Tag: finance

Submitted by Rabobank strategist, Michael Every

Turmoil has engulfed the Galactic Republic. The taxation of trade routes to outlying star systems is in dispute.

Hoping to resolve the matter with a blockade of deadly battleships, the greedy Trump Federation has stopped all shipping to the small planet of EU.

While the congress of the Republic endlessly debates this alarming chain of events, the Supreme Chancellor has secretly dispatched two Jedi Knights, the guardians of peace and justice in the galaxy, to settle the conflict….

20 years after I sat down in a London cinema, saw the above trailer crawl (minus two small edits astute readers might notice), sighed and thought to myself “I watch Star Wars to get away from this kind of thing,” here we have life imitating George Lucas. 

It’s impossible to ignore we are potentially close to several major conflicts. India is considering military retaliation against Pakistan for a recent terrorist outrage – that’s two nuclear powers; Iran and Israel have both warned the other that war is a real threat – that’s one and a half nuclear powers; the West is upping the rhetorical ante in Venezuela even as President(?) Maduro shows no signs of leaving office; and China is still building a huge modern army, navy, and air-force that I am sure the US is going to see as strictly decorative. (In the same way China promised not to decorate the South China Sea with runways and missiles.) And on top of all that, as the recent Munich Security Conference showed, the US and EU are drifting ever-further apart on most of those fronts – and on the economic angle too.

Some might see the US under the Trump administration as the Empire; and some see them as the Rebels against a Russian/Chinese Empire and the risk of an Iranian Death Star. Of course Germany sees itself as Naboo: peace-loving, cultured, innocent, free-trading, and full of renaissance architecture and star würst – and unable to defend itself against physical predations from outside. The complication today is that it may be the Jedi who impose 25% tariffs on Naboo because the latter refuses to join in a greater struggle against others “Made in Empire 2025” plans. I have a bad feeling about this.

As we noted in a report yesterday (“Very dangerous cars”), the 90-day clock is now ticking over the potential imposition of 25% tariffs on EU autos into the US market. Naboo/EU (“Nab-EU?”) is saying that it will fight back with its own tariffs on US products if attacked, which suddenly takes us closer to at least a US-EU trade war, with a US-China trade war still likely too. Indeed, Bloomberg notes in an editorial: “Trump Should Stop Before He Loses Germany”, arguing tariffs would push Germany into recession and that a recent survey shows 58% of Germans already think the country needs to distance itself from the US. (And presumably they will then be paying to defend themselves, right? General Jar-Jar Binks to the front, please.)

Meanwhile, Politico has an article today written by Bruno Maçães, a former Europe minister for Portugal, titled (with one edit from me) “Russia to China: [Join me and] Together we can rule the world”. In it former Putin advisor Sergey Karaganov is quoted as saying Russia is throwing its lot in with China and is lobbying Beijing to join it in a push to replace the US as global hegemon.  Maçães states Karaganov argued “China is deluding itself if it thinks issues between Beijing and Washington can be conveniently resolved to the benefit of both sides. If Beijing places its bets on peace and cooperation, the great Chinese adventure will come to an end, and China will have to live in the shadow of the US for another generation — perhaps forever…Chinese authorities, he argued, have no more than five years to make a decision.” Then we come back to Nab-EU again, where “…if China has a word on whether we see the creation of an Eastern bloc, so does Europe. European markets and European technology are critical resources for China. More and more, Chinese authorities know what to expect from America, and they know all too well what to expect from Russia. But Europe is a different matter. Beijing will hesitate to push it away, and will wait for Europeans to make up their minds. We can keep them waiting. We can keep them pondering. In a dangerous world, Europe is the holder of the balance.”

So the EU strategy is not to join the US, but to wait and do nothing. Is that attitude going to see the US back off vs. the EU? Or will the US see the EU as too weak and too fundamentally untrustworthy to bother with? Yes, the US is still global hegemon and needs the EU, Japan, Australia/NZ, etc., in its camp to remain one; but some think it can raise the drawbridge and go back to splendid isolation, telling the rest of the world to go hang: no more Clone Wars; just the The Revenge of the Sith, as some would see it. In short, there is a potentially paradigm-shattering geopolitical shift being discussed all over: does anyone have any idea how to trade it…or are we all just waiting for a New Hope? I fail to see how this is anything other than USD and US Treasury positive, for now at least. Longer term, we are all throwing light-sabres at a board.

And talking of paradigm-shattering, at the national level we see the same theme repeated, as seven UK Labour MPs split from the party over Brexit and anti-Semitism. Will they forge a new centre grouping, or are they the just showing how impotent the centre actually is in a world increasingly driven to polarities? GBP doesn’t seem to care.

Day ahead   

Today is still relatively quiet as the US returns from the Presidents’ Day holiday. However, once again we aren’t short of talking points on many fronts. One of them is that we got the RBA’s February minutes, and WE GOT SOME MORE NEW LANGUAGE! After so many copy-and-paste conclusions before now, the final paragraph stated:

“Members would continue to assess the outlook carefully. However, given that further progress in reducing unemployment and lifting inflation was a reasonable expectation, members agreed that there was not a strong case for a near-term adjustment in monetary policy. Rather, they assessed that it would be appropriate to hold the cash rate steady and for the Bank to be a source of stability and confidence while further progress unfolds. Members judged that holding the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time.”

In other words, the RBA aren’t talking more strongly about cutting rates yet because they still think wages will pick up into a new-normal housing collapse, and because they believe it shows more confidence to do nothing. I repeat: rates down – sooner than you think; and AUD down with it. Nothing doing today though – I guess the market is glued to Twitter waiting to see if the rumours of Episode IX being called “The Balance of the Force” are true or not. If it is, the 20-year rule George Lucas forecast rule tells me 2039 is when we should expect all this global flux to have sorted itself out.

