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Missouri governor Eric Greitens is indicted for felony invasion of privacy. Read all the juicy background here.
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Despite rebounds in US (and less so European) equities and drops in both regions’ ‘VIX’ measures, the last few days have seen an ominous reawakening in credit markets that is far more systemically concerning than a volatility ETN…
And US HY spreads are pushing back towards last week’s wides…
And it’s not just HY credit, US investment grade credit spreads are starting to crack wider…
Fund outflows in HY and IG resumed their 2018 trend yesterday…
And credit remains notably decoupled from stocks…
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The latest embarrassing blow to CNN’s (already tattered) credibility emerged last night when Colton Haab, the student who first exposed CNN for pushing him to ask a scripted question during Wednesday night’s town hall appeared on Tucker Carlson Tonight to offer even more shocking details about CNN’s conduct.
Yesterday, we noted that Haab, a Marjory Stoneman Douglas High School student and shooting survivor, had come forward to say he decided not to attend Wednesday night’s CNN town hall after CNN producers gave him a pre-scripted question for him to ask.
But Haab told Carlson that the producers didn’t just want him to ask one scripted question: They essentially rewrote a list of questions and political points that he wanted to make at the town hall, prompting him to back away from the town hall. Haab told Carlson he shared with CNN what he wanted to say, but a producer named Carrie Stevenson ultimately rejected it, and instead after several conversations “scripted” a question for him.
“CNN had originally asked me to write a speech and questions and it ended up being all scripted,” Haab said to a local news outlet Wednesday night, according to RealClearPolitics.
Haab told Carlson he wanted to go “speak [his] part” and “open eyes” to a few things he thought could make the situation better. Haab said the network was dishonest and that is why he decided not to attend. He also said he was directed to “stick to the script.”
“She had actually said that over the phone that I needed to stick to the script,” Haab said of the CNN producer.
he was approached by CNN to ask a question at Wednesday night’s town hall, but declined after the network gave him a “scripted question” instead of allowing him to ask his own question.
More shockingly, Haab said he believed all the questions asked at the town hall were scripted. Haab explained in detail what happened between him and the cable news network and what he thought of the town hall.
“So what had happened was four days ago I had gotten contacted by a lady named [State of the Union executive producer] Carrie Stevenson from CNN. She had asked me originally to just write a speech. It was going to be at the town hall at the BB&T Center [in Sunrise, Florida]. So I agreed. I felt like it would be the right thing to do. Be able to go speak my part as well as open eyes to a few things that I thought that can make this situation a little better. From there, three days ago, so the next day after that I had gotten an email back from her and she asked for more of questions rather than a speech. Which I was totally fine with so I wrote a little less of a speech and more of questions that I wanted to ask at the town hall. The day after that it was more of just questions. She asked for just questions that I would like to ask.”
“So, I gave her my questions and then yesterday, at about 5:15, I made contact with her. And she had asked if I had just asked her one question. So what they had actually done was wrote out a question for me because in my interview with CNN, I had talked about arming the teachers, if they were willing to arm themselves in the school to carry on campus. And they had — she had taken that of what I had briefed on and actually wrote that question out for me. So I have that question here if you would like me to ask it for you.”
Haab said he turned off the town hall because he could tell that the questions being asked were scripted.
CNN, of course, has denied Haab’s claims.
There is absolutely no truth to this. CNN did not provide or script questions for anyone in last night’s town hall, nor have we ever. After seeing an interview with Colton Haab, we invited him to participate in our town hall along with other students and administrators from Marjory Stoneman Douglas High School. Colton’s father withdrew his name from participation before the forum began, which we regretted but respected. We welcome Colton to join us on CNN today to discuss his views on school safety.
But, of course, they can’t both be telling the truth.
So who’re you going to believe?
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Overnight Media Digest
WSJ
– China’s insurance regulatory agency Friday took control of hard-charging, acquisitive Anbang Insurance Group, saying the action is needed to avoid a collapse of the firm following suspected illegal activity and the downfall of its once-highflying chairman. on.wsj.com/2GESTaa
– Securities regulators plan to pare back Obama-era requirements that would require mutual funds to tell shareholders about large holdings of hard-to-sell assets, in what would be a significant concession to the industry. on.wsj.com/2GF3Gkj
– Dina Powell, who until recently served as a top national-security adviser in the White House, is talking to Goldman Sachs Group Inc about returning to the firm. on.wsj.com/2GEdmf7
– President Donald Trump’s calls for changes to gun laws in the wake of last week’s Florida school shooting push Congress toward a new politically fraught debate just months before the midterm elections. on.wsj.com/2GD2m1w
– Airbnb Inc looking to solidify sales ahead of an initial public offering expected as soon as next year, is adding more hotels to its site, along with a loyalty program and new tiers of listings that include luxury and more budget-friendly offerings. on.wsj.com/2GF4oOv
FT
Members of parliament were critical of senior partners at KPMG and Deloitte in a hearing on Thursday for their work for collapsed outsourcing firm Carillion Plc.
