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After spending three days trading above the price for an ounce of gold, Bitcoin prices crashed overnight – down over $120 in a few short hours – following Bloomberg headlines citing China officials saying that Bitcoin regulation is not temporary.
As a reminder, a lot of this most recent run-up has been catalyzed on
hope of a positive ruling by the SEC with regard the approval of Bitcoin
ETFs – the ruling is due on Saturday.
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Last night Wikileaks announced that it has released an encrypted torrent file which reportedly contains information on the mysterious “Vault 7”, and which can be downloaded now at the following URL. The whistleblowing organization also announced that the torrent will be made fully accessible to everyone tomorrow at 9am ET, when Wikileaks releases the decryption password.
Meanwhile, at 8am Eastern on Tuesday, Wikileaks will hold a press conference, as part of the unveiling.
ANNOUNCE: WikiLeaks press conference in under five hours at 8am ET / 1pm UTC / 14:00 CET. Streamed live. #askWL
— WikiLeaks (@wikileaks) March 7, 2017
Wikileaks also hinted that “Today’s pending publication contains elements that will be of interest to /all/ tech journalists”
Did you know? Today’s pending publication contains elements that will be of interest to /all/ tech journalists https://t.co/A0G9kXSWGs
— WikiLeaks (@wikileaks) March 7, 2017
We will cover it live once it begins.
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Overnight Media Digest
WSJ
– Exxon Mobil Corp plans to spend about $20 billion on refineries, petrochemical plants and other projects in and around the Gulf of Mexico, Chief Executive Darren Woods said, underscoring how the giants of the global energy industry are turning to America. http://on.wsj.com/2mvQWGd
– RadioShack’s owner is preparing to seek bankruptcy protection for the second time in as many years, according to people familiar with the matter, as the 1,500-store chain looks to further shrink to survive. http://on.wsj.com/2mvUVT2
– South Korean prosecutors provided their most detailed account yet of bribery charges against Samsung Electronics Co Ltd’s de facto leader, Lee Jae-yong, after months-long investigation into a corruption scandal that has shaken the country’s corporate and political elite. http://on.wsj.com/2mvXEMi
– International Business Machines Corp and Salesforce.com Inc agreed to mingle their artificial-intelligence technologies in a bid to boost sales of data-analytics offerings. http://on.wsj.com/2mvNoDA
– After a boardroom battle that lasted less than two months, a rookie activist investor has upended management of CSX Corp., installing a 72-year-old industry maverick as chief executive with a mandate to slash costs and revamp one of the country’s biggest railways. http://on.wsj.com/2mvQibK
– Argentina’s government said it plans to allow the first budget airline to begin flying in the country, opening up one of the biggest untapped domestic airline markets to increased competition. http://on.wsj.com/2mvPinT
– Chobani Inc is shaking up its top ranks, bringing in a Nestlé SA veteran to be its second highest executive and adding traditional industry experience to the fast growing Greek-yogurt brand. http://on.wsj.com/2mvJWsI
FT
BT Group Plc has paid 1.2 billion pounds ($1.47 billion) to control exclusive rights for broadcasting European football in UK.
PSA Group Chief Executive Carlos Tavares has pledged to increase the company’s foothold in UK in the face of a “hard Brexit”.
Transport for London has partnered with Triangle London Developments in order to raise 1.1 billion pounds for the city’s transportation system.
North Sea oil companies will generate positive free cash flow in 2017 for the first time in four years, in a sign of recovery following the oil price crash of 2014, says Oil & Gas UK, which represents operators in the region.
Former Tesla Inc executive Peter Carlsson will on Tuesday announce plans to set up a $4 billion factory in the Nordic countries, using in part metals mined in the region.
