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Just like all other banks before it, Goldman took a charge as a result of Tax Reform, amounting to $4.4 billion or less than the $5 billion expected, which hit net income, resulting in a net loss of $1.93 billion or a GAAP EPS loss of $5.51. Excluding the tax-related charge, Goldman’s EPS was $5.68 in Q4, above consensus estimate of $4.91.

However, while Q4 earnings at the banks were largely a wash due to tax reform, it was the top line that was troubling: here Goldman reported $7.834 billion in Q4 revenue, which while modestly better than the $7.61 billion expected, was the lowest quarterly print since the first quarter of 2016.

And while the bank’s Investment Banking division was a surprising outlier to the upside, generating $2.14BN in Q4 revenue, far above the $1.64BN expected, and saved the bank’s quarter, the rest of the income statement was a disaster, with Goldman’s FICC, i.e. bond, FX and commodity revenue, printing just $1.00 billion, well below the $1.28BN est., and a shocking 50% plunge from the $2.00Bn reported a year earlier.

Putting this number in context, the last time Goldman printed a $1 billion quarterly figure for the business, the world was in the throes of the financial crisis.

Equity trading was as bad, with $1.37BN in revenue missing estimates of $1.51BN, and down 14.1% from a year ago.

Total Q4 trading revenue of $2.37BN was below the $2.76BN expected, and the worst since the financial crisis.

Finally, Goldman’s prop lending group, Investing and Lending, helped modestly, reporting $1.658BN in revenue, an increase of 12% Y/Y, but a drop of 12% from last quarter.

 

In the context of other banks, Goldman’s FICC drop of 50% was by far the worst.

 

Commenting on the results, “Last year, we delivered higher revenue and stronger pre-tax margins despite a  challenging environment for our market-making businesses,” said Lloyd C. Blankfein, Chairman and Chief Executive Officer. “With the global economy poised to accelerate, new U.S. tax legislation providing tailwinds and a leading franchise across our businesses, we are well positioned to serve our clients and make significant progress on the growth plan we outlined in September.

Perhaps not surprising, as a result of the poor top-line results, Goldman’s compensation benefit accrual for Q4 was only $2.157BN, the lowest in two years even as Goldman added another 800 full time employees, bringing the total to 36,600. This means that the average Goldman employee comp for the trailing 12 months dropped from $339K to $324K, the lowest in one year.

 

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Like JPMorgan, Wells and Citi before it, on Wednesday morning Bank of America reported adjusted EPS for the fourth quarter that beat the average analyst estimate: Adjusted Net Income was $5.3BN, equivalent to adjusted Q4 EPS of $0.47, 2 cents higher than the $0.45 expected. Unadjusted Net Income was $2.4 billion (EPS of $0.20) and included a $2.9 billion charge related to the Tax Cut and Jobs Act, as well as a $292 million charge related to the Steinhoff scandal.

Broken down, the tax charge consisted of:

• $0.9B pre-tax charge related to the revaluation of certain renewable energy tax-advantaged investments, which was recorded in other income and generated offsetting impacts within tax expense
• $1.9B tax expense principally associated with the revaluation of certain deferred tax assets and liabilities

Adjusted Revenue was $21.4 billion, just higher than the $21.3 billion expected.

America’s second-biggest bank by assets, which for years was plagued by legal fees and lawsuits, posted revenue improvements at its consumer banking, wealth management and global banking businesses. On a full year basis, BofA reported net income growth across all segments except Global Markets, which declined by 14% Y/Y as a result of the ongoing slowdown in trading, largely in part due to a collapse in capital markets volatility.

Notably, just like JPM and Citi before, it, BofA announced that its net charge-offs rose to $1.2 billion from $880 million, primarily driven by “a single-name non-U.S.commercial charge-off totaling $292 million” which has been said to be related to the Steinhoff scandal and bond plunge. Excluding the single-name charge-off, the net charge-off ratio was fairly consistent with the prior quarter, BofA said. Nonperforming loans (NPLs) decreased $0.1B from 3Q17, with 45% of consumer NPLs staying current. The bank’s provision expense of $1.0B increased $0.2B from 3Q; The Bank’s net reserve release of $0.2B in 4Q17 reflected “improvements in consumer real estate and energy.”

Unlike its peer bank, however, Bank of America is seen as among the best-placed US banks to benefit from higher rates because of its mix of loans and liabilities. Net interest income rose $1.2bn, or 11 per cent, from a year ago, to $11.7 billion. It also increased $0.3B compared to 3Q17, “driven by growth in loans, deposits and investment securities balances as well as higher interest rates.” As a result, BofA’s NIM (which it calls Net Interest Yield), rose 16 bps from a year ago to 2.39%, more than the 2.37% expected.

There was also a modest improvement in the bank’s balance sheet, with average loans and leases growing 2% Y/Y, to $928 billion, while total deposits increased by 3% to $1.294 trillion, up $22 billion on the quarter.

BofA “client activity was strong across all of our businesses in 2017,” with average deposits up 4% and average loan balances in business segments increasing 6%, CFO Paul Donofrio says in statement. “We delivered positive operating leverage by carefully managing expenses even as we continued to invest in new capabilities and technology that make it easier for our customers to do business with us… Our balance sheet remains strong and we believe we are well positioned for growth.”

The bank also highlighted that Merrill Edge brokerage assets rose 22%, Mobile banking active users increased 12% to 24.2m and the Provision for credit losses increased $126 million, primarily driven by credit card seasoning, loan growth. The bank also flagged that $946m pretax valuation adjustment on renewable energy investments, which was offset by tax benefit from repricing related deferred tax liability (DTL); $1.9b income tax expense related to repricing of deferred tax assets (DTA) and DTL; 4Q results include $379m tax benefit from restructuring subsidiaries.

