Goldman Names David Solomon Sole President, Next In Line To Be CEO

So much for that Lloyd Blankfein tweet…

 

 

In an announcement that effectively confirms a Wall Street Journal story from last week, Goldman Sachs named David Solomon, currently a co-president of the investment bank, as next in line to replace CEO Lloyd Blankfein.

He will also take over sole responsibility as the bank’s president. His former co-president Harvey Schwartz will retire.

Goldman

The WSJ reported on Friday that Goldman Sachs CEO Lloyd Blankfein was preparing to step down as Goldman Sachs chief executive as soon as the end of the year, ending his 12-year-plus run at the helm of the world’s most influential investment bank, which, under his leadership, earned the affectionate sobriquet “the Vampire Squid”.

Goldman shares initially kneejerked lower on the news, before turning higher, helping to carry the Dow higher.

Blankfein said during a television interview last year that he wanted to leave Goldman “stronger than it was when I found it,” though he did initially appear hostile to the idea, as we pointed out above.

 

 

 

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There Is No “Free Trade” – There Is Only The ‘Darwinian Game Of Trade’

Authored by Charles Hugh Smith via OfTwoMinds blog,

Rising income and wealth inequality is causally linked to globalization and the expansion of Darwinian trade and capital flows.

Stripped of lofty-sounding abstractions such as comparative advantage, trade boils down to four Darwinian goals:

1. Find foreign markets to absorb excess production, i.e. where excess production can be dumped.

2. Extract foreign resources at low prices.

3. Deny geopolitical rivals access to these resources.

4. Open foreign markets to domestic capital and credit so domestic capital can buy up all the productive assets and resources, a dynamic I explained last week in Forget “Free Trade”–It’s All About Capital Flows.

All the blather about “free trade” is window dressing and propaganda. Nobody believes in risking completely free trade; to do so would be to open the doors to foreign domination of key resources, assets and markets.

Trade is all about securing advantages in a Darwinian struggle to achieve or maintain dominance. As I pointed out back in 2005, the savings accrued by consumers due to opening trade with China were estimated at $100 billion over 27 years (1978 to 2005), while corporate profits expanded by trillions of dollars.

China Trade Surplus: Gusher Profits for U.S. Corporations (August 13, 2005)

In other words, consumers got a nickel of savings while corporations banked a dollar of pure profit as sticker prices barely budged while input costs plummeted. Corporations pocketed the difference, not consumers.

As longtime correspondent Chad D. noted in response to my essay on capital flows, restricting trade may be one of the few ways smaller nations have to avoid their resources and assets being swallowed up by mobile capital flowing out of nations with virtually unlimited credit (the US, the EU, China and Japan).

Protecting fragile domestic industries with tariffs has a long history, including in the US, but the real action isn’t in tariffs: it’s in the bureaucratic tools to limit trade and the soft and hard power plays that secure cheap resources while denying access to those resources to geopolitical rivals.

The bureaucratic means of restricting imports have been raised to an art in Japan and other export-dependent nations: there may not be any visible tariffs, just bureaucratic sinkholes that tie up imports in red tape.

Then there’s currency manipulation, for example, China’s peg to the US dollar. What’s the “free market” price of Chinese goods in the US? Nobody knows because the peg protects China from its own currency being too strong or too weak to benefit its export-dependent economy.

Those bleating about “free trade” are simply pushing a Darwinian strategy that benefits them above everyone else. US corporate profits have quadrupled since China entered the WTO; is this mere coincidence? No: global corporations arbitraged labor, credit, taxes, environmental/regulatory and currency inputs to dramatically lower their costs (and the quality of the goods they sold credit-dependent consumers) and thus boost profits four-fold in a mere 15 years while tossing the hapless consumers a few nickels of “lower prices always” (and lower quality always, too).

The Neoliberal Agenda trumpets “free trade” because “free trade” is a cover for “free capital flows.” Once capital is free to flow from central-bank fueled global corporations, no domestic bidder can outbid foreign mobile capital, as those closest to the central bank credit spigots can borrow essentially unlimited sums at near-zero rates–an unmatched advantage when it comes to snapping up resources and assets.

If we ask cui bono, to whose benefit?, we find the consumer has received shoddy goods and paltry discounts from “free trade,” while corporations, banks and financiers have benefited enormously.

Rising income and wealth inequality is causally linked to globalization and the expansion of Darwinian trade and capital flows: the winners are few and the losers are many. Tariffs will not solve the larger problems of reduced employment, stagnant wages and rising income inequality. To make a dent in those issues, we’ll need to tackle central bank and central-state policies that have pushed financial speculation to supremacy over the productive economy.


*  *  *

My new book Money and Work Unchained is $9.95 for the Kindle ebook and $20 for the print edition.Read the first section for free in PDF format. If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.

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Mueller Said To Be “Close To Completion” Of Trump Obstruction Probe

Over the weekend, the Wall Street Journal surprised its readers by reporting that President Donald Trump’s legal team was working with Special Counsel Robert Mueller to reach an early close to his Russia probe, using the possibility of an interview with the president (and the implicit threat of Trump quashing the probe) as leverage to force Mueller into some kind of deal that, by the sound of it, would probably see Trump accept a slap on the wrist.

However, no sooner had the WSJ story dropped than the New York Times appeared to negate it with a report of its own, penned by “Trump whisperer” Maggie Haberman. In it, Haberman writes that Trump is in talks to hire the veteran Washington lawyer who represented Bill Clinton during his impeachment trial. In its story, the NYT specifically reported that – if accurate – the hiring of attorney Emmet Flood would suggest that the prbe is unlikely to end anytime soon.

President Trump is in discussions with a veteran Washington lawyer who represented Bill Clinton during the impeachment process about joining the White House to help deal with the special counsel inquiry, according to four people familiar with the matter.

The lawyer, Emmet T. Flood, met with Mr. Trump in the Oval Office this past week to discuss the possibility, according to the people. No final decision has been made, according to two of the people.

Should Mr. Flood come on board, the two people said, his main duties would be a day-to-day role helping the president navigate his dealings with the Justice Department.

Two people close to the president said that the overture to Mr. Flood did not indicate any new concerns about the inquiry. Still, it appears, at the least, to be an acknowledgment that the investigation is unlikely to end anytime soon.

The NYT report infuriated Trump, who issued a scathing tweet accusing the paper of fabricating lies about him.

 

And as if the will-he-won’t-he routine wasn’t infuriating enough already, Bloomberg joined the fray today, publishing a report saying Mueller could be close to wrapping up parts of his investigation, while putting other pieces of the inquiry on hold for now.

Special Counsel Robert Mueller’s investigation into whether President Donald Trump obstructed justice is said to be close to completion, but he may set it aside while he finishes other key parts of his probe, such as possible collusion and the hacking of Democrats, according to current and former U.S. officials.

The reason? Mueller is worried that, if he brings charges relating to Trump’s purported obstruction of justice, witnesses in other parts of the probe might get cold feet as they circle the wagons. Meanwhile, Republican lawmakers are ratcheting up pressure on Mueller to wrap up the probe.