British Prime Minister Theresa May’s Brexit inner cabinet broke up following talks that lasted for eight hours on Thursday with claims from Brexiters that Britain was on track to make a clean break with the European Union.
Channel 4 has been given a March 12 deadline to present a plan to move out of London, in the absence of which the government will intervene, according to people familiar with the talks.
NYT
– After a barrage of customer complaints this week, the First National Bank of Omaha said on Thursday that it would withdraw its National Rifle Association-branded Visa credit card. “Customer feedback has caused us to review our relationship with the N.R.A.,” Kevin C. Langin, a bank spokesman, said in a statement. nyti.ms/2BNIIAW
– President Donald Trump on Thursday enthusiastically embraced a National Rifle Association position to arm highly trained teachers to fortify schools against mass shootings like the one last week. Trump, who said the armed teachers should receive extra pay as an incentive, promoted his idea as demands for stronger gun control intensified across the country. nyti.ms/2Gz61NR
– The Chinese government said on Friday it had seized control of Anbang Insurance Group, the troubled Chinese company that owns the Waldorf Astoria hotel and other marquee properties around the world, and it had charged the company’s former chairman with economic crimes. nyti.ms/2CDoWEL
– Returns for college and university endowments in the United States for the 2017 fiscal year are in, and while they averaged a respectable 12.2 percent for the year, over the last decade they have underperformed funds offering a simple 60-40 or 70-30 stock-fixed income allocation. nyti.ms/2CDUH0H
Canada
THE GLOBE AND MAIL
** Ontario’s real estate regulatory body, the Real Estate Council of Ontario (RECO), is raising serious concerns about whether brokerages should be allowed to facilitate transactions in cryptocurrencies such as bitcoin. tgam.ca/2HBTH0A
** New housing taxes in the B.C. NDP’s provincial budget have left municipal officials in the Okanagan confused and worried about the impact on their region, which has some cities – but not others – designated for both levies. tgam.ca/2HEZ8Mo
** Export Development Canada says it is facing “enormous” risk of “serious and potentially irremediable harm” because the controversial Gupta family is refusing to return a Bombardier Inc luxury jet that could be used in criminal activity. tgam.ca/2ok9QQl
NATIONAL POST
** Defence department bureaucrats rejected a plan to outfit the navy’s new supply ship with high-tech guns needed for its protection because they wanted to save money, officials with a Quebec shipyard say. bit.ly/2EXKW2n
Britain
The Times
– EU citizens who arrive in Britain during the post-Brexit transition period will be allowed to stay permanently under a U-turn planned by Prime Minister Theresa May. bit.ly/2HEyanV
– Euro-zone rate setters have accused Washington of trying to talk down the dollar and start a currency war, in a rare attack from the European Central Bank that comes after the U.S. Treasury secretary, Steven Mnuchin, said that a weak dollar was good for the U.S. economy. bit.ly/2HGpVb1
The Guardian
– Carillion Plc’s former finance director considered putting cash into the firm’s pension deficit a “waste of money”, according to the minutes of a meeting written by the pension scheme trustees.
– Men working for Barclays Plc’s international division got paid bonuses that were more than double those of their female colleagues last year, with far fewer women occupying senior roles, the bank’s 2017 gender pay gap report shows. bit.ly/2HDmlyo
The Telegraph
– Tech giants could face sweeping new taxes in the UK as the Treasury is considering taking a share of their revenues, with politicians claiming the current level of payments to the Exchequer is not fair. bit.ly/2HDTNER
– Southern Rail operator Go-Ahead Group Plc will bid to run the contract again after its chief executive said his company had achieved everything asked of it by the government. bit.ly/2HFQTQi
Sky News
– British Gas owner Centrica Plc said it will shed 4,000 jobs by 2020 following a big fall in operating profits. bit.ly/2HGtjmf
– The chairman of Standard Life Aberdeen Plc is to step down within two years of helping to create one of Britain’s biggest fund managers in an 11 billion pound ($15.35 billion)merger. bit.ly/2HDG1lP
The Independent
Millions of Sky TV and broadband customers are set to pay more from April as the telecoms giant introduces a hike in prices, but can avoid doing so if they leave outside of the minimum term of their contracts – penalty free. ind.pn/2HEBn6X
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Authored by Charles Hugh Smith via OfTwoMinds blog,
If a currency can’t be converted on demand into the underlying commodity, it’s not “backed by oil,” it’s just another form of control fraud.
image courtesy of CoinTelegraph
The broke and broken country of Venezuela appears to be the first nation-state to issue a cryptocurrency token (the petro) as a means of escaping the financial black hole that’s consuming its economy: Maduro Launches Oil-Backed Crypto “For The Welfare Of Venezuela”.