Cost-cutting at BofA also helped boost profits: the bank has been making an expense saving push under Brian Moynihan, chairman and chief executive. In the fourth quarter, noninterest expense ticked down another $139m, or 1% from a year ago, to $13.3BN. BofA reported that total headcount of 209K declined 1% from 4Q16, “as reductions from the sale of the non-U.S. consumer credit card business and declines in non-sales professionals in Consumer Banking offset growth of nearly 2.2K primary sales professionals across Consumer Banking, GWIM and Global Banking.”

On the all important, for margins, global markets side, BofA reported trading revenue excluding DVA of $2.66b higher than the estimated $2.51Bn. FICC trading revenue excluding DVA was $1.71b also better than the est. $1.65b. Still, FICC revenue declined 13% from 4Q16, driven by lower volatility and client activity across macro products, particularly rates products.

Equities trading revenue excluding DVA $948m vs est. $868.8MM. As BofA said, “Equities revenue of $0.9B was flat to 4Q16, reflecting growth in client financing activities, offset by a decline in cash and derivatives trading due to low levels of market volatility.”

The stagnant nature of the bank’s trading revenue stream is shown in the charts below.

Within markets, BofA also flagged that average total assets increased from 4Q16, primarily due to targeted growth in client-financing activities in Equities, while the average VaR was $36MM in 4Q17, flat compared to 4Q16.

Meanwhile, noninterest expense increased 5% versus 4Q16, as lower revenue-related incentive costs were offset by continued investments in technology.

The bank summarized its 2017 key takeaways as follows:

• Average deposits grew $47B, or 4%, from 2016
• Average loans and leases in business segments grew 6% from 2016
• Wealth management client balances increased to nearly $2.8T with AUM flows of $96B
• Lowered expenses while continuing to invest in the franchise
• Increased capital returned to shareholders; repurchased $12.8B of common shares and paid $4.0B in common dividends
• Expect to benefit from higher interest rates and a lower U.S. corporate tax rate

Full earnings release below (link)

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While global shares pulled back in early trading from record highs on Wednesday, U.S. equity index futures are staging another comeback and point to a higher open on Wednesday following a volatile day of trading Tuesday which saw the S&P 500 have its worst reversal in two years. Whether yesterday sharp drop in the S&P was due to fears of a government shutdown, which now appears less likely as another short-term spending bill appears imminent, or due to fears over what Steve Bannon may tell Mueller, it is now largely forgotten, and the S&P was up by 9 points, rising 0.3% from the Tuesday close and retracing much of the day’s selloff, once again approaching 2,800 in the cash index.

Having retreated at the start of European trading, following declines in a number of Asian markets, Europe’s Stoxx 600 index erased its earlier drop and traded little changed, as U.S. futures pointed to stronger open – Dow Jones futures up 0.5% and the 26,000 is once again in sight, with European insurance and tech sectors leading the rebound, while media, banking and telecom sectors retreat. Also out of Europe, we got some final CPI prints:

• EU Inflation Final MM (Dec) 0.4% vs. Exp. 0.4% (Prev. 0.1%)
• EU Inflation, Final YY (Dec) 1.4% vs. Exp. 1.4% (Prev. 1.4%)

Asian equities stepped back from a record high as the region’s resource shares were knocked by falling oil and commodity prices, however, Chinese shares bucked the trend, climbing to a fresh record in Hong Kong.  Australia’s ASX 200 (-0.5%) and Japan’s Nikkei 225 (-0.3%) were negative as losses in miners continued to weigh on Australia, while risk appetite in Japan remained sapped by the recent JPY strength. Elsewhere, Hang Seng (-0.4%) pulled back from yesterday’s record close and the Shanghai Comp. (+0.6%) bucked the trend after another firm liquidity effort by the PBoC, although a slump in Shenzhen stocks provided some mainland jitters as the ChiNext board for small cap and tech firms fell to its lowest since July after blockchain-related stocks tumbled in the wake of the crypto-chaos.

Finally, 10yr JGBs were subdued as prices failed to benefit from a broad risk-averse tone, while today’s Rinban announcement was also uneventful in which the BoJ maintained its purchase amounts in the belly to short-end.

The dollar DXY index rebounded from close to a three-year low, bounding away from 90.00 level for third successive day while Treasury yields rose as investors braced for Congressional talks to avert a government shutdown Friday. The loonie weakened a second day before a BOC rate decision due later Wednesday, while EM currencies traded in the red.

The euro slipped from a fresh cycle high, yet held comfortably above $1.22 even as ECB officials urged caution over the common currency’s strength. Overnight, a chorus of ECB speakers warned on the euro’s growing strength, with Constancio and Nowotny added to Villeroy’s comments yesterday, totaling three ECB speakers warning on EUR moves.  Specifically, Nowotny said Euro exchange rate must be observed, while Constancio said he is worried EUR moves don’t reflect fundamentals; says changes to ECB’s forward guidance won’t be immediate.

Overall dollar weakness and growing optimism about the outlook of the European economy in 2018 has lent fresh legs to the euro’s rally after it gained more than 10 percent last year.

But the speed of the rise in the opening days of 2018 — up more than 3 percent in the last two weeks — has invited some comments from ECB officials this week, highlighting some growing concerns, according to analysts.

