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While Q1 saw hedge funds generally attracted to “growthy” tech names again (as shown yesterday with Druckenmiller and Tepper), one name stood out: Apple, which hedge funds dumped in droves. 

According to Bloomberg calculations, in Q1 investors slashed their AAPL holdings by about 153 million shares: the biggest decrease since at least the first quarter of 2008. It’s also the most among any S&P 500 stock in the first quarter. Some, like Appaloosa and Glenview exited their entire positions in Apple altogether.

The first quarter drop was the third reduction in the last four quarters, with the sole outlier being an 8.6 million share increase in Q4 2017.

Yet while investor enthusiasm for Apple has somewhat lessened this year amid concern about whether the company will be able to sustain its pace of iPhone unit sales, though the stock is up 10 percent year-to-date, Tim Cook was saved by one simple thing: his stated intention to buybacks hundreds of billions in AAPL stocks which convinced the only person that matters to buy it.

Indeed, because while everyone else was selling it, one notable exception to the trend was Warren Buffett: as a reminder, Berkshire bought an additional 75 million shares of Apple in the first quarter, to become the company’s third-largest investor, offsetting nearly half the publicly disclosed selling barrage.

Meanwhile, as noted above, interest in FANGs continued, with hedge funds either increasing their positions in Apple’s FANG peers or trimming the modestly by fewer than 10 million shares.

Separately, banks were again out of favor in Q1, with Bank of America, Wells Fargo, and Citigroup among the top 10 stocks and exchange-traded funds that saw reductions in holdings in the first quarter. According to Bloomberg, iInstitutions cut their positions in Bank of America by about 135 million shares, Citigroup by about 67 million shares and Wells Fargo by about 46 million shares.

Notably, funds were ahead of the news as they piled into gambling stocks like Caesars Entertainment, MGM Resorts and Wynn Resorts ahead of Monday’s U.S. Supreme Court decision allowing states to legalize betting on individual sporting events

Ironically, the one asset class that is hurting the most now is what hedge funds were most aggressively buying up in Q1: among the biggest winners were emerging market funds: institutional investors boosted their positions in the iShares Core MSCI Emerging Markets ETF and the iShares MSCI Emerging Markets ETF by about 70 million and 46 million shares respectively.

Some other notable changes, courtesy of Bloomeberg:

• Coatue Management cut its holdings in Snap and Nvidia, while D.E. Shaw went the other way, adding shares of each company
• Funds were ahead of the news as they piled into gambling stocks like Caesars Entertainment, MGM Resorts and Wynn Resorts ahead of Monday’s U.S. Supreme Court decision allowing states to legalize betting on individual sporting events
• Third Point exited stake in Macerich as investors have been reportedly agitating for a potential sale, and CEO announced he would retire by end of the year. ValueAct exited its stake in Microsoft, where it a won a board seat in 2013 that narrowly staved off a proxy fight.

Below is a full summary of some of the most recognizable names:

ADAGE CAPITAL

• Top new buys: MSCC, EQIX, EIX, DHR, PVH, VEAC, TPGE, KMI, AXL
• Top exits: CF, BAH, PEG, F, TMUS, MGA, LLL, HRC, GDX, PLNT
• Boosted stakes in GE, NKTR, LMT, XL, WRK, ITW, CI, FTV, W, EMR
• Cut stakes in UTX, PBYI, FB, WFC, BURL, JNJ, CMCSA, ES, GT, ABX

APPALOOSA MANAGEMENT

• Top new buys: LRCX, WFC, UBS, AMAT, SMH, AMLP, KNX, BYD, PAH, UAL
• Top exits: AAPL, EEM, CMCSA, MHK, VST, CSX, LUV
• Boosted stakes in MU, MGM, AGN, CNC, GOOG, LNG, DG, OC, PCG
• Cut stakes in QQQ, XLF, BAC, URI, NRG, WPZ, ETP, ALL, HCA

BAUPOST GROUP

• Top new buys: PCG
• Top exits: ESRX, RUN
• Boosted stakes in PXD, FOXA, ATRA, AGN, AR, FOX, VRTV, NG, MCK, VSAT
• Cut stakes in PBF, ABC, IMOS, FWP

BALYASNY ASSET MANAGEMENT

• Top new buys: RRC, XOG, VST
• Top exits: ISBC, CTL, C, JD, FTI, DDD
• Boosted stakes in SWN, NBR, VIPS
• Cut stakes in CLF, NGD, BAC, OLN

BERKSHIRE HATHAWAY

• Top exits: IBM, GHC
• Boosted stakes in AAPL, MON, TEVA, DAL, BK, USB
• Cut stakes in WFC, PSX, CHTR, VRSK, SNY, UAL

BRIDGEWATER ASSOCIATES

• Top new buys: BIIB, DVA, IP, DIS, VZ, CPB, LYB, TOL, TSN, IVZ
• Top exits: COST, CMG, ROST, LULU, IPG, MLM, FE, ALXN, PVH, AMAT
• Boosted stakes in EWZ, NFX, FB, T, XEC, ORCL, PG, BEN, GE, KMB
• Cut stakes in EEM, VWO, IEMG, SPY, TIP, TLT, EWY, EIX, ENDP, DVN

CARLSON CAPITAL

• Top new buys: XL, DPS, MSCC, HIG, TXT
• Top exits: APTV, MCD, MFGP, C, TRV
• Boosted stakes in OA, NXPI, AET, CFG, CAVM
• Cut stakes in USFD, TWX, SC, CAG, BBT

CITADEL ADVISORS

• Top new buys: COG, HUD, PDLI, ERIC
• Top exits: CPN, SRC, TRCO
• Boosted stakes in SNGA, GE, FDC, GPK, AMD, WEN
• Cut stakes in BAC, AUY, CMCSA, MU, FOXA

COATUE MANAGEMENT

• Top new buys: MU, TAL, SDRL, WDC
• Top exits: BAC, LBTYK, TWX, LBTYA
• Boosted stakes in TWTR, EA
• Cut stakes in SNAP, NVDA, AAPL

CORVEX MANAGEMENT

• Top new buys: NOW, ICE, MSFT, CRM, MON, DPS, IQ
• Top exits: CMCSA, NOMD, CHTR
• Boosted stakes in TMUS, NXPI, JBLU
• Cut stakes in EVHC, BAC, GOOGL, FB, FG, MDCO, TWX

D E SHAW & CO

• Top new buys: APTV, GLIBA, DISCA, SNAP, NTR
• Top exits: LVNTA
• Boosted stakes in LOW, NVDA, EQT, CELG, AET, TWTR
• Cut stakes in FB, DVMT, IBM, CMCSA, AMGN

ELLIOTT MANAGEMENT

• Top new buys: TER, QQQ, VICI, CVLT, TVPT, EQT, MFGP, DISH, XOM
• Top exits: NRG, TCO, AA, CTSH, MITL, TDW, SAH, GPI
• Boosted stakes in BTU, HES, ISBC, EGN, UNIT
• Cut stakes in IMPV

EMINENCE CAPITAL

• Top new buys: VMC, FB, VER, TTWO
• Top exits: MDLZ, ZNGA, ARRS, ANTM, SPGI
• Boosted stakes in LEN, PZZA, EA, MGM, LQ, YELP, ELLI, P
• Cut stakes in CF, INXN, EFX, NEWR, GOOG, JACK, USFD, ADSK, WEN

