Tag: finance

It’s a full-on “Baffle with BS” onslaught this morning. On one hand, the Case-Shiller Top 20 Composite Index rose by 13.3% Y/Y, better than the 13.00% expected, and the highest annual price increase since 2006. Unfortunately, the ramp is coming to an end, especially since the touted NSA data shows that monthly price increases have slowed for the fifth consecutive month, and stood at just 0.7%. At this rate the sequential price change in October will be negative. This is further reinforced by today’s “other” housing report: the September FHFA House Price Index, which unlike Case-Shiller rose 0.3%, below expectations and in line with last month. So on one hand home prices are better than expected, on the other: worse. Clear as mud.

 

But one thing is certain: the surge in the housing market of bankrupt Detroit has never been stronger, and the Y/Y price change just picked up once again, rising to a 3 month high of 17.2% compared to last year.

Perhaps all US cities should just file bankruptcy and see their home prices go through the roof?

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/XWedj0_Zvhg/story01.htm Tyler Durden

Call it the last hurrah for Private Equity and hedge funds as they scramble to “telegraph” that there is still some interest in rental property conversions. Despite ever louder cries that the REO-to-Rent and the general surge into rental properties is over (see our report on RealtyTrac’s latest data due out shortly), as many PE firms seek to cash out and to flip their existing exposure, today’s Housing Permits number for October showed just the opposite.  Because while permits for single-family housing units was virtually unchanged month over month, barely rising from 615K to 620K on a seasonally adjusted annualized basis, it was the structures with 5 units or more, aka rentals, that exploded by the most in the past two months going back all the way to 2008.

Whether this is merely an attempt to game the system and buy virtually zero-cost permits by the boatload, thus engineering a last-minute momentum push in the rental market, offloading existing properties to the last and dumbest money around, remains to be seen. However, one thing is clear: the rebound in the conventional, single-family housing market is over, and the only variable remains rental. The variable will become a constant once it becomes clear that increasingly fewer Americans can afford all time record high rent payments.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/rZT9CyAP9cQ/story01.htm Tyler Durden

As we showed very vividly yesterday, while the world is comfortably distracted with mundane questions of whether the Fed will taper this, the BOJ will untaper that, or if the ECB will finally rebel against an “oppressive” German regime where math and logic still matter, the real story – with $3.5 trillion in asset (and debt) creation per year, is China. China, however, is increasingly aware that in the grand scheme of things, its credit spigot is the marginal driver of global liquidity, which is great of the rest of the world, but with an epic accumulation of bad debt and NPLs, all the downside is left for China while the upside is shared with the world, and especially the NY, London, and SF housing markets. Which is why it was not surprising to learn that China has drafted rules banning banks from evading lending limits by structuring loans to other financial institutions so that they can be recorded as asset sales, Bloomberg reports.

Specifically, China appears to be targeting that little-discussed elsewhere component of finance, shadow banking. Per Bloomberg, the regulations drawn up by the China Banking Regulatory Commission impose restrictions on lenders’ interbank business by banning borrowers from using resale or repurchase agreements to move assets off their balance sheets. Banks would also be required to take provisions on such assets while the transactions are in effect. Ironically, it may be that soon China will be more advanced in recognizing the various exposures of shadow banking than the US, which is still wallowing under FAS 140 which allows banks to book a repo as both an asset and a liability. 

Recall from a Matt King footnote in his seminal “Are the Brokers Broken?”

Quite apart from the fact that FAS 140 contradicts itself (with paragraph 15 (d) making borrowed versus pledged transactions off balance sheet, and paragraph 94 making them on balance sheet, a topic complained about by many broker-dealers immediately after its issue), there seems to be little consensus as to who is the borrower and who is the lender. As far as we can tell, terms like ‘borrower’ and ‘lender’ are used in exactly the opposite sense in the accounting regulations relative to standard market practice. The description above follows common market practice. The accounting documents seem to refer to this the other way around, a source of confusion commented upon in some of the accounting literature

So while in the US one may be a borrower or a lender at the same time courtesy of lax regulatory shadow banking definition (depending on how much the FASB has been bribed by the highest bidder), in China things will very soon become far more distinct:

The rules would add to measures this year tightening oversight of lending, such as limits on investments by wealth management products and an audit of local government debt, on concerns that bad loans will mount. The deputy head of the Communist Party’s main finance and economic policy body warned last week that one or two small banks may fail next year because of their reliance on short-term interbank borrowing.