The obstruction portion of the probe could likely be completed after several key outstanding interviews, including with the president and his son, Donald Trump Jr. The president’s lawyers have been negotiating with Mueller’s team over such an encounter since late last year. But even if Trump testifies in the coming weeks, Mueller may make a strategic calculation to keep his findings on obstruction secret, according to the current and former U.S. officials, who discussed the strategy on condition of anonymity.

Any clear outcome of the obstruction inquiry could be used against Mueller: Filing charges against Trump or his family could prompt the president to take action to fire him. Publicly clearing Trump of obstruction charges — as the president’s lawyers have requested — could be used by his allies to build pressure for the broader investigation to be shut down.

With 17 prosecutors at its disposal, Mueller’s sprawling probe is expected to be the 2016 campaign. Mueller is also expected to issue indictments against those (probably Russian) individuals suspected of hacking the Democratic National Committee before the election while publicly leaking stolen material in an effort to hurt Democrat Hillary Clinton.

Trump

And as we pointed out last week, the Trump family’s foreign business entanglements, as well as efforts by the United Arab Emirates to influence Trump following meeting between a Trump emissary in the Seychelles. Mueller is also reportedly turning up the heat on Trump lawyer Michael Cohen by asking questions about his outreach to a spokesman for Russian President Vladimir Putin about a stalled “Trump Tower Moscow” project.

Perhaps the biggest variable in determining when the probe will end is the cooperation of Trump and his family. As we reported, Trump’s lawyers are reportedly pushing Mueller to accept written replies to his questions.

The timing for whether — and when — to interview Trump or his family members is one of the most sensitive decisions Mueller faces at this stage of his investigation. The special counsel’s office declined to comment for this story.

Trump’s lawyers have also said they expect the probe to wrap up shortly. Mueller has already secured several guilty pleas – including a plea from former Trump National Security Advisor Michael Flynn – and has requested more than 1.4 million pages of documents.

Meanwhile, when it comes to the obstruction investigation, Mueller is believed to be focusing on three main potential violations: Trump’s firing of FBI Director James Comey; the drafting of a misleading statement to the New York Times about a meeting Don Jr. organized with a Russian lawyer and her entourage at Trump Tower during the summer of 2016, and – in an incredibly meta twist – Mueller is also investigating reports that Trump considered firing him last June.

Several members of Trump’s family have also been reluctant to speak with Mueller.

Kushner spoke to Mueller early on in the investigation for a limited interview, while Don Jr. and Ivanka Trump, haven’t been interviewed. There is also no indication that Mueller interviewed former Trump bodyguard Keith Schiller.

Mueller’s team of FBI agents and prosecutors has already interviewed people who could provide firsthand knowledge of possible obstruction of justice, including Comey, Attorney General Jeff Sessions, Deputy Attorney General Rod Rosenstein, Director of National Intelligence Dan Coats and National Security Agency Director Michael Rogers.

Of course, whether the investigation truly is close to wrapping up won’t be known until Mueller tells us. Though a recent barrage of leaks about the expanding scope of the investigation would suggest that, even if it’s not close to being over, it is entering a new, more-intense phase.

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Key Events In The Coming Week: Inflation, Retail Sales, Industrial Production

The traditionally quiet post-payrolls weeks will see a lot of attention paid to Tuesday’s CPI print for validation – or denial – of recent inflation trends; traders will also look at Wednesday’s PPI and advanced retail sales numbers, and Friday’s building permits, housing starts, and industrial production report for indications if the recent economic stability is turning.

After Friday’s goldilocks average hourly earnings report, consensus expects a core CPI print of 0.2% mom in February, slowing after January’s impressive 0.3% increase, while headline CPI is also expected to rise 0.2% on Tuesday. The next day, core PPI is also projected to raise a trend-like 0.2% mom in February while core core (excluding trade services) PPI should also see a 0.2% gain; we also get the US advanced retail sales report that day. On Thursday, analysts are looking for initial claims to be 225k in the week ending March 10th, down modestly from the prior week’s reading of 231k. Market consensus is 0.3% mom, previous release is -0.3% mom.

In other data:

  • In the Eurozone, industrial production, final print of CPI and ECB speakers in the schedule. In the UK, little of note.
  • In Japan, we have PPI, core machine orders, industrial production, capacity utilization and BoJ meeting minutes.
  • In Canada, we receive existing home sales and manufacturing sales.
  • In China, we get retail sales, industrial production and fixed assets investment.
  • In Australia, we have home loans, investment lending, business surveys and RBA speakers.
  • In New Zealand, we have current account and GDP.
  • In the Scandies, in Norway we have central bank rates meeting and trade balance, while for Sweden we get unemployment rate, CPI and inflation expectations.
  • In Switzerland, we have SNB rates meeting and sight deposits.

Elsewhere: the Catalan parliament meets to elect a president for the region (Mon). Chancellor Philip Hammond will deliver his Spring Statement to MPs. Focus will be on the impact of Britain’s payments to Brussels post-Brexit on public finances (Tues). EU finance ministers attend Economic and Financial Affairs Council meeting on risk in the banking industry and tax-planning schemes (Tues). In New Zealand, we receive Q4 GDP on Wed. Growth appears to have strengthened in Q4, supported by household consumption and trade (Wed). We expect SNB to leaves rates unchanged (Thurs). Russian election with Vladimir Putin likely to win another term (Sun).

A summary of key global events by day courtesy of Deutsche Bank:

  • Monday: As is the norm post payrolls, it’s a quiet start to the week on Monday with the only data of note being the US monthly budget statement for February. Politics should remain at the forefront, however, with Germany’s Chancellor Merkel expected to sign a coalition pact with the Social Democrats in Berlin and Italy’s Democratic Party due to hold a leaders’ meeting to replace Matteo Renzi. EU government officials will also kick off the four-day meeting to discuss the EU’s Brexit position.
  • Tuesday: The big highlight on Tuesday is the February CPI report in the US, due out shortly after lunchtime. Away from that, we’ll also receive the February NFIB small business optimism reading. In Europe, the only data of note is wages data for France for Q4, while late in the evening in Japan the latest BoJ meeting minutes are due out. In the UK, Chancellor Hammond will deliver the Spring Statement at just after midday. Other potentially important events  worth highlighting include European Council and European Commission statements on Brexit, and the Special Congressional election in Pennsylvania.
  • Wednesday: The main focus overnight will be the latest economic activity indicators out of China for February including retail sales, industrial production and fixed asset investment. In Europe, we’ll get final revisions to February CPI in Germany along with January industrial production and Q4 employment data for the Euro area. ECB President Draghi is also scheduled to speak in the morning, followed by the ECB’s Peter Praet and then Vitor Constancio. In the US, it looks set to be another important day of data with February retail sales and PPI, followed by January business inventories. It’s worth also highlighting that the European Commission is expected to make comments on US steel and aluminium tariffs to the European Parliament.
  • Thursday: With little of note in Asia the early focus for markets will be final February CPI revisions in France. Across the pond in the US, we are due to receive March empire manufacturing, February import price index, the latest weekly initial jobless claims, March Philly Fed business outlook and March NAHB housing market index data. Brexit-related headlines will likely be a focus too on Monday with EU ambassadors wrapping up their four-day meeting, which is expected to conclude with an approval of text for the EU’s future relationship with the UK.
  • Friday: We end the week in Asia with January industrial production data in Japan. In Europe, the most notable release will be the final February CPI report for the Euro area while in the US, February housing starts and building permits.