ENGAGED CAPITAL

• Top new buys: FNSR, PETX
• Top exits: MED, IMAX
• Boosted stakes in APOG, BHE, HAIN
• Cut stakes in NCR, MX, CLS, IWM, BW

FARALLON CAPITAL MANAGEMENT

• Top new buys: FOX, AMRN, DPS, ARRY
• Top exits: CPN, HUN, AKRX
• Boosted stakes in MON, HRG, COL, DVMT, IOVA, CAVM
• Cut stakes in VEON, AABA, TWX, GRFS

FIDELITY MANAGEMENT

• Top new buys: NTR, ADT, ANGI
• Top exits: POT, BETR, CRIS
• Boosted stakes in MSFT, MRVL, INTC, SLM, MET
• Cut stakes in MFC, AAPL, AMD, WMB, BSX

GLENVIEW CAPITAL

• Top new buys: ESRX, TMUS, APTV, ABC, HUM, FB
• Top exits: AAPL, WP, ABBV, DNB, CCE, LYB, MON, KMI, KND, TLRD
• Boosted stakes in FDX, CAH, NWL, ARMK, PNR, AGN, LOW, WBA, MCK, SHPG
• Cut stakes in DWDP, FMC, ANTM, FLEX, CI, V, DXC, LH, CHTR, GOOGL

GREENLIGHT CAPITAL

• Top new buys: IAC, TPR, BLMN, ANF, PYPL, URBN, SFM, ODP, ROKU
• Top exits: CC, JCP, VREX, KSS, BBY, W, SFLY, CRI, UAA, LOW
• Boosted stakes in ESV, FIVE, BHF
• Cut stakes in AAPL, GM, AER, TPX, MYL, CNX, VOYA, ADNT, PRGO, CEIX

HIGHFIELDS CAPITAL MANAGEMENT

• Top new buys: AET, DIS, EQT, RJF, ENB, HAL, X, TGT, LOW
• Top exits: AMZN, DWDP, NVDA, GS, KR, AXP, PAGP, CERN, TCO, CTSH
• Boosted stakes in CMCSA, MON, EXPE, TWX, CCE, GOOGL, AXTA, MDLZ, TEVA, MIK
• Cut stakes in MAR, PXD, HLT, H, HDS, HGV, IVZ, DLTR, CNNE, VER

ICAHN ASSOCIATES

• Top new buys: NWL
• Top exits: AIG, PYPL
• Cut stakes in FCX, MTW, XRX

JANA PARTNERS

• Top new buys: ADSK, ANTM, BSX, LRCX, DPS, EA, A, SPY, WRK, ADBE
• Top exits: EQT, LBRDK, CMCSA, FB, DWDP, IQV, MOH, SYNH, EVHC, GWW
• Boosted stakes in PF, JACK, NOC, CAG
• Cut stakes in FDC, ZBH, DHI, TIF, PTC, TEVA, ZAYO, GM, BLMN

LAKEWOOD CAPITAL

• Top new buys: CLS, FTSI, VRSN, NUAN
• Top exits: AGN, CDW, ARD, MU
• Boosted stakes in GOOGL, BIDU, BC, WRK, ATUS
• Cut stakes in ON, ORCL, ICE

LANSDOWNE PARTNERS

• Top new buys: AAL, APC, BABA, DHT, LPG, ZAYO, MELI, AKS, DISH, DBX
• Top exits: DATA, URI, CAFD, UPS, AAPL, LB, VXX, WDC, AGN
• Boosted stakes in TXN, GRUB, FB, MON, MU, CVE, IR, C
• Cut stakes in JPM, BAC, PYPL, AMAT, GOOGL, DAL, JCI, FSLR, ADNT, UTX

LONE PINE CAPITAL

• Top new buys: DLTR, SBAC, TSM, TMUS, SQ, PAGS, EXAS
• Top exits: BUD, CHTR, MA, EQIX, CRM, TV, A, VXX
• Boosted stakes in FB, MSFT, WYNN, CSX, PYPL, UNH, MELI, TRU, FLT, GOOG
• Cut stakes in ATVI, NOW, BLK, AMZN, STZ, BABA, BKNG, EA, ADBE

LONG POND CAPITAL

• Top new buys: AMH, LQ, VICI, APLE, GPT, CHH, BKI, MAC
• Top exits: EQR, BKD, DDR, NMRK
• Boosted stakes in VNO, LEN, AVB, QCP, AIV, FPH, LHO, RPAI
• Cut stakes in H, SLG, TCO, MSG, BRX, NYRT, VER, SRC, JBGS

MARCATO CAPITAL

• Top new buys: UNVR, ASTE, THRM
• Top exits: DECK, BID, RCII
• Boosted stakes in IAC, RYAM, ITRI, FG, VRTS, BLDR, HZN
• Cut stakes in DXC, AIR

MAVERICK CAPITAL

• Top new buys: MHK, SNAP, PM, CNC, IPHI, LULU, CAR, RL, MDCO, VFC
• Top exits: ANDV, STZ, WYNN, WP, SABR, COMM, ABEV, SKX, DG, SIX
• Boosted stakes in INTC, BABA, GOOG, LOW, MSFT, WING, TIF, URBN, WTW, SCHW
• Cut stakes in TAP, MGM, DXC, UHS, ADBE, BUD, V, AMRX, LVS, CIEN

MELVIN CAPITAL

• Top new buys: PAGS, EXP, NFLX, YUM, CCL, WTW, DPZ, VAC, ADS, VC
• Top exits: GOOGL, TTWO, VMC, RCL, MNST, ALGN, WB, KMX, CASY, ANGI
• Boosted stakes in WYNN, THO, STZ, MSFT, MGM, DE, BABA, V, CRM, ADSK
• Cut stakes in EA, WYN, FLT, DLTR, HDS, NOW, QSR, FB, YNDX, TWTR

MILLENNIUM

• Top new buys: NKTR, TIF, APTV, UTX, WP, TSE, SKT, NBL
• Top exits: EQIX, AMTD, COO, PUMP, KS, XLNX, EQR, SYY, WSO, BLL
• Boosted stakes in BSX, EBAY, PXD, AEE, KSS, APC, WYN, PHM, ARMK, MDT
• Cut stakes in SPY, MU, DHI, ESRX, HAL, V, MPC, NEE, GM, AZO

MOORE CAPITAL

• Top new buys: EA, GS, LMT, NOC, RTN, ISBC, GD, TWTR, ADI
• Top exits: APC, GOOGL, AMT, QQQ, NTES, FOXA, LULU, LFC, AZO, VMC
• Boosted stakes in EEM, BAC, BABA, AMZN, V, GDS, TAL, EQT, AVGO, FBP
• Cut stakes in FB, AAPL, MSFT, PX, MON, EQIX, VOYA, SYF, DLTR, NFLX

NEUBERGER BERMAN

• Top new buys: APTV, HUD, MOMO, GTES, NTR
• Top exits: BSIG, CALM, TNC
• Boosted stakes in SRE, EFX, BX, CMA, EXPE, AMZN
• Cut stakes in NWL, ORCL, COG, NLSN, DM, PG

OZ MANAGEMENT

• Top new buys: GOOGL, VICI, ADSK, ASH, NYT
• Top exits: NTES, JD, PGR
• Boosted stakes in BAC, AABA, FB
• Cut stakes in EQT, NXPI, COTY