 

“China’s banks and regulators are playing this cat-and-mouse game in which the banks constantly come up with new gimmicks to bypass regulations,” Wendy Tang, a Shanghai-based analyst at Northeast Securities Co., said by phone. “The CBRC has no choice but to impose bans on their interbank business, which in recent years has become a high-leverage financing tool and may at some point threaten financial stability.”

Cutting all the fluff aside, what China is doing is effectively cracking down on the the wild and unchecked repo market, and specifically re-re-rehypothecation, which allows one bank to reuse the same ‘asset’ countless times, and allow it to appear in numerous balance sheets.

The proposed rules target a practice where one bank buys an asset from another and sells it back at a higher price after an agreed period.

The reason why China is suddenly concerned about shadow banking is that it has exploded as a source of funding in recent years:

Mid-sized Chinese banks got 23 percent of their funding and capital from the interbank market at the end of 2012, compared with 9 percent for the largest state-owned banks, Moody’s Investors Service said in June. The ratings company forecast a further increase in non-performing loans as weaker borrowers find it hard to refinance.

And while we are confident Chinese financial geniuses will find ways to bypass this attempt to curb breakneck credit expansion in due course, in the meantime, Chinese liquidity conditions are certain to get far tighter.

This is precisely the WSJ reported overnight, when it observed that yields on Chinese government debt have soared to their highest levels in nearly nine years amid Beijing’s relentless drive to tighten the monetary spigots in the world’s second-largest economy. “The higher yields on government debt have pushed up borrowing costs broadly, creating obstacles for companies and government agencies looking to tap bond markets. Several Chinese development banks, which have mandates to encourage growth through targeted investments, have had to either scale back borrowing plans or postpone bond sales.”

This should not come as a surprise in the aftermath of the recent spotlight on China’s biggest tabboo topic of all: the soaring bad debt, which is the weakest link in the entire, $25 trillion Chinese financial system (by bank assets). So while the Fed endlessly dithers about whether to taper, or not to taper, China is very quietly moving to do just that. Only the market has finally noticed:

The slowing pace of bond sales from earlier in the year is reviving worries of reduced credit and soaring funding costs that were sparked in June, when China’s debt markets were rattled by a cash crunch.

 

The rise in borrowing costs and shrinking access to credit could undercut the recent uptick in China’s economy that global investors in stock, commodity and currency markets have cheered. Wobbly growth in China could undermine economic recovery in the rest of the world.

 

“If borrowing costs don’t fall in time, whether the real economy could bear the burden is a big question,” said Wendy Chen, an economist at Nomura Securities.

 

Chinese bond yields are rising amid a lack of demand among the big banks, pension funds and other institutional money managers, analysts say. These investors, traditionally the heavyweights in China’s bond market, have seen their funding costs rise in tandem with interbank lending rates, which are controlled by China’s central bank. The country’s bond market is largely closed to foreign investors.

 

The yield on China’s benchmark 10-year government bond was at 4.65% Monday, down from 4.71% Friday. Last Wednesday’s 4.72% was the highest since January 2005, according to data providers WIND Info and Thomson Reuters. The record is 4.88% set in November 2004. Bond yields and prices move in opposite directions.

 

“The recent sharp rise in bond yields was mostly due to worsening funding conditions and growing expectations for a tighter monetary policy as Beijing seeks to deleverage the economy,” said Duan Jihua, deputy general manager at Guohai Securities.

 

As government-bond yields have risen, the average yield on debt issued by China’s highest-rated companies rose to 6.21% as of Friday—the highest since 2006, when WIND Info began compiling the data.