Before 2039 we also have UK unemployment, which will stay low, and the German ZEW survey, which is seen declining sharply to 20.0 for current situation and rising to -13.6 for expectations. I’d suggest the other way round is more logical.

via ZeroHedge News http://bit.ly/2Sg4ody Tyler Durden

California’s ill-fated statewide bullet train project – which has been reduced to a “train to nowhere” between Merced and Bakersfield so the state doesn’t have to return $3.5 billion in federal funds – took residents of the Golden State on a ride for over a decade.

While initially projected to cost $33.6 billion in 2008, former Gov. Jerry Brown’s “special legacy project” ballooned in estimated size to nearly $100 billion in 2018, with service beginning from Los Angeles to San Francisco in 2033. 

Opining on the demise of the bullet train in an “I told ya so” Op-Ed, the WSJ editorial board provides a post-mortem on yet another failed attempt towards a progressive utopia using taxpayer dollars.

***

Via the Wall Street Journal Editorial Board

Death of a California Dream
Gavin Newsom gives up on Jerry Brown’s bullet-train fiasco.

Like Richard Nixon and the Vietnam War, California Gov. Gavin Newsom inherited a quagmire in the state’s bullet train with no good options. Rather than attempt a full-out retreat, the Governor announced Tuesday that he would cut taxpayer losses by completing a segment in the sparsely populated San Joaquin Valley. But please don’t call it a train to nowhere.

A decade ago California voters approved a $10 billion bond measure to build a 520-mile high-speed train that would supposedly take riders from San Francisco to Los Angeles in two hours and 40 minutes. The choo-choo’s supporters vowed that the federal government and private investors would foot most of the estimated $33 billion bill, and the referendum explicitly stated there would be no subsidy. President Trump’s promise to make Mexico pay for a border wall was more believable.

The Obama Administration chipped in $3.5 billion on the condition the first 160-mile segment be built in the San Joaquin Valley district of Democratic Rep. Jim Costa, a longtime bullet-train supporter who provided a critical vote for ObamaCare. Former Gov. Jerry Brown made the train his special legacy project, his contribution at taxpayer expense to the illusion of stopping climate change. His people sent letter after letter claiming that our editorials were mistaken.

Our criticisms have now been validated by none other than Mr. Newsom. Cost projections for the train have soared to around $80 billion amid litigation, engineering challenges and ordinary government morass. Private investors have run the other way. The state rail authority has spent more than $5 billion acquiring and destroying hundreds of properties but not yet laid tracks. Taxpayers have lost patience, and Mr. Newsom stated the obvious on Tuesday that “there simply isn’t a path to get from Sacramento to San Diego, let alone from San Francisco to LA.”

The new Governor is thus proposing to finish the initial planned route from Merced to Bakersfield, now with the stated goal of revitalizing rural areas that have been parched due to water rationing. Lo, high-speed rail is “about economic transformation and unlocking the enormous potential of the Valley,” which is “hungry for investment” and “good jobs.” Mr. Newsom in his speech also pared back a project championed by Mr. Brown to deliver more water to farmers.

Liberals envision that the bullet train will someday turn Fresno and Merced into Silicon Valley suburbs and ease the Bay Area’s housing shortage. But this too is a dream. As economic consultants William Grindley and Bill Warren document in a recent study, a worker who lives in Fresno would spend 10 hours and 20 minutes each day commuting to San Jose at a cost of $154 round trip—assuming no subsidies.

California’s bullet train provides a miniature model of the Green New Deal. Alas, the main reason liberals like Mr. Newsom are likely turning against it is they are eager to redirect taxpayer money to entitlements and other green largesse.

via ZeroHedge News http://bit.ly/2DRztyV Tyler Durden

Walmart stock is soaring, brushing off December’s dreadful retail sales print, after reporting Q4 revenue and earnings that beat expectations, and same store sales that not only crushed forecasts, but were the best holiday quarter for Walmart in a decade.

America’s largest bricks and mortar retailer reported 4Q adjusted EPS of $1.41 vs est. $1.34 (range $1.29-$1.42), while Q4 revenue of $138.8b also beat estimates of $138.7b (range $135.7b-$140.8b).

More notably, Walmart reported comparable same store sales in the US of 4.2% for the fourth quarter which included Christmas, beating analysts’ estimates of 3.2%, by a full percentage point.

Surprisingly, higher prices – more than increased foot traffic – drove the revenue gains, with the average ticket up 2.3% even as traffic dropped 0.7%.

… making Q4 the best holiday quarter in at least a decade, and soothing concerns about the industry’s outlook for 2019.

Some more details:

• 4Q Walmart U.S. comps. ex-fuel rose 4.2%, est. up 3.2%; Walmart U.S. comp sales on a 2-year stack of 6.8% is the strongest growth in 9 years
  • Walmart U.S. e-commerce sales up 43% y/y vs up 43% in 3Q
  • Walmart U.S. traffic up 0.9% y/y, avg ticket up 3.3%
• Sam’s Club comps. ex-fuel up 3.3%, est. up 2.9% (CM, avg of 15)
  • Sam’s Club e-commerce sales up 21% y/y vs up 32% in 3Q
  • Sam’s Club traffic up 6.4% y/y, avg ticket down 3.1%

On the international side, WMT was hit hard by the rising dollar, with Q4 reported sales for Walmart international down 2.3% to $32.3BN, however, in constant currency sales would be up 2.7% to $34.0 billion. Curiously, the one place that saw price deflation was China, resulting in a hit to the gross profit.