OMEGA ADVISORS

• Top new buys: TMO, UNH, ANDV, BMY, BC, MU, TMHC, CDEV, SAGE, D
• Top exits: ZNGA, MGM, EXPE, BLL, CBS, GLD, CX, MYL, AAL, BPMC
• Boosted stakes in UAL, C, OCN, ASH, HRG, DXC, ETE, ADBE, NBR, PE
• Cut stakes in SHPG, ALLY, DWDP, WFC, FB, AER, HES, FDC, VVV, GOOGL

PAULSON & CO

• Top new buys: EGN, XL, HAWK, GG, VR, MDR, LEA
• Top exits: OAS, DOVA, XCRA, SGYP, MGI, QCOM
• Boosted stakes in DISCK, VIAB, COL, AET, TWX, THM, NMRK, MON, ENDP
• Cut stakes in VST, TMUS, MYL, SHPG, NXPI, FOX, IAG, HZNP

PENTWATER CAPITAL

• Top new buys: VICI, ESRX, MSCC, ILG
• Top exits: CPN, SNI, RAD
• Boosted stakes in TRQ, DVMT, MON, COL
• Cut stakes in QCOM, NXPI, AABA

PERSHING SQUARE

• Top new buys: UTX
• Top exits: NKE
• Cut stakes in MDLZ, HHC, QSR, ADP

POINT72 ASSET MANAGEMENT

• Top new buys: BKNG, NVDA, MRK, CXO, SWK, PAGS, SHW, IAC, TMO, MTG
• Top exits: EQT, IBM, VZ, AZO, CL, ZBH, GD, AA, AIZ, FOLD
• Boosted stakes in WYNN, AVGO, BABA, GILD, NFLX, STZ, ATVI, OXY, ADM, LMT
• Cut stakes in CMCSA, APC, MU, BUD, TTWO, AMZN, SYF, REGN, MYL

RENAISSANCE TECHNOLOGIES

• Top new buys: AMZN, CMCSA, WFC, BIIB, ABBV, LMT, D, SLB, AET, M
• Top exits: MPC, LOW, GOOGL, MDT, ANDV, PCG, WP, CTAS, FDX, KMX
• Boosted stakes in BKNG, NFLX, VZ, PEP, DPZ, NOW, UNH, EBAY, PANW, EA
• Cut stakes in XOM, GE, WMT, NTES, BDX, JNJ, IBM, COST, ORCL, APD

SACHEM HEAD CAPITAL MANAGEMENT

• Top new buys: PAGS, ADP
• Top exits: CMCSA, DVMT
• Boosted stakes in WP, TWX, FB
• Cut stakes in SHPG

SOROBAN CAPITAL

• Top new buys: CMCSA, NSC, FB, SAP, AXTA
• Top exits: STZ, PX, GOOGL, MAR, NWL
• Boosted stakes in UNP
• Cut stakes in CHTR, NXPI, AVGO, GOOG, BUD

SOROS FUND MANAGEMENT

• Top new buys: VICI, JPM, AMZN, WFC, C, GLIBA, XL, VR, DISCA, MS
• Top exits: OSTK, GPS, PLAY, HAL, CMCSA, CBS, AEO, EXR, GRUB, OKE
• Boosted stakes in BAC, AET, NFLX, COL, NXPI, BAX, TMO, SERV, LH
• Cut stakes in AMLP, TIVO, CRC, LIVN, CHDN, TTWO, URBN, EQT, CCI, SEDG

STARBOARD VALUE

• Top new buys: NWL
• Top exits: FTNT, STC, TYPE, CTSH
• Boosted stakes in FCE/A, MAC, MLNX, EVHC, CARS
• Cut stakes in BCO, BMS, BAX, DEPO, IWN

SUVRETTA CAPITAL

• Top new buys: FB, BAC, JPM
• Top exits: FOXA, MO, CSX, WEN
• Boosted stakes in DWDP, AABA
• Cut stakes in ADBE, CPRT

TIGER GLOBAL

• Top new buys: MELI, TWTR, BILI, RUN, SE, BEDU, IQ, ARCC, DBX, ONE
• Top exits: CMCSA, ETSY, CHTR, CTRP, TDOC, QD
• Boosted stakes in AMZN, MSFT, FB, TDG, NFLX, CRM, FCAU, DPZ, ADSK, BABA
• Cut stakes in NOW, FLT, EHIC, BKNG, MA

THIRD POINT

• Top new buys: UTX, WYNN, PAGS, EA, MPC, ADBE, BKI, CRM, MSFT, PBF
• Top exits: AET, NXPI, FMC, HON, RSPP, TWX, PE, XRAY, GD, MGM
• Boosted stakes in DOV, ANTM, WP, FB, LEN, SHY, VMC
• Cut stakes in BABA, BLK, DWDP, GOOGL, MHK, STZ, PAM, ICE, NEXA, SPGI

TRIAN

• Boosted stakes in SYY, BK, GE
• Cut stakes in MDLZ, WEN, PNR

TOURBILLON CAPITAL PARTNERS

• Top new buys: FBP, MGM, LPLA
• Top exits: FG, SYF, DISH
• Boosted stakes in EVHC
• Cut stakes in SPB, STKL

TUDOR INVESTMENT

• Top new buys: OA, VR, XL, SBUX, MDLZ, ABBV, PAGS
• Top exits: LOW, TRCO, XLF, AGN, CHA, HD, AMTD, USB, ETFC, MPC
• Boosted stakes in SPY, NXPI, COL, AMZN, TWX, C, WBA, NVDA
• Cut stakes in JPM, ORCL, GIS, ROST, CSX, AVGO, WFC, BSX, TJX, STZ

TYRUS CAPITAL

• Top new buys: DBC
• Boosted stakes in HK, NXPI
• Cut stakes in TWX

VALUEACT

• Top new buys: SLM
• Top exits: MSFT, ESRX
• Boosted stakes in C, KKR, TRN, VRX
• Cut stakes in AWI, CBRE

VIKING GLOBAL

• Top new buys: BABA, X, WDC, DIS, BMRN, IQ, HIG, AJG, TS, VOYA
• Top exits: AVGO, TWX, EQT, MOH, ALGN, NUVA, PCAR, FANG, UHS, TRV
• Boosted stakes in FB, ANTM, ADS, WFC, MSFT, TDG, ADSK, RJF, BUD, XRAY
• Cut stakes in AMZN, ECA, NTES, NFLX, V, LEN, PE, CRM, DPZ, TD

WHALE ROCK CAPITAL

• Top new buys: SQ, COUP, MTCH
• Top exits: HIMX
• Boosted stakes in RNG
• Cut stakes in YY

YORK CAPITAL

• Top new buys: HIG, DST, BMY, GRA, AZN
• Top exits: QCOM, USFD, FCE/A
• Boosted stakes in TWX, MON, ASH
• Cut stakes in NEXT, BG, NXPI

Source: Bloomberg

via RSS https://ift.tt/2wJwR5Z Tyler Durden

Having bounced notably in March, both Housing Starts and Building Permits in April tumbled (-3.7% MoM and -1.78% MoM respectively).