NYT
– House Republicans unveiled on Monday their long-awaited plan to repeal and replace the Affordable Care Act, scrapping the mandate for most Americans to have health insurance in favor of a new system of tax credits to induce people to buy insurance on the open market. http://nyti.ms/2mv4nG8
– Monday was the seventh straight day that Sean Spicer, President Trump’s press secretary, declined to hold a televised White House press briefing, an unusually long drought for someone whose role is traditionally to be the most visible face of a presidential administration. http://nyti.ms/2mZUIoY
– A farm in southern Tennessee that produces chickens for Tyson Foods was ordered to cull its flock after federal officials on Sunday identified an outbreak of lethal avian influenza there, the first time the disease has struck this year. http://nyti.ms/2lytZmw
– President Trump signed an executive order on Monday blocking citizens of six predominantly Muslim countries from entering the United States, the most significant hardening of immigration policy in generations, even with changes intended to blunt legal and political opposition. http://nyti.ms/2mgjZwU
– A special prosecutor in South Korea asked state prosecutors on Monday to indict President Park Geun-hye on bribery charges, saying that Ms Park and her secretive confidante conspired to take $38 million in bribes from Samsung , one of the world’s largest technology companies. http://nyti.ms/2n97eSj
Canada
THE GLOBE AND MAIL
** Veteran railroader and cost-cutter Hunter Harrison is taking charge at CSX Corp. The Florida-based railway said Monday night Harrison is the company’s new chief executive officer, effective immediately. https://tgam.ca/2mRff2b
** Top North American energy executives made a plea for continued North American free trade at a high-profile conference where Prime Minister Justin Trudeau will deliver a keynote speech later this week. https://tgam.ca/2mhoaIG
** The Liberal Party is claiming full discretion to wade into local races and decide who can run for its nominations even as Prime Minister Justin Trudeau publicly insists the process is open and in the hands of local members, internal documents show. https://tgam.ca/2n0GKmR
NATIONAL POST
** Star Wars merchandise continued to dominate Canada’s toy industry in 2016. Annual sales of toys in Canada topped C$2 billion ($1.49 billion), up 6 percent from 2015 toy sales of $1.9 billion, according to a recent report by market research firm NPD Group. http://bit.ly/2mwOZJn
** Canada has been flagged by a global banking body for “vulnerabilities” tied to credit, property prices, and the prospect of rising interest rates. The Bank for International Settlements said Canada is among the jurisdictions showing early warning indicators for financial crises and domestic banking risks. http://bit.ly/2mwWEYF
** The clock is ticking for Canadian Imperial Bank of Commerce to decide whether to sweeten its offer to acquire PrivateBancorp Inc, as the Chicago-based bank announced the deal will go to a vote before its shareholders in May. http://bit.ly/2lRTZnZ
Britain
The Times
Vauxhall workers are likely to take a significant cut to their pensions before any decision about the long-term future of their jobs after the sale of the UK-based automotive group to France’s PSA Group. http://bit.ly/2lVWwOE
BT Group Plc is set to retain its grip on Champions League football, having agreed to pay nearly 1.2 billion pounds ($1.47 billion) over three years in a deal intended to thwart efforts by its arch-rival Sky Plc to take back the rights for the tournament. http://bit.ly/2lVRD8u
The Guardian
Parcelforce couriers who deliver packages for Marks & Spencer, John Lewis and Hamleys can be charged up to 250 pounds a day if they are off sick and cannot find someone to cover their shift. http://bit.ly/2lVRotW
Rupert Murdoch’s attempted takeover of Sky must be thoroughly investigated by Ofcom in light of corporate governance failures surrounding the phone-hacking scandal, Tom Watson, the shadow culture secretary, has said. http://bit.ly/2lVXdI3
The Telegraph
The UK boss of KPMG has lost out in his bid to become global chairman of the accountancy giant. Simon Collins, who threw his hat in the ring for the firm’s top job in December last year, has dropped out of the race in recent weeks. http://bit.ly/2lVRDW8
The North Sea oil industry is in dire need of fresh capital investment to drive activity in the embattled basin beyond 2020. The stark warning emerged from an annual industry-wide report from trade group Oil and Gas UK. http://bit.ly/2lVKBjV
Sky News
Prices in UK are now rising at an annual rate of more than 3 percent in the latest evidence of economic fallout from the EU referendum, according to figures seen by Sky News. http://bit.ly/2lW0ib9
A 1.5 trillion pound superfund should be created from thousands of existing retirement schemes in a bid to alleviate Britain’s mounting pensions crisis, a committee established by the Pensions and Lifetime Savings Association will recommend this week.
The Independent
Britons overwhelmingly oppose Prime Minister Theresa May’s plan to quit the EU with no deal in place if Parliament dares to reject the terms she agrees with Brussels, an exclusive poll has revealed. http://ind.pn/2lVMygy
Asda has been fined 300,000 pounds after inspectors found dead mice and flies at a depot that distributes food to online shoppers in London and Essex. http://ind.pn/2lVXvi1
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Overnight, House republicans released their long-awaited proposed legislation to repeal and replace Obamacare, which many have already dubbed Trumpcare. We laid out some of the key changes and proposed provisions as part of the new law which will now be debated, first in committee as soon as Wednesday, and then will seek the approval of the House and Senate. It is here that things may turn more complicated.
In terms of next steps, there are five immediate action items that politicians and pundits will focus on, courtesy of Axios:
A bigger picture question is how long will the entire process of repeal and replace take. Conveniently, over the weekend Goldman’s Alec Phillips address this issue. Here are this thoughts:
We think there is a good chance that Congress will resolve the ACA debate in Q2. Activity on the issue will intensify over the next few weeks; House committees may begin to vote on legislation as soon as the week of March 6. This could allow for passage by the full House by late March or early April, if plans remain on track. However, even on that timetable, the Senate is likely to take longer, and the odds that the Senate sends the President a bill prior to the congressional spring recess (April 10-21) seems fairly low. If so, final resolution could be pushed until May, in light of the upcoming debate on the confirmation of Supreme Court Justice nominee Neil Gorsuch and the April 28 expiration of federal spending authority, which will require new spending legislation to avoid a temporary government shutdown.