* * *

Focusing on just the US, the key economic releases are CPI, retail sales, PPI, empire manufacturing, import & export price index, building permits, housing starts, industrial production and U. of Michigan sentiment. There are no scheduled speaking engagements from Fed officials this week.

Here is Goldman’s preview with full consensus expectations:

 Monday, March 12

  • There are no major economic data releases scheduled.

Tuesday, March 13

  • 08:30 AM CPI (mom), February (GS +0.16%, consensus +0.2%, last +0.5%); Core CPI (mom), February (GS +0.19%, consensus +0.2%, last +0.3%); CPI (yoy), February (GS +2.20%, consensus +2.2%, last +2.1%); Core CPI (yoy), February (GS +1.84%, consensus +1.8%, last +1.8%): We estimate a 0.19% increase in February core CPI (mom sa), which would leave the year-over-year rate unchanged at +1.8%. Our forecast reflects strength in shelter categories and lodging away from home but also sequential deceleration in used car prices and a pullback in the legal services subcomponent. We do not expect a reversal of January’s sharp increases in the apparel category, which we believe reflected normalization in prices following a highly promotional holiday season. Similarly, we expect medical care prices to rise further, albeit at a slower pace. We estimate a 0.16% increase in headline CPI, reflecting a decline in utility prices.

Wednesday, March 14

  • 08:30 AM Retail sales, February (GS +0.4%, consensus +0.3%, last -0.3%); Retail sales ex-auto, February (GS +0.4%, consensus +0.4%, last flat); Retail sales ex-auto & gas, February (GS +0.4%, consensus +0.3%, last -0.2%); Core retail sales, February (GS +0.3%, consensus +0.4%, last flat): We estimate core retail sales (ex-autos, gasoline, and building materials) rose at a 0.3% pace in February. While retail spending growth appears due for a pickup following the January pause, the boost from tax cuts in the month will be partially offset by another year of tax refund delays. Given a modest increase in gasoline prices and the possibility of building materials strength given favorable weather, we look for a firmer 0.4% rise in both the headline and ex-auto measures.
  • 08:30 AM PPI final demand, February (GS +0.1%, consensus +0.1%, last +0.4%); PPI ex-food and energy, February (GS +0.1%, consensus +0.2%, last +0.4%); PPI ex-food, energy, and trade, February (GS +0.1%, consensus +0.2%, last +0.4%): We estimate a 0.1% increase in headline PPI in February, reflecting a slight uptick in gasoline prices. We also expect 0.1% increases in the core PPI and the PPI ex-food, energy, and trade services categories. In the January report, the producer price index was firmer than expected, reflecting strength in the core measure.

Thursday, March 15

  • 08:30 AM Philadelphia Fed manufacturing index, March (GS +21.0, consensus +23.0, last +25.8); We estimate the Philadelphia Fed manufacturing index moved down 4.8pt in March reflecting potential drag from the recent stock market decline and uncertainty regarding tariffs. Commentary from industrials remains encouraging, and we expect the index to remain at expansionary levels.
  • 08:30 AM Empire manufacturing survey, March (consensus +15.5, last +13.1)
  • 08:30 AM Initial jobless claims, week ended March 10 (GS 230k, consensus 228k, last 231k); Continuing jobless claims, week ended March 3 (last 1,870k): We estimate initial jobless claims ticked down to 230k in the week ended March 10. The trend in initial claims appears to be falling, and we look for another low reading. Continuing claims—the number of persons receiving benefits through standard programs—fell by 64k in the prior week.

Friday, March 16

  • 08:30 AM Housing starts, February (GS +0.5%, consensus, -2.7%, last +9.7%): We estimate housing starts slowed to a +0.5% rate in February after a 9.7% increase in January. We expect better weather and solid increase in construction jobs growth to lead to a further increase in housing starts.
  • 09:15 AM Industrial production, February (GS +0.5%, consensus +0.3%, last -0.1%);  Manufacturing production, February (GS +0.5%, consensus +0.4%, last flat); Capacity utilization, February (GS 77.8%, consensus 77.7%, last 77.5%): We estimate industrial production rose +0.5% in February, as the utilities category likely rose further and manufacturing production increased, reflecting strength in auto manufacturing.
  • 10:00 AM University of Michigan consumer sentiment, March preliminary (GS 97.5, consensus 99.5, last 99.7): We estimate the University of Michigan consumer sentiment index edged down 2.2pt to 97.5 in the preliminary estimate for March. We note some downside risk to our forecast from the recent stock market decline. The report’s measure of 5- to 10-year inflation expectations remained at 2.5% in February, near the middle of its 12-month range.

Source: BofA, DB, Goldman, ING

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The Mysterious Chinese Company Looking To Buy Rosneft

Authored by Tsvetana Paraskova via OilPrice.com,

When a little-known private Chinese company said in September 2017 that it would be buying 14 percent in Rosneft, many analysts were wondering how an obscure fuel trading company rose to such prominence as to become a major global M&A player to the point of agreeing to pay as much as US$9 billion for the stake in Russia’s oil giant.   

Six months later, the mystery surrounding CEFC China Energy is not only left unsolved – it has become even more unclear, with a flurry of media reports over the past week revealing that its CEO is under investigation by the Chinese authorities and that the Chinese state has taken over management of the company as it seeks to rein in private businesses and their unrestrained spending.

With all the negative news surrounding CEFC China Energy over the past week, analysts are now wondering if the company has fallen out of favor with the Chinese authorities and if the acquisition of the stake in Rosneft is in jeopardy.

When it announced the deal to buy 14 percent in the Russian oil giant from Glencore and the Qatar Investment Authority (QIA), CEFC China Energy said that it is invested in oil and gas development in Russia, Central Asia, Central and Eastern Europe, the Middle East and Africa, and owns oil and gas terminals in Europe, including oil refineries and gas stations.

On February 21, 2018, Glencore said in its 2017 results release that the Rosneft deal, “subject to customary regulatory approval processes, is expected to complete in H1 2018.”

Just a week later, reports emerged that Chinese authorities were investigating the chief executive of CEFC China Energy, Ye Jianming, on suspicion of economic crimes.

CEFC said that those reports were “unfounded” and “irresponsible”. Rosneft spokesman Mikhail Leontyev told Reuters that the investigation was not related to the Russian company.

Nevertheless, the reports about CEFC’s chief executive being investigated are reminiscent of China seizing control of Anbang Insurance Group last month and charging its chairman with fraud and abuse of position.

A day after reports emerged about CEFC’s Ye being investigated, the South China Morning Post reported that the state is taking over the management and daily operations at CEFC China Energy, citing two sources with direct knowledge of the matter. 