• March building permits growth was upwardly revised from +2.5% MoM to +4.1% MoM

• March housing starts growth was upwardly revised from +1.9% MoM to +3.6% MoM

Starts dropped 3.7% MoM in April – far worse than the 0.7% drop expected but while permits also dropped 1.8% MoM, this was slightly better than the expected 2.1% drop…

 

For some context, Starts and Permits remain over 40% below their 2005/6 peaks…

Housing Permits breakdown…

 

The driver of the tumble in housing starts is a 11.3% plunge in multi-family.. (single-family 893k vs 894k prior and multi-family 374k from 428k)

Three of four regions posted declines in starts, led by a 16.3 percent decrease in the Midwest and a 12 percent drop in the West.

Construction climbed 6.4 percent in the South, reflecting the fastest pace of single-family starts since July 2007.

As always, weather is blamed for any downside.

via RSS https://ift.tt/2ILdpKA Tyler Durden

On the heels of the 10Y treasury yield breaking out of its recent range to its highest since July 2011, this morning’s mortgage applications data shows directly how Bill Gross may be right that the economy may not be able to handle The Fed’s ongoing actions.

As Wolf Richter notes, the 10-year yield functions as benchmark for the mortgage market, and when it moves, mortgage rates move. And today’s surge of the 10-year yield meaningfully past 3% had consequences in the mortgage markets, as Mortgage News Daily explained:

The “most prevalent rates” for 30-year fixed rate mortgages today were between 4.75% and 4.875%, according to Mortgage News Daily.

And that is crushing demand for refinancing applications…

Despite easing standards – a net 9.7% of banks reported loosening lending standards for QM-Jumbo mortgages, respectively, compared to a net 1.6% in January, respectively.  

According to Wolf Richter over at Wolf Street, the good times in real estate are ending…

The big difference between 2010 and now, and between 2008 and now, is that home prices have skyrocketed since then in many markets – by over 50% in some markets, such as Denver, Dallas, or the five-county San Francisco Bay Area, for example, according to the Case-Shiller Home Price Index. In other markets, increases have been in the 25% to 40% range. This worked because mortgage rates zigzagged lower over those years, thus keeping mortgage payments on these higher priced homes within reach for enough people. But that ride is ending.

And as Peter Reagan writes at Birch Group, granted, even if rates go up over 6%, it won’t be close to rates in the 1980’s (when some mortgage rates soared over 12%). But this time, rising rates are being coupled with record-high home prices that, according to the Case-Shiller Home Price Index, show no signs of reversing (see chart below).

So you have fast-rising mortgage rates and soaring home prices. What else is there?

It’s not just home refinancing demand that is collapsing… as we noted yesterday, loan demand is tumbling everywhere, despite easing standards…

But seriously, who didn’t see that coming?

via RSS https://ift.tt/2Gmjkkp Tyler Durden

The Northern League and Five Star Movement (M5S), who have been struggling to form a government since the country’s March elections, are on the cusp of reaching a deal that would open the door to a joint government, and that appears to finally be shocking Italian markets which are not happy this morning.

Matteo Salvini, the head of the League, said negotiations were in the “final straight,” and that an agreement would likely be reached Wednesday. A M5S representative offered similar assurances. A “government contract” will likely be released tomorrow, they said.

And while representatives for both parties have since denied that it was ever part of their platform, reports that the new government had been planning to ask the European Central Bank to cancel 250 billion euros in Italian debt have rattled the country’s sovereign bond market, pushing yields on the 10-year BTPs 10 basis points higher, the biggest one-day move since July 2017.

Jason Simpson, a strategist at SocGen, told Bloomberg that “this is all fairly disruptive stuff for Italian bonds…the markets had been assuming that they would tone down some of their more radical views.”

As a reminder, the ECB has been the only buyer of Italian bonds in recent years.

Several other difficult issues also need to be ironed out. League leader Matteo Salvini and M5S leader Luigi Di Maio must still decide who will become the country’s next prime minister. Local media reported that they had discussed several options, including alternating at the helm, or having different party members take turns.

Debt cancellation wouldn’t be the only swipe taken at the European establishment. Claudio Borghi, the League’s economic spokesman, said his party would like to “abolish the fiscal compact” that restricts EU members from blowing out their budget deficits.

“We want to abolish the fiscal compact…We want to overcome the misunderstanding that there is no money given that France went on for the last 10 years in exceeding the deficit-to-GDP limit and both France and Spain already have a public debt higher than 60 percent of GDP.”

Italian President Sergio Mattarella, the official caretaker of the government, has agreed to an extension for the talks as the two sides try to iron out policy differences like whether to roll back changes recently made to pensions. But he too has expressed concerns about the party’s pledges on fiscal and foreign policy. 

The parties’ draft policies so far echo their key campaign proposals – a flat tax for the League, and Five Star’s citizen’s income for the poor.

Analysts have voiced concern about certain spending proposals that have been bandied about – including a plan to slash the main tax rate for companies and individuals to as low as 15% – could run into obstacles in Parliament since they would further destabilize the country’s public finances.

The latest media reports citing sources within M5S said a government contract between the League and M5S would be released “as soon as tomorrow” – though this wouldn’t be the first time that an agreement has been just around the corner, only for talks to fall apart once again.

via RSS https://ift.tt/2jZHk3R Tyler Durden

North Korea has threatened to pull out of next month’s peace summit with Washington if the US insists on the peninsula hurriedly giving up its nuclear weapons without offering immediate sanctions relief.

After blaming joint South Korean-US military exercises for the country’s decision yesterday to cancel a planned summit with the South and to suspend talks, the North revealed another source of anger: National Security Advisor John Bolton’s rhetoric from his appearance Sunday on CNN’s State of the Union, where he suggested that North Korea must “commit to denuclearization” to help it “become a normal nation.”

Kim Kye Gwan, a vice foreign minister and a top North Korea disarmament negotiator, said the regime was disappointed by the US’s articulation of its goals for the summit, according to a statement published Wednesday by the state-run Korean Central News Agency via Bloomberg. Kim expressed anger toward Bolton and other US officials, adding that the North rejects the “Libya model” where a state surrenders its weapons first then receives incentives like sanctions relief.

“If the U.S. is trying to drive us into a corner to force our unilateral nuclear abandonment, we will no longer be interested in such dialogue and cannot but reconsider our proceeding to the DPRK-U.S. summit,” Kim said. He added that Trump risked becoming a “more tragic and unsuccessful president than his predecessors” if he didn’t accept North Korea as a nuclear power.

Kim Kye Gwan said the North had already declared its willingness to denuclearize the peninsula – but that it must not be counted on to act first.

“If the Trump administration corners us and tries to force us to give up nuclear [weapons] unfairly,” it says, “we will not be interested in such talks anymore and cannot help but reconsider having the upcoming DPRK-U.S. summit.”

North Korea added that it wouldn’t be satisfied with “complete, verifiable and irreversible” denuclearization as well as the dismantling of nuclear and chemical arms, per Nikkei.

One North Korea expert said observers shouldn’t panic: The sharp rhetoric is more likely a negotiating tactic than a legitimate threat to scrap the talks.

Jin Chang-soo, president at the Sejong Institute, said North Korea’s remarks are more like jockeying ahead of the summit with the U.S., and not a serious threat to pull out of the meeting.

“North Korea and the U.S. agreed on the big picture, but they still have different ideas on a detailed process. Pyongyang is trying to boost its negotiation power with such actions,” Jin said.

In a statement, the South Korean government said North Korea’s decision to suspend talks was “regrettable.”

“It is regrettable that the North has suspended inter-Korean high-level talks with no consultation with us,” said Baik Tae-hyun, a spokesman for South Korea’s Unification Ministry. “The government has a firm will to carry out the Panmunjom Declaration faithfully, and urges the North side to come to the table quickly for the peace and prosperity of the Korean Peninsula.”