“The ECB is playing the good cop and the bad cop in terms of their comments over the euro but there is no doubt the currency’s rally has sowed the seeds of uncertainty in the ids of ECB policymakers,” said Viraj Patel, an FX strategist at ING in London.

The Canadian dollar traded at C$1.2452 per dollar off its three-month high of C$1.2355 hit on Jan 5. The Bank of Canada is seen as likely to raise its benchmark interest rate by 25 basis points to 1.25 percent later in the day, with analysts expecting three hikes this year.

Bitcoin extended its sharp tumble of the past 24 hours, skidding more than seven percent on Wednesday as investors were spooked by fears regulators might clamp down on the digital currency. The price of the world’s biggest and best known cryptocurrency fell to as low as $10,567 on the Luxembourg-based Bitstamp exchange.

In US Treasuries, the belly and long end of UST curve resume flattening with UST futures close to overnight lows after a large Aussie bond syndication. The UST/Bund spread widened 2.5bps, while a large number of BTP futures blocks sees Italy underperform versus rest of Europe. Crude futures push lower after Brent fails to hold above $70/bbl again, metals steady and the Bitcoin selloff continues if so far supported by the key $10k level.

Earnings are expected from Bank of America, Goldman Sachs and Alcoa. Federal Reserve is set to release its Beige Book, and macro data includes industrial production and manufacturing production

Market Snapshot

• S&P 500 futures up 0.37% to 2,793.00
• STOXX Europe 600 unchanged to 398.29
• VIX
• MSCI Asia Pacific down 0.09% to 182.66
• MSCI Asia Pacific ex Japan down 0.02% to 594.11
• Nikkei down 0.4% to 23,868.34
• Topix down 0.2% to 1,890.82
• Hang Seng Index up 0.3% to 31,983.41
• Shanghai Composite up 0.2% to 3,444.67
• Sensex up 0.8% to 35,060.64
• Australia S&P/ASX 200 down 0.5% to 6,015.81
• Kospi down 0.3% to 2,515.43
• German 10Y yield fell 1.0 bps to 0.552%
• Euro down 0.2% to $1.2238
• Italian 10Y yield fell 3.1 bps to 1.703%
• Spanish 10Y yield fell 0.6 bps to 1.496%
• Brent Futures down 0.3% to $68.96/bbl
• Gold spot down 0.2% to $1,335.53
• U.S. Dollar Index up 0.3% to 90.63

Top Overnight News from Bloomberg

• U.S. House Freedom Caucus’s Meadows: House doesn’t appear to have enough votes to pass current stopgap funding measure without Democratic support
• Fed’s Kaplan (non-voter): base case is for 3 hikes this year; may need to be more aggressive to keep economy from overheating
• ECB’s Nowotny: EUR appreciation is not helping; ECB has no exchange rate goal so we must only watch it in terms of economic developments
• ECB’s Constancio: worried about sudden EUR moves that do not reflect fundamentals; changes to forward guidance will not be immediate
• Robert Bogucki, who is the former head of New York foreign- exchange trading at Barclays Plc’s investment bank was charged for his alleged role in defrauding a client with a front-running scheme, the U.S. Justice Department said
• Recent euro appreciation “is not helping,” ECB Governing Council member Ewald Nowotny tells reporters
• Dallas Fed President Kaplan said he expects three rate increases this year, according to interview with WSJ
• Euro zone Dec. F CPI unrevised y/y at 1.4%; Core CPI unrevised 0.9%

 

Asia’s major stock markets traded mostly negative following a weak performance in the US, where the main indices reversed from record levels on political concerns including the looming government shutdown deadline and reports that former Trump strategist Steve Bannon was subpoenaed by Special Counsel Mueller. Furthermore, some also suggested profit taking in overbought conditions after both the S&P 500 and DJIA notched historical feats at the open in which they briefly rose above the 2800 and 26000 levels respectively for the 1st time ever. ASX 200 (-0.5%) and Nikkei 225 (-0.3%) were negative as losses in miners continued to weigh on Australia, while risk appetite in Japan remained sapped by the recent JPY strength. Elsewhere, Hang Seng (-0.4%) pulled back from yesterday’s record close and the Shanghai Comp. (+0.6%) bucked the trend after another firm liquidity effort by the PBoC, although a slump in Shenzhen stocks provided some mainland jitters as the ChiNext board for small cap and tech firms fell to its lowest since July after blockchain-related stocks tumbled in the wake of the crypto-chaos. Finally, 10yr JGBs were subdued as prices failed to benefit from a broad risk-averse tone, while today’s Rinban announcement was also  uneventful in which the BoJ maintained its purchase amounts in the belly to short-end.

Top Asian News

• The Ex-Goldman Banker Who Quit to Take Over a Myanmar Empire
• India Cuts Planned Extra Borrowing to $3.1 Billion; Bonds Climb
• Philippines’ BPI to Raise up to 50B Pesos in Rights Offer
• BOJ Could Cut Stimulus Without Sparking Rate Surge, Moody’s Says
• India Is Said to Mull Selling HPCL at Not More Than 9% Premium
• Third HNA Unit Halted From Trading, Pending ’Major Matter’

European equity markets are lower, echoing the tone seen in Asia and the US, with Informa (-8.6%) shares propping up the FTSE 100 after reports that the company is in talks to merge with UBM, whose shares are up 12.5%. Burberry (-8.1%) shares are also lower after a disappointing trading update although tech shares outperform, lifted by ASML (+4.6%) after the chipmaker reported better than expected profit.