In conclusion, it goes without saying that should China suddenly be hit with the double whammy of regulatory tightening in both shadow and traditional funding liquidity conduits, that things for the world’s biggest and fastest creator of excess liquidity are going to turn much worse. We showed as much yesterday:

If the Chinese liquidity spigot – which makes the Fed’s and BOJ’s QE both pale by comparison – is indeed turned off, however briefly, then quietly look for the exit doors.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/BaaUyN4AYc4/story01.htm Tyler Durden

As we showed very vividly yesterday, while the world is comfortably distracted with mundane questions of whether the Fed will taper this, the BOJ will untaper that, or if the ECB will finally rebel against an “oppressive” German regime where math and logic still matter, the real story – with $3.5 trillion in asset (and debt) creation per year, is China. China, however, is increasingly aware that in the grand scheme of things, its credit spigot is the marginal driver of global liquidity, which is great of the rest of the world, but with an epic accumulation of bad debt and NPLs, all the downside is left for China while the upside is shared with the world, and especially the NY, London, and SF housing markets. Which is why it was not surprising to learn that China has drafted rules banning banks from evading lending limits by structuring loans to other financial institutions so that they can be recorded as asset sales, Bloomberg reports.

Specifically, China appears to be targeting that little-discussed elsewhere component of finance, shadow banking. Per Bloomberg, the regulations drawn up by the China Banking Regulatory Commission impose restrictions on lenders’ interbank business by banning borrowers from using resale or repurchase agreements to move assets off their balance sheets. Banks would also be required to take provisions on such assets while the transactions are in effect. Ironically, it may be that soon China will be more advanced in recognizing the various exposures of shadow banking than the US, which is still wallowing under FAS 140 which allows banks to book a repo as both an asset and a liability. 

Recall from a Matt King footnote in his seminal “Are the Brokers Broken?”

Quite apart from the fact that FAS 140 contradicts itself (with paragraph 15 (d) making borrowed versus pledged transactions off balance sheet, and paragraph 94 making them on balance sheet, a topic complained about by many broker-dealers immediately after its issue), there seems to be little consensus as to who is the borrower and who is the lender. As far as we can tell, terms like ‘borrower’ and ‘lender’ are used in exactly the opposite sense in the accounting regulations relative to standard market practice. The description above follows common market practice. The accounting documents seem to refer to this the other way around, a source of confusion commented upon in some of the accounting literature

So while in the US one may be a borrower or a lender at the same time courtesy of lax regulatory shadow banking definition (depending on how much the FASB has been bribed by the highest bidder), in China things will very soon become far more distinct:

The rules would add to measures this year tightening oversight of lending, such as limits on investments by wealth management products and an audit of local government debt, on concerns that bad loans will mount. The deputy head of the Communist Party’s main finance and economic policy body warned last week that one or two small banks may fail next year because of their reliance on short-term interbank borrowing.

 

“China’s banks and regulators are playing this cat-and-mouse game in which the banks constantly come up with new gimmicks to bypass regulations,” Wendy Tang, a Shanghai-based analyst at Northeast Securities Co., said by phone. “The CBRC has no choice but to impose bans on their interbank business, which in recent years has become a high-leverage financing tool and may at some point threaten financial stability.”

Cutting all the fluff aside, what China is doing is effectively cracking down on the the wild and unchecked repo market, and specifically re-re-rehypothecation, which allows one bank to reuse the same ‘asset’ countless times, and allow it to appear in numerous balance sheets.

The proposed rules target a practice where one bank buys an asset from another and sells it back at a higher price after an agreed period.

The reason why China is suddenly concerned about shadow banking is that it has exploded as a source of funding in recent years:

Mid-sized Chinese banks got 23 percent of their funding and capital from the interbank market at the end of 2012, compared with 9 percent for the largest state-owned banks, Moody’s Investors Service said in June. The ratings company forecast a further increase in non-performing loans as weaker borrowers find it hard to refinance.

And while we are confident Chinese financial geniuses will find ways to bypass this attempt to curb breakneck credit expansion in due course, in the meantime, Chinese liquidity conditions are certain to get far tighter.

This is precisely the WSJ reported overnight, when it observed that yields on Chinese government debt have soared to their highest levels in nearly nine years amid Beijing’s relentless drive to tighten the monetary spigots in the world’s second-largest economy. “The higher yields on government debt have pushed up borrowing costs broadly, creating obstacles for companies and government agencies looking to tap bond markets. Several Chinese development banks, which have mandates to encourage growth through targeted investments, have had to either scale back borrowing plans or postpone bond sales.”