For context, here is a chart of the black market (i.e. real-world) value of the Venezuela’s fiat currency, the bolivar: a 100,000 bolivar note is worth somewhere around 40 cents USD (US dollar), i.e. near zero. (Venezuela maintains a fantasy-official USD/bolivar exchange rate that has no relation to the actual purchasing-power value of Venezuela’s fiat currency.)
The gee-whiz component of the petro is that it is supposedly “backed by oil.”In other words, unlike other cryptocurrencies/ tokens, the petro has intrinsic value because it’s backed by oil.
But what does backed by oil actually mean?
The only way any currency, fiat or crypto, is “backed” by any real-world commodity is if the currency is convertible into the commodity on demand, that is, the currency can be exchanged for the commodity at a transparent published conversion rate.
If Venezuela’s petro cannot be converted directly into deliverable-upon-demand oil contracts, it’s not backed by anything. It’s important to understand that any currency that claims to be “backed” by gold, oil, rice, bat guano, etc. must be convertible to the underlying commodity at a transparent conversion rate.
If a currency can’t be converted on demand into the underlying commodity, it’s not “backed by oil,” it’s just another form of control fraud, which I define as those holding power in centralized institutions enrich themselves at the expense of the citizenry by modifying what’s legally permissible.
Conventional fraud is against the law; control fraud is legal because it benefits those who make the rules. If there is no transparent mechanism for converting petros into oil that can be sold and delivered in the global marketplace, then the petro is nothing but a central-state control fraud: those foolish enough to believe the con that the petro is “backed by oil” will end up with a worthless token.
A bit of history will clarify “backed by something real” conversion. In the 1960s, the US dollar was famously “backed by gold,” which meant that other nations (via their central banks) could convert $35 USD into an ounce of gold upon demand.
As U.S. trade and federal budget deficits soared in the late 1960s, nations such as France began converting their excess dollars into physical gold. If this conversion had been allowed to continue, foreign entities would have drained all of America’s gold as they converted their dollars (exported via trade deficits to other nations) into gold. As a result, the U.S. had no choice but to end the conversion of dollars to gold.
The notion that China or Russia will issue a gold-backed currency attracts considerable attention, but a currency is only “backed by gold” if a foreign financial institution can convert their yuan or rubles into gold upon demand. If there is no transparent, easy mechanism for foreign holders of the currency to convert their currency into gold upon demand, then the currency isn’t actually backed by anything: it’s simply a form of control fraud.
It doesn’t matter if the currency is digital, paper or crypto: if it can’t be directly converted into the underlying commodity at a transparent published conversion rate, it’s not backed by anything.
Until a foreign financial institution successfully converts its Venezuelan petros into actual barrels of oil, or oil contracts that can be sold immediately on the global market, then the petro isn’t backed by anything. Until that conversion process is functioning transparently, the petro is nothing but a giant control fraud perpetrated to benefit the few clinging to power in Venezuela at the expense of the many.
* * *
My new book Money and Work Unchained is $9.95 for the Kindle ebook and $20 for the print edition.Read the first section for free in PDF format. If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.
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There’s one scene in Annihilation that is so hair-raisingly horrific, it’s still creeping me out days after I saw the movie. I’d like to tell you about it, but of course I can’t.
Writer-director Alex Garland, whose first feature, the 2014 Ex Machina, was already fairly disturbing—although not in the throat-grabbing way that this picture is—has adapted a novel by Jeff VanderMeer in an unusual manner. Garland has chucked quite a bit of VanderMeer’s narrative, and has chosen instead to preserve the book’s atmosphere of cellular chaos and hovering dread within a new structure, and to top it off with blazing psychedelic imagery. If you can deal with the picture’s crepuscular ambiguity, there’s a lot to look at here, and quite a bit to think about (or at least puzzle over), writes Kurt Loder in his latest review for Reason.
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Last June, when looking at the most unstable of China’s mega conglomerates Anbang Insurance (the others are HNA, China Evergrande and Dalian Wanda), we said that “Anbang’s troubles could soon become systemic.” Half a year later, that’s exactly what happened when in a “surprising” twist, the $315 billion insurer was bailed out by Beijing, just days after we pointed out the tremendous surge in the yield on its bonds.
HNA’s 2019 bonds YTM 12%, after hitting 14.2% recently pic.twitter.com/DwZj0GgOWv
— zerohedge (@zerohedge) February 18, 2018
And while the market has so far blissfully ignored the potential consequences of this admission by China that all is not well with its biggest corporations, that may soon change.
For starters, there is HNA’s massive debt: according to Bloomberg data, HNA Group’s dollar debt dwarfs that of other stressed Asian borrowers such as Noble Group Ltd. and India’s Reliance Communications. S&P Global Ratings recently lowered HNA Group’s credit profile to ccc+ from b earlier this month, saying it is unclear if existing access to capital markets and some apparent bank support is sufficient for meeting its upcoming obligations. One look at the chart above should confirm that any hope HNA may have had of accessing markets is now gone, leaving only the government as a lender of last resort.