Top European News

• Juncker: Even if U.K. Leaves, We’d Facilitate Re- Accession
• Heathrow Plans Sloping Runway to Cut Costs by $3.4 Billion
• Melrose Makes Firm $10.2 Billion Offer to Acquire GKN

 

In FX, the ECB have continued to sound the alarm over the strengthening currency with Vice-President Constancio and Austrian Central Bank Governor Nowotny both echoing comments made yesterday by France’s Villeroy. Constancio said he is concerned about sudden movements that do not reflect fundamentals while Nowotny said the strengthening Euro is not helpful. The comments helped EUR/USD to session lows before finding support ahead of 1.2200 before today’s inflation data. Elsewhere, the USD has shown some signs of a recovery with USD/JPY approaching 111.00 and USD/CAD above 1.2450 ahead of the Bank of Canada decision

In commodities, WTI and Brent crude futures are both marginally lower in early European trade as markets look ahead to the weekly API inventory data (delayed to today following the MLK holiday). Gold and silver prices have generally tracked movements in the USD. Kuwait oil minister says compliance with production cuts stood at 125% in December; until now there is no plan or intention to exit the supply cut agreement. Niger Delta Avengers state that oil attacks are imminent.

Looking at the day ahead, there is the final revisions to the December inflation figures for the Euro area. The ECB’s Nowotny will speak at a conference in Vienna and BOE’s Saunders will also speak in London. In the US, the most significant release of note is the December IP print, while the January NAHB housing market index is also due. Late in the evening we’ll get the Fed’s Beige Book, while the Fed’s Evans and Mester are scheduled to speak shortly after. Bank of America and Goldman Sachs are due to report Q4 earnings.

US Event Calendar

• 7am: U.S. MBA Mortgage Applications, Jan. 12, no est., prior 8.3%
• 9:15am: U.S. Industrial Production MoM, Dec., est. 0.5%, prior 0.2%; Capacity Utilization, Dec., est. 77.4%, prior 77.1%
• 9:15am: U.S. Manufacturing (SIC) Production, Dec., est. 0.3%, prior 0.2%
• 10am: U.S. NAHB Housing Market Index, Jan., est. 72, prior 74
• 4pm: U.S. Total Net TIC Flows, Nov., no est., prior 151b; Net Long-term TIC Flows, Nov., no est., prior 23.2b

Central Banks

• 10am: Bank of Canada Rate Decision, Jan. 17, est. 1.25%, prior 1%
• 2pm: U.S. Federal Reserve Releases Beige Book
• 3pm: U.S. Fed’s Evans and Kaplan Speak on Economy and Monetary Policy
• 4:30pm: U.S. Fed’s Mester Discusses Monetary Policy Communication

 

DB’s Jim Reid concludes the overnight wrap

Talking of US equities, the melt up in the short-term continued at the open yesterday with the main indices cracking through 2,800, 26,000 and 7,300 for the first time and up around 1% at the very early session highs, partly  supported by positive corporate results. However the rest of the day was spent reversing the moves and we closed -0.35%, -0.04% and -0.51% lower for the S&P 500, Dow and Nasdaq. The S&P’s intraday move of 1.41% was the largest seen since early December and the fifth highest change since December 2016. Within the S&P, losses were led by energy and materials stocks, in part as Brent crude oil retreated 1.58% yesterday, after rallying c40% from its recent lows in August. Further, GE’s shares also weakened -2.93% after announcing a $6.2bn charge related to its old portfolio of long term care insurance.

Elsewhere, the VIX jumped 14.76% higher to 11.66 – the fourth highest close since mid-September, while Bitcoin dropped c23% yesterday, weighed down by concerns of potential regulatory crackdowns. The crypto currency is partly recovering this morning, but is still down c41% since its recent high of $18,675 back in mid-December.

Turning to government bonds, core European 10y bond yields were 2-3bp lower (Gilts -2bp; Bunds -2.5bp), in part following a slightly dovish Reuters report where three unnamed sources noted the “ECB is unlikely to ditch a pledge to keep buying bonds at its meeting next week”. Although Reuters also noted that “any fundamental change to guidance was likely to come later, with the March meeting, when policymakers get updated forecasts….seen as a more likely option”. From where we were a week ago this is still more hawkish. Elsewhere, the UST 10y yields fell 1bp.

Staying on the topic of QE, the ECB’s Villeroy noted “we are predictable as to the direction of our policy and the sequencing, but we’re not pre-committed in terms of precise timing”, with the final outcome contingent on the progress on inflation. Further, he added “we did not say anything about what will happen after September, and our monetary policy is not driven by market expectations”. Elsewhere, he noted the recent change in the Euro is a “source of uncertainty which requires monitoring with regard to its possible downward effects on imported prices”.

Following on, the Bundesbank’s Weidmann noted the markets expectation that ECB interest rates won’t rise before the middle of 2019 “seems to be grosso modo in line with the current forward guidance of the government council”. On QE, he seems to have softened his stance a little, noting “if the positive development continues, it would be logical not to make substantial purchases beyond those already decided upon”.

This morning in Asia, markets have followed the US lead and are trading modestly lower. The Nikkei (-0.27%), Kospi (-0.40%) and Hang Seng (-0.37%) are all lower, with the latter weighed down by energy and discretionary consumer stocks. Turning to other markets performance from yesterday, European bourses were mixed but little changed with the Stoxx (+0.13%) and DAX (+0.35%) up modestly, while the FTSE fell 0.17% weighed down by energy and mining stocks. In contrast to the VIX, the Vstoxx was up only 2.5% to 11.35.