Shanghai Guosheng Group, a portfolio and investment agency controlled by the municipal government of Shanghai, has taken over management at CEFC China Energy in a widening crackdown on private entrepreneurs, SCMP reported, noting that most of CEFC’s acquisitions were funded by Chinese state banks, primarily China Development Bank, which is financing projects in line with China’s state policies.

CEFC China Energy is also said to have failed to pay for registered capital of an oil trading joint venture that it would have created with a company controlled by the Chinese Zhejiang province, and the government-controlled company has scrapped the JV plan, people with knowledge of the matter told Bloomberg.

The flow of media reports about troubles at CEFC China Energy makes analysts question the company’s ability to close to the Rosneft deal, as it looks like that the Chinese firm is in the crosshairs of the crackdown on private businesses after President Xi Jinping’s government warned just last week that no Chinese billionaire, no matter how well-connected, is safe from scrutiny and investigation.

Commenting on CEFC China Energy’s predicaments, Li Li, a research director with commodities researcher ICIS China, told Bloomberg:

“Now, many people in the industry are questioning not only its capability to finalize the Rosneft deal but to sustain normal operations.”

According to Bloomberg Gadfly columnist Nisha Gopalan, while the Rosneft deal is unlikely to be totally scrapped, should the Chinese government take over control of CEFC, this could provide a pretext to renegotiate the financial terms of the stake’s acquisition.

While China and Russia continue to boost their oil relations, the Chinese government is stepping in to rein in private businesses and possibly obtain direct control over private Chinese energy ventures overseas.

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Dropbox Set To Go Public At $6.7BN Market Cap, A Huge Haircut To Its Private Valuation

Dropbox has filed the terms of its long-awaited IPO, according to which it aims to raise as much as $648 million, by marketing 36 million shares range from $16 to $18 apiece, resulting in valuation between $7 and $7.9 billion.

Dropbox’s proposed market cap would be $6.7 billion, far below the $10 billion private company valuation that made it one of the world’s highest valued companies 4 years ago; the market cap is also below the valuation range as Dropbox will also sell restricted stock and options, pushing its value on a fully diluted basis higher than this market value.

Still, despite the deep haircut, the cloud storage company – which has pitched its business as unleashing creative energy and inspired work – would be the first big tech company to go public since Snap which went public last spring. First Data Corp went public at a market value of about $14 billion in 2015, making it the biggest such IPO in the past five years.

According to Bloomberg, while the company is inching closer to profitability, Dropbox outlined in its deal prospectus its focus to get more of those users to pay up. Investors are sure to have questions for the file-sharing technology leader as it embarks on its marketing roadshow.

As the FT notes, like Snap, Dropbox will go public with a dual-class share structure that hands more voting rights and control to executives.

The company’s revenue increased more 30% last year to $1.1 billion from $845 million in 2016. In the same period, the company’s net losses shrank to $112 million from $210 million. Goldman Sachs, JPMorgan Chase, Deutsche Bank and Allen & Co. are leading the offering.

The company plans to list on Nasdaq Global Select Market under the symbol DBX.

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Jeff Bezos Is Smiling: Regulators Approve “Limited Drone Deliveries”

Amazon couldn’t be happier.

Roughly four years ago, CEO Jeff Bezos surprised investors during a December, 2013 appearance on CBS’ “60 Minutes” when he revealed that Amazon was testing delivery via “octocopter” drones, but that the program wouldn’t be ready for another “four or five years.”

Unfortunately, US regulators had other ideas: Initially, the Federal Aviation Administration stubbornly blocked Amazon from testing its drone technology in the US – forcing it to shift its research to the UK, where it quickly developed. Bezos responded by threatening to move even more of Amazon’s research to the United Kingdom.

Back in December 2016, the company revealed that it had successfully completed its first commercial drone delivery (in England, of course). During the intervening years, incremental updates about the program’s progress were released in drips and drabs.

Now, after a nearly half-decade wait, the FAA is reportedly preparing to approve “limited package deliveries” using drones during the coming months, according to the Wall Street Journal. Ten pilot programs have reportedly been given permission to begin commercial package deliveries, WSJ said. Furthermore, Amazon is pushing the agency to allow detailed designs on a drone (presumably to paint them with the Amazon logo) and other operating rules.

Drone

While the 10 participants weren’t named, some “proponents of drone delivery” told WSJ they expect to be ready to operate by the summer, according to FAA official Jay Merkle. And the Amazon executive in charge of the company’s “Amazon Air” program told WSJ that the company could be ready to begin drone deliveries in certain test markets early next year.

Amazon officials declined to provide details. But Gur Kimchi, vice president of the company’s package-delivery organization called Prime Air, was hopeful that necessary approvals would be secured by 2019. Responding to questions on the sidelines of the conference about probable locations and timelines to initiate delivery flights, he repeatedly said “ask me next year.”

Earl Lawrence, who runs the FAA’s drone-integration office, had a similar upbeat message. Airborne deliveries may be “a lot closer than many of the skeptics think,” he told last week’s gathering. Some experimental efforts already are under way and “they’re getting ready for full-blown operations,” he said in an interview. “We’re processing their applications,” and “I would like to move as quickly as I can.”

Today’s report provides some important context for an exclusive published by WSJ over the weekend saying a consortium involving Amazon, GE, Boeing and Alphabet’s Google wanted to create a privately funded and operated air-traffic control network that would be separate from  federal controls. 

WSJ said the testing was being supervised by NASA, which, at the behest of the Trump administration – which, despite Silicon Valley’s aggressively public resistance to his administration’s agenda, is pushing for drone delivery to become a reality, a marked departure from Obama’s extremely cautious (some might say stifling) approach.

In conjunction with the National Aeronautics and Space Administration, validation tests are slated over the next three months at a handful of sites. The intent is to develop a “totally different, new way of doing things,” Parimal Kopardekar, NASA’s senior air-transport technologist who first suggested the idea of an industry-devised solution, told approximately 1,000 attendees at the conference.

The coming flights are intended to explore, among other factors, how such a network would interact, when required, with the Federal Aviation Administration’s existing ground-based radars and human controllers. Another major goal is to ensure swift and easy access to data for law-enforcement agencies looking to identify errant, suspicious or hostile drones.

When it comes to embracing drone technology, the US has lagged Australia, Singapore and the UK. Despite years of studies and advisory panels saying drone deliveries could be accomplished safely, relatively little movement has happened on the government side.

But it appears the Trump administration has made drone deliveries a priority, forcing the FAA to act.

In recent months, however, there has been a marked shift in tone from Washington. Lawmakers increasingly are prodding the FAA and urging swift action. Senior officials at the Transportation Department, which is the FAA’s parent agency, “get calls from the White House fairly regularly” demanding faster decisions, according to Derek Kan, DOT’s undersecretary for policy.

During last week’s conference, FAA officials urged startups and established industry players alike to submit a variety of proposals, repeatedly using the catchphrase “the FAA is open for business.” As long as essential safety standards are met, Mr. Lawrence and his colleagues promised to tailor exemptions and waivers to modify basic rules written decades ago when drones weren’t in the picture.

