.5%) keeps the sector afloat. Meanwhile, Infineon (-0.3%) numbers printed largely in-line, though the company now expects 2019 revenue growth to be at the bottom end of the forecast range. Finally, Indivior (-11.4%) shares fell as much as 24% at the EU open after the US Federal Court rejected its appeal for another hearing regarding patent infringement by a low-cost copycat drug developed by Dr Reddy.

Top European News

• Services Bring U.K. Economy to Near-Halt as Brexit Approaches
• Italy’s Broadening Slump Weighs Down the Euro-Area Economy
• Panalpina Shareholders May Want to Exit Long Positions: Stifel
• Salvini’s League Rises to 33.8% in SWG Poll; Five Star Declines

In FX, although the USD is mixed vs major currency rivals, the index has inched a bit closer to the 96.000 mark, largely by virtue of the aforementioned Eur/Usd decline and that pair’s biggest weighting in the basket.

• AUD was the top G10 performer after a sharp turnaround in fortunes overnight, as the Aussie recovered impressively from sub-0.7200 lows vs the Usd and circa 1.0455 vs the Nzd in wake of a less dovish than many anticipated RBA policy statement. This, despite yet more disappointing data in the form of retail sales and downgrades to the outlook for growth in 2019 and 2020. Aud/Usd is now back up near 0.7250 and Aud/Nzd has rebounded over 1.0500+.
• CHF – The Franc has extended recent losses vs the Greenback and just traded down through parity amidst broadly risk on trade highlighted by broad EU equity market gains, and the Chf seemingly taking some of the strain from the Jpy that has rebounded from 110.00+ vs the Usd.
• EUR/GBP – Both on the back foot vs the Dollar and inching closer towards downside big figures at 1.1400 and 1.3000 respectively. The single currency tested bids around 1.1410 before gleaning some traction from a firmer than flash pan-Eurozone services PMI as sub-50.00 Italian and French prints were offset by more encouraging Spanish and German surveys (in headline terms at least). However, Eur/Usd remains precarious below several daily chart levels and just above decent option expiries between 1.1400-10 (1.1 bn). Conversely, Cable has now breached the 200 DMA (around 1.3038) following a 3rd and most worrying UK PMI miss given the importance of services to overall GDP. The Pound is holding just above late January lows, while Eur/Gbp has rebounded towards recent peaks not far from 0.8800.
• CAD – The Loonie continues track moves in crude prices and is back on the front foot vs its US counterpart having rebounded above the 200 DMA (1.3130) and retesting chart/psychological resistance at 1.3100.

In commodities, a relatively choppy session for the oil market as earlier losses were nursed after a muted Asia-Pac trade. WTI (+1.1%) and Brent (+0.7%) edged higher in recent trade amid the overall market risk-appetite wherein the former reclaimed USD 53/bbl, while the latter hovers around the USD 63/bbl level. News flow has been light for the complex with participants awaiting the release of the weekly API crude inventories for a further catalyst. Elsewhere, metals have been mixed with spot gold (+0.1%) largely moving in tandem with the buck, meanwhile copper is outperforming in the complex with prices holding onto most of yesterday’s risk-fuelled gains. Finally, iron ore prices remain on an upward trajectory as Brazilian mining-giant Vale suspended operations at its Brucutu mine to comply with a court order regarding safety improvement at the mine, ING notes “the mine halt could impact 30mtpa of iron ore supply if Vale is unable to successfully appeal the decision.”

Looking at the day ahead, we’ll also get the remaining PMIs along with the January ISM non-manufacturing (57.0 expected). Tonight at 9pm is President Trump’s State of the Union address while the main earnings highlights today are Walt Disney and BP

US Event Calendar

• 9:45am: Markit US Services PMI, est. 54.2, prior 54.2
• 9:45am: Markit US Composite PMI, prior 54.5
• 10am: ISM Non-Manufacturing Index, est. 57.1, prior 57.6

DB’s Jim Reid concludes the overnight wrap

I hope the various winter colds are bypassing you more than they are our family. Both twins have cold induced conjunctivitis and bad coughs. They are walking around a lot with their eyes closed up and bumping into everything. Maisie has an awful cough and slight conjunctivitis too. Calpol is fast going out of stock where we live as a result. Meanwhile, both my wife and I are fighting off the same thing with my hay fever only being kept in check by the snow and tablets. As part of the design of the new house we are considering incorporating a permanent cross on the front door to warn people away.