However the US only dipped into negative territory after Europe went home. Turning to currencies, the Euro initially weakened on news of a setback to Germany’s coalition talks but strengthened c0.6% post Weidmann’s comments to close broadly flat, along with Sterling. In commodities, precious metals softened slightly (Gold -0.12%; Silver -0.93%) while other base metals were broadly lower (Zinc -0.1%; Copper -1.3%; Aluminium -1.64%).

Away from markets, our team in China have published a summary of the 16th dbAccess China Conference which featured 27 speakers presenting their views on China’s economy from different perspectives. Some of the key takeaways include: i) China’s economic growth will slow in 2018 as policymakers shift focus to growth quality, ii) but GDP will likely be revised up in 2019 as a result of the economic census. This could provide room for lower growth in the next few years while maintaining the goal to double GDP by 2020, iii) monetary policy will remain tight and fiscal policy will tighten. Local governments will face tight constraints on its financing platforms and PPP projects, iv) real  estate market will cool down and smaller real estate developers will face tight financing pressures and v) supply-side reform will continue its momentum in 2018, while SOE reform may gradually gain speed. For more details, please refer to their report.

In Germany, there was a setback to its efforts to form the next coalition government. Yesterday, the Berlin branch of the SPD voted against (21-8) the preliminary accord between Ms Merkel’s bloc and the SPD. As a reminder, votes at the SPD’s regional branches are non-binding and the larger branch of North Rhine-Westphalia which accounts for c25% of the votes remains undecided.

Nonetheless, it does partly illustrate the division within the party ahead of the crucial vote this Sunday where c600 SPD delegates will be attending. Elsewhere, the caucus chief of Ms Merkel’s CDU party Volker Kauder noted formal coalition talks between the two sides after SPD’s approval can be done fairly quickly, he said “there doesn’t have to be so much to be negotiated that we can’t achieve in two weeks”.

In the US, efforts to avoid a partial government shutdown from this Friday are still evolving, with Republican leaders weighing a move to extend the deadline until 16 February with the proposed measure not expected to include the DACA program. The main points of contention include lifting automatic budget caps on government spending, resolving the status of deferred action protections for undocumented immigrants who arrived in the US as children (the DACA program), and funding of the Children’s Health Insurance Program (CHIP).

Further, there is also the issue of securing enough votes in the Senate where the Republican may need 9 votes from the Democrats to pass a spending bill. Finally onto Brexit, the BOE’s deputy governor Sam Woods noted that the inclusion of UK based financial services firms in free trade deals with the EU post Brexit “is entirely technically feasible”, with a potential agreement “within a three year period from now”. Elsewhere, the EU side may still be hoping for a reversal of Brexit, with the EU Council President Tusk noting “if the UK government sticks to its decision to leave, Brexit will become a reality…unless there is a change of heart among our British friends” and “….our hearts are still open (to Britain)”, while the EC Chief Juncker said “our door still remains open”.

Before we take a look at today’s calendar, we wrap up with other data releases from yesterday. In the US, the January empire manufacturing index was below expectations at 17.7 (vs. 19), with the decline mainly due to an increase in inventories. Notably, the prior reading was upwardly revised by 1.6 and the sixmonth- ahead indices for general business conditions, capex and employment all strengthened this month.

In the UK, the December headline CPI was in line at 0.4% mom, but the core CPI was lower than expected at 2.5% yoy (vs. 2.6%) – the first monthly decline since June. Elsewhere, both the December core PPI and RPI was above  market expectations, at 2.5% yoy (vs. 2.3%) and 4.1% yoy (vs. 3.9%) respectively. In Germany and Italy, the final readings for the December inflation were both unrevised at 1.6% yoy and 1% yoy respectively.

Looking at the day ahead, there is the final revisions to the December inflation figures for the Euro area. The ECB’s Nowotny will speak at a conference in Vienna and BOE’s Saunders will also speak in London. In the US, the most significant release of note is the December IP print, while the January NAHB housing market index is also due. Late in the evening we’ll get the Fed’s Beige Book, while the Fed’s Evans and Mester are scheduled to speak shortly after. Bank of America and Goldman Sachs are due to report Q4 earnings.

 

 

 

 

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Authored by Tsvetana Paraskova via OilPrice.com,

Thanks to cost-cuts and large oil discoveries made before the oil price crash, Norway will be able to sustain its oil and gas production over the next five years. But reduced exploration drilling and lack of big discoveries in the past two years spell trouble for Western Europe’s biggest oil and gas producer after 2023, authorities fear.

Nearly two-thirds of the undiscovered resources are thought to be located in the Barents Sea, the Norwegian Petroleum Directorate (NPD) said last week in its review of the Norwegian Continental Shelf in 2017.

However, last year’s exploration campaign in Norway’s Arctic was a flop. Oil companies are not giving up on Barents Sea exploration, but firms and authorities alike have now lowered expectations about the possibility of a huge discovery in those areas.

“In the part of the Barents Sea that’s currently open, you’ve sort of tried the elephants — the big opportunities,” Bente Nyland, Director General of the Norwegian Petroleum Directorate, told Bloomberg in a recent interview. “You’re now down to the next generation in size,” Nyland noted.

The authority would be happy with any discovery of around 500 million barrels of oil, Nyland told Bloomberg.

Last year, the most promising exploration well Korpfjell—the first well drilled in the Norwegian section of a formerly disputed area between Norway and Russia, and the northernmost wildcat well drilled on the Norwegian shelf—was a disappointment compared to expectations that it could contain more than 250 million barrels of oil equivalent, or even 1 billion boe.