The FAA’s Mr. Merkle, who has helped implement automated traffic management changes around airports for less-ambitious drone uses, was even more blunt about the agency’s stance. In general, applicants “need to understand what you need (and) when you need it” from the FAA, he said during a conference panel. Encouraging companies to move quickly to try various operational concepts, he said “we’ll help you get there.”

Amazon has said its long-term goal is to pick up packages weighing a maximum of 5 pounds from distribution centers and deliver them to customers within a 20-mile radius. Drones would need to navigate safely over populated areas and landing in pinpoint locations – two of the most biggest impediments to widespread adoption.

But while the cooperation of the FAA is an important and crucial step in the transition to a future where fleets of drones occasionally blot out the sun, local governments are still a major impediment, as local officials worry about angering residents with the noise, privacy and security issues.

In some cases, those principles mean neighborhood controls could pre-empt federal approvals. In announcing the disagreement among participants, Brendan Schulman, co-chair of the task force and a top policy and legal official for drone maker DJI, at the time said participants were “very much looking forward to new direction from the FAA.”

Still, as WSJ explains, the US is moving inexorably toward drone delivery. And with Amazon already working to expand its grocery delivery program, as well as developing a service to compete with FedEx and UPS, Bezos is poised to become king of the sky, as well as the land.

The question for investors, or rather the Fed, is how might this impact the economy (and stocks) as drone deliveries will surely put further thousands of delivery workers out of work, pressuring wages lower, and further pushing back on the Fed’s mythical goal of reaching 2% inflation.

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“If Mueller Doesn’t Get You, Stormy Will” Maxine Rages After Trump Knocks Her “Low IQ”

Rep. Maxine Waters (D-CA) told MSNBC that she’s “not intimidated” by President Trump, while repeating her own worn out threat that Trump’s impeachment was just a matter of time.  Waters then suggested that if special counsel Robert Mueller’s investigation doesn’t result in an impeachment, Trump’s alleged affair with porn star Stormy Daniels (real name Stephanie Clifford) will. 

“This business about Stormy is not going away,” Waters said. “If for some reason Mueller does not get him, Stormy will. So we know that this is going to go on.”

As a reminder, Waters has been robotically repeating about Trump’s imminent impeachment for over a year.

Trump told a Pennsylvania rally on Saturday night that “We have to defeat Nancy Pelosi and Maxine Waters, a low IQ individual,” Trump then said – going back into another impression, this time of Waters:  “Do you ever see her? We will impeach him!” President Trump said mockingly.

Waters hit back; “I’m not gonna run from it, I’m not intimidated by by him, and so he can keep calling names. I’ve got plenty for him. As a matter of fact, everybody knows he’s a con man, he’s been a con man all of his life.”

The irony here is that “very low IQ” Maxine, who’s been a legislator for 41 years, believes Trump’s alleged affair with Stormy Daniels could actually lead to his impeachment – which so far not one legal expert has suggested. Trump would only risk impeachment if he perjured himself under oath like Bill Clinton did – when he lied to congress about the affair he had with a subordinate in the Oval Office, as President.

Of note, when impeachment proceedings were brought against Bill Clinton in December, 1998, Waters denounced the “tawdry and trashy thousands of pages of hearsay, accusations, gossip and telephone chatter” (NYT Oct. 9, 1998) which she said came nowhere close to proving impeachable offenses against Clinton. 

Waters added: “It is time to move on, reprimand the president [Clinton], condemn him. But let’s move onThese grossly unfair procedures will only tear this Congress and this nation apart.

Apparently Maxine Waters only cares about tearing the nation apart when it’s a Democrat in the hot seat. 

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S&P Futs Rally Back Over 2,800 On “Goldilocks” Mood Ahead Of Treasury Deluge

The “goldilocks” mood that was unleashed after Friday’s jobs report (high growth, low inflation) has spread around the globe, sending Asian and European markets higher as trade-war concerns took a back seat to economic optimism. The dollar slipped and Treasuries held strady even as the US Treasury prepares to sell $145 billion in debt today (including both 3Y and 10Y Paper), while most commodities fell.

“Friday’s U.S. employment data was about as perfect a set of figures as you can get from a policy maker’s point of view. The increase in jobs was nothing short of amazing,” said ACLS Global’s Marshall Gittler. “In other words, it was a ‘Goldilocks’ report:  not too hot, not too cold, just right.”

“Our customers are still bullish,” Chris Brankin, chief executive officer at TD Ameritrade Singapore, told Bloomberg TV. “You saw the jobs report last Friday, which was a perfect scenario — you had an uptick in wages, but not too much. Investors have taken that opportunity to buy the market dips and we look for the bull market to continue.”

European shares shot up across the board, following their Asian counterparts, while emerging market currencies strengthened as investors bought up so-called riskier assets and sold safe haven securities such as gold and government bonds. After the S&P surged 1.7% on Friday – its second best day of the year – S&P futures have continued to levitate overnight, and are back above 2,800 and fast approaching their late January all time highs of 2,883.

The Stoxx Europe 600 Index rose for a sixth day, poised for the longest winning streak since October as utility companies set the pace following a bid by EON for RWE’s Innogy. Germany’s DAX led gains in Europe, rising 0.9% while MSCI’s world equity index hit a two-week high. Concerns over tariffs have been weighing on European stocks, with the main European stock index hitting a seven-month low at the start of the month. It has recovered somewhat from that trough to rise 0.3% on Monday.

Earlier, the MSCI Asia-Pacific ex-Japan Index climbed 1.4 percent, poised for a third session of gains. South Korea rose 1%, while Australia’s main index added 0.7 percent, boosted by mining shares on news that Australia could be exempt from new U.S. trade tariffs on steel and aluminum imports.  Hong Kong stocks climbed with other Asian markets after Friday’s U.S. jobs report showed an increase in hiring without rapid wage gains: the Hang Seng gained 1.9%, its third day of gains, and the highest since Feb. 5. The Hang Seng China Enterprises Index jumped 2.1%, also up for third session, while on the maindland, the Shanghai Composite added 0.6% and the ChiNext Index of smaller shares rose 1.4%.

In global FX, investors shifted their focus to politics sending the Aussie higher after the country secured an exemption from U.S. tariffs on steel and aluminum and as politicians from a wide range of other countries joined the chorus to also be on the list of Trump tariff exemptions. Meanwhile, as noted last night, the yen jumped after Japan’s Finance Minister Taro Aso refused to step down despite news that his name and that of Prime Minister Shinzo Abe were removed from documents connected with a land-sale scandal, creating uncertainty around the future of Abenomics. The advance however was pared after Aso said he won’t resign.

Commenting on the USDJPY, Masashi Murata, a currency strategist at Brown Brothers Harriman in Tokyo said that “The theme for 2018 is the risk of the dollar-yen breaking 100,” adding that the yen above that level “wouldn’t look excessive from the perspective of its fundamentals.” Separately, Goldman analysts said that the BOJ and the Japanese government have “very limited” policy options for reining in yen appreciation, and they are most likely to take a wait-and-see stance until the latest round of gains comes to an end.