And while there’s no indication – yet – that HNA is facing such financial difficulties that a default is in the offing, some market participants are starting to game plan scenarios, and a variety of takes have emerged.
For one, the amount of dollar bonds outstanding for the conglomerate and its units, at $13.7 billion, accounts for more than 1% of Asian high-yield bonds outside of Japan, and raises the question of the impact on the broader market. While many see little wider impact in the event of a default, the case of China’s most popular, to date, debt default – that of Kaisa Group Holdings three years ago, when Asian dollar junk bond premiums widened considerably – should serve as a warning.
Below is a summary of some initial views from analysts on how any default scenario for HNA would impact the Asian bond market. What is remarkable is just how optimistic every single analyst is that a default won’t result in contagion. Which, if history is any indication, means that precisely the opposite will happen. Courtesy of Bloomberg:
HSBC (Glenn Ko) – Isolated case
Lombard Odier (Homin Lee) – Situation manageable
ANZ (Owen Gallimore) – Default digestible
Haitong International (Ray Wepener) – Contained contagion
UBS – Spread surge
* * *
Finally, here an interesting take from Bloomberg Markets Live commentator, Andrew Cinco, who sees the Anbang blowup as eerily similar to the Japanese bubble peak.
I guess the NYC Landmark signal still works. Anbang goes wobbly just a few short years after its splashy purchase of a trophy Manhattan property, the Waldorf-Astoria Hotel. It brings to mind the Japanese real-estate bubble in the late 80s, and one has to wonder whether China will suffer the same retreat eventually.
The height of Japan’s property-market glory was marked by Mitsubishi Estate’s acquisition of Rockefeller Center in October 1989 (NB: the Nikkei Index peaked just two months later, on Dec. 29). Mitsubishi walked away from the iconic property almost exactly six years after announcing the deal. The NY Times reported the end of the deal this way:
“Mitsubishi’s sudden decision to exit Rockefeller Center is the most striking in a string of recent retreats from the trophy properties stretching from New York to Honolulu that Japanese companies acquired during a real estate binge in the 1980s.”
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Treasury Secretary Steven Mnuchin has a degree from one of the most prestigious universities in the world (Harvard grads may dispute this); He was the CIO of Goldman Sachs; He launched a successful hedge fund; He is now Treasury Secretary. Yet he appears to barely grasp basic economic concepts (not to mention his apparent fondness for fake math).
Last night, Mnuchin transparently tried to sooth markets by telling a crowd of reporters who accompanied him to the US Mint in Philadelphia that investors shouldn’t worry about rising inflation and Treasury yields – even with the 10-year yield so close to crossing into the “danger zone” above 3%.
Quoted by Bloomberg, Mnuchin swatted away the suggestion that investors are worried about rising prices, even as the average hourly wage number for January soared the most since 2009, triggering this month’s “volocaust”. Why? Because in Mnuchin’s mind, wage inflation and rising consumer prices have only a tenuous link – if that.
“There are a lot of ways to have the economy grow,” Mnuchin said in an interview aboard a train to Philadelphia on Thursday, where he toured the U.S. Mint. “You can have wage inflation and not necessarily have inflation concerns in general.”
If that’s true – it’s certainly news to us. And judging by the tone of these dismayed Jeffrey Gundlach tweets, we’re not alone.
Mnuchin: policies will raise wages w/out inflation. Yeah, sure. And we are going to expand the Buffalo Art Museum without making it bigger.
— Jeffrey Gundlach (@TruthGundlach) February 23, 2018
If by miracle wages go up w/out inflation not good for profits. If wages go up w/ inflation not good for bond yields, ergo P/E ratios. Hmmm.
— Jeffrey Gundlach (@TruthGundlach) February 23, 2018
Mnuchin added that he isn’t concerned about foreign investment in new US debt, which analysts expect could exceed $1.2 trillion this year (with all the latest bells and whistles) as the Trump tax cuts force the federal government to issue more debt, saturating the market and probably driving yields higher.
Of course, Mnuchin has fallen in line behind his boss and repeatedly asserted that the US would make up for lost tax revenue by boosting economic growth to 3% over the coming decade, something that would result in one of the longest and most powerful economic expansions in modern history.
Instead, the suggestion that the Trump tax cuts would boost government revenues through growth has been widely debunked.
As Trump’s chief economic cheerleader, Mnuchin has consistently deflected any suggestion that the president’s policies could have a downside. He sidestepped the idea that tax cuts and increased federal spending Trump has signed into law amount to an economic stimulus.
“Is it very good for the economy? Absolutely,” Mnuchin said of the tax cuts. “One of the reasons why the president won the election is because most middle-class Americans had very little wage growth.”