The disappointing Barents Sea campaign led to just 11 companies applying for production licenses in Norway’s 24th licensing round that offered 93 blocks in the Barents Sea and 9 blocks in the Norwegian Sea. Statoil, Aker BP, and Lundin were all applying, but the NPD said that “The applicant landscape could indicate that some parties are prioritizing exploration in mature areas this time around,” commenting on the applications.

Last year, companies drilled a total of 34 exploration wells offshore Norway, down by 3 compared to 2016, the NPD said, expecting the number of exploration wells this year to be roughly the same as in 2017. Last year, half of the wells were drilled in the Barents Sea, 12 in the North Sea, and 5 in the Norwegian Sea. For comparison, the 2016 drilling campaign included 5 wells in the Barents Sea, 3 in the Norwegian Sea, and 29 in the North Sea.

Last year, exploration activity in the powerhouse of Norway’s oil industry, the North Sea, was at an 11-year-low, but this year Statoil, for example, will be prioritizing the more mature areas on the shelf like the North Sea to take advantage of tie-ups of potential new discoveries to existing infrastructure.

The plans that companies have submitted for drilling this year indicate that most exploration wells will be drilled in the North Sea, the NPD said, in what could be some relief for authorities that oil firms will not snub again exploration in the area that has made Norway a leading oil and gas producer.

But Norway needs more, and larger, oil discoveries, and sooner rather than later.

“If petroleum production is to be maintained at the current level beyond 2025, it is absolutely essential that additional profitable resources are proven, also larger discoveries,” the NPD said.

The need for more exploration and larger discoveries was the underlying theme of the Directorate’s review of 2017. “Too few exploration wells”, “only minor discoveries”, and “exploration activity must increase” were phrases used too often in an otherwise positive review that showed record gas production, cost cuts across the board, and leveling off of the decline in investments.

Norway’s total oil and gas production increased for a fourth straight year in 2017, thanks to higher gas production. Oil production, on the other hand, dropped to 1.59 million bpd from 1.61 million bpd in 2016, down 2 percent, mostly due to an unplanned maintenance shutdown at the Goliat oil field. This year, oil production is estimated to drop by another 2 percent to 1.55 million bpd, and the decline is expected to continue until 2020, when the giant Johan Sverdrup—expected to start production in late 2019—will help Norway to increase its oil production until 2023, the NPD said.

The total oil and gas production increase will continue toward 2023 – perhaps even reaching the level of the record year 2004, the authority said, but noted that back in 2004, oil accounted for most of the production, while in 2023, gas will account for about half of the production.

While Norway’s oil production is expected to increase over the next five years, after 2023 the industry faces another decline if no large discovery is made soon.

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Bitcoin slid below $10,000 Tuesday for the first time in months as lingering fears that regulators in some of the cryptocurrency’s biggest and most vital markets were considering a crackdown.

Overnight reports from South Korea started it; European regulator comments extended it this morning and Shanghai “scrutiny” headlines just sparked another slam as cryptocurrencies are getting hammered today…

Given that fears that regulators might turn decisively against the cryptocurrency revolution have continued to plague valuations in the new year, it seems appropriate that HowMuch.net decided to create this interactive map showing the various levels of legality that bitcoin enjoys around the world.

Green countries are legal Bitcoin markets. Orange represents neutral markets that are not outright legalizing Bitcoin, but do not have any major restrictions against the use of cryptocurrency. Light pink countries are restricted Bitcoin markets that may have lots of red-tape, regulations, and government attempts to slow the use of cryptocurrencies. Dark pink countries represent markets where Bitcoin has been made completely illegal and criminalized. Lastly, some countries have yet to comment on Bitcoin’s legality, which are represented by gray color.

Eastern countries appear a lot more closed off to Bitcoin than their Western counterparts. Russia is currently the largest country where bitcoin trading is illegal, though lawmakers are working on legislation to set up a legal framework for cryptocurrency trading.

Meanwhile, China and South Korea are the latest two countries to step up their scrutiny and regulation of Bitcoin use.

Here is a breakdown of the chart, based on the global legality of Bitcoin out of 246 countries:

• Legal and Neutral (Green and Orange): 99 Countries or 40% of World
• Restricted (Light Pink): 7 Countries or 3% of World
• Illegal (Dark Pink): 10 Countries or 4% of World
• No Information (Gray): 130 Countries or 53% of World

Overall, a majority of the world still has yet to comment on the legality of Bitcoin. The emerging industry is still not fully understood by global regulators, which may explain why some countries have yet to comment on the movement. Though this will likely change as time passes and regulators grow increasingly worried about cryptocurrencies being used by criminal organizations.

 

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Authored by Turd Ferguson via TFMetalsReport.com

As mentioned at the beginning of this podcast, we are all indebted to John and Steve for their regular, weekly discussions.

Their podcasts offer the only fair and balanced coverage of The New Cold War that you will find anywhere in the western media. Rather than a simple regurgitation of the War Party line, John and Steve consider the conflict from the historical perspective of each side. Thus, in listening to them over the past four years, I almost feel as if I have participated in a graduate-level Russian Studies class.

Download Podcast (Right Click + ‘Save As’)

To be certain that this discussion is as widely-heard as possible, I’ve taken the additional step of transcribing portions of the audio.

We begin with Professor Cohen providing some historical background regarding Ukraine, Russia and the run-up of this New Cold War.