Investors had trimmed holdings of yen last week on news U.S. President Donald Trump was prepared to meet with North Korean leader Kim Jong Un, a potential breakthrough in nuclear tensions in the region. U.S. officials on Sunday defended Trump’s decision, saying the move was not just for show and not a gift to Pyongyang.  “Now the U.S. is back to goldilocks at least for now, the tariffs are less severe, and Kim and Trump are to meet,” said Shane Oliver, Sydney-based chief economist at AMP.  “We still expect more volatility this year as many of these issues have further go run, but the broad trend in shares likely remains up.”

The dollar edged lower a second day as markets digested Friday’s jobs report, which kept stocks in Asia and Europe underpinned.

In geopolitical news, North Korea reportedly wants a peace treaty and to build ties with US, while its leader Kim also wants a US embassy in Pyongyang.

In Brexit news, UK and EU companies reportedly could face an additional GBP 58bln in annual costs in the event of a no-deal Brexit. Meanwhile, UK consumer spending suffered its weakest start to the year since 2012, according to data compiled by Visa.

In rates, the yield on 10-year Treasuries climbed less than one basis point to 2.90%,the highest in more than two weeks. Germany’s 10-year yield dipped one basis point to 0.64%, while Britain’s 10-year Gilt rose less than one basis point to 1.493 percent.

Today, US rates traders will have a very busy day with the US set to sell $145BN in sells 3- and 6-month bills, as well as a 3-year notes and 10-year notes reopening. Big concessions into the auctions are expected to help soak up the massive supply. As a reminder the last time that the market faced a 3y and 10y auction on the same day last year Treasuries sold off following weak demand in the latter auction.

Oil prices pared back gains seen on Friday with WTI (-0.5%) and Brent (-0.6%) seen lower amid concerns of rising US output looming in the market despite a slowdown in rig drilling activity recorded at the back end of last week. In the metals complex, following the US steel and aluminium tariffs, Chinese iron ore future fell for a 3rd straight session hitting near four-month lows closing down 2.6%. The steelmaking raw materials are under pressure from softer demand and high product inventories held by trading companies. The WSJ reported that OPEC is reported to be divided regarding views on the right price of oil with Iran said to prefer USD 60/bbl, while Saudi Arabia would prefer prices to be at USD 70/bbl. There were also reports that Iran Oil Minister Zanganeh stated that OPEC could agree in June to begin relaxing oil output cuts for 2019.

Bulletin Headline summary from RanSquawk

  • DAX outperforms amid multi-billion revamp in German utility sector.
  • USD-index hovers around 90, having trimmed earlier losses.
  • Looking ahead, highlights include the Eurogroup meeting, 3- and 10-year note auctions from the US

Market Snapshot

  • S&P 500 futures up 0.3% to 2,798.25
  • STOXX Europe 600 up 0.3% to 379.19
  • MXAP up 1.6% to 178.46
  • MXAPJ up 1.4% to 588.82
  • Nikkei up 1.7% to 21,824.03
  • Topix up 1.5% to 1,741.30
  • Hang Seng Index up 1.9% to 31,594.33
  • Shanghai Composite up 0.6% to 3,326.70
  • Sensex up 1.2% to 33,713.20
  • Australia S&P/ASX 200 up 0.6% to 5,996.12
  • Kospi up 1% to 2,484.12
  • German 10Y yield unchanged at 0.649%
  • Euro up 0.2% to $1.2328
  • Italian 10Y yield rose 2.5 bps to 1.753%
  • Spanish 10Y yield unchanged at 1.436%
  • Brent futures down 0.6% to $65.10/bbl
  • Gold spot down 0.3% to $1,320.39
  • U.S. Dollar Index down 0.1% to 89.98

Top Overnight News

  • North Korean leader Kim Jong Un wants to sign a peace treaty and establish diplomatic relations with the U.S., which includes having a U.S. embassy in Pyongyang, Dong-A Ilbo newspaper reports, citing an unidentified senior official at South Korean President Moon Jae-in’s office
  • China’s trade minister Zhong Shan warned that a trade war with the U.S. would bring disaster to the global economy, but said his nation won’t start one and that talks with the Trump administration continue
  • China, Canada and Hong Kong are among the economies most at risk of a banking crisis, according to early-warning indicators compiled by the Bank for International Settlements
  • Add one more thing to the list of worries for the world’s most indebted nation: weakening demand at its bond auctions. While there’s no danger of the U.S. being unable to borrow as much as it needs, over the past two years, the drop-off has been unmistakable
  • Britain may soon start to see the beginning of the end of austerity, as the Chancellor of the Exchequer prepares to announce the smallest deficit in a decade during his Spring Statement on Tuesday
  • London house prices are falling at the fastest pace since the depths of the recession almost a decade ago, with the capital’s most expensive areas seeing the biggest declines, according to a report published by Acadata on Monday

Asia stocks were higher across the board as the region took its first opportunity to react to Friday’s rally on Wall St and jobs data from US where NFP smashed expectations, but wage growth slowed which in turn provided a goldilocks backdrop for stocks. ASX 200 (+0.6%) was led by commodity names after crude rallied over 3% on Friday and PM Turnbull confirmed Australia is to be exempted from US tariffs. Nikkei 225 (+1.6%) outperformed but closed off its best levels as the cronyism scandal continued to haunt PM Abe after Japan’s Finance Ministry confirmed documents had been doctored in a land-sale to a school operator which allegedly used ties to PM Abe’s wife to get a cheap deal on state-owned land. Elsewhere, Hang Seng (+1.5%) and Shanghai Comp. (+0.7%) also gained although the mainland got off to a slow start as US-China trade war concerns somewhat lingered and as participants also mulled over Xi’s power consolidation after China’s legislature voted to formally scrap presidential term limits from its constitution. Finally, 10yr JGBs are flat with demand constrained amid the heightened appetite for risk, while the BoJ were also in the market but kept its Rinban amounts unchanged from the prior.  The PBoC injected CNY 50bln via 7-day reverse repos and CNY 40bln via 28-day reverse repos; the PBoC also set CNY mid-point at 6.3333 (Prev. 6.3451).

As reported last night, Japanese Finance Minister Aso is under pressure to resign over a report regarding alleged favours to a school with connections to the Japanese PM Abe. The prime minister told parliament in February last year that he’d resign if any link emerges between himself or his wife Akie and the land deal.