Turning to the problem of rising crude oil prices, Mnuchin asserted that higher energy costs wouldn’t drive up the price of goods because the US is producing more of its own oil thanks to the shale boom, and is relying less on exports which… wait, what? That makes absolutely no sense: Higher oil prices are higher oil prices, period, and will impact the cost of goods from every conceivable angle, raising the cost of production and distribution, not to mention gas.
But perhaps even more concerning than his comments about inflation were his remarks about the $20 trillion pile of federal government debt, which is about to swell further. Foreigners held $6.3 trillion of that by the end of last year, something that leaders of the US intelligence community have referred to as a security threat.
Much of the new U.S. debt will be bought by foreign investors. Foreign holdings of U.S. Treasuries stood at $6.3 trillion as of the end of last year, hovering near a record amount and almost double the level when the recession ended in 2009. China alone holds about a fifth of foreign-held debt, making it the U.S.’s largest creditor.
The director of national intelligence, Dan Coats, told the Senate Intelligence Committee on Feb. 13 that the U.S. debt, now at $20.8 trillion, is “unsustainable” and “represents a dire threat to our economic and national security.”
“I would urge all of us to recognize the need to address this challenge and to take action as soon as possible before a fiscal crisis occurs that truly undermines our ability to ensure our national security,” Coats said.
But Mnuchin said that foreign investors in U.S. debt don’t worry him.
“I’m not concerned about that for national security risks,” he said, adding that what’s important is that the U.S. can afford to finance its military and intelligence operations.
Already, both energy and higher wages are having a discernible impact on prices: Consumer prices in January were 2.1% higher than a year earlier, up from 1.6% in June. With unemployment at an all-time low, tightness in the labor market SHOULD lead to rising wages and, by extension, higher consumer prices (this is a basic economic concept called the Phillips curve) – though often during her final year in office the former Fed Chairwoman Janet Yellen would suggest that this relationship has unraveled to a degree during the post-crisis period.
But many investors believe this dynamic is back in play: Persuading them otherwise will be one of Mnuchin’s more burdensome responsibilities during the coming months.
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Traders are scratching their heads over the latest flash crash in the pound, a currency which over the past 2 years has had more than its share of bizarre, sharp moves lower, when just as 6am ET, GBPUSD plunged 64 pips in seconds on no news (note that May’s big Brexit speech was announced for next Friday after the move).
hitting fresh day low at 1.3905, versus day high at 1.3995.
Ahead of the move, traders had reported another typical low liquidity Friday, with volumes on the light side, as such as large block could have weighed on the pound.
To explain the move, Bloomberg quotes an unnamed trader who suggests that it may have been “triggered by an incorrect amount input for the 11am fix” when “just under GBP700m was sold on one platform alone.”
Here, however, Citi warns to take this with a pinch of salt given the report cites an anonymous trader; the bank also notes that other UK assets did not follow the move, and that “given the quick retracement of the move, there is speculation that this was probably related to flows/orders as early NY wakes up.”
Ultimately, trading GBP continues to depend on broader markets, with your usual dose of those pesky Brexit headlines.
And confirming that it is now officially a robo-market, just an hour after today’s unexplained flash crash, cable was trading at session highs, wiping out the entire drop, and back to session highs of 1.3999, approaching the 21DMA at 1.4010.
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After a second consecutive disappointing cash session close, in which futures spiked at the open only to close at the lows, we are set for day 3 as S&P index futures again point to a sharply higher open after Asian stock gains despite some mixed trading in Europe. Will they once again fade what is set to be a 150 point higher open in the Dow and if so, will we finally see selling next week?
What is most surprising about the overnight session is how little attention the market paid the the collapse and bailout of Chinese’ mega conglomerate and offshore M&A titan, insurer Anbang Insurance, which as we reported last night was effectively nationalized. A quick recap for those who missed it:
When New York’s Waldorf Astoria hotel was sold for $1.95 billion in 2014, it shot the Chinese buyer – Anbang Insurance Group Co. – and its chairman Wu Xiaohui to international prominence. That was the first deal in a $13.4 billion acquisition spree that lifted Anbang’s profile while raising questions about its ownership and financing. Those questions only deepened after Wu was detained last year by Chinese authorities investigating the firm’s acquisitions funding, market manipulation by insurers and unspecified “economic crimes.” Now, Wu is being prosecuted and China’s insurance regulator is taking over the company.
And yet, despite this critical development, which effectively confirms that China’s conglomerates are insolvent, the Shanghai Composite closed in the green and S&P futures are well well bid.
Commenting on the market’s bizarre reaction, Stock-market gains in China and Hong Kong today provide a fairly revealing insight into the market’s view of Xi Jinping’s policies. Gone are the days when something like the seizure of insurer Anbang would rattle investors, when every yuan fixing was highly anticipated and when fears of leverage, inflated property prices or military activity in the South China Sea were at the back of everyone’s minds.