China, meanwhile, called on both sides to “avoid further provocation.”

“The amelioration of the situation on the Korean Peninsula is hard won and should be cherished,” foreign ministry spokesman Lu Kang told reporters in Beijing.

For now Kim’s gambit appears to be working: on Tuesday night, the US said that it would consider withholding B-52 bombers from its joint military drills with South Korea in a bid to appease the North. Should Pyongyang say it demands more, will Trump – visions of a Nobel Peace Prize dancing in his head – appease Kim again, and if so, how?

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Following yesterday’s rate spike-driven market rout, S&P futures have steadied alongside European stocks as global markets stabilized thanks to an easing in the bond selloff, leading to speculation that the worst may be over. 

US equity futures were all roughly unchanged on Wednesday morning as Europe’s Stoxx 600 Index drifted, pressured by the latest political chaos out of Italy, while Asian stocks dipped slightly, with Japan’s Nikkei and Hong Kong’s Hang Seng declining while Australia’s AX rose 0.2% and Korean stocks were little changed, despite North Korea’s unexpected threat to scuttle the peace process.

The big story, however, was the stabilization in US Treasurys, which after suffering a spectacular drop on Tuesday, some some modest buying, with the yield on the 10Y dipping to 3.06%, once again close to the critical 3.05% level.

10-year Treasury yields will move in a 3%-3.5% range for the rest of the year as the Federal Reserve continues raising interest rates, said Robert Mead, co-head of Asia-Pacific at PIMCO: “We do think this hiking cycle is quite well advanced,” he says, “Nothing is pound-the-table cheap,” but rising yields mean investors can gradually reduce their underweight bond positions, Mead said.

Yesterday’s slump in Treasurys led to a surge in Treasury vol, with the MOVE bond volatility index surging the most since the February volocaust.

And while the pressure on US Treasurys eased, Italian bonds slumped and the country’s stocks underperformed as populist parties set to fomr Italy’s new government discussed a potential €250BN debt write-down from the ECB as noted earlier. As a result, Italian 10Y bonds sold off aggressively from the open, widening spread to bunds by 10bps.

However, in response, the League said the cancellation of Government debt was never in the official draft of the Government programme, proposed debt bought by ECB not be calculated in EU stability pact evaluations for all countries. The denial came too late, however, and Italy’s FTSE MIB also underperformed core European equity markets, led by the bank sector -2.5%. Concerns about Italy also sent the EUR under pressure, with the EUR/USD sliding to session lows below 1.18. A 5 Star spokesman said that the Italian government deal with the League is to be reached today.

Meanwhile, looking at the dollar, there is the possibility that we are merely in the eye of the hurricane, as the recent catalyst behind the entire market move, the dollar, rose a fourth day, helped by Euro weakness and ongoing EM fears. Once again it was the Turkish Lira TRY led EMFX lower in continuation of recent collapse.

For now, however, markets welcome today’s relative stability especially after the latest uncertainty about the U.S.-North Korea summit, which has resurfaced just as violence flares in Gaza, the IMF warns on the threat protectionism poses to global growth, Italy stands on the brink of a euro-skeptic government, and US rates are rising in anticipation of more Fed rate hikes, in the process crushing US consumer loan demand.

Meanwhile, that “other” major risk refuses to go away: while emerging-market equities steadied following Tuesday’s plunge and Argentina’s recent rout, the resumption in the dollar spike pushed developing currencies lower and the lira weakened again. The Thai baht, South Korean won and Indonesian rupiah led Asian declines. The Malaysian ringgit fell for a sixth day after overseas investors pulled out a net $376 million from stocks over Monday and Tuesday in the wake of last week’s election.

In key geopolitical news overnight, North Korea cancelled a high-level meeting with South Korea that was set for today and threatened the cancellation of summit with US amid anger regarding US-South Korea joint military drills. North Korea said it will never engage in economic trade with US in return for dropping nuclear program and that it rejects Libya-style denuclearization for the country, according to state media reports. Furthermore, North Korea added that it will need to  reconsider summit with US if it insists on North Korea giving up nuclear program and that US President Trump will remain as failed leader if he chooses to follow along the lines of past US presidents.  In response, South Korea Unification Ministry said the decision by North Korea to cancel high-level meeting for today is regrettable and it urged North Korea to return to talks, while the South Korean Defence Ministry said it will go ahead with drills with US as planned.

In central bank news, Riksbank’s Skingsley says the SEK has weakened more than they expected in recent months; the timing for rate hikes remains to be seen in her view, but if economy performs as expected, it is natural to start hiking at end of year.  Elsehwhere, ECB’s Constancio (Dovish) said the slowdown is not “such an unexpected or serious matter”; he adds the ECB has not discussed medium-term future of policy.

Responding to the record TRY rout, Turkish central bank says they are closely monitoring the unhealthy price movements in the market; adding that necessary steps will be taken, also considering the impact of these developments on the outlook for inflation.

In a bizarre turn of the tongue, BoE Deputy Governor Broadbent said that the UK economy is approaching a ‘menopausal’ stage after passing peak productivity which risks a once-in-a-century downturn. 

Meanwhile, in latest Brexit development, UK Brexit Minister Davis reportedly warned PM May regarding the legality of the customs plan and has reportedly raised the threat of a legal challenge to May in a letter to the PM.

The surprise build in API crude inventories overnight is still weighing on oil, as the fossil fuel is negative for the day, with WTI currently down 0.36% and Brent 0.65% lower. Morgan Stanley (MS) forecasts WTI prices at USD 71/BBL for Q4 2018 and USD 73/BBL for Q1 2019. Safe haven flows and a slightly softer greenback are resulting in Gold trading higher, currently up 0.31% on the day. Chinese Steel and Iron ore futures have undone the gains seen on Tuesday following but still hover close to a 8 week high, with the two metals at USD 577.23/tonne and USD 75.65/tonne respectively. IEA says global oil demand forecast to 1.4mln BPD vs. prev. 1.5mln BPD in prev. month, “too soon” to predict impact on Iranian crude from sanctions, call on OPEC crude to average 32.35mln BPD for 2018, nearly 600K BPD above April output.

Expected data include mortgage applications, housing starts, and industrial production. Cisco, Macy’s, and Take-Two are reporting earnings

Bulletin Headline Summary From RanSquawk

• Tensions rising on the Korean peninsula as North Korea cancels summit with safe haven currencies bid
• FTSE MIB and BTP’s underperforming in the wake of Italian political concerns
• Looking ahead, highlights include US industrial production, DoE’s, ECB’s Draghi, Praet and Constancio, Fed’s Bullard and Bostic

Market Snapshot

• STOXX Europe 600 up 0.1% to 392.80
• MXAP down 0.1% to 174.51
• MXAPJ down 0.03% to 569.34
• Nikkei down 0.4% to 22,717.23
• Topix down 0.3% to 1,800.35
• Hang Seng Index down 0.1% to 31,110.20
• Shanghai Composite down 0.7% to 3,169.57
• Sensex down 0.3% to 35,430.00
• Australia S&P/ASX 200 up 0.2% to 6,106.96
• Kospi up 0.05% to 2,459.82
• German 10Y yield fell 1.2 bps to 0.633%
• Euro down 0.02% to $1.1836
• Italian 10Y yield rose 2.5 bps to 1.697%
• Spanish 10Y yield rose 1.2 bps to 1.371%