I’ve been working in print and broadcast about the onset of a new Cold War since late 1990s because I saw the Clinton administration’s intrusive policies and then Yeltsin’s Russia as generating a backlash that would lead the two countries to a replication or continuation of the 45-year cold war that Reagan and Gorbachev and then the first President Bush said they had ended in 1989-1990 and that has unfolded more or less in the worst ways that I worried about. I don’t think anybody would deny that they we’re in a new Cold War. I think they’re slow in acknowledging that it’s even more dangerous in various ways and reasons than was the 45-year cold war. But one reason is this was not the case during the old Cold War is that we are militarily eyeball-to-eyeball with Russia and on three new cold war fronts.

One, of course, is Ukraine which in a way is the epicenter but because of NATO’s I think reckless military buildup on Russia’s western borders particularly in the Baltic regions region but also to a certain extent in Syria where the situation is very fluid and still dangerous. The cold war could erupt into an actual hot war very easily. And I guess though the danger seemed maybe a year ago would be first and foremost in Syria because Ukraine since 1914 seemed rather frozen. Now it’s shifted back to Ukraine. We’ve got to stop and think what that means. Ukraine as a nation and then as a state following the end of the Soviet Union in 1991 was always fraught with historical religious, ethnic, economic, and political divisions. Simply holding Ukraine together as a unitary state was going to be a problem but everyone managed. It wasn’t pretty but they managed until the events of 2014 when we all remember the Maidan protest and let’s remember what they were about…the legally-constitutionally elected president of Ukraine, Viktor Yanukovych, declined to sign a so-called European Union partnership agreement.

It was just said to be civilizational and economic and it was said that that would bring Ukraine into European civilization and of course away from Russia. Now Ukraine and Russia had been bound at the hip. People don’t mention this often but there are tens of millions of intermarriages. It’s hard not to go to Moscow and spend some time and not find someone who’s got a Ukrainian and Russian parent or grandparent. But this happened and it also needs to be removed reminded that Yanukovych did not refuse to sign that agreement. He simply asked for more time. But that set off protests driven by all sorts of people. Some benign democratic seeking Liberals, fine people in Ukraine, but also by people who were by any definition ultra-nationalists and even quasi-fascist neo-nazis. And that led of course to the confrontation where Yanukovych was driven illegally off.

A new, illegal government was formed backed by the United States and Europe. Russia for various reasons that I think were legitimate feared that the unrest would spread to the historical Russian peninsula of Crimea which for most of its history for centuries had been part of Russia. But because of a kind of fluke, was now territorially part of Ukraine. The Russians therefore welcomed and encouraged a referendum in Crimea. By all standards including Gallup polls that were taken later, more than 80 percent voted to join Russia. And so Russia legally annexed in 2014…they don’t call it annex, they call it reunited with Crimea.

Meanwhile, the mostly Russian provinces of Donbass, part of Crimea objected to the coup in Kiev that had overthrown the president. They had voted for Yanukovych. His electorate was not only in southeastern Ukraine but it was primarily there. So they believed that their president had been overthrown and a rebellion began backed by Russia of course. And the war has gone on now nearly four years. The official number of dead is 10,000 but it’s surely many more and perhaps 2 million people who lived in southeastern Ukraine have been displaced most of them gone to Russia. Incidentally, Russia gets no credit for the very humanitarian way they have handled all these people, refugees who fled to Russia. Now of course it was easier because they were Russian speakers. But a great many of them have rebuilt their lives. Vocationally and in terms of their family in Russia. And whether they’ll ever go back to Ukraine is not clear. So that’s where the situation was kind of frozen.

There was this agreement as you know called the Minsk 2 agreement that all the European powers agreed to there. The president of Ukraine, Poroshenko, agreed to it and that Putin agreed too for resolution of the crisis. And it called for two things…a cessation along a designated line of the fighting and Kiev’s agreement that Donbass would be given home rule. To remain within what would essentially be a federated Ukrainian state. No one has ever suggested a better or alternative solution to that. During the years since Minsk was formalized in 2015, by all evidence it seems both sides have violated the agreement. But Kiev has refused to grant any home rule to the rebel provinces and that we know from history whether it’s from the Irish civil war or other diverse countries is the only way to save a state is to make it a federation.

But the opposition to it in Ukraine among ultra-right is enormous. President Poroshenko is weak both as a person and as a leader and in terms of his public support at home. The United States has done nothing to encourage the real implication of Minsk. And so it remains this hot front. And one could imagine all sorts of bad outcomes because it’s now a proxy war in Donbass that is the rebels were backed by Russia. Kiev is backed by the United States and that proxy war could become a direct war. And a final point and this has been long winded but when is that ever since Obama was trying to figure out what to do about Ukraine. The idea of the United States sending more and higher quality weapons to Kiev. To presumably suppress the rebellion in Donbass though formally it said to ward off a new Russian attack of which there is no evidence or intention. Obama refused to do it (send heavy weapons). He was under enormous pressure especially from the liberal wing of the Democratic Party which has become very hawkish and he refused to do that.

It seemed clear from Donald Trump’s campaign that he would never do it because he wanted to cooperate with Russia. And yet he has been compelled I think to agree to send weapons to Kiev when and what they’ll send isn’t yet clear but he can only make matters worse really matters worse. And that’s where we are today.

The discussion then turns to the present day.

The narrative in the west is that Russia seized Crimea as some sort of post-Soviet expansion, where Putin must be stopped as he is desperately trying to recreate the borders of the old Soviet Union. At TFMR, we have always felt that this was bogus and that it failed to acknowledge any context from the Russian point of view.