This should not come as a surprise in the aftermath of the recent spotlight on China’s biggest tabboo topic of all: the soaring bad debt, which is the weakest link in the entire, $25 trillion Chinese financial system (by bank assets). So while the Fed endlessly dithers about whether to taper, or not to taper, China is very quietly moving to do just that. Only the market has finally noticed:

The slowing pace of bond sales from earlier in the year is reviving worries of reduced credit and soaring funding costs that were sparked in June, when China’s debt markets were rattled by a cash crunch.

 

The rise in borrowing costs and shrinking access to credit could undercut the recent uptick in China’s economy that global investors in stock, commodity and currency markets have cheered. Wobbly growth in China could undermine economic recovery in the rest of the world.

 

“If borrowing costs don’t fall in time, whether the real economy could bear the burden is a big question,” said Wendy Chen, an economist at Nomura Securities.

 

Chinese bond yields are rising amid a lack of demand among the big banks, pension funds and other institutional money managers, analysts say. These investors, traditionally the heavyweights in China’s bond market, have seen their funding costs rise in tandem with interbank lending rates, which are controlled by China’s central bank. The country’s bond market is largely closed to foreign investors.

 

The yield on China’s benchmark 10-year government bond was at 4.65% Monday, down from 4.71% Friday. Last Wednesday’s 4.72% was the highest since January 2005, according to data providers WIND Info and Thomson Reuters. The record is 4.88% set in November 2004. Bond yields and prices move in opposite directions.

 

“The recent sharp rise in bond yields was mostly due to worsening funding conditions and growing expectations for a tighter monetary policy as Beijing seeks to deleverage the economy,” said Duan Jihua, deputy general manager at Guohai Securities.

 

As government-bond yields have risen, the average yield on debt issued by China’s highest-rated companies rose to 6.21% as of Friday—the highest since 2006, when WIND Info began compiling the data.

In conclusion, it goes without saying that should China suddenly be hit with the double whammy of regulatory tightening in both shadow and traditional funding liquidity conduits, that things for the world’s biggest and fastest creator of excess liquidity are going to turn much worse. We showed as much yesterday:

If the Chinese liquidity spigot – which makes the Fed’s and BOJ’s QE both pale by comparison – is indeed turned off, however briefly, then quietly look for the exit doors.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/BaaUyN4AYc4/story01.htm Tyler Durden

Today’s AM fix was USD 1,250.75, EUR 923.88 and GBP 773.69 per ounce.
Yesterday’s AM fix was USD 1,231.75, EUR 911.60 and GBP 760.57 per ounce.

Gold rose $5.60 or 0.45% yesterday, closing at $1,248.80/oz. Silver climbed $0.15 or 0.25% closing at $20.02/oz. Platinum rose $3.19 or 0.2% to $1,380.99/oz, while palladium inched up $6.11 or 0.9% to $712.52/oz.

Gold in U.S. Dollars, 3 Days – (Bloomberg)

Gold was trading near a one-week high today and is turning higher for the week, due to short-covering gains and the market questioning the Iran deal.

Comex had to suspend gold futures trading yesterday again – again for 20 seconds due to a massive sell order that led to just a $10 price fall.

Comex trading was halted for December gold futures at 6:02:24 a.m. GMT yesterday, Damon Leavell, a CME Group Inc. spokesman in New York, said in an e-mail. This led to gold falling to a 4 and a ½ month low near $1,225 an ounce before recovering from the massive sell order. Questions regarding gold manipulation continue to be asked including by Bloomberg (see link) overnight.

While the focus of the Bloomberg story is regarding possible rigging on the London AM Fix, regulators in the U.S. including the CFTC may need to reopen their investigation into manipulation of the gold market after the highly irregular trading on the COMEX last Wednesday and again early on Monday morning.

Without the massive sell order that shut down the COMEX for 20 seconds, gold prices would have been higher yesterday. That one trade pushed gold prices lower as European markets opened up and created very significant short term negative sentiment towards gold.  It led to dozens of headlines that flew around the world which said that gold prices had fallen due to the Iran deal.

IN CHINA, THE GOLD RUSH CONTINUES as Chinese people buy jewellery, coins and bars as a store of wealth to protect from inflation.