Top Asian News

  • China Banking Crisis Warning Signal Still Flashing, BIS Says
  • JPMorgan Sees Busiest Mideast Year With IPOs, M&A Driving Deals
  • Japan Finance Minister Under Fire as Abe School Scandal Deepens; Stock Investors Are Nonchalant for Now as Abe’s Scandal Deepens
  • China’s Mystery Russia Oil Partner Seen Delaying $9 Billion Deal

The European cash open mimicked the strong positive sentiment seen in Asia and in the US on Friday following US NFP data beating expectations but wage growth slowing down providing a goldilocks backdrop for stocks. Major bourses are in the green (Euro Stoxx 50 +0.45%) with the exception of the FTSE 100 underperforming weighed down by a strong sterling. DAX 30 is supported by the utilities sector outperforming following reports of RWE (+8.8%) agreeing to swap control of Innogy (+12.9%) for renewable assets with rival E.ON (+5.4%). E.ON has agreed to purchase Innogy from RWE as part of a deal valuing at EUR 20bln, marking one of the largest shake-ups of the European power supply market. This could however place doubt on the deal between Innogy’s Npower and UK listed SSE (-2.2%). Following months of attempted takeover, Melrose (-2.9%) has submitted their final offer to engineering group GKN (+0.8%) of GBP 8.1bln following their previous offer of GBP 7.4bln which GKN described as “fundamentally” undervaluing its business and the approach as “entirely opportunistic”.

Top European News

  • Elkem to Raise $670 Million in Biggest Norway IPO Since 2010
  • May Faces Calls to Retaliate Against Russia After Spy Attack
  • Ruble Is Top Pick for $25 Billion Investor After Czech Bonanza

In FX, it has been a quiet start to the week, but the Greenback is weaker vs all G10 counterparts bar the Loonie, as Usd/Cad hovers above 1.2800 after last Friday’s mixed US and Canadian jobs data (to recap, the former blew away forecasts at 300k+, but latter just missed and would have been negative without part-time workers). The Kiwi is outperforming amidst equity market gains and mostly risk-on trade as it regains 0.7300 status vs the Usd, but Usd/Jpy has pulled back from marginal 107.00+ highs post-NFP to around 106.50 on the land sale scandal involving PM Abe and Finance Minister Aso. Note also, tech resistance around the 21 DMA at 106.79 is capping the pair, but hefty option expiries at 107.00 run off this Thursday and could keep the headline afloat. Aud another relative gainer and firmer within a 0.7845-80 range as Australia negotiates a security deal with the US to avoid aluminium and steel tariffs. Usd/Chf is probing back below 0.9500, Eur/Usd is sitting in a tight band above 1.2300 and Cable is holding between 1.3850-80 ahead of Tuesday’s UK Budget. Back to option expiries, but for today there is 1 bn either side of 1.2300 in Eur/Usd at 1.2275 and 1.2330 and just over 300 mn in Nzd/Usd at 0.7300. 

In commodities, oil prices pared back gains seen on Friday with WTI (-0.5%) and Brent (-0.6%) seen lower amid concerns of rising US output looming in the market despite a slowdown in rig drilling activity recorded at the back end of last week. In the metals complex, following the US steel and aluminium tariffs, Chinese iron ore future fell for a 3rd straight session hitting near four-month lows closing down 2.6%. The steelmaking raw materials are under pressure from softer demand and high product inventories held by trading companies. The WSJ reported that OPEC is reported to be divided regarding views on the right price of oil with Iran said to prefer USD 60/bbl, while Saudi Arabia would prefer prices to be at USD 70/bbl. There were also reports that Iran Oil Minister Zanganeh stated that OPEC could agree in June to begin relaxing oil output cuts for 2019.

Looking at the day ahead, as is the norm post payrolls, it’s a quiet start to the week on Monday with the only data of note being the US monthly budget statement for February. Politics should remain at the forefront, however, with Germany’s Chancellor Merkel expected to sign a coalition pact with the Social Democrats in Berlin and Italy’s Democratic Party due to hold a leaders’ meeting to replace Matteo Renzi. EU government officials will also kick off the four-day meeting to discuss  the EU’s Brexit position.

US Event Calendar

  • 10:30am: U.S. to Sell USD45 Bln 6-Month Bills
  • 10:30am: U.S. to Sell USD28 Bln 3-Year Notes
  • 12pm: U.S. to Sell USD51 Bln 3-Month Bills
  • 12pm: U.S. to Sell USD21 Bln 10-Year Notes Reopening
  • 2pm: Monthly Budget Statement, est. $216.0b deficit, prior $192.0b deficit

DB concludes the overnight wrap

So, another week and another hotly anticipated US inflation print for markets to be wary of. In fact, it should be a fairly busy week ahead with plenty of US data despite it being a post payrolls week, bumper Treasury supply which should be a decent test for bond markets and of course unpredictable politics to keep everyone on their toes. Indeed, no doubt the uncertainty fuelled by steel and aluminium tariffs tit-for-tat could continue, while markets will also be waiting for potential further details about President Trump’s meeting with North Korea leader Kim Jong Un. One of the big question marks is where they’ll meet exactly and we can’t help but feel that we could see some sort of Olympics style pitch between nations to host this hotly anticipated event.

On a more serious note the reaction to the proposed meeting has actually been fairly mixed. The optimistic view is that a summit between the US and North Korea could offer a genuine opportunity to reduce tensions on the Korean peninsula, particularly in light of the failures of past agreements. However there appears to be an equal amount of scepticism with some suggesting that it could be an opportunity for North Korea to secure sanctions relief and buy time on nuclear efforts. Only time will tell but it’s clearly a very significant moment for geopolitics globally. Over the weekend CIA Director Mike Pompeo confirmed that the US will be making no concessions to North Korea and that discussions, if they do indeed occur, “will play out over time”.

Back to that big data release for this week, as of this morning the market consensus is for a +0.2% mom headline reading and +0.2% core reading for US CPI on Tuesday. Our US economists expect +0.1% mom and +0.2% mom respectively. The latter should hold at +1.8% yoy should we see that, and in fact our colleagues add that the annual growth rate of core CPI will mechanically rise by around 20bps in the March data release just from annualizing the -10% decline in wireless telephone services.

Meanwhile, also due tomorrow is the Special Congressional election in Pennsylvania which shouldn’t be underestimated as it will likely be seen as a decent bellwether for the prospect of Republicans holding onto majorities in the House and Senate at the November midterms. So that should be interesting. On the same day we’ll have the UK Spring Statement although our rates team and economists aren’t expecting any big policy announcements. The market should instead be focused on the publication of the 2018-19 Gilt remit. You can see a preview of the Statement here. In terms of other snippets, Germany’s Merkel and the Social Democrats are expected to sign a coalition pact today, while Italy’s Democratic Party will also start the search for their new party leader. Brexit related newsflow should also continue with the European Council and European Commission expected to make a statement on Tuesday while the four-day EU ambassadors meeting kicks off today.

All that to look forward to then. Over the weekend it’s actually been fairly quiet for newsflow with the most notable coming from China with the – as expected – announcement that the presidential term limit has been repealed, which in turn will allow President Xi Jingping to in theory hold onto power indefinitely. The other story worth noting is the latest BIS quarterly report which notes that China, Canada and Hong Kong are among those economies most at risk of a banking crisis, based on early warning indicators. The report also pointed towards the dangers of increased passive investing, particularly with regards to “encouraging aggregate leverage”. Elsewhere, on the big protectionist theme reverberating through markets at the moment, China’s trade minister Zhong noted “there are no winners in a trade war…China does not wish to fight a trade war, nor will China initiate one, but we…will resolutely defend the interests of our country”. In Germany, Economy Minister Zypries noted “Trump’s policies are putting the order of a free global economy at risk” and that Europe needs to avoid being divided by Trump’s offer to exempt some countries such as Canada, Mexico and Australia.