Some other observations courtesy of Bloomberg:

• Walmart, like rivals, made a big push to grab former Toys “R” Us shoppers during the holiday season, boosting its toy assortment by 40 percent online and holding thousands of in-store events where kids could test out items. The gambit worked, as toys helped fuel the sales beat, Chief Financial Officer Brett Biggs said in a Tuesday morning interview.
• This was the first holiday season for Walmart’s redesigned website, plus its expanded home delivery and curbside pickup options. E-commerce sales in the U.S. rose 43 percent, in line with the gains most analysts had been expecting, helped by a broader assortment of brands and increased online grocery sales.
• The company reiterated the full-year sales and profit guidance it gave in October, including same-store sales growth at U.S. Walmart stores of between 2.5 and 3 percent — a slight slowdown from the fiscal year that just ended. Retailers are bracing for a pullback in consumer demand this year, especially if the U.S. follows through on its threat to more than double tariffs on many Chinese goods, forcing retailers to raise some prices in response.

Still, before the US retail sales malaise is declared dead, consider that much of the gains in the quarter were more related to timing:, especially as relates to the early release of government food-stamp payments that were supposed to have become available to American shoppers in February, which boosted U.S. same-store sales by 0.4 percentage points in the quarter, the company said.

Finally, the age-old question emerges: are strong sales for Walmart – America’s discount retailer – a good thing for the economy (refuting the plunge in retail sales narrative), or a bad thing (as more Americans are forced to buy stuff at lower prices, as discretionary incomes decline).

In any case, the market loves the report, and WMT stock is up over 4%, and pushing Dow futures higher.

Full presentation below (pdf link).

via ZeroHedge News http://bit.ly/2SYdKir Tyler Durden

With the US’s deadline for increasing tariffs on $200 billion of imported Chinese goods swiftly approaching, a Chinese delegation has arrived in the US to begin another round of trade talks on Tuesday, according to Reuters.

What will be, by the FT’s count, the seventh round of talks since the trade tensions between the two countries first exploded into tit-for-tat tariffs nearly a year ago, will take place in Washington DC. Just like last week’s talks in Beijing, lower-level trade officials will begin preliminary talks on Tuesday, while the top trade officials will meet beginning on Thursday.

The talks follow a round of negotiations that ended in Beijing last week without a deal but which officials said had generated progress on contentious issues between the world’s two largest economies.

China Vice Premier Liu He will arrive in Washington for trade talks on Feb. 21 and 22. Higher level talks by US Trade Rep Robert Lighthizer will begin on Thursday. It’s believed that the talks will focus on the “structural changes” to China’s economy, which have become a key area of contention for the two sides, while China’s pledge to buy a substantial amount of goods from the US will also be in focus.

The White House said Treasury Secretary Steven Mnuchin, Commerce Secretary Wilbur Ross, economic adviser Larry Kudlow and trade adviser Peter Navarro would also participate in the talks. Trump, who hinted last week that the deadline could be extended, said that the talks had been fruitful.

“We’re making a lot of progress. Nobody expected this was going to be happening,” Trump said.

If the talks fail, or the Trump administration refuses to extend the deadline, tariffs on a large swath of Chinese goods will rise from 10% to 25%. As of last week, the two sides were said to be close to a “memorandum of understanding” that would serve as a broad framework for a deal, but conflicting reports have proliferated.

via ZeroHedge News http://bit.ly/2GWPhUn Tyler Durden

While the US was closed for President’s Day holiday, the European rally sputtered on Monday ignoring a renewed surge higher in Chinese stocks following a record credit injection, and on Tuesday a “sea of red” in global markets has returned, as US equity futures slumped dragged lower by European banks following a mixed session in Asia as investors appear unable to go for even one day without fresh “hope” on US-China trade talks, while the dollar climbed, snapping a three-day decline, and Treasuries edged up before U.S.-China trade talks resume in Washington.

Global markets were struggling for direction after a slow start to the week and with a fresh round of Sino-U.S. trade talks, this time in Washington, being held later, as stocks traders were largely happy to keep their powder dry.

Europe’s Stoxx 600 retreated after two days of gains, led lower by banks following disappointing earnings from HSBC Holdings, while weak macro data has sent increasingly dovish signals from the region’s central bank. HSBC – Europe’s biggest bank – saw its shares tumble as it missed forecasts due to slowing growth in its two home markets of China and Britain. HSBC’s U.K. shares follow their Hong Kong peers lower after worse-than-expected results, with the stock sliding as much as 4.6% and the biggest decliner on the FTSE 100 Index. The Stoxx 600 Banks index down as much as 1.7%, with banks the worst performing industry group on Tuesday.

The results spoke to a wider problem for European banks, which are struggling to return to growth after a decade of post-crisis restructuring due to a worsening global economic outlook.

In addition to poor earnings from Europe’s largest bank, the sector is facing is facing additional headwinds due to receding hopes for any quick interest-rate rise after ECB chief economist Peter Praet said officials could push back plans to raise rates as a first response against a deeper downturn

Automakers were also under pressure as the European Union vowed prompt retaliation if the U.S. imposes tariffs on imported vehicles.

Earlier in the session, Bank of Japan Governor Haruhiko Kuroda unexpectedly told parliament the central bank would consider extra monetary easing if required, helping lift the Topix index and send the yen lower, even as shares in China were little changed as equities in Hong Kong dropped after Monday’s blockbuster gains. Japan’s Nikkei nudged up 0.1 percent after holding flat for most of the day.  Australian shares climbed 0.3 percent to a 4-1/2 month peak, after gaining over 8 percent so far this year, partly on expectations the central bank could ease policy to temper pressure on growth. Chinese shares slipped into the red though after surging in the previous session, with the blue-chip index off 0.2 percent.

China Vice Premier Liu He will visit Washington for trade talks on February 21st-22nd, while there were comments from White House Press Secretary Sanders that trade meetings with China in Washington D.C. will begin today and that higher-level talks which will be led by USTR Lighthizer are to begin on Thursday. Furthermore, trade talks are said to focus on needed structural changes in China which impact trade, as well as China’s pledge to buy a substantial amount of goods and services from the US.