Top Overnight News from Bloomberg

• The leader of Italy’s anti-migrant League Matteo Salvini said talks with the anti-establishment Five Star Movement on a populist government have entered their final lap. Italian bonds slumped, driving benchmark yields to a two-month high amid the view that populist parties would seek a debt write-off involving billions of euros
• North Korea threatened to walk away from its meeting with President Trump next month if the U.S. made a “one-sided demand” for the regime to surrender its nuclear weapons. Earlier Wednesday, North Korea abruptly canceled talks with South Korea
• Turkish central-bank governor to meet President Erdogan, NTV reports; central bank says it will take “necessary steps”
• The U.S. 10-year yield rose as high as 3.093% on Tuesday, climbing the most in three months to surpass the intraday peak from Jan. 2, 2014. Traders are now looking at the 3.2% area, which would match the highs seen in mid-2011, just before S&P Global Ratings downgraded the U.S.
• The European Union set out to identify “practical solutions” for salvaging the Iran nuclear accord within weeks, as the bloc strives to contain the fallout from President Donald Trump’s decision to pull the plug from the landmark deal.
• U.K. Prime Minister Theresa May will publish a detailed plan for the country’s post-Brexit relationship with Europe next month, setting a deadline for her warring Cabinet to agree on a common stance. The policy document, known as a white paper, will be released in June, according to a government official; The upper house of the U.K. Parliament will seek to inflict a final defeat on May’s flagship piece of Brexit legislation on Wednesday
• The Trump administration is delivering the World Trade Organization “three hard blows” that could destroy the body’s ability to regulate global commerce, China’s ambassador to the Geneva-based body said
• Federal Reserve Bank of San Francisco President John Williams said he’s “very positive” about the economic outlook and reiterated that three to four interest-rate increases this year was appropriate

Top Asian News

Asian stocks were mostly negative on the spillover selling from US where the DJIA snapped an 8-day win streak and stocks posted their worst performance in around 3 weeks amid rising yields as markets priced the chances of 4 hikes  this year. Furthermore, Nikkei 225 (-0.4%) was also dampened by disappointing GDP data from Japan which contracted for the first time in over 2 years and the KOSPI (+0.2%) was kept subdued for most the session by a withering of the geopolitical climate after North Korea cancelled a high-level inter-Korean meeting in resentment to US-South Korea joint military drills and also threatened to reconsider summit with US if they insist on North Korea giving up its nuclear program. Elsewhere, the widespread downbeat tone overshadowed a firm liquidity injection by the PBoC which ensured the Shanghai Comp. (-0.3%) and Hang Seng (-0.1%) conformed to the losses, while ASX 200 (+0.5%) bucked the trend with gains seen across a broad range of sectors and after subdued wage growth data added to the case for the RBA to continue holding off on rate adjustments. Finally, 10yr JGBs were relatively flat and held near the prior day’s lows as yields attempted to track the upside in US counterparts after the US 10yr briefly approached 3.1% and its highest in around 7 years.

• China’s Holdings of U.S. Treasuries Rise to Five-Month High
• Japan’s Two-Year Growth Streak Snapped as Economy Contracts
• Thailand Doesn’t Feel Pressure to Join Global Tightening
• Elliott Wins Allies in Blocking Hyundai Motor’s Restructure Plan
• Didi Shakes Up Car Pooling Safety After Passenger Murdered

European bourses trade mixed (Eurostoxx 50 -0.1%) with Italy’s FTSE MIB (-1.6%) underperforming in light of recent political developments including a potential leadership rotation between the League and 5SM, as well as a leaked document which revealed potential policy proposals from the ongoing negotiations which included a EUR 250bln debt write-off (which was then disregarded by the League). Later reports stated that the populist parties proposed debt bought by ECB not be calculated in EU stability pact evaluations for all countries. As a result, Italian banks including Ubi Banca (-1.9%), Bper Banca (-1.0%). Finecobank (-2.3%), UniCredit (-2.6%), Banca Mediolanum (-3.0%) and Banco BPM (-2.7%) are all resting at the bottom of the index. Elsewhere, material names are benefitting from the firmer base metal prices with the sector outperforming its peers. In terms of individual movers, Micro Focus (+8.8%) is at the top of the FTSE following expectations of better earnings than shown in their guidance. Paddy Power (+5.8%) is also riding high after reports the company is in talks to acquire FanDuel amid the sudden lifting of federal ban on sports betting in the US.

Top European News

• Fatal Tesla Crash in Switzerland Probed by Ticino Prosecutors
• Goldman Gets Flashback to Yukos as Russia’s Recovery Falters
• Repsol Said to End Hunt for Oil Growth in Clean Energy Tilt
• The Worst Day Since 2011 Leaves Pandora A/S Investors in Shock
• Merkel Calls for Euro Reform as ECB Policy Won’t Last Forever

In FX, the DXY has now climbed above 93.500 and tested major chart resistance just above, largely at the expense of extended EUR weakness as the single currency sinks to the bottom of the G10 pile. Eur/Usd held above 1.1800 for a while amidst reported barrier option interest, but big figure psychological and sentimental support have way relatively quickly after that with market contacts also noting sell stops in the Eur cross vs AUD. Note, the Aud was an overnight laggard on softer than forecast Aussie wage data that highlights RBA guidance based on benign pay trends and the impact on inflation overall. Moving back to the DXY it remains firmly underpinned and on course for further upside technically, while the fundamental backdrop also looks supportive as US Treasury yields consolidate close to their highs. However, NK’s decision to postpone its meeting with South Korea and dithering over a summit with the US is a potential counterweight along with ongoing heightened tensions with Iran. GBP: Also on a weaker footing as Cable retreats below 1.3500 again amidst more negative Brexit headlines. NZD: Conversely, the Kiwi is the biggest G10 winner by virtue of short covering with Nzd/Usd hovering near the upper end of a 0.6895-50 range. JPY: Somewhat caught between conflicting impulses in wake of unexpectedly weak Japanese GDP data overnight (1st contraction in 2 years) and safe-haven demand due to the breakdown in NK-SK/US ‘entente cordiale’, with Usd/Jpy above 110.00, but not yet breaking up/out of the 200 DMA resistance zone.

In commodities, the surprise build in API crude inventories overnight is still weighing on oil, as the fossil fuel is negative for the day, with WTI currently down 0.36% and Brent 0.65% lower. Morgan Stanley (MS) forecasts WTI prices at USD 71/BBL for Q4 2018 and USD 73/BBL for Q1 2019. Safe haven flows and a slightly softer greenback are resulting in Gold trading higher, currently up 0.31% on the day. Chinese Steel and Iron ore futures have undone the gains seen on Tuesday following but still hover close to a 8 week high, with the two metals at USD 577.23/tonne and USD 75.65/tonne respectively. IEA says global oil demand forecast to 1.4mln BPD vs. prev. 1.5mln BPD in prev. month, “too soon” to predict impact on Iranian crude from sanctions, call on OPEC crude to average 32.35mln BPD for 2018, nearly 600K BPD above April output.

Looking at the day ahead, the main focus is likely to be on the April industrial production print (+0.6% mom expected) along with capacity utilization.  April housing starts and building permits data is also due. An ECB conference this afternoon in Frankfurt has President Draghi giving the welcome address, along with comments from officials Coeure and Praet. Over at the Fed, Bostic is due to give an economic update at 1.30pm BST and Bullard is scheduled to speak to media at 10.30pm BST.