Now, something like Anbang is being seen as a positive. When I talk about China with investors these days, the perspective is a lot more positive. The belt and road initiative is viewed favorably, as are the efforts to get debt under control.
Maybe… or maybe China’s halting the local VIX yesterday was an indication that something big was coming. And what better way to prevent panic from spreading than blocking the one indicator measuring panic. Although Bloomberg’s point is noted: in China, there was no panic; maybe that’s because in China there is also no longer a market?
* * *
In any case, back to the rest of the world, where the Stoxx Europe 600 Index edged lower as declines in car makers offset gains in telecom shares. n. terms of sector specific moves, telecoms are the clear outperformer with BT Group (BT/A LN) shares at the top of the FSTE 100 following a positive broker upgrade at Berenberg. The biggest story in the UK equity space comes from RBS (-4.5%) who are one of the notable laggards in the FSTE 100 as a return to profit for the Co. was not enough to soothe investor concerns over restructuring costs and a lack of clarity from the DoJ investigation. Other notable movers include Valeo (-9.5%), IAG (-4.7%), Swiss Re (+1.8%) and Pearson (+1.1%) post-earnings, while Standard Life Aberdeen (+2.2%) have been granted some reprieve after offloading their insurance unit to Phoenix (+5.4%).
Asia was decidedly more bullish, with the MSCI Asia Pacific Index rising 1%, underpinned by gains in Tokyo, Hong Kong, Sydney and Seoul equity markets. The Nikkei 225 (+0.7%) edged higher with the gains led by defensive stocks with investors seemingly content to shrug off the notion of a more aggressive Fed unwinding stimulus more rapidly than expected. Chinese markets had been positive for much of the session with the Hang Seng (+1%), while the Shanghai Comp (+0.6%) had a somewhat choppy session. JGB yields dipped overnight, with the curve modestly flatter.
As noted above, US equity futures seemed to forget Thursday’s pitiful close and spiked ahead of the European open, only to fade most of the gains: the E-mini was up +7 at last check, but back to bottom of overnight range, as European equity markets led lower. It seems one piece of bad news today and the house of cards could topple for the 3rd consecutive day.
Indeed, as Bloomberg notes markets have been creeping into risk-off mode across the board; sentiment not helped by a sudden GBP clash crash cited to incorrect trade value.
Elsewhere, credit spreads continue widen, iTraxx Crossover back within range of widest levels seen during VIX-related volatility. USD holds small gains; apart from sharp GBP move, most pairs stay in tight range. SEK weaker after Riksbank minutes highlight inflation worries.
Yields on Treasury 10-year notes fell, though were still near their highest since 2014, while those on German bunds, the benchmark for European debt, dropped to the lowest since January, while the common currency slipped.
The dollar came under pressure following the Tokyo fix, in a repeat of Thursday’s price action. The greenback’s correlation with U.S. yields seems to be back, as Treasuries extended recent gains with the 10-year yield steadying around 2.9%. Volumes were below recent averages in the majors, with unwinds of short-term positions in typical Friday fashion.
In bunds, flows spiked after futures broke the 159 threshold. European stock markets traded mixed and commodities retreated.
In the commodities complex, WTI and Brent crude futures have seen a mild pullback from yesterday’s post-DoE surge, albeit in close proximity to yesterday’s best levels. Energy newsflow remains light with traders awaiting today’s Baker Hughes release which has recently seen a trend of climbing rig counts. In metals markets, gold prices are marginally softer alongside the firmer USD and remains on track for its worst weekly performance since late last year. Elsewhere, Chinese steel futures staged a rebound overnight as traders eye a potential pick-up in demand next week as Chinese participants fully return to market.
US is said to announce new sanctions on North Korea later today, according to sources. Federal Reserve releases semi-annual monetary policy report to Congress. Fed officials John Williams, Bill Dudley and Eric Rosengren speak. European Central Bank Executive Board member Benoit Coeure and Cleveland Fed President Loretta Mester participate in panel discussion.