Fortunately markets continue to shake off their pre-Xmas bout of man-flu but the last 24 hours were about as slow as we’ve seen so far this year. Major equity markets rallied but in thin trading. Volumes in Hong Kong were 54% lower than the 100-day average, as the Chinese mainland was closed for the lunar new year holiday. In Europe and the US, volumes were 15-30% lower than usual, but most benchmark indexes nevertheless grinded higher throughout the session. The NASDAQ led gains, up +1.15% into Alphabet’s earnings report. The S&P 500 and the DOW gained +0.68% and +0.70% respectively. Meanwhile the VIX edged lower to 15.73, its lowest level since the spike higher in early October last year. In Europe, the STOXX eked out a +0.06% gain, but this masked some differentiation across the continent. Italy’s FTSE MIB was up +0.15% with Spain’s IBEX down -0.49%. Spanish banks underperformed, with Banco de Sabadell and CaixaBank trading down -4.80% and -4.54% after weak earnings on Friday.

After the US close, Alphabet (Google’s parent company) reported somewhat disappointing earnings. While revenues rose more than expected in the fourth quarter and the closely-watched “paid clicks” metric rose an impressive 66%, investors focused on the erosion in profit margins from 24% to 21%. Given where we are in the cycle, it’s understandable that investors are attentive to signs of profit compression, and Alphabet’s share price slid around -3.10% in overnight trading.

The good news is that bond markets were a bit more exciting, especially Treasuries, where 10y yields rose +3.9bps which puts them up +9.4bps from the pre-payrolls levels of Friday. The move was led by a stronger day for the Greenback – which included the yen passing 110 for the first time this year (close 109.88) – as well as a busy day for US IG issuance. The moves in Europe were a lot less exaggerated but the direction of travel was the same with 10y Bunds cheapening +1.1bps. The euro also slid -0.16% although the single currency didn’t appear too fussed after ECB Governing Council member Nowotny said that he doesn’t see a recession in Europe despite recent weak data (especially in Germany). To be fair I can’t remember a central bank saying they see one coming but readers feel free to correct me.

The good news for those that found yesterday a bit dull is that there is potential for things to get a little more interesting today firstly with the final January PMIs due out in Europe this morning and then President Trump’s delayed State of the Union address due late this evening. Just on the latter, Trump is due to deliver his address at 9pm ET which is 2am GMT in the UK tomorrow morning. The average speech is around 50 minutes but for context, Trump’s speech last year was the third-longest ever at 80 minutes. Whilst it’s near-impossible to predict what will or won’t be said, expect the contentious border wall issue to be a talking point especially given rising tensions between Trump and House Speaker Pelosi. Indeed Politico believe that the biggest question is whether Trump will use the platform to declare a national emergency at the southern border as justification for beginning construction.

Overnight, one of the main stories has been news of a rare meeting between the Fed Chair Powell and the US President Trump to discuss recent economic developments and the outlook. However the Fed said in a statement that Mr. Powell didn’t share his expectations for monetary policy, “except to stress that the path of policy will depend entirely on incoming economic information and what that means for the outlook,” while adding that his comments were “consistent with his remarks at his press conference of last week.” So, nothing new in particular but it was interesting they met. The meeting was also attended by Fed Vice Chair Clarida and Treasury Secretary Steven Mnuchin. Elsewhere, the Fed’s Loretta Mester (non-voter) said that the monetary policy is not “far behind or far ahead of the curve,” while adding that the Fed might get back to raising interest rates if the economy performs on the lines of her expectations even as she acknowledged a growing set of downside risks to her outlook for continued above-trend growth.

Back to markets where this morning in Asia sentiment is mixed with Hong Kong, China and South Korea’s equity markets closed for holidays. The Nikkei (+0.04%) is trading flattish post erasing early gains. Futures on the S&P 500 are down -0.10% this morning with the disappointing result from Alphabet weighing slightly. In terms of overnight data releases, Japan’s January composite PMI came in at 50.9 (vs. 52.0 last month) with the services PMI standing at 51.6 (vs. 51.0 last month). Elsewhere the UK’s January BRC like for like sales came in at +1.8% yoy (vs. -0.2% yoy expected).