That’s the best case scenario. Here is the worst-case:
If Republican leaders cannot send the President an ACA bill by April or May, they will face two politically unpalatable options. First, they could continue to press for a solution, delaying consideration of tax reform for an indefinite period. This delay would occur because both proposals are expected to be considered under the “budget reconciliation” process. However, since only one tax bill and one spending bill can be considered under that process in each budget cycle—and ACA repeal legislation is expected to have tax and spending provisions—Republican leaders plan to consider the ACA bill in the FY2017 budget cycle, and to begin the FY2018 budget cycle, including instructions to pass tax reform, once the ACA bill has passed. A second option would be to postpone ACA legislation and move to tax reform, essentially reneging on a campaign commitment.
Goldman also notes that beyond the timetable, the ACA debate is a reminder that enacting ambitious structural reforms on a partisan basis is difficult, for two reasons. First, shared accountability allows lawmakers to take greater political risks. Over the last few decades, most of the major fiscal reforms were enacted under divided government, as this allows for shared responsibility: the Social Security amendments in 1983, the Tax Reform Act of 1986, and the various deficit reduction measures of the late 1980s and 1990s all come to mind. Of course, this is not always the case; the ACA passed along party lines in 2010.
Second, relying on only Republican votes results in a very thin vote margin, particularly in the Senate. Republicans in that chamber have 52 seats, and will need 51 votes (potentially including Vice President Pence’s tie-breaking vote) to pass ACA or tax legislation through the budget reconciliation process. Although this is often sufficient on issues where there are clearly defined differences between the parties, it makes it quite difficult to pass legislation where lawmakers have more idiosyncratic concerns, as is often the case in tax reform.
As to why a potential Trumpcare slowdown is relevant, the answer is simple: delays would likely lead to substantial delays for the bulk of Trump’s proposed economic agenda, putting prompt implementation of his tax reform in jeopardy, as Phillips explains:
“the slow process on ACA repeal signals that tax reform is likely to take longer than initially expected and that the final tax legislation that Congress enacts is likely to be less radical than the early proposals from House Republicans and the Trump campaign. That said, while tax legislation looks likely to be delayed we expect it to move forward eventually.”
Finally, putting it all together, here is Goldman’s chart showing “the long year ahead“
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Yesterday’s snap deployment of the US THAAD anti-missile system in South Korea has led to significant reverberations among the region, with not only North Korea, but also Russia and China slamming the move.
As reported last night, various equipment including 2 launch pads for U.S. missile defense system known as THAAD arrived in South Korea on Monday and will continue to be brought in, Yonhap News said.”Continued provocative actions by North Korea, to include yesterday’s launch of multiple missiles, only confirm the prudence of our alliance decision last year to deploy THAAD to South Korea,” Adm. Harry Harris, commander, US Pacific Command, said in a news release.
US Secretary of Defense James Mattis and South Korean Defense Secretary Han Min-koo spoke over the phone last week and agreed that THAAD should be deployed “ASAP.”
U.S. military releases first pictures of THAAD anti-missile system being deployed to South Korea overnight. http://pic.twitter.com/wXx1dmddC8
— James Pearson (@pearswick) March 7, 2017
White House Press Secretary Sean Spicer signaled the deployment Monday when he told reporters that the United States is “taking steps to enhance our ability to defend against North Korea’s ballistic missiles, such as through the deployment of a THAAD battery to South Korea.” U.S. defense officials confirmed to NBC News on Monday night that that meant delivery was already under way — not that the United States was simply restating its previous promises to send the system to South Korea sometime in the future.
Both China and Russia lodged protests against the deployment: “We think the US-South Korean decision to deploy the THAAD missile defense system has seriously threatened China’s security interest. For the region, it will also break the strategic balance. So it’s completely understandable to see countries in the region firmly oppose this decision,” Chinese Foreign Ministry spokesman Lu Kang said. “China and other countries have to address our own legitimate security concerns and take necessary measures to safeguard our security interest.”
“Deployment of US missile defense systems in South Korea clearly goes beyond the tasks of deterring ‘the North Korean threat,'” Russian Deputy Defense Minister Anatoly Antonov said in October, according to Russian state-run Tass news agency.
However, it was North Korea which as expected, was the most vocal, and tried to shift blame away from its recent launch of 4 ballistic missiles and redirect attention to the joint US-South Korean drills taking place. As Reuters reports, North Korea faced a chorus of condemnation on Tuesday for its latest ballistic missile tests but declared that ongoing joint U.S.-South Korea military exercises were aimed at conducting a “pre-emptive nuclear attack” against Pyongyang.
Ju Yong Choi, a North Korean diplomat, told the U.N.-sponsored Conference on Disarmament in Geneva that the “massive, unprecedented” joint drills were “a major cause of escalation of tension that might turn into actual war”.
Robert Wood, U.S. Disarmament Ambassador, retorted that North Korea was a “a pariah, an outlier” that has violated multiple U.N. Security Council resolutions and international law by conducting ballistic missile and nuclear tests.
With the US now ready to fire anti-missile weapons on a moment’s notice out of North Korea, many are concerned that the next launch by North Korea’s irrational ruler may promptly escalate the region to a state of conventional war.