Despite today’s muted action, Chinese shares have risen rapidly so far this month, with MSCI’s China A shares index up 6.5%, by far the best performance among major markets despite China’s weakening economy. Additionally, investors are now seen returning to riskier asset markets after the U.S. Federal Reserve signalled earlier this year it could halt rate hikes in light of U.S. economic softness.

“In the last week, it seems like global central banks have started a possible process of monetary easing,” Bank of America-Merrill Lynch strategist Ajay Singh Kapur said in a note. “If so, this would be very positive for Asia/EM stocks,” Kapur said.

Across the Pacific, contracts on the Nasdaq, Dow and S&P 500 edged lower as traders kick their heels before the next round of trade talks between America and China. Italian bonds fell while most European notes climbed.

With earnings season coming to an end, the latest minutes from the FOMC and ECB due this week and U.S. President Donald Trump weighing an extension of the deadline for a trade deal with China, investors have plenty to digest. Uncertainty over the outlook for global growth hangs over everything, and traders will be hoping for some good news from the world’s two largest economies when talks resume in Washington on Tuesday.

“There is a recession coming,” Steen Jakobsen, the chief economist at Saxo Bank said in an interview on Bloomberg Television with Anna Edwards. He reckons markets are too optimistic on a trade deal between the U.S. and China. “There will by some Pyrrhic victory for the two sides to claim and extend the timeline, but in terms of material impact, no,” he said.

Overnight, President Trump said US is seeking a peaceful transition of power in Venezuela but added that all options are open.

EU Commission President Juncker said Trump gave his word there wouldn’t be tariffs on European cars for the time being; if Trump breaks the promise, EU will break its promise to buy more soy and LNG; according to Stuttgarter Zeitung. European Commission President Juncker says if UK requested extension of talks, no one in Europe would oppose it; adds he has no timeframe for length of extension.

In FX, the Bloomberg Dollar Spot Index climbed, snapping a three-day decline, and Treasuries edged up before U.S.-China trade talks resume in Washington. The euro broke a tight range and dropped as much as 0.3% to 1.1276 after more talk of ultra-cheap ECB bank loans, as the Bloomberg dollar index index climbed to fresh day high. The Australian dollar swung to a loss after the nation’s central bank reaffirmed mounting concerns over consumer spending.

The pound followed suit as Margaritis Schinas, a spokesman for the European Commission, said the EU won’t reopen the U.K.’s withdrawal agreement and won’t accept a time limit on the Irish border backstop despite a report that showed U.K. wages were growing at their fastest pace in a decade. The yen had slipped to 110.70 per dollar after Japan’s central bank governor had said it could redeploy stimulus if the yen’s relative strength this year hurt the economy and inflation prospects.

“Stokkie (dollar vs Swedish crown) is off to the races,” said TD Securities’ head of global research, Richard Kelly. “You had especially weak inflation and as you see (from the yen and euro) it comes against this backdrop of central banks becoming more dovish again,” although he also said that bond markets has seen far less reaction to the Swedish data.

In commodities, oil prices were mixed, with Brent futures off 29 cents at $66.21, although that was not far from Monday’s $66.83 which was the highest since mid-November. U.S. crude futures added 21 cents to $55.8. The precious metals market was more animated, with palladium surging to a record high of $1,471.0 per ounce as stricter emissions standards are seen increasing demand for the auto catalyst metal. Gold held around $1,323.66 per ounce after earlier rising to a near 10-month high of $1,327.64 too.

Expected data include NAHB Housing Market Index. Ecolab and Walmart are among companies reporting earnings.

Market Snapshot

• S&P 500 futures down 0.2% to 2,772.50
• STOXX Europe 600 down 0.4% to 368.32
• MXAP down 0.1% to 157.11
• MXAPJ down 0.3% to 512.60
• Nikkei up 0.1% to 21,302.65
• Topix up 0.3% to 1,606.52
• Hang Seng Index down 0.4% to 28,228.13
• Shanghai Composite up 0.05% to 2,755.65
• Sensex down 0.3% to 35,394.88
• Australia S&P/ASX 200 up 0.3% to 6,106.88
• Kospi down 0.2% to 2,205.63
• German 10Y yield fell 1.9 bps to 0.091%
• Euro down 0.03% to $1.1308
• Italian 10Y yield fell 3.2 bps to 2.407%
• Spanish 10Y yield fell 1.5 bps to 1.212%
• Brent futures down 0.4% to $66.26/bbl
• Gold spot up 0.2% to $1,329.52
• U.S. Dollar Index little changed at 96.90

Top Overnight News

• U.K. and European officials are working on a new legal text for the most contentious part of the Brexit deal, but time is running out for Prime Minister Theresa May to persuade a fracturing Parliament to unite behind her plan
• Italy’s bonds are enjoying a period of relative calm while Spanish politics hogs peripheral euro-area headlines. But the market’s sense of stability looks increasingly fragile as risks mount with the economy in recession, a widening budget deficit and the threat of a rating downgrade
• The European Central Bank’s chief economist added to the chorus of policy makers signaling concern on the economic slowdown, saying officials could push back plans to raise interest rates as a first response against a deeper downturn
• Chinese and U.S. trade negotiators will start the next round of talks this week in Washington, after discussions in Beijing last week that President Donald Trump called “very productive.”