In other news, Sterling chopped around a bit yesterday amid sporadic Brexit headlines. It was initially weaker into mid-afternoon firstly after Tory lawmaker Rees-Mogg said that he would accept a Brexit deal without an Irish backstop, backing up comments from the ERG that pro Brexit Tory MPs won’t support a compromise being proposed by May to add an addendum to the existing Withdrawal Agreement. Later in the session the Pound spiked back above 1.31 post the (albeit limited) story that Merkel was dropping hints of a trying to find a ‘creative’ Brexit compromise. The currency quickly retraced those gains to end the session -0.32% weaker at 1.3037 as the top EU negotiators poured cold water on the prospect of reopening the Withdrawal Agreement, with Michel Barnier saying that the backstop is the “only operational solution” to address the Irish border.

Finally the limited amount of economic data that was out yesterday didn’t do a whole lot to move the dial. Perhaps the most interesting was here in the UK where the January construction PMI slumped a notable -2.2pts to 50.6 (vs. 52.5 expected) and to the lowest since March last year. That of course follows the weaker than expected manufacturing PMI out last Friday. Elsewhere Italy’s preliminary CPI print for January was confirmed at -1.7% mom which wasn’t quite as bad as feared (-1.9% expected). The annual rate for the headline and core readings have however both slipped to +0.9% yoy. The euro area’s Sentix sentiment survey of 4,500 private and institutional investors fell to -3.7, its lowest level since 2014.

In the US, revisions to core capex orders were disappointing at -0.6% mom (vs. -0.1% expected) while core shipments were revised down a further tenth to -0.2% mom. This data is for November so looks a little out of date now with the BEA beginning the process of working through the large backlog of data releases. Later in the session, the Fed released their Q1 Senior Loan Officer Survey, which showed that C&I lending conditions tightened for the first time in two years. Banks’ reported willingness to lend to consumers also fell to its lowest level since 2009. However, the survey took place in later December, amid the nadir for equity markets, so it may somewhat overstate the severity of conditions.

To the day ahead now where the early focus data this morning will be on the final January PMIs in Europe. In terms of expectations, no change from the 50.8 flash services reading for the Euro Area is expected, however expect the market to be closely watching the data in France (following the big plummet in the flash to 47.5) and Italy (which stood at 50.5 in December). Also out this morning are December retail sales for the Euro Area while this afternoon in the US we’ll also get the remaining PMIs along with the January ISM non-manufacturing (57.0 expected). As mentioned near the top, early tomorrow morning (UK time) and late this evening (US time) we’ve got President Trump’s State of the Union address while the main earnings highlights today are Walt Disney and BP.

 

 

via ZeroHedge News http://bit.ly/2Sp0m6E Tyler Durden

On Monday evening, the embattled regime of Venezuelan dictator Nicolas Maduro suffered its latest blow when 11 of the 14 members of the “Lima Group” – an organization created with the singular aim to bring about a “peaceful end” to the crisis in Latin America’s socialist paradise – backed opposition leader Juan Guaido as the legitimate ruler of Venezuela.

In a declaration issued by the group, the governments of Argentina, Brazil, Canada, Chile, Colombia, Costa Rica, Guatemala, Honduras, Panama, Paraguay and Peru “reiterate their recognition and support for Juan Guaidó” and called on the international community “to take measures to prevent the Maduro regime from conducting financial and trade transactions abroad, from having access to Venezuela’s international assets and from doing business in oil, gold and other assets,” according to the BBC.

And in the latest sign that military conflict remains a possibility (after all, both President Trump and National Security Advisor John Bolton have insisted that the door to a military intervention is still open), when asked about whether a civil war is inevitable, Maduro replied that “no one could answer that question with certainty.” While Guaido, who is struggling to convince the Venezuelan military to abandon Maduro and back his upstart parallel government, definitively ruled out a war as an option.

Meanwhile, RIA reported Tuesday morning that Maduro is hoping to arrest the slide in Venezuelan oil production by boosting output to 2.5 million barrels per day (from less than 1 million b/d currently).