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After a turbulent overnight session on Monday morning, this morning traders settle at their desks to find a relatively calmer environment, with US equity futures down 0.2% to 2,371.75, while European stocks fell for a third consecutive day, and Asian markets which closed mixed (China up, Nikkei down, MXAP up 0.2%). Basic metals continue to slide following another drop in copper as a result of the biggest inventory inflow to LME warehouses in 15 years, coupled with worries about China’s telegraphed slowdown.Some have also pointed out that the market topped just in time for the SNAP IPO, which after crashing yesterday to below its IPO break price of $24, continued to sink in the pre-market this morning.
In addition to hopes about an imminent Fed rate hike shifting to concerns, as reported yesterday JPMorgan warned that hawkish Fed rhetoric has increased the likelihood for a short-term pullback after stocks hit the bank’s year-end target of 2,400 the previous week. The dollar rose modestly as a surge in corporate bond issuance pushed up Treasury yields.
Markets appear to have topped off the relentless post-election surge, and are coming off recent peaks as investors start to contemplate what the upcoming March interest rate increase will mean for risk assets. They also have to contend with overnight headlines out of China where the “Two Sessions” are taking place, and where Premier Li Keqiang warned of larger challenges ahead during his work report to the annual National People’s Congress gathering in Beijing. In Europe, politics has become the main market driver as election campaigns in the Netherlands, France and Germany put the status quo under threat.
“The ‘pothole’ is a political one with far-right parties gaining ground in opinion polls ahead of both a Dutch and French ballots in spring,” Luca Paolini, chief strategist at Geneva-based Pictet, said in a research note. “We are scaling back exposure to European stocks, albeit retaining our overweight stance.”
Germany’s largest lender continued to grab attention and European stocks fell for a third consecutive day on Tuesday, once again dragged down by financials as Deutsche Bank shares slid again on deepening concern about its health after its $8.5 billion cash call. Deutsche shares dropped as much as 3% to a fresh 2017 low. They have lost more than 10% in the last few days since the bank said it would tap investors for $8.5 billion.
Furthermore, a batch of weak corporate earnings reports and the biggest fall in German industrial orders since the depths of the global financial crisis also disappointed investors, setting the tone for a lackluster session in Europe. German industrial orders slumped 7.4 percent in January, the biggest fall since January 2009 and nearly three times as steep as the 2.5 percent fall expected by economists.
“Weak German industrial orders suggests it’s not a one-way ticket in Europe – there’s been a lot of bullishness around European equities lately but maybe this is a sign it’s not all positive. Deutsche Bank is not helping either,” Neil Wilson, senior market analyst at ETX Capital, told Reuters.
Across the Atlantic, S&P500 futures pointed to a slightly lower open on Wall Street, further cooling off last week’s record highs. MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.4%, and Japan’s Nikkei closed down 0.2%.
In currencies, the dollar inched higher against a basket of trade-weighted peers. The dollar index rose 0.1 percent to 101.73 mirroring Monday’s slender gain. The Bloomberg Dollar Spot Index added 0.2 percent, headed for its sixth advance in seven days. A rate hike from the Federal Reserve next week is virtually fully priced into financial markets, so the dollar and U.S. bond yields might be vulnerable to a correction lower. But investors saw enough room to push the greenback and yields higher on Tuesday, lifting the 10-year yield for the fifth day in a row back above 2.50 percent and the two-year yield up a basis point to 1.32 percent, on what traders attributed to interest rate locks following another massive corporate issuance session.
The pound was the biggest mover on major FX markets, falling nearly a third of one percent against the dollar to a seven-week low of $1.2202. Britain’s House of Lords will on Tuesday try to force the government to give lawmakers a greater say over the terms of Britain’s exit from the European Union and final approval of an eventual deal with the block.
Analysts at Morgan Stanley said on Tuesday they expect the pound to snap back as high as $1.45 by the end of next year. “Sterling looks increasingly cheap in a historical context and our FX strategists (have) recently turned more bullish on the currency, targeting $1.28 for year end and $1.45 by the end of 2018,” they wrote in a note on Tuesday.
The euro was steady at $1.0575 and the dollar was flat against the yen at 113.90 yen. In commodities, U.S. oil CLc1 rose 0.3 percent to $53.55 a barrel, following Monday’s 0.2 percent drop, and Brent crude also rose 0.3 percent to $56.17 LCOc1.
Market Snapshot
Top Overnight News
Asian equity markets largely shrugged off the broad negative lead from Wall Stret to trade mixed as cautiousness remained ahead of the looming risk events. ASX 200 (+0.3%) recovered from early losses amid strength in healthcare and utilities, although upside was capped as participants awaited the RBA which kept rates unchanged and maintained a neutral tone, while Nikkei 225 (-0.2%) languished after USD/JPY failed to gain a footing above 114.00. Shanghai Comp. (+0.3%) was choppy as mainland sentiment was dampened following another weak PBoC liquidity injection and reports China is looking to slow borrowing using short term money markets, while the Hang Seng (+0.3%) was resilient after several encouraging operating updates. Finally, 10yr JGBs saw mild gains amid a lack of risk appetite in Japan, although upside has been limited following a mixed 30yr JGB auction in which accepted prices were higher and demand fell from prior.