Asian stocks were mixed as the region struggled for firm direction following yesterday’s rally and after a non-existent lead from the US which was shut for President’s Day. ASX 200 (+0.3%) was positive with the index led higher by outperformance in the tech and financials sectors, although consumer staples and healthcare were on the other end of the spectrum amid losses in Coles and Blackmores due to weak earnings. Elsewhere, Nikkei 225 (+0.1%) just about remained afloat with price action largely reflecting jittery trade in the domestic currency, while Hang Seng (-0.4%) and Shanghai Comp. (U/C) were indecisive as focus remained on US-China trade discussions which will resume today before the higher level talks on Thursday, and with some disappointment from a miss on HSBC earnings. Finally, 10yr JGBs were initially softer amid a pullback from the prior day’s gains and with demand suppressed by the mild upside across stocks, although prices later recovered after firmer results at the 20yr JGB auction. China Vice Premier Liu He will visit Washington for trade talks on February 21st-22nd, while there were comments from White House Press Secretary Sanders that trade meetings with China in Washington D.C. will begin today and that higher-level talks which will be led by USTR Lighthizer are to begin on Thursday. Furthermore, trade talks are said to focus on needed structural changes in China which impact trade, as well as China’s pledge to buy a substantial amount of goods and services from the US

Top Asian News

• PBOC Rate Cut Bets Have China Analysts Asking ‘Which Rate?’
• Kaisa Group Dollar Bonds Rally to Highest Level in Nine Months

Major European indices are mostly lower after trading choppily this morning, taking the lead from a directionless Asia session [Euro Stoxx 50 -0.6%]. The FTSE 100 (-0.6%) is weighed on by poor performance in HSBC (-4.0%) following their earnings; the Dax (-0.2%) is outperforming its peers bolstered by Wirecard (+4.5%) and Heidelberg Cement (+3.4%) following Bafin prohibiting new/extending shorts yesterday and a Q4 revenue beat respectively. Sectors are broadly in the red, with some underperformance in banking names, weighed on by the aforementioned HSBC who carry around a 2% Stoxx 600 weighting; and are the largest banking component. Other notable movers include, Danone (-0.7%) who are in the red in-spite of a beat on their sales, with some analysts highlighting weaker than expected margins. Automakers, such as Volkswagen (-0.9%) and Daimler (-1.0%) are in negative territory after EU Commission President Juncker stating that US President Trump gave his word that there wouldn’t be tariffs on European cars for the time being; alongside the EU agreeing to cut new truck CO2 emission levels by 30% before 2030.

Top European News

• U.K. Wage Growth Fastest Since 2008 Amid Labor Shortages
• VW Wins Appeal in German Suit Over Diesel Emissions Scanda
• Danske Bank Watchdogs Get Drawn Deeper Into European Probe
• Sweden’s Krona Slumps Most in Eight Months After Inflation Slows
• Siemens, Fortum Join Europe’s Jumbo Corporate Bond-Deal Dash

In FX, the Swedish Crown has slumped in wake of much softer than expected inflation data, and a slump in housing starts that together raise valid question marks over the Riksbank’s relatively confident outlook on the domestic economy and CPI/CPIF remaining close to target. On that note, Governor Ingves is due to speak later today and will get a chance to comment, as Eur/Sek spikes from sub-10.5000 through several chart resistance levels and only a whisker away from offers said to be lined up at 10.6000.

• AUD/NZD – Very volatile trade overnight on the back of latest RBA minutes that initially underpinned the Aud on confirmation of no likelihood of a change in policy rates for some time (so no ease in the offing), but then underlined the shift to a more neutral stance and highlighted significant risks to the economic outlook. Aud/Usd retreated swiftly in response and is currently holding just above 0.7100, while the Kiwi has been dragged down in sympathy as the cross remains just above 1.0400, with Nzd/Usd hovering around 0.6825 vs just a few pips short of 0.6900 on Monday.
• JPY/CAD – The next worst G10 performers, as Usd/Jpy grinds back up into a higher range and closer to 111.00 again amidst dovish rhetoric if not firm or official guidance from BoJ Governor Kuroda (mulling more accommodation if Jpy strength weighs on growth and hampers efforts to achieve the 2% inflation target, which has already proved extremely elusive of course). The headline pair is now probing 110.80, but could be held back by decent option expiry interest at 110.60 (1 bn). Meanwhile, the Loonie remains anchored around 1.3250 vs its US counterpart, eyeing crude to see whether prices push further ahead or consolidate around 2019 peaks.
• GBP/EUR/CHF – All narrowly mixed and pretty flat vs the Dollar that has edged up from yesterday’s lows (DXY close to 97.000 at one stage), with Cable maintaining 1.2900+ status, albeit just, awaiting more Brexit developments/headlines following a solid if not quite as upbeat as forecast UK labour market report. Similarly, the single currency is clinging to 1.1300 and showing resilience in the face of yet more dire Italian data, perhaps drawing a degree of encouragement from a more mixed ZEW survey, while the Franc is still chipping away at recent losses and inching through 1.0050 after a wider Swiss trade surplus.
• EM – More depreciation for the likes of the Rand and Lira, but the pressure and spotlight may switch somewhat to the Real later given political jitters due to the dismissal of a key aide to President Bolsonaro and potential adverse repercussions for pension reform. For reference, Usd/Brl settled around 3.7330 on Monday.

In commodities, the energy complex is ultimately flat-to-lower on the day thus far, with WTI (+1.0%) little changed net-net after missing a price settlement yesterday due to the President’s Day holiday over in the States. The holiday has also delayed the release of the API weekly inventory release by a day. In terms of macro themes for the complex, eyes remain on whether the OPEC-led supply curbs will ultimately ease glut concerns against the backdrop of 5 consecutive weeks of record-high US crude output. Furthermore, sources stated today that Saudi are mulling diminishing exports of Arab extra-light crude to the Asia region from March. The sourc es added that the move has improved demand in Abu-Dhabi’s Murban and Das in Asia’s spot market. Elsewhere, spot gold (+0.2%) is on the front foot and hovers near 10-month highs despite a rise in the USD as demand for the yellow metal grows ahead of the widely-anticipated dovish FOMC minutes tomorrow. Meanwhile, Shanghai aluminium fell following Malaysia announcing it will not extend a prohibition on mining bauxite when it expires on March 31st, with some noting it’ll potentially reduce costs in the aluminium supply chain for China.