But much to the chagrin of Russian state-controlled oil giant Rosneft, US sanctions against Venezuelan oil firm PDVSA have left a flotilla of ships carrying some 7 million barrels of Venezuelan crude stranded in the Gulf of Mexico. Some of the oil was ordered before the US sanctions came into play, as buyers took advantage of PDVSA’s open-market firesales ahead of the sanctions. Other buyers are stashing oil aboard the 12 tankers until they figure out where to put their money, according to Reuters.

According to the US sanctions, payments for Venezuelan oil are supposed to go into escrow accounts that will ultimately be handed over to Guaido. But the accounts haven’t been set up yet.

“There were many cargoes of Venezuelan crude already in the Gulf when sanctions were announced,” said a trader who deals with PDVSA. Others are stuck because holders “cannot find who to sell them to due to sanctions,” the trader said.

The tankers had been chartered by regular U.S. buyers of Venezuelan oil, including Chevron Corp, PDVSA’s refining unit Citgo Petroleum and Valero Energy, and trading houses that sell to refiners.

“Everybody is still working through the mechanics of things, still trying to figure out how freights are going to get paid and is sitting on the sidelines waiting for this to roll out,” said one ship broker on Monday who was not authorized to speak publicly.

[…]

Separately, a few tankers that had waited for weeks to lift oil bound for U.S. customers left the Venezuelan port of Jose over the weekend without loading, according to Refinitiv data.

The oil fleet in Gulf waters grew as a bottleneck earlier formed around Venezuelan ports by tankers awaiting authorization to load. PDVSA has said it will only sell to certain customers that prepay for cargoes.

Outside of U.S. waters, there were also tankers loaded with Venezuelan crude and idling in the Caribbean and Europe, the Refinitiv data shows.

In another example of how US sanctions can halt global trade in a given asset, we pointed out on Monday how trading in Venezuelan bonds had virtually frozen, with not a single trade crossing the tape on Monday, following US sanctions, as even buyers and sellers in Europe have been de facto barred from trading the bonds.

Of course, foreign buyers of Venezuelan crude who are looking for a workaround of the US dollar-based financial system have at least one option at their disposal: They could always pay for Venezuelan oil in petros.

via ZeroHedge News http://bit.ly/2t8oDQe Tyler Durden

Authored by Robert Bridge,

In a flash, the US has scrapped the 1987 Intermediate-Range Nuclear Forces (INF) Treaty, which safeguarded Europe and the world from a deadly US-Russia arms race. This is particularly bad news for Europeans.

Russia must be feeling a lot like the Native Indians these days with regards to treaties signed with the duplicitous Americans. For the second time in as many decades, the US has gone back on its word, removing another pillar from the global arms reduction architecture.

The Trump administration, in its infinite wisdom, announced on the weekend it would freeze US participation in the INF “for 180 days,” which, from a military perspective, must be interpreted to mean forever. In the spirit of reciprocity, Vladimir Putin, expressing regret that Russia “could not save” the Cold War treaty, said he would be forced to follow suit.

The Russian leader emphasized, however, that Moscow would not deploy intermediate or smaller range weapons “until the same type of American weapons” were placed in Europe or elsewhere in the world.

This latest ratcheting up of tensions between Moscow and Washington was wholly avoidable – that is, if avoiding confrontation is a goal of the US. Clearly, it is not. The unpredictable hotheads now dictating foreign policy in the Trump administration, particularly National Security Advisor John Bolton, a veteran hawk who the Washington Post recently calleda “serial arms control killer,” have somehow concluded that playing a game of nuclear chicken on the European continent with Russia is the best way to resolve bilateral issues.

The White House appears to be incensed over Russia’s upgrade of a cruise missile, the ‘9M729’, which it claims exceeds the 500-km flight threshold set down by the treaty. The INF treaty specifically banned the development, deployment, and testing of ground-based missiles with a range between 500km and 5,500km (310-3,400 miles).

In fact, the development of this weapon has so irked the Trump administration that last year the US Ambassador to NATO, Kay Bailey Hutchison, warned Russia that if it did not halt its development NATO would be forced to “take out” the missile. Although Hutchison later backtracked on the hyperbole, saying she did not mean to suggest a preemptive strike on Russia, the remark nevertheless underscored the gravity of the situation.