Top Asian News
In European bourses, materials stocks are among the best performers amid a relatively flat session . Midcaps grabbed the attention given the number of earnings in an otherwise quiet session for large caps, with UK listed Intertek are at the top of the FTSE100 leader board after the company’s revenue and dividends both rose. Elsewhere, Paddy Power underperform after an uninspiring earnings update and this comes despite increased revenue past the GBP 1.5bIn mark during a “transformational” year. In Fixed Income markets, the German 2/10Y spread is nearly back to 119bps again after German factory orders fell short of expectation and many analysts are paying credence to the PSPP which has lifted the Shatz after strong buying yesterday.
In currencies, despite the range bound USD, there has been some movement in major pairs to keep traders busy ahead of the US payrolls on Friday, as well as (what could be) a lively ECB meeting on Thursday, Both USD/JPY and EUR/USD are still trading inside relatively tight ranges, but with UST yields firm, the former is retesting 114.00 again. For EUR/USD, there is little to get excited about until we retest 1.0500 lower down. German factory orders fell 7.4% compared to a more modest forecast of -2.5%, and this may have assisted the move back towards 1.0550. The Bloomberg Dollar Spot Index added 0.2 percent, headed for its sixth advance in seven days. The euro weakened 0.4 percent to $1.0585, the worst performer among major. The yen was at 113.895 per dollar. Some support is coming through EUR/GBP buying as we continue to probe into offers ahead of 0.8700. Pressure on GBP has been exacerbated by yet another potential hurdle for PM May’s proposed Brexit timetable, as the House of Lords are set to seek a more meaningful vote on the terms of exit. This delay would have been GBP supportive a few months ago, but with the government seemingly undermined, the uncertainty factor has pushed the cross rate higher and Cable below 1.2200 accordingly. 1.2150 the next level of support to note here.
In commodities the big story at present is the recent highs seen in base metals, where the growing stockpiles in China have been garnering greater attention. Copper prices have continued their move below USD2.70 to trade below USD2.65 today, with losses in Zinc and Nickel also impacted given supply issues in all cases (strikes/mine closures). Precious metals are also lower today as they follow in tight correlation to Treasuries. The USD has been a little more reluctant to follow, but enough to pull Gold back towards USD1220 again while Silver is still pressuring the recent lows around USD17.70. Gold futures slumped 0.1 percent to settle at $1,225.50 an ounce in New York for a fifth day of losses. That’s the longest slump since November. Oil prices still in a range, with compliance and production/inventory levels ahead feeding near term support, but CERA week could prompt some volatility: speakers include Barkindo, Novak and Al-Falih. West Texas Intermediate crude slipped 0.2 percent to settle at $53.20 a barrel. Clashes between armed factions in Libya curbed crude output, while U.S. drilling increased.
Looking at the day ahead, we will get the January trade balance and then the January consumer credit reading in the evening. Away from the data, German Finance Minister Schaeuble is scheduled to speak this morning, while in the UK we are also expecting the House of Lords to complete its scrutiny of the Brexit bill.
* * *
US Event Calendar
DB’s Jim Reid concludes the overnight wrap
In terms of markets, yesterday felt like a day you rolled the dice and landed on someone’s property and had to pay a small unwelcome amount of rent after a good run of accumulating cash in the bank. Equities closed on the soft side led by Europe with financials and commodity names in particular having a rough start to the week. Coming off the back of a +1.41% gain last week which was the strongest week this year, the Stoxx 600 closed -0.52% and European banks finished -1.23%. Markets in the US were back peddling from the start although the S&P 500 (-0.33%) did manage to pare back heavier losses into the close. The Dow (-0.24%) did likewise but still closed back below the 21,000 level for the first time since passing it last week. There were similar losses across credit markets with CDX IG about 0.8bps wider and the iTraxx Main 1.5bps wider. Sub-financials in Europe did however outperform on a relative basis, with the iTraxx Sub-Fins index finishing just 0.5bps wider (compared to +1.5bps for iTraxx Senior-Fins). It was a similar outperformance story in the cash credit market with EUR Fin Subs actually 1bp tighter (using Markit indices), compared to EUR Fin Sen which was just 0.5bps tighter.
On those moves for commodities, while Oil ended up little changed both precious and base metals struggled throughout the day. Gold (-0.77%), Silver (-1.07%), Iron Ore (-1.74%), Copper (-1.00%) and Aluminium (-0.82%) in particular all finished lower. A few potential reasons were discussed but it appears that a combination of the China NPC headlines from the weekend, rising Copper inventories and a stronger US Dollar in the face of geopolitical related headlines all contributed to some degree. The latter concerned the reports of North Korea firing missiles into the Sea of Japan – although in fairness there didn’t appear to be a huge reaction in EM FX or equity markets – while later on in the day we got confirmation that President Trump has signed a new travel order banning the entry of citizens from 6 countries (1 less than the initial January order) into the US for the next 90 days from March 16th. The new order will also see the US Refugee Admissions Program suspended for 120 days.