US Event Calendar

• 7am: MBA Mortgage Applications, prior -0.4%

• 8:30am: Fed’s Bostic to Give Economic Update

• 8:30am: Housing Starts, est. 1.31m, prior 1.32m; Housing Starts MoM, est. -0.68%, prior 1.9%

  • Building Permits, est. 1.35m, prior 1.35m; Building Permits MoM, est. -2.1%, prior 2.5%
• 9:15am: Industrial Production MoM, est. 0.6%, prior 0.5%; Manufacturing (SIC) Production, est. 0.5%, prior 0.1%
• 10am: Mortgage Delinquencies, prior 5.17%; MBA Mortgage Foreclosures, prior 1.19%
• 5:30pm: Fed’s Bullard Speaks to Media

DB’s Jim Reid concludes the overnight wrap

Given that 10 year US Treasuries hit their highest level for seven years (+7.0bps to 3.073% and 3.093% at the intra-day highs) yesterday I can’t help but wonder where they would be today if we hadn’t had the softer than expected US average hourly earnings and CPI data over the last two weeks and also if there wasn’t such a large short base out there. Probably breaking well through 3.25% I’d imagine. Don’t panic bond bulls though as whenever we remind readers of our note from early this year entitled “Why yields and rates are rising and why they’ll continue to?” bonds immediately rally.

One of the significant things about yesterday’s move was that 10yr USTs crossed the intraday taper-tantrum high of 3.052% from the start of 2014 and this morning are holding around 3.061%. After failing to hold above 3% numerous times, could this mean that they’ve finally crossed the Rubicon? It’s also worth noting that 30y yields were +6.6bps higher yesterday at 3.201%, while the 2s30s curve steepened +4.1bps. For comparisons sake, back in 2011 when 10 year yields were last at these levels 2yr yields were around 0.4% and 30yr yields were around 4.3% so today’s level are a testament to how much flattening the curve has still seen in recent years as 10yrs have returned to the same level. For reference 10yr Bunds were around 3% back then so that continues to be one of the most crazy global financial markets. They did climb 3.3bps to 0.641% yesterday as most core European 10yr yields climbed 2-3bps with Gilts (+4.6bp) the regional under-performer perhaps on the back of firm wages (see below).

A hat-tip to DB’s Alan Ruskin who pointed out that not only does the US have the highest 2y, 5y and 10y yields in all of the G10, but its 5y yield is now higher than any available 10y yield in other G10 countries. Even the US 3y yield (2.737%) is higher than all G10 countries’ 10y yields except Australia’s 10y (2.869%).

As for what triggered yesterday’s move, yield rises, dollar strength and risk off all really started to get going after the solid but not necessarily spectacular US retail sales report and also similarly solid data from the manufacturing sector (more on both of that below). Again what would have happened had retail sales been a bumper report? Elsewhere 10y US Breakevens also nudged up a couple of basis points and are back to YTD highs and near 4 year highs while the USD index rallied +0.68% and also to a new year-to-date high. The market-implied probability of 4 Fed rate hikes (or a further 3) also broke above 40%. Bear in mind that this was as low as 18% back in April.

The combination of that bond sell-off and a stronger USD was a perfect cocktail for weakness across riskier assets though. As has been the trend lately, this was most pertinent in EM, especially early in the US session immediately after US retail sales, higher yields and a stronger dollar. However a 50bps rally from the highs for the session actually left 10yr Argentina debt 23bp tighter on the day after the market drew some confidence from getting a bond auction away and the complex came off its worst levels for the session. Bonds were generally still weak as Brazilian 10yr notes were 12bps higher.

It was a similar weaker story for EM FX with currencies in Colombia, South Africa, Turkey, Chile and Poland all falling 1-2%. Turkey continuing its recent weakness as President Erdogan suggested that he’ll take more control of monetary policy if he won an election next month. In fact if there’s one asset class where the ‘sell in May and go  away’ phrase holds true this year its EM currencies. The woes in Argentina are well known and the Peso has depreciated a remarkable -13.33% so far in May despite a +4.09% rally yesterday, while the Turkish Lira is down -8.11%, Mexican Peso -4.45%, Brazilian Real -3.78%, Polish Zloty -3.33% and Hungarian Forint -2.95%. Indeed it’s been difficult to hide although the Russian Ruble can take some comfort for being up +1.36% in May – making it the only EM currency to buck the trend.

Meanwhile, the broader equity complex also sold-off in tow yesterday. The S&P 500 finished last night -0.68% and the Dow -0.78% – the latter snapping a run of 8 consecutive positive daily returns. Europe also wiped out early gains with the Stoxx 600 just in positive territory after a late rally to end +0.05% with most other continental bourses either side of the flat line. WTI Oil initially soared +1.60% before retail sales, then slumped a couple of percent late US morning time before closing around unchanged, seemingly being held back by the Dollar move. Interestingly Gold (-1.75%) also sold-off despite the broader risk-off tone, so there didn’t appear to be anywhere to hide.

This morning in Asia markets have also had to contend with the latest North Korea developments which broke last night. North Korea’s vice foreign minister, Kim Kye Gwan, has called the US demands to surrender its nuclear weapons “one-sided” and also as driving North Korea “into a corner”. Subsequently, Kim Kye Gwan said that North Korea will be forced to reconsider proceeding to a possible summit with President Trump next month. In fairness markets haven’t appeared to be greatly worried by the comments with the Kospi in particular up +0.05%. The Nikkei (-0.15%) and Shanghai Comp (-0.28%) are only modestly in the red too. Meanwhile bond markets in Asia have followed the lead from the US yesterday. Yields in the antipodeans are up +5bps while yields in the likes of Malaysia and Indonesia are between +4bps and +5bps higher too. In line with EM weakness yesterday, Asia FX is also softer with the Thai Bhat (-0.47%) and Indonesian Rupiah (-0.40%) leading losses.

Back to yesterday, given the packed schedule, economic data was always likely to be a factor for markets. In the US the April retail sales report was seen as fairly solid when taking into account the upward revisions to prior months. Of particular significance was the control group component which rose +0.4% mom and in line with expectations, albeit with March and February data both revised up a tenth which could be taken as a positive for potential upward revisions to Q1 growth. Meanwhile the May Empire Manufacturing print came in at 20.1 (vs. 15.0 expected) which was an increase of 4.3pts. The prices paid components again confirmed other surveys this year and rose to the highest level in several years.

In Europe there were no final surprises from the second revision to Q1 GDP for the Euro area at +0.4% qoq and +2.5% yoy, however Germany was a slight downside surprise at +0.3% qoq (vs. +0.4% expected). Our economists do however expect growth to rebound in Q2 to +0.5% qoq and have a 2018 forecast of +2.0% yoy.

Where there was some good news however was in the UK where the March earnings numbers came in fairly solid. As expected, weekly earnings ex bonuses rose a tenth to +2.9% yoy, implying a pickup in the run rate again. The unemployment rate also held steady at 4.2% while Q1 employment rose a healthy 197k (vs. 125k expected). So that data should comfort the BoE somewhat. Sterling was actually weaker yesterday (-0.40%) albeit more due to the broad Dollar strength.