US Event Calendar

• 8:50am: Fed’s Mester Speaks on Economic Outlook and Monetary Policy
• 10am: NAHB Housing Market Index, est. 59, prior 58

DB’s Jim Reid concludes the overnight wrap

With US markets shut, it’s been a predictably quiet last 24 hours. One of the few talking points yesterday though was the differing views on whether or not the US government would be forced to make public the results of the S232 report on the investigation of the national security risk posed by imported cars. There appears to be differing opinions on if the government has to make the findings public with some confusion around the legal language. With US markets open again today though, if the government is forced to make the findings public then in theory we would find out today, although Axios did quote a source yesterday as saying that “the White House was in favour of keeping the findings private so that Trump could have it in his back pocket as a threat”. So it remains up in the air.

In any case Trump had 90 days from receiving the report to decide on whether or not to take further action. His Twitter account has so far remained dormant on the subject too which is perhaps a positive sign right now insofar as not wanting to raise tensions across the pond. The only comment we’ve heard from the European Commission was Juncker saying in an interview with Germany’s Stuttgarter Nachrichten that “Trump gave me his word that there won’t be car tariffs for the time being” and that “I regard this promise as reliable”. He also said that “should he break his word we won’t feel bound to our promise either to buy more US soy and liquid gas”. We’ve heard a similar comment from Japan’s economy minister Motegi, who said that the US won’t apply higher tariffs on imports of Japanese cars and auto parts so long as negotiations toward a trade deal continue. One to watch.

Speaking of tariffs and trade, White House Spokeswoman Sanders said overnight that the US-China trade negotiations are set to begin today while, China’s Commerce Ministry released a statement saying that China’s Vice Premier Liu He will travel to DC on February 21-22 for meetings with Lighthizer and Mnuchin. In the meantime, Steve Censky, the US Department of Agriculture’s deputy secretary, said yesterday that talks are picking up pace ahead of the March 1 deadline, “but we still have ways to go.”

As for markets, well bourses in Asia have been a bit directionless overnight with the Nikkei (+0.21%) up while the Hang Seng (-0.36%), Shanghai Comp (-0.21%) and Kospi (-0.13%) are down having erased earlier gains. Elsewhere, futures on the S&P 500 (-0.01%) are trading flat. Meanwhile there’s been some focus on the BoJ where Governor Kuroda sounded a touch dovish in his address to parliament, saying that the BoJ will consider extra easing to hit price targets if needed while adding that additional easing could also be considered due to moves in the Japanese yen if they impact economy and prices. However, he added that all decisions will be taken after carefully examining policy benefits and costs. JGBs have rallied a bit after the comments, and are now trading at -0.035%. The Yen is back to flat after trading a bit stronger in the early going.

Those moves follow a low-volume inspired but mildly positive day for risk assets in Europe yesterday. The STOXX 600 initially spent an hour or so in the morning trading in and out of the red but eventually closed up +0.23% for its fifth daily gain in the last six days. That also means that the index is now up +9.52% for 2019 so far which is the best start to a year since 2015 and in fact the fifth best – out of 33 – since the index started back in 1987. As for other markets yesterday, the DAX (-0.01%) lagged a bit further behind however European Banks (+0.91%) continue to reap the rewards from Friday’s TLTRO comments. That’s now +5.25% from the Friday morning lows for the index while Greek Banks were up +6.20% yesterday and the most since early December after Greece’s government submitted a plan to the Commission to speed up bad-loan disposals.

There was also a marginal outperformance for the FTSE MIB (+0.58%) and IBEX (+0.35%) while the same was true in bond markets where 10y BTPs closed 3.1bps lower and Bunds 0.7bps higher – with little follow through from the ECB Governing Council member Villeory’s comments about a “significant” slowdown of the European economy. That puts the spread between the two at 266bps and the lowest in two weeks. Post Villeroy’s comments we also heard from Praet who added that “if the Euro Area economy were to slow more sharply, we could adapt our forward guidance on interest rates and this could be complemented by other measures”. Praet also called TLTROs a “very useful tool” in the past.

Elsewhere in markets, HY credit spreads finished 4.4bps tighter in Europe which now makes them 65bps tight from the January wides. Speaking of credit, yesterday we published a short note looking at trends around liquidity premiums in the EUR and USD HY markets. See this link for the full report.

In other news, here in the UK it was a better day for Sterling (+0.27%). That seemed to partly reflect the Times article suggesting that progress was being made on legally binding assurances on the Irish backstop, albeit one that was light on specifics. Less relevant but nonetheless headline grabbing all the same was the announcement of 7 MP resignations from the Labour party yesterday. The resignations are unlikely to have much of a read-through from a Brexit perspective however there is the possibility for wider ramifications insofar as it may reduce Corbyn’s chances of receiving a majority at the next general election.

Before we wrap up, a quick mention that yesterday we published a report that forecasts CAPE valuations for US and European stock markets. CAPE is set to drop significantly this year as 2009’s terrible earnings roll-off, however, several factors are coalescing that could pull down earnings from their historically-high levels. That means CAPE may not fall as much as the market expects. See the report here .

To the day ahead now, which this morning kicks off here in the UK with December and January employment stats due out. The consensus expects a small one-tenth of a percent pick up in earnings to +3.4% while the unemployment rate is expected to hold steady at 4.0%. Shortly after that we get December construction output data for the Euro Area before the February ZEW survey is due in Germany. In the US, the only data due out this afternoon is the February NAHB housing market index reading. Away from that we’ve got the first Fed speaker of the week when Mester speaks this afternoon on the economic outlook and monetary policy. The ECB’s Guindos and Praet are also due to speak at separate events today while the EU general affairs council gathers to discuss the 2019 budget and March summit agenda.

 

via ZeroHedge News http://bit.ly/2IwPdx0 Tyler Durden

Following a litany reports teased an imminent announcement, only to be denied by his staff, Bernie Sanders has finally officially thrown his hat into the ring, officially acknowledging his plan to seek the 2020 Democratic nomination during an interview Tuesday with Vermont Public Radio.