Elsewhere, all things considered Treasuries had a relatively calm day compared to the Fed-driven excitement of last week. 10y Treasury yields finished +2.2bps higher at 2.500% with the slight weakness reflecting a busy day for corporate issuance with over $22bn of IG sales coming, while short end yields ended little changed. A Fed rate hike next week also consolidated around 96% according to Bloomberg’s calculator. Meanwhile bond markets in Europe were busy digesting the latest French presidential election update. Indeed as hinted by the L’Obs press report over the weekend Juppe left the French elections for a second time as he ruled out a comeback in spite of the fragile nature of Fillon’s campaign. His speech didn’t endorse Fillon’s campaign and the Republicans have to choose soon whether to stick with a candidate who is losing support due to the recent allegations or to consider alternatives who weren’t part of the original run-off or who were earlier beaten. Bloomberg reports they have 10 days to file paperwork if they want to replace Fillon. French 10y yields climbed +2.3bps yesterday versus a -1.5bps fall in the German equivalent. The spread tightened 15.6bps last week and this gave up around a quarter of these gains.
Refreshing our screens this morning now. It’s been a fairly mixed but quiet start in Asia. While the Nikkei (-0.20%) and Shanghai Comp (-0.07%) are posting modest losses, the Hang Seng (+0.42%), Kospi (+0.64%) and ASX (+0.27%) are all firmer. In FX the Aussie Dollar has rallied +0.64% after the RBA left rates on hold, as widely expected. Our economists in Australia believe that the post meeting statement point to a firmly on hold RBA and expect no change in the cash rate through 2017 or 2018.
Moving on. The latest ECB CSPP data came out yesterday. The average daily run rate in the week to March 3rd was €339mn, a bit below the average of €365mn since the scheme started. In February 8.8% was bought in the primary market, lower than the 13.5% ratio since the scheme commenced and the lowest ratio since the summer. It’s too early to say whether the ECB are starting to prepare for taper but there seems to have been a reduction recently from peak purchases. We can’t extrapolate too much as there are many who think they’ll initially taper more on the government side rather than the corporate side. Anyway one to keep an eye on over the weeks ahead.
With regards to the rest of the data yesterday, in the US factory orders in January printed at +1.2% mom which was marginally ahead of consensus expectations for a +1.0% rise in orders. The final revisions to January durable and capital goods orders were also released. Headline durable goods orders were confirmed at +2.0% mom which was up two-tenths from the initial estimate while core capex orders were revised up three-tenths to -0.1% mom. Interestingly the two most followed GDP trackers have diverged significantly for Q1 GDP estimates.
The Atlanta Fed is now at 1.8% while the NY Fed is at 3.1%. It’s worth noting that over the past 4 quarters the NY Fed has tended to be the more accurate of the two although both have shown a tendency to have large errors during various quarters. Elsewhere and wrapping up, yesterday in Europe the most notable release was the Sentix investor sentiment reading for the Euro area which showed the index as rising 3.3pts in February to 20.7 and in the process reaching a new post financial crisis high. So a sign perhaps that improving data is overshadowing any potential political concerns for now.
Looking at the day ahead, this morning in Europe the early data comes from Germany where the January factory orders data is due. Shortly after that we’ll get the February Halifax house prices data in the UK before we then get the final Q4 GDP print for the Euro area. No change from the initial +0.4% qoq estimate is expected. This afternoon in the US we will get the January trade balance and then the January consumer credit reading in the evening. Away from the data, German Finance Minister Schaeuble is scheduled to speak this morning, while in the UK we are also expecting the House of Lords to complete its scrutiny of the Brexit bill.
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With China’s “Two Sessions” currently taking place, and Beijing hard-pressed to report positive economic data (including banning the sale of stocks by some mutual funds according to Bloomberg), it was perhaps not surprising that overnight China reported that its foreign-currency reserves “unexpectedly” rose in February for the first time since June 2016, halting a seven-month decline, rebounding over the psychological $3 trillion level controls on capital outflows and a rally in the yuan. China’s foreign reserve holdings increased by $6.9 billion to $3.005 trillion last month the PBOC reported, exceeding the consensus estimate for a $30 billion decline to $2.969 trillion. According to Goldman calculations, after adjusting for currency valuation effects, reserves rose by about $19 billion.
Among the factors cited for the rebound in the world’s biggest FX reserve holdings are stronger economic growth, stricter capital controls and a stabilizing yuan. China’s reserves have shrunk by $1 trillion from a peak of $4 trillion in 2014 as Beijing has struggled to slow yuan depreciation. Following the positive data, the offshore yuan extended gains to rise as much as 0.17%, although it has since given up all gains and was little changed at 6.8975. With pressure on reserves easing in recent months, the onshore yuan has advanced 0.7% this year amid a decline in the Bloomberg Dollar Spot Index.
“The rebound is a surprise as there should have been a negative valuation effective given that the dollar gained in February,” said Zhou Hao, an economist at Commerzbank AG in Singapore. “The increase shows the PBOC probably hasn’t been doing much spot market intervention last month, given market sentiment was stable and onshore yuan trade volume has been lower than usual.”