Professor Cohen resumes:

The situation from the Russian point of view was even worse. I mean Crimea…and for to understand this you have to know Russian history, know Russians and know Crimea…Crimea historically, culturally was such a part of Russia for so many centuries right through the Soviet period that it would be….this is a bit of a stretch as if to say that Texas because it once belonged to Mexico…was not authentically, indigenously a native part of America. But even more because the cultural romance of Crimea. The site, I mean the home of Chekov’s dacha was in Yalta. It’s iconic in Russian history, Russian culture and Russian sentiment.

It wasn’t just the naval base at Sebastopol which was vitally important, although the Russians which had been leasing the naval base and by the way what happened at Maidan called into question whether Kiev would honor that long term lease any longer. You’re absolutely right about that. Russia was building in the far north an alternative naval base. I mean technically it could have replicated Crimea strategically it could have done this but it could never have replicated Crimea in the hearts and minds of Russians. And, as poll after poll and the referendum showed in the hearts and minds of some 80 percent of the Crimean people. Now Crimea also has Tartar Crimeans and Ukrainians who don’t share this view. But the overwhelming majority of Crimeans who were born there or moved there or lived there for decades, that was their sentiment.

Now here’s the political background. Nonetheless in all the years I’ve followed post Soviet Russia, beginning in 1991, I never saw any Kremlin leadership give any indication that it was going to take Crimea back. Let me repeat that. You could not find, certainly not in the public record…who knows what…dreams…you know these kinds of people have in the Pentagon and elsewhere secretly in the dark of the night. But neither Yeltsin nor Putin ever gave any public support to the idea which you could find in Moscow and some intellectual circles that you know, Crimea is ours.

In fact, at one point they needed to draw new maps because Crimea was now no longer in Russia after 1991. And Putin wrote to the president of Crimea…I don’t recall which one it was saying “hey our map people want to get on with the new maps could you get your map people to work with them because there’s a number of borders that aren’t clear and we’ve got to clarify them”. And he got no response. In other words, the notion that Crimea might be taken or even negotiated back into Russia simply was not on the political agenda for the Kremlin under Putin until 2014.

The final segment of the discussion deals with the future. +

 

More specifically, what if anything can be done by you and I…regular everyday people…to effect change and divert the War Party from this path of destruction?

Professor Cohen had some thoughts there, too.

I’m not a Trump supporter and I didn’t vote for him. However, we can actually support Donald Trump’s campaign promise which I think he’s tried to act on since he’s been president that it’s necessary to cooperate with Russia.

This is what was called detente in the 20th century.

I don’t know why Trump doesn’t make this point. I don’t think he has very good advisors in regard to Russia either in terms of what’s going on in Russia or in terms of his own policy making but Trump might say in his own defense because they’re indicting him for simply saying I want to cooperate with Russia and with Putin in particular.

He could say look, every Republican president of consequence in the 20th century pursued detente with Russia. First Eisenhower, the first detente the spirit of Camp David with Khrushchev, then the Nixon Kissinger attempt at a grand detente with Brezhnev and finally above all Ronald Reagan a detente with Gorbachev the last Soviet leader Soviet Russian leader so great that Reagan and Gorbachev ended the cold war.

Trump could put himself in that tradition and say “I’m the traditional Republican. This is what Eisenhower, Nixon and Reagan did. They did it wisely. They avoided nuclear war with Russia. We’re in a new Cold War. The dangers are grave. It’s not only my duty as the American president to pursue cooperation to ward off a catastrophe but I commend the honorable tradition of the Republican Party”.

He doesn’t say that. I don’t know why as I say it because he doesn’t know what or because he wants to be the one and only I have no idea what he needs to say.

And if he said it it would compel a conversation in Washington that we’re not having. What’s happened to detente and what’s happened is we have if we ignore his own idiom and put it in again I speak as a story in the historical language of 20th century diplomacy.

We have a pro-detente President who for the first time in history is not permitted to at least try because every time he has a sensible conversation with Putin, no matter whether it’s face to face or on the telephone, he’s accused not only by the traditionally crazies in American politics but by the New York Times of treason.

So what we could do and it will be hard for a lot of people because of the loathing for Trump. Is so pervasive just and I didn’t vote for Trump is the fifth amendment I didn’t vote for Trump and I didn’t support President Trump.

But about this he is not only right. He’s our only hope at the moment.

So one possibility is simply to say no matter all else we support Donald Trump’s attempt to cooperate with Russia because it’s existential. Now would enough of us do that would a few newspapers do that? Would a few of these cable TV panelists? Would they ever have panelist on who would do that? We might affect a little civic courage in Congress where a few people there would do so also. But at the moment you have a complete blackout on this perspective in the American political media arena and you have an utter lack of civic courage among political figures and editors who know better but have been frightened by this rush to do business unfortunately and that’s a pretty good summation.

Obviously, at 49 minutes, there’s A LOT more information here than what I’ve transcribed. Therefore I beg you, please take the time this weekend to listen to this full podcast. Then, when you’re finished, please forward the audio to someone you know.

Only through some sort grassroots dialogue will we be able to prevail against The War Party and their march toward confrontation with Russia.

As Professor Cohen states, we face a very real and existential threat from this New Cold War. We must do all we can do to stop it before it becomes an out-of-control, hot war.

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The last week saw speculators in the EURUSD FX futures market added dramatically to their long positions. In fact, as Bloomberg reports, hedge funds and other speculative investors have amassed the heaviest long positions on the euro ever, according to the latest CFTC data.

The G-10’s best currency in 2017 is getting fresh momentum from the prospect of a September end to European Central Bank stimulus and an upswing in growth.

However, the rates market is not reflecting that optimism…

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