I was not talking about preemptively striking Russia. My point: 🇷🇺 needs to return to INF Treaty compliance or we will need to match its capabilities to protect US & NATO interests. The current situation, with 🇷🇺 in blatant violation, is untenable. https://t.co/dRaFoK8xlo

— Ambassador Hutchison (@USAmbNATO) October 2, 2018

The obvious question is: does the US have legitimate grounds to be concerned over this cruise missile, one of the latest in a series of new weapon systems to be rolled out by the Russian military? Well, if they did have real cause for concern, they deliberately missed several opportunities to examine the weapon firsthand. In fact, Moscow invited US Secretary of State Mike Pompeo to attend a public presentation where Russian military brass were on hand to field queries about the missile. Yet the Americans snubbed the event, which could have persuaded them to think twice before dumping a landmark arms control treaty.

On this point, it would have been refreshing to hear some impartial European voices weighing in on the matter. After all, in the event of another arms race between the US and Russia, the European continent will once again be forced to wear a large crosshairs on its back. Instead, EU leaders predictably approached the issue from the American stance, parroting the narrative that Russia, the perennial bogeyman, is in violation of the INF.

German Chancellor Angela Merkel, for example, without providing a shred of evidence, said,

“It is clear to us that Russia has violated this treaty… the important thing is to keep the window for dialogue open.”

Immediately assuming Russia’s guilt seems to be a non-starter for any sort of productive negotiations.

What’s behind America’s madness?

In order to get a clearer picture of what exactly is motivating Washington’s reckless behavior, it is essential to remember that the Trump administration’s withdrawal from the INF is just the latest in a long string of aggressive moves against Russia. Indeed, this is not the first time Washington has torn up an arms agreement with Moscow.

In 2002, the Bush administration terminated the 1972 Anti-Ballistic Missile Treaty (ABM Treaty), which maintained something of a suicide pact between the Cold War nuclear rivals known as ‘mutually assured destruction’. From there it has been all downhill for bilateral relations.

With the ABM Treaty swept away, the Bush and subsequent Obama administration proceeded to unilaterally build – despite repeated offers from Moscow to cooperate on the system – a US missile defense shield in Eastern Europe, just a stone’s throw from the Russian border. In May 2016, NATO announced its missile defense base in Romania was fully operational. Following the announcement, Mikhail Ulyanov, head of the Russian Foreign Ministry’s department for arms control issues, warned that not only did the US missile defense system threaten the strategic balance between nuclear powers, the launchers in Romania could easily be re-fitted with offensive cruise missiles, thereby turning a shield into a sword at a moment’s notice.

In other words, Washington is now accusing Moscow of violating an arms control treaty that it itself had most likely violated almost three years ago.

Pierre-Emmanuel Thomann, a geopolitics analyst from Paris 8 University, told RT this is the desired outcome Washington was looking for, which already decided “beforehand to get out of the treaty” irrespective of possible concessions from Moscow.

“The US already destabilized the nuclear balance when they decided to get out of the ABM treaty in 2002, and when you look at a map the United States [is] putting missile defense bases all around Eurasia, creating a feeling of encirclement in Russia and China,” Thomann said.

This leads us to another possible reason why the Trump administration made the rash decision to kill the INF treaty, and that is due to the huge strides made by the Chinese military of late. Last year, as just one example, a Chinese firm reportedly completed the successful launch of a supersonic missile, which the Chinese government said could compete on international markets.

China, which is not bound by the conditions set down by the INF, has undergone breakneck militarization ever since. Yes, the United States became an existential threat to Beijing when the Obama administration announced the so-called ‘pivot to Asia’. This disastrous doctrine saw a large chunk of US naval forces enter the Pacific theater. Thus, Washington may be trying to bring the Chinese and Russians into some sort of new three-way arms control treaty, but if that were true, it seems to be going about it in the worst possible way.

Whatever the ultimate cause may be, the United States and its quest for global supremacy, in cooperation with the European Union, which behaves like a powerless vassal state inside of the ‘American empire’, must assume a heavy part of the blame for the increasingly perilous state of global relations today.

Konstantin Kosachev, head of the foreign affairs committee in the upper house of Russia’s parliament, adequately summed up the fate of the world following the latest US withdrawal from yet another arms reduction pact.

“I ‘congratulate’ the whole world,” Kosachev told the Russian Senate.

“The United States has taken another step toward its destruction today.”

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