“Strict capital controls have taken effect, as it has reduced outflows and helped market sentiment on the yuan,” Nomura’s Zhao Yang told Bloomberg. “Reserves still face pressures, as the nation won’t want to keep tight capital controls in place for the medium term as they create difficulties for firms and thus weigh on the economy.”
In recent months Chinese authorities have boosted efforts to prevent outflows since late 2016, as the yuan headed for the biggest annual loss in more than two decades. Measures include ordering banks to stop processing cross-border yuan payments until they balance inflows and outflows, and even cracking down on bitcoin. Additionally, China’s residents face tougher reporting requirements when they want to convert yuan into foreign currency.
“The fact that they showed the world that the reserves are stabilizing at a fairly high number is an important signal,” said Alicia Garcia Herrero, chief Asia-Pacific economist at Natixis SA in Hong Kong. “The realization that the leadership wants us to have is that China is out of the woods, it’s not losing reserves, and we’re back to normal.”
In a statement posted by China’s FX regulator, the State Administration of Foreign Exchange, it said that outflow pressures are expected to ease and reserves may gradually stabilize, however it added that global financial market uncertainties remain.
Meanwhile, in a note from Goldman, the bank warned that estimates of overall valuation effects can be noisy, pointing out that SAFE indicated that the market value of the reserve portfolio increased in Feb, which counteracted the negative currency valuation effect. That said, it is unclear exactly how large these effects were in Feb (and it has not always been obvious how the portfolio valuation effects are recorded). Therefore, as Goldman has traditionally cautioned, another dataset, the “PBOC’s FX position” (usually released in the middle of the month), will give us a much better sense of the PBOC’s FX sales net of valuation effects, as this dataset shows the PBOC’s FX assets recorded at book value. On several occasions in the past year this dataset has suggested a meaningfully different amount of FX sales by the PBOC than implied by the reserve data.
For reference, in January the PBOC’s FX position dataset showed a decline of US$30bn, even after a strong trade surplus of US$33bn (including merchandise and service trade). The trade surplus was likely not nearly as strong in Feb due to Chinese new year seasonality—in other words, the capital account dynamics would have needed to undergo a significant reversal for the PBOC to accumulate (rather than de-accumulate) FX assets in Feb.
In general, reserve data provide only partial information on the FX flow situation, and readers should await further SAFE and PBOC data to assess the underlying trend. In terms of the macro backdrop, the relatively subdued USD, which helped to stabilize USD/CNY even as the CNY continued to weaken moderately against the CFETS basket (by 0.4% in Feb, and cumulatively by 1% since end-‘16), has likely supported CNY sentiment. The various capital flow management measures introduced in the last few months have likely also helped slow outflows.
Looking farther ahead, recent policy signals and news suggest that the process of getting domestic bonds included in global bond indices has gathered pace. The amount of bond inflows following the SDR inclusion decision and more liberalized access to the domestic market by central bank-type investors has been fairly modest (about US$30bn over the past year) and may be less than hoped for. This has likely made the authorities keener to attract more bond inflows from private investors through the inclusion in the major global bond indices, which could potentially bring in significant foreign investment. This may not materialize any time soon and the precise timing is hard to predict, but continued news on this front bears close watching in the coming months.
via http://ift.tt/2me21td Tyler Durden
Last night, Tucker Carlson debated a rapidly blinking Rep. Jim Himes (D-CT) – a member of the House Intelligence Committee, on claims that former President Obama ordered a wiretap of Donald Trump’s administration during the election. Tucker went into the interview giving Himes the respect of an unfurrowed brow, which did not last long. While the entire interview was an insightful sparring match (you can see the whole thing here), a particularly interesting moment came when Himes effectively laid out the legal mechanism which would justify spying on members of Trump’s campaign, including incoming NSA director Mike Flynn – the fruits of which led acting Attorney General (and Obama appointee) Sally Yates warning the Trump administration that Flynn had not been truthful about his conversations with Russia, and could possibly be blackmailed. This knowledge, and the leak of the story leading up to Flynn’s eventual resignation, could only have been obtained through covert surveillance.
While responding to a question of whether or not Trump associates were spied on, and if so, why – Himes suggested that since it’s routine for US Intelligence to monitor foreigners “like the Russian ambassador” and “sometimes that Russian ambassador will be talking to US persons,” it’s reasonable to expect that in the normal course of surveillance of foreigners, Americans might be monitored as well.
Tucker Carlson debates House Intel Committee member Jim Himes (D-CT) – who justifies spying on Trump campaign. https://t.co/jSh60OMmqp http://pic.twitter.com/spstxToZ9k
— ZeroPointNow (@ZeroPointNow) March 7, 2017
This was a half-baked answer considering the well known scope and use of the surveillance in question as political weapons – leaked to various news organizations and spun into half-truths and wild accusations in an attempt to delegitimize Donald Trump. At the end of this rabbit hole of political slander, the FBI, NSA, and the CIA have all said that there was no evidence of collusion between the Trump campaign and the Russians.