 

 

 

 

 

 

 

 

 

 

 

 

 

via ZeroHedge News http://bit.ly/2SfgPGx Tyler Durden

Authored by Bloomberg’s Justina Lee

What explains the resilience of Europe’s equity recovery this year despite worsening economic data and political wobbles?

The obvious candidates are the excessive sell-off in late 2018, an ECB that’s likely to stay loose for longer and optimism over U.S.-China trade talks. But when the Stoxx Europe 600 is at the highest since October, just a trade platitude away from its 200- day moving average, you’ve got to wonder how much support you can still count on from those three factors.

Let’s start with trade. Trump received a report on whether imported cars could pose a national security threat on Sunday, once again raising the specter of higher U.S. auto tariffs. That should at least be a drizzle on the parade of positive comments on ongoing U.S.-China trade talks. Markets have been cheering every ostensible sign of a compromise that would at least delay the threatened increase in American levies on Chinese goods. But how much higher can stocks go on this basis, when a grand bargain covering thornier issues such as intellectual property remains unlikely?

“It’s going to be a can that’s going to be kicked further down the line and an avoidance of short-term escalation, which will probably lead to a sigh of relief in the markets, but it won’t go away,” says Dirk Thiels, head of investment management at KBC Asset Management NV in Brussels.

Meanwhile, with the Stoxx 600’s forward price-to- earnings ratio up 13 percent from its trough, the bar should be raised for good news. As results estimates get cut, forward valuations will also end up being dearer than they look now.

In this lens, European cyclicals’ year-to-date rally is a head- scratcher. Economic momentum in the region has deteriorated — just look at bond yields and listen to ECB officials — but here the debate is on China and valuations. The new year has seen a rebound in Chinese risk assets and expectations are for growth to improve after stronger stimulus measures. But more evidence is needed.

Some strategists argue that at least parts of cyclical sectors are so cheap that they’re bargains regardless of how macro data do. Bernstein analysts count industries including autos, mining and construction materials as “cheap cyclicals,” while “expensive cyclicals” are luxury and capital equipment. Morgan Stanley has its “cyclical cyclicals” and “defensive cyclicals.” If you have to be hopeful, be careful.

Euro Stoxx 50 is down -0.5%

via ZeroHedge News http://bit.ly/2SOT115 Tyler Durden

Authored by Manilo Dinucci via Off-Guardian.org,

The day after the signature of NATO’s membership protocol with North Macedonia as its 30th member, Ukraine did something without precedent: it included in its Constitution the engagement to enter officially into NATO and the European Union at the same time.

On 7 February, on a proposition by President Petro Poroshenko – the oligarch who made himself rich by plundering public properties, and who is once again a candidate for the presidency – the Kiev parliament, by 34 votes to 35 with 16 abstentions, approved these amendments to the Constitution.

The Introduction pronounces “the irreversible movement of Ukraine towards Euro-Atlantic integration”; articles 85 and 116 state that it is a fundamental duty of the parliament and the government to “obtain Ukraine’s full membership of NATO and the EU”; article 102 stipulates that “the President of Ukraine is the guarantor of the strategic decisions of the State aimed at obtaining full membership of NATO and the EU”.

The inclusion in the Ukrainian Constitution of the engagement to enter officially into NATO bears with it some very serious consequences.

On the interior, it alienates the future of Ukraine from this choice, by excluding any alternative, and outlaws de facto any party or person who might oppose the “strategic decisions of the state”. Already, the Central Electoral Commission has forbidden Petro Simonenko, director of the Ukrainian Communist Party, to participate in the Presidential elections to be held in March.

The merit for having introduced into the Ukrainian Constitution the engagement to enter officially into NATO goes in particular to Parliamentary President Andriy Parubiy. Co-founder in 1991 of the Ukrainian National-Socialist Party, on the model of Adolf Hitler’s National-Socialist Party; head of the neo-Nazi paramilitary formations which were used in 2014 during the putsch of Place Maïdan under US/NATO command, and in the massacre of Odessa; head of the Ukraine National Security and Defense Council, which, with the Azov Battalion and other neo-Nazi units, attacked Ukrainian civilians of Russian nationality in the Eastern part of the country and used his squadrons for acts of ferocious abuse, the plunder of political headquarters and other auto-da-fés in a truly Nazi style.

On the international level, we should keep in mind that Ukraine is already linked to NATO, of which it is a partner: for example, the Azov Battalion, whose Nazi character is represented by the emblem copied from that of the SS unit Das Reich, has been transformed into a special operations regiment, equipped with armoured vehicles and trained by US instructors from the 173rd Airborne Division, transferred to Ukraine from Vicence, and seconded by other NATO members.

Since Russia has been accused by NATO of having illegally annexed Crimea, and of launching military operations against Kiev, should Ukraine officially join NATO, the 30 other members of the Alliance, on the basis of article 5, would be obliged to “assist the party or parties under attack by adopting immediately, individually and in agreement with the other parties, any action that it should deem necessary, including the use of armed force”.

In other words, they would have to go to war with Russia.

These dangerous implications of the modification of the Ukrainian Constitution – behind which are most certainly strategies by the USA and NATO – have been met with political and media silence. Including that of the Italian parliament, which, in 2017 established an agreement with the Ukrainian parliament, supported by Laura Boldrini and Andriy Parubiy. Thus cooperation has been reinforced between the Italian Republic, born of resistance against fascism and Nazism, and a régime which has created in Ukraine a situation similar to that which brought about the arrival of fascism in the 1920’s and Nazism in the 1930’s.

via ZeroHedge News http://bit.ly/2Ip954Q Tyler Durden

Russian assault and sniper rifle manufacturer Kalashnikov Group, a Rostec subsidiary, has unveiled a new high-precision suicide drone, called the KYB UAV, on Sunday at the IDEX-2019 arms exhibition in the United Arab Emirates.