Market Snapshot
Top Overnight News
Asian equities closed the week on a positive note as major bourses traded in the green amid the uptick in crude prices. ASX 200 (+0.8%) had been buoyed by energy and material names, moving within closing just shy of 6,000. Miners were led by BHP (+1.5%) and South 32 (+5%), while oil prices rose throughout the US session after the latest DoE crude inventory data showed US oil output had dropped. Elsewhere, the Nikkei 225 (+0.7%) edged higher with the gains led by defensive stocks with investors seemingly content to shrug off the notion of a more aggressive Fed unwinding stimulus more rapidly than expected. Chinese markets had been positive for much of the session with the Hang Seng (+1%), while the Shanghai Comp (+0.6%) had a somewhat choppy session. JGB yields dipped overnight, with the curve modestly flatter. Japanese inflation data:
Top Asian News
European bourses are trading on the back foot (Eurostoxx 50 -0.3%) despite calls for a slightly firmer open. In terms of sector specific moves, telecoms are the clear outperformer with BT Group (BT/A LN) shares at the top of the FSTE 100 following a positive broker upgrade at Berenberg. However, the biggest story in the UK equity space comes from RBS (-4.5%) who are one of the notable laggards in the FSTE 100 as a return to profit for the Co. was not enough to soothe investor concerns over restructuring costs and a lack of clarity from the DoJ investigation. Other notable movers include Valeo (-9.5%), IAG (-4.7%), Swiss Re (+1.8%) and Pearson (+1.1%) post-earnings, while Standard Life Aberdeen (+2.2%) have been granted some reprieve after offloading their insurance unit to Phoenix (+5.4%).
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In FX, the DXY has slipped further below the 90.000 level, and it remains a very close call whether the Greenback can continue its recent ‘winning’ run to make it 5 out of 5 trading days and a first complete week of gains this year. Technically, the index needs to close above 90.500-600, so quite a bit above the upper end of the 90.060-89.750 range thus far, and much may depend on the overall tone that emerges from the latest round of Fed rhetoric via a slew of speakers and Powell’s first semi-annual monetary policy report. However, Usd/Jpy still looks pivotal for the Dollar’s overall direction with the pair now heavy around 107.00 having failed to rebound to 108.00 at the height of its rebound from 105.55 lows. Note also, a large 107.00 option expiry strike for next Monday (1.6 bn) may act like an anchor. Eur/Usd straddles 1.2300, with no reaction to final Eurozone CPI and Cable continues to be drawn towards 1.4000 while holding in above solid support ahead of 1.3800 on Brexit-related weakness (similarly 0.8800 is a pivot in Eur/Gbp). In terms of crosses, Eur/Sek has been a mover in wake of cautious and dovish Riksbank minutes as several Board members registered concerns about weak inflation at the January policy meeting, and the pair has eclipsed the 10.0333 peak from 2017, with the previous year’s high at 10.0833 next on the charts. Back to G10s, the Nzd gained little lasting traction from better NZ retail sales overnight, with a breakdown revealing discretionary items providing a major boost, and Aud/Nzd stop-buying also working against the Kiwi.
In the commodities complex, WTI and Brent crude futures have seen a mild pullback from yesterday’s post-DoE surge, albeit in close proximity to yesterday’s best levels. Energy newsflow remains light with traders awaiting today’s Baker Hughes release which has recently seen a trend of climbing rig counts. In metals markets, gold prices are marginally softer alongside the firmer USD and remains on track for its worst weekly performance since late last year. Elsewhere, Chinese steel futures staged a rebound overnight as traders eye a potential pick-up in demand next week as Chinese participants fully return to market.
Looking at the day ahead, there is the final revisions to Q4 GDP in Germany and also the final revisions to January CPI in the Euro area. The Fed’s Williams, Mester and Dudley are due to speak, along with the ECB’s Coeure. Away from that, EU leaders are scheduled to hold an informal meeting in Brussels to discuss the composition of the European Parliament and also the bloc’s next budget. Finally the Fed is expected to publish its semi-annual monetary policy report to Congress.
US Event Calendar
DB’s Jim Reid concludes the overnight wrap.
Markets lacked a bit of leadership yesterday as the S&P 500 couldn’t hang onto 1% gains for the second day but just about ended higher (+0.1%). It appears the initial gains were spurred by a rebound in the WTI oil price (+1.77%) and the Fed’s Bullard’s more dovish words on the rates outlook. He told CNBC that raising rates too quickly could restrict economic growth and that market expectations of four rate hikes this year would be “priced to perfection”. Further he added “100bp (rate increase) in 2018 seems a lot to me” while there was a “way to go” in terms of sustainable upward move on inflation. Within the S&P, gains were led by the real estate, energy and materials sectors with partial offsets from financials. The VIX fell for the second day to 18.72 (-6.5%).
Staying in the US, Matt Luzzetti and others in the US economics team published an update to DB’s analysis that looks at the parallels between the current period and the 1960s in the US. This is work we’ve often referred to in our work. Similar to today, inflation was subdued for a protracted period during the first half of the 1960s even as the unemployment rate fell sharply. Inflation then jumped in 1966.
Recent developments – most importantly a replay of the 1960s fiscal expansion – have increased the similarities with the 1960s episode. Their updated analysis suggests that while we are unlikely to see a spike in inflation as large as the 1960s, the risks around DB’s inflation view are likely titled to the upside. As such, we would not downplay the possibility that core inflation hits 2.5% or above in the coming years, exceeding the last cycle’s peak and rising to the highest level since the early 1990s.