On the topic of surveillance and slander:
The Tucker interview goes hand in hand with a well reasoned series of tweets made over the weekend by Michael Doran – Senior Fellow at the Hudson Institute and an expert on international politics of the Middle East. Doran laid out quite an interesting scenario – suggesting that while Trump’s phone may not have specifically been targeted, the Intel community may have indirectly targeted him similar to a “dolphin “accidentally” caught in a tuna net.” (#15 below). Doran also summed his tweets up in a WSJ article:
In mid-January both the BBC and McClatchy reported that on Oct. 15 a Foreign Intelligence Surveillance Act court approved an investigation into Russian activities in the U.S. that focused on nameless Trump associates—three of them, according to the BBC. Also in mid-January, the New York Times reported on “a broad investigation into possible links between Russian officials and associates of [Mr.] Trump.”
Stipulating that they were, the government would find itself monitoring all of Mr. Trump’s calls with one of his political advisers, his lawyer and his national security adviser. Transcripts of those intercepts would be available to the Obama administration’s senior national-security officials. In this scenario, the tapping of Mr. Trump’s calls would be extensive –WSJ
Below is the first tweet in case you want to jump over to Twitter and follow along – or scroll down and keep reading:
1. Why I Take Trump’s Claims of Wiretapping Seriously: An Essay in 30 Tweets
— Mike (@Doranimated) March 5, 2017
Why I Take Trump’s Claims of Wiretapping Seriously: An Essay in 30 Tweets
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As the President gets ready to sign a new immigration executive order today (see our note here: “Trump To Sign New Executive Order On Travel Bans Today: Will Exclude Iraq, Green Card Holders“), a group of overly burdened federal immigration judges are wondering whether they’ll get additional support to tackle their already massive caseload which is sure to only balloon further under Trump’s new rules.
As the Associated Press points out, there are 58 immigration courts in 27 states around the country with a total of 301 judges. The problem, of course, is that those 301 judges already face a mountain of 534,000 pending immigration cases which is likely to balloon even higher under Trump’s administration.
Of 374 authorized immigration judge positions, 301 are filled. Fifty more candidates are in various stages of the hiring process, which typically takes about a year, said Kathryn Mattingly, a spokeswoman for the Executive Office for Immigration Review.
In all, more than 534,000 cases were pending before immigration courts nationwide in February, according to a recent memo from Kelly.
The massive backlog means that processing errors are a common occurrence and ultimately just result in illegal immigrants getting a free pass to reside in the country even longer.
The backlog and insufficient resources are problems stretching back at least a decade, said San Francisco Immigration Judge Dana Marks, speaking as the president of the National Association of Immigration Judges.
“It would be a shame if the mistakes of the past continue to be repeated,” Marks said, citing previous attempts to ramp up enforcement without providing adequate resources to the courts.
When asked if adding more cases to the backlog could threaten the due-process rights of noncitizens, Marks said it is the job of immigration judges to make sure that doesn’t happen.
“But the pressures on the system certainly do allow more opportunities for errors to be made,” she said. “You try to do your best to hear things fairly but also quickly, and there is always a tension between how you strike that balance.”
Of course, one way to relieve the court burden is to simply increase deportations without using the court system at all, a strategy that has the American Civil Liberties Union Immigrants’ Rights Project, and the 1,000s of immigration lawyers that earn a living filing appeal after appeal, up in arms.
Advocates worry the Trump administration will increase the use of procedures that allow authorities to deport people without using the court system at all.
“Instead of actually trying to make the courts better, they just want to use them less, even though that obviously is deeply problematic from a due-process standpoint,” said Omar Jadwat, director of the American Civil Liberties Union Immigrants’ Rights Project.
Mehlman agrees the system is broken, but said advocacy groups and lawyers who keep filing new motions and appeals are part of the problem.
“They understand that time works to their benefit and that the longer you can drag this out, the more bites at the apple you can get, the greater the likelihood that you can find some plausible reason for remaining here in the United States,” he said.
Meanwhile, as Ira Mehlman of the Federation for American Immigration Reform notes, enforcing longer detention periods for illegal immigrants could also help clear out the case backlog as it would inevitably lead some people to view deportation as an attractive alternative to a lengthy trial.
The increased use of detention could also lead immigrants with valid claims for staying in the U.S. to accept deportation, just to avoid extended periods of time in detention, Jadwat said.
Ira Mehlman, spokesman for the Federation for American Immigration Reform, which pushes for strict immigration policies, said the greater threat of detention could deter people from coming to the U.S. or encourage some who are here to leave.
While it may cause the ACLU some heartburn, something tells us that the Trump administration will lean toward fewer trials as the preferred method for clearing out the case backlog facing the immigration courts as opposed beefing up bureaucracy…just a guess.
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A judge in Madrid, Spain, has banned a bus with an anti-transgender message on it from driving city streets. The judge said the message on the bus, which had been chartered by a Catholic group, was discriminatory and could provoke hate crimes.
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