Staying with the UK, it was announced yesterday that PM May will publish a Brexit white paper next month ahead of the EU Summit on June 28th, representing something of a key milestone for May’s cabinet to come to a unified stance with the customs union debate likely to be the focus. So another potentially important Brexit date to be aware of.

In terms of the day ahead, this morning the early focus will be in Germany where the final April CPI revisions are due to be made, although no change from the -0.1% mom flash estimate is expected. Shortly after that we have the broader April CPI report for the Euro area which is expected to confirm the seasonally-impacted +0.7% yoy core reading. Over in the US the main focus is likely to be on the April industrial production print (+0.6% mom expected) along with capacity utilization.  April housing starts and building permits data is also due. Away from the data the BoE’s Sarah John is scheduled to speak in a few hours’ time in Liverpool at a conference I spoke at yesterday (I’m not sure my comments got any attention), before an ECB conference this afternoon in Frankfurt has President Draghi giving the welcome address, along with comments from officials Coeure and Praet. Over at the Fed, Bostic is due to give an economic update at 1.30pm BST and Bullard is scheduled to speak to media at 10.30pm BST.

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Yesterday, we observed that in logical consequence to sharply higher interest rates, US consumer loan demand had slumped in recent weeks, despite increasingly easy credit conditions: an outcome which for many economists is a harbinger to an upcoming recession, as households hunker down and begin to deleverage.

Now, following a similar causal chain, this morning the International Energy Agency also cut forecasts for global oil demand growth in 2018 due to oil’s recent price surge, as the highest prices in three years put a brake on consumption. As a result, the agency trimmed its 2018 world demand growth projection by 40,000 barrels a day to 1.4 million a day, projecting total consumption at 99.2 million barrels a day, down from 99.3mmb/d, still higher than the 97.8mmbpd global oil demand in 2017.

“The recent jump in oil prices will take its toll,” said the Paris-based agency, which serves as an advisor to most major economies on energy policy. Crude has jumped 17% this year, trading near $78 a barrel in London on Wednesday, and approaching the stated Saudi target of $80/barrel at which point the Aramco IPO once again becomes feasible.

As one would expect, the demand forecast by the IEA – which is not a cartel of oil producers and is therefore less biased – differs greatly from the forecast by OPEC – which is a cartel of oil producers and therefore is programmed to see only the best possible outcome no matter how high the price. As shown in the chart below, whereas the IEA demand forecast topped out, that of OPEC sees nothing but blue skies ahead.

The IEA commented on the 16-month campaign by OPEC and its allies to slash a global oil glut, which the agency said had been finally successful, with inventories falling below their five-year average for the first time since 2014. Markets are set to tighten further as output sinks in the economic disaster that is Venezuela and the U.S. re-imposes sanctions on Iran.

And yet the resulting price rally, while giving financial relief to producers, appears to be backfiring: in addition to cutting its demand outlook, stronger prices also prompted the IEA to increase estimates for supply from OPEC’s rivals, particularly the U.S. Production outside the Organization of Petroleum Exporting Countries will grow by 1.87 million barrels a day this year, or 85,000 a day more than previously thought, Bloomberg reported.

But back to the demand forecast, the IEA said that while the global economy remains robust (if clearly topping over), oil prices have surged about 75% since last June, and “it would be extraordinary if such a large jump did not affect demand growth,” the IEA said. The “effect of higher prices should in particular become apparent in gasoline demand in the next few months,” it said, confirming what we noted last month, namely that much of the Trump tax cut effect will soon be wiped out due to higher gas prices, putting further pressure on the US economy.

Developing nations are especially sensitive to crude’s rally after many of them phased out fuel subsidies when prices were lower, the agency added.

For the immediate future, the biggest unknown for the oil market is the impact of U.S. sanctions on Iran, which are being reimposed after President Donald Trump abandoned an international nuclear accord with the country, the world’s fifth-largest oil exporter.

While it’s “too soon to say what will happen this time,” the agency said, Iran’s fellow OPEC members could fill the gap because their pact to restrain supply leaves them with spare production capacity.

To be sure, there is likely more than enough excess capacity within OPEC to pick up the slack for Iran. OPEC’s Gulf producers and Russia have about 1.3 million barrels a day of output idle, more than the 1.2 million barrels a day of Iranian exports that were lost when sanctions were previously imposed in 2012, the IEA calculated.

Although OPEC and its partners have resolved to curb supply until at the least the end of this year, they’ll meet next month to review their policy.

Furthermore, markets face other disruptions besides Iran, with Venezuela’s output plunging to the lowest since the 1950s as its economy unravels.

“The potential double supply shortfall represented by Iran and Venezuela could present a major challenge for producers to fend off sharp price rises and fill the gap,” the IEA said.

Could the Iran sanctions be the catalyst that causes the OPEC production cut deal to unravel? Find out in a few short seeks.

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Authored by Mike Shedlock via MishTalk,

An agreement reached today between M5S and Lega contains an explosive request: Debt Cancellation!

Rumors last night the coalition was about to collapse seem to be false. Explosive details emerge today as noted in these Tweets.

1) Five Star and the League expect the @ecb to forgive 250 billion euros in Italian bonds bought via quantitative easing, in order to bring down Italy’s debt

— Ferdinando Giugliano (@FerdiGiugliano) May 15, 2018

Details

1. Five Star and the League expect the ECB to forgive 250 billion euros in Italian bonds bought via quantitative easing, in order to bring down Italy’s debt

2. The two parties want to re-open European Treaties and to “radically reform” the stability and growth pact. The coalition would also want to reconsider Italy’s contribution to the EU budget.

3. According to @HuffPostItalia, the 5 Star/League draft agreement would include an opt-out mechanism to leave the euro in an “agreed manner” were there to be a “clear popular will” to do so.

4. The draft document says Italy should stay in Nato, but asks for an immediate withdrawal of sanctions vs Russia, so that Moscow can return to be a “strategic partner” in conflict zones

5. According to @HuffPostItalia, the 5 Star/League draft document says there would be a “flat tax”… but with several tax rates and deductions

6. taly’s pension reform would be dismantled: workers would be able to retire when the sum of their retirement age and years of contribution is at least 100.

7. The draft coalition agreement of a 5 Star/Lega government leaked to @HuffPostItalia calls for a revision of the Dublin regulation on immigration and for compulsory relocation of asylum seekers across the EU

8. The draft coalition agreement of a 5 Star/Lega government leaked to @HuffPostItalia calls for a revision of the Dublin regulation on immigration and for compulsory relocation of asylum seekers across the EU

This cannot possibly fly, but that’s the platform.

Yesterday, Italian President Sergio Mattarella warned Lega and Five Star against an anti-EU platform.

Last night, there were rumors the coalition would collapse.

Today we see this agreement as outlined on Huffington Italy and as described above.

Addendum

Ferdi Guigliano who made the above translations now posts this:

+++ The 5 Star Movement and the League have just issued a joint statement saying that this is an “old” version of the coalition agreement, which has been abundantly revised, for example making it clear that Italy would stay in the euro (h/t @adealdis @ARoldering)

— Ferdinando Giugliano (@FerdiGiugliano) May 15, 2018

I do not know what the revised deal includes.

Addendum Two

Draft confirmed except for exit of Euro

M5S e Lega confermano la bozza e fanno marcia indietro sull’euro https://t.co/yf7db5sEU9

— L’HuffPost (@HuffPostItalia) May 15, 2018

PD calls proposal irresponsible

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