Turning back to Europe and the latest ECB minutes. They broadly reiterated a wait and see approach. On rates, the minutes indicated “changes in communication were generally seen to be premature” and that “monetary policy would continue to develop….with a view to avoiding abruptly or disorderly adjustments at a later stage”. On QE, “some members expressed a preference for dropping the easing bias…but it was concluded that such adjustment was premature”. On FX, “there was broad agreement among members that the recent volatility in…..the Euro was a source of uncertainty that required monitoring”. Looking ahead, “the language pertaining to the monetary policy stance could be revisited early this year as part of the regular assessment at the forthcoming policy meetings”.
Over in government bonds, core 10y bonds yields were 1-3bp lower while peripherals modestly underperformed (1-3bp higher), in part reversing the prior day’s gains. 10y Bunds and Gilts yields fell 1.6bp and 0.9bp respectively while UST 10y also fell 2.9bp. Elsewhere, the US treasury sold $29bn of 7 year notes at a yield of 2.839% with a bid-to-cover ratio of 2.49x (vs. 2.73x previous).
This morning in Asia, markets are in positive territory with the Kospi (+1.23%), Hang Seng (+0.89%), Nikkei (+0.71%) and China’s CSI 300 (+0.02%) all up as we type. Datawise, Japan’s January core CPI (ex-food) was above expectations at 0.9% yoy (vs. 0.8%) but flat for the third consecutive month. Staying with inflation, the US Treasury Secretary Mnuchin has discussed prices overnight and believes rising US wage gains may not cause broader inflation. He noted that “you can have wage inflation and not necessarily have inflation concerns in general”.
Now recapping other markets performance from yesterday. Key European bourses weakened modestly, with the Stoxx 600 (-0.20%), DAX (-0.07%) and FTSE (-0.40%) all lower. In FX, the US dollar index fell for the first time in five days (-0.28%), while the Euro and Sterling gained 0.37% and 0.27% respectively. Over reiterated that three rate hikes seems appropriate but his views could change if there was greater evidence of rising inflation or employment. Elsewhere, he noted “the Fed’s policy is accommodative, but the path to neutral may be flatter and not as far away as some think”. Finally, the Fed’s Quarles noted “with a strong labour market and likely only temporary softness in inflation, I view it as appropriate that monetary policy should continue to be gradually normalized.”
Back in Europe and ahead of the Italian election on 4thMarch, the EC President Juncker warned “we have to brace ourselves for the worst scenario….(which) could be no operational government” and that he was “more worried by the result of Italian election than the result of the vote by SPD members” in Germany. Later on in a statement, he did softened his message and noted “whatever the outcome, I’m confident that we’ll have a government that makes sure that Italy remains a central player in Europe”.
Staying in politics, the Times reported that the UK may allow EU citizens who arrives during the Brexit transition period to stay permanently. Elsewhere, before PM May outlines her vision for a post-Brexit trade deal, a presentation on the European Commission website has reiterated the potential difficulties she faces with the stance her cabinet seem to be moving towards. It noted the “UK’s views on regulatory issues in the future relationship including the three basket approach are not compatible with the principles in the EC guidelines”.
Before we take a look at today’s calendar, we wrap up with other data releases from yesterday. In the US, the January Conference board leading index was above market at 1% (vs. 0.7% expected) with large positive contributions from the firming of the ISM new orders index and building permits in the month. The Kansas Fed manufacturing index was slightly below at 17 (vs. 18 expected).
Elsewhere, the weekly continuing claims (1,875k vs. 1,935k expected) and initial jobless claims (222k vs. 230k expected) were both below expectations, with the latter near a c44 year low and adds to the view that the labour market is tightening further.
In Germany, the February IFO Business Climate Index fell to 115.4 from its record high in January (117.6). The drop was driven by a fall in business current assessment (126.3 vs. 127 expected) and the expectations index (105.4 vs. 107.9 expected). Overall DB’s Marc Schattenberg believes a pull-back was not surprising and the sentiment surveys are still at very high levels, signaling a continued strong economic expansion in Q1. In France, the February manufacturing confidence (112 vs. 113 expected) and business confidence (109 vs. 110 expected) were both softer than expectations. The final reading of France’s January CPI was unrevised at 1.5% yoy, while Italy’s print was revised 0.1ppt higher to 1.2% yoy. Finally, the UK’s 4Q GDP was revised down 0.1ppt to 0.4% qoq and 1.4% yoy (vs 1.5% expected).
Looking at the day ahead, there is the final revisions to Q4 GDP in Germany and also the final revisions to January CPI in the Euro area. The Fed’s Williams, Mester and Dudley are due to speak, along with the ECB’s Coeure. Away from that, EU leaders are scheduled to hold an informal meeting in Brussels to discuss the composition of the European Parliament and also the bloc’s next budget. Finally the Fed is expected to publish its semi-annual monetary policy report to Congress.
via Zero Hedge http://ift.tt/2EOONLW Tyler Durden