The new drone is equipped with GPS, allows it to precisely hits ground targets, delivering a small warhead to target coordinates.

“This is a very accurate and most effective weapon, which is very difficult to fight with using traditional air defense systems, said Sergey Chemezov, head of Rostec.

“The explosive can be delivered to target regardless of how well hidden it is. It operates ‘regardless of hidden terrains, at both high and low altitude,” he added.

According to the presentation shown at the Kalashnikov booth, the KYB drone can travel at speeds of 50-80 miles per hour, with a 6.6-pound warhead and flight duration of up to 30 minutes.

A video shows the takeoff, flight, and destruction of the target with a KUB-BLA, a slight variant of the KYB

“The drone was successfully tested and ready to go,” Rostec representatives told TASS during IDEX-2019.

Russia also claimed that is has started shipping Kalashnikov AK103, a third generation assault rifle, to Saudi Arabia under an arms deal signed between the two countries in 2017.

In the drone age, both US and Russia should fear the global proliferation of weaponized UAVs. More importantly, Russia strapping a small warhead to a drone that looks like it can be purchased on Amazon, suggests that small, weaponized drones on the modern battlefield will be the most feared military hardware in the next major conflict.

via ZeroHedge News http://bit.ly/2Inbqxo Tyler Durden

Authored by Kit Knightly via Off-Guardian.org,

A damp squib of a press conference displays a group struggling for charisma, coherence and identity…

As of yesterday morning, seven MPs have officially resigned the whip and quit the Labour Party. They are now “independent”, apparently. Their names, if you don’t know already: Chris Leslie, Chuka Umunna, Luciana Berger, Mike Gapes, Angela Smith…and the other two.

It doesn’t really matter, to quote David Lindsay on Twitter:

People you’ve never heard of leave party they were never really in. #LabourSplit

— David Lindsay (@davidaslindsay) February 18, 2019

And so our 7 brave little soldiers head off into the unknown. The Seven Samurai. Ronin, the Japanese might say. Warriors without masters, if you’re in the mood to be flatteringly poetic.

Chickens without heads if you’re being a little more honest.

It’s not gone terribly well so far.

For one thing, the announcement was NOT of the long-awaited [name-to-be-announced] party. There is no party. They have no policies except Brexit is bad and no ideology except Corbyn is worse. There is no leader. No manifesto. No direction.

They are the “independent group”, that is all. A not-at-all catchy name for a sordid collection of also-rans and never-weres. A line up that looks more like a staff photo for a struggling comprehensive than a political party. Or the roster of one of those dodgy personal injury law firms that are always advertising on daytime TV.

(Just imagine Mike Gapes walking at 45 degrees to the camera and asking “Have you or someone you know been injured in an accident at work?”)

They are the smattering of New Labour who don’t realise they got old, and aren’t so much moving away as being left behind. Refusing to flow with the current, and slumping heavily down to the riverbed, to be buried in silt and fossilised.

Who knows, in ten thousand years they might be worth something. Historical curiosities. Archaeologists, yet born, will be poring over old documents and asking “Yes yes…but who IS Chris Leslie…and what did he do?” without realising that everyone was asking that while he was alive too.

The strangest aspect of this is the lack of unity on their part. They are not a party, they are barely a group. They all seem to be leaving for different reasons. Mike Gapes likes war and wants more of it. Chuka wants other people to edit his Wikipedia page for him this time. Luciana Berger wants to do whatever she wants and scream “antisemite!” at anyone who tries to stop her. Angela Smith wants to stop Brexit and run a campaign on the line “Vote for Labour because we won’t win”.

This announcement, of course, has been expected for a while now. The “new centrist party” has been the subject of frenzied negotiation behind the scenes for weeks…now we know they decided on literally nothing and held a press conference anyway.

They aren’t so much a group of comrades storming out as a united front, but rather a bunch of near-strangers who all happen to be leaving the staff Christmas party at the same time and are forced to walk down to the car park together in stony silence.

Less the “Gang of Four”, more “The Seven People Who Sort of Know Each Other Well Enough to Exchange Polite Chat in a Lift But Only for Two or Three Floors and then it Gets Awkward”.

Labour, naturally, have been quick to declare that these MPs should now face by-elections. A gauntlet the seven of them have been startlingly reticent to pick up.

Angela Smith was on the BBC after the press conference, declaring she won’t be running in a by-election because she’d definitely win, before capping it all off with a good old-fashioned piece of British racism.

Angela parted with Labour over “antisemitism” and, as of right now, her new political party has more racism scandals than it has names.

There’s even talk of bringing John Woodcock into the “Independent Group”. A man who was suspended from the party of allegations of sexual misconduct, but then endeavoured to turn it into an epic “you can’t dump me if I dump you first”, and pretend he quit on a point of principle (he didn’t) instead of being fired for being creepy (he was). Since then he has not gone more than three or four consecutive minutes without criticising Jeremy Corbyn. It would probably be annoying if anyone was listening.

All in all, this is the most humiliating and pointless Labour press conference since the last time they made a futile political gesture to try to get rid of Corbyn.

From our outside perspective, we can at least formulate a rough draft of a manifesto for these people. Broadly speaking they are in favour of stopping Brexit, apartheid Israel, selling arms to Saudi Arabia, declaring war under a false pretense, privatising water and right-wing coups in Latin America. Some niche opinions there, but it’s a foundation at least.

One thing we can’t really help them with is a name. They need a new one, and soon. “The Independent Group” is dreadful. Shortening it to “TIG” doesn’t work either, because whatever else they are…they sure ain’t “it”.

Some people have been calling them “the seven dwarves”, a rather unfitting moniker when you think about it. After all, the seven dwarves worked as a team, had discernible personalities and most people know their names.

They are much more the “seven veils”: Disposable, transparent, and they go wherever the wind is blowing.

via ZeroHedge News http://bit.ly/2ScTMMe Tyler Durden