So, with the likely highlight for markets this week being Tuesday’s CPI report, it of course follows the softer than expected average hourly earnings data from Friday’s employment report. In fairness, it only just missed consensus as  the unrounded +0.1498% mom compared to expectations for +0.2% mom however downward revisions to prior months meant the annual rate dropped to +2.6% yoy from +2.8% and back to the lowest since November. On the other hand, the other big takeaway from the report was the bumper payrolls number. The 313k print not only smashed expectations for 205k but was also the highest since July 2016. The two prior months were also revised higher by a cumulative 54k. Away from those usual headline grabbers’ one interesting aspect of the report, and which typically flies more under the radar, that our US economists pointed out was the increase in prime-age participation. Fed Chair Powell previously noted in his testimony that still low prime-age labour force participation is one remaining potential source of labour market slack. However, it was noticeable to see this climb four-tenths last month and to the highest since mid-2010. The bottom line is that this could still lend argument to the fact there is still some slack left in the labour market.

All-in-all a bit of a double-edged sword sort of report then. Markets certainly appreciated the goldilocks nature of it with the S&P 500 rallying to a +1.74% gain by the close of play – and touching the highest level since February 1st -and 10y Treasuries climbing to 2.895% (+3.7bps). Fed Funds contracts are now implying odds of just under 25% for 4 rate hikes this year. We’ll of course find out in 9 days time at the next FOMC meeting if the data is enough to support an increase in the median dot to 4. Speaking of bond markets, it’s worth noting that the Treasury market is likely to face a bit of a supply test today as we’ll get both a 3y and 10y auction. As a reminder the last time that the market faced a 3y and 10y auction on the same day last year Treasuries sold off following weak demand in the latter auction.

This morning risk assets are broadly higher in Asia following the positive US lead, with the Nikkei (+1.49%), Kospi (+0.99%), Hang Seng (+1.48%), ASX 200 (+0.55%) and China’s CSI 300 (+0.49%) all up as we type. Markets in Japan have pared back gains slightly following news that Finance Minister Taro Aso is supposedly coming under pressure to quit according to Bloomberg due to his involvement in a scandal related to the sale of public land to a school.

Moving on. In terms of other markets on Friday. The Nasdaq rose +1.79% and to a fresh record high. European equities were broadly higher with the Stoxx 600 up for the fifth straight day (+0.43%) while the DAX was the laggard (-0.07%). Government bonds were weaker with core 10y bond yields up 2-3bp (Bunds & Gilts +1.9bp) while  peripherals slightly underperformed. In FX, the USD dollar index fell 0.10% while the Euro was marginally down and Sterling gained 0.28%. Finally, WTI oil was up for the first time in three days (+3.19% to $62.09/bbl) while precious metals gained slightly.

Away from markets, three unnamed sources told Reuters that ECB staff put forward a scenario to policy makers at last week’s ECB meeting suggesting the bank will end QE this year after winding down for three months followed by a rate increase in the middle of next year. One source noted these are “assumptions…. (and they) don’t have policy relevance because they are not commitments”.  Notably, sources noted the hypothesis was met favourably by policy makers from the Euro area’s richer Northern countries, but less so by the Southern neighbours.

On Friday we also heard from a couple of Fed speakers post the  employment report. The Fed’s Rosengren noted that “I expect that it will be appropriate to remove monetary policy accommodation at a regular but gradual pace – and perhaps a bit faster than the three (rate hikes) envisioned for this year”. He also added that as the labour market continues to tighten “….one would expect to see continued upward pressure on wages”. Elsewhere, the Fed’s Evans noted the payroll report was a “very strong number” and was “looking forward to strong wage growth”. On rates, he noted that he continues to be nervous about inflation running below the Fed’s 2% target and believes “…we have the ability to be cautious”.

With regards to the other economic data on Friday. In the US, the unemployment rate was steady mom at its 17 year low and slightly higher than expected at 4.1% (vs. 4.0%). Elsewhere, the final reading for January wholesale  inventories was revised up 0.1ppt to 0.8%. Factoring in the above, the Atlanta Fed’s estimate of Q1 GDP growth was revised down 0.3ppts to 2.5% saar. In Europe, the January IP was broadly lower than expectations. In Germany, it was -0.1% mom (vs. +0.6% expected) weighted down by lower activity in the construction sector. Notably, annual growth is still solid at +5.5% yoy. France and the UK’s IP were both lower than expected at +1.2% yoy (vs. +3.8% expected) and +1.6% yoy (vs. +1.9% expected) respectively. Elsewhere, Germany’s January trade surplus was less than expected at €17.4bln (vs. €18.1bln) as exports weakened in the month, while the UK’s January trade deficit was -£3.1bln (vs. – £3.4bln expected).

As is the norm post payrolls, it’s a quiet start to the week on Monday with the only data of note being the US monthly budget statement for February. Politics should remain at the forefront, however, with Germany’s Chancellor Merkel expected to sign a coalition pact with the Social Democrats in Berlin and Italy’s Democratic Party due to hold a leaders’ meeting to replace Matteo Renzi. EU government officials will also kick off the four-day meeting to discuss  the EU’s Brexit position.

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“Trade Wars Trades Will Be Won And Lost In Volatility”

By Garfield Reynolds, markets commentators and analyst for Bloomberg.

Rising volatility is the real problem for markets, not trade wars.

Equity markets have rallied back to seemingly erase all of the concerns that were sparked when Donald Trump announced tariffs on aluminum and steel. Investors do need to be wary of the rise of protectionism, but the latest moves won’t have any lasting real-world impact.

More than a year into his presidency, Trump has had a much smaller influence on trade issues than many would have expected from his campaign rhetoric. He pulled out of TPP, but Clinton would have done so too, and the relationship with China has been surprisingly calm.

Two of America’s main steel suppliers have already won exemptions, as has Australia, while both of the targeted metals cast very small shadows in the U.S.

The genuine danger is that the EU’s response, or Trump’s subsequent reaction, is to implement more severe sanctions that would cause substantial damage. But that scenario is difficult to price and will only materialize over time.

As a result, traders are correct to ignore day-to-day trade ructions as this is an area that only has long-term economic impacts. Global trade is the ultimate collection of supertankers so it takes a lot of effort and even more time to turn it around.

The more valid area of concern is volatility, which has flirted with a game-changing shift to an environment where price swings are constantly elevated.

For now, the VIX is back down to where single-digit readings again look possible, but price swings across other assets remain at levels that offer more cause for concern; the Move index for Treasuries in particular remains quite high.

The sting in the tail is that trade has added to other recent volatility drivers — such as monetary policy shifts, politics in both Europe and the U.S., and inflation concerns — so that it’s much harder to avoid fresh spikes in implied vol. But, unless stock, bond and FX volatility all clearly rise again, equity investors can relax at least enough for greed to rival fear in their decision-making processes.

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