The world’s largest jewellery group, Chow Tai Fook Jewellery Group Ltd. , established in 1929, saw sales jumped 49% during the first half of 2013.

Gold in U.S. Dollars, 24 Hours – (Bloomberg)

It posted a first-half profit that beat analyst estimates as the drop in gold prices drove strong Chinese demand for gold. Net income almost doubled to HK$3.5 billion ($451.5 million) from a year earlier for the six months ended September 30, it said in a statement to Hong Kong’s stock exchange today.

Jewelers in China and throughout Asia are benefiting from continuing robust demand for gold. This has led Chow Tai Fook and jewellery outlets having to buy gold bars and rebuild gold inventories.

Retail sales of gold tripled across China after the peculiar “flash crash” of April 15-16 when gold fell 10% in two days. Demand has remained robust and the recent weakness has seen continued demand.

Founded in 1929 in the southern Chinese city of Guangzhou, the jeweller was named after its founder Chow Chi Yuen. “Tai Fook” means “big blessing” in Chinese.

Markets await the release of a batch of U.S. economic reports, including  U.S. housing starts and building permits for October, along with two home-price indexes and consumer-confidence numbers.

GoldCore were interviewed over the weekend about the huge increase in Chinese demand for gold in recent years and how it is sustainable. The video can be watched here:
VIDEO: “China’s Insatiable Demand For GOLD Causing PARADIGM SHIFT”

Gold Prices / Fixes / Rates / Vols – (Bloomberg)

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via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/Pfqq-V36fXs/story01.htm GoldCore

• M&A Mystery: Why Are Takeover Prices Plummeting? (WSJ)
• Hedge-Fund Fight Club Traded Illegal Tips Not Punches (BBG)
• Speed Traders Meet Nightmare on Elm Street With Nanex (BBG)
• A new wave of U.S. mortgage trouble threatens (Reuters)
• Penny Lane: Gitmo’s other secret CIA facility (AP)
• US hardens threat to leave Afghanistan with no troops (WSJ)
• Russian Prison Stuns Captain of Greenpeace’s Bombed Ship (BBG)
• ECB’s Weidmann Warns Central Banks Might Be Too Dominated by Fiscal Concerns (WSJ)
• China Air Move Splits Japan as Carriers Obey New Rules (BBG)
• Inside the Breakup of the Pritzker Empire (WSJ)
• Exports show growth fatigue after falling in September (Kathimerini)
• Thai Protesters Urge Civil Servants to Join Anti-Government Push (BBG)
• Fears Rise as China’s Yields Soar (WSJ)
• Horse-Gambling Frenchman Parlays System Into Best U.S. Forecasts (BBG)
• FDA Tells Google-Backed 23andMe to Halt DNA Test Service (BBG)

 

Overnight Media Digest

WSJ

* The Obama administration is mounting an aggressive campaign to head off new congressional sanctions against Iran, arguing they would jeopardize the high-stakes deal sealed this past weekend to curb Tehran’s nuclear program.

* Wal-Mart named Douglas McMillon as its next chief executive, handing the job to a long-serving insider who, at just 47 years old, will be the youngest CEO since Sam Walton to helm the giant retailer.

* The U.S. Food and Drug Administration, in a U-turn from its position three years ago, removed restrictions on GlaxoSmithKline Plc’s diabetes drug Avandia and said it no longer had serious concerns over the drug’s heart-attack risk.

* The FDA ordered genetic-testing startup 23andMe to stop marketing its mail-order DNA kit, citing the risk that false results could cause consumers to undergo unnecessary health procedures such as breast-cancer surgery.

* Eric Noll, an executive vice president at Nasdaq OMX who was seen as the top internal contender to succeed CEO Robert Greifeld, has resigned from the market operator to lead brokerage firm ConvergEx.

* Qualcomm Inc said a Chinese government agency is investigating the chip maker under the country’s antimonopoly law, a probe that comes amid rising tensions affecting U.S. companies in China.

* Katie Couric became the latest high-profile journalist to join a digital outlet, striking a deal with Yahoo Inc, the company announced Monday.

* Carlyle Group LP said it will acquire Diversified Global Asset Management Corp, a Toronto-based investor in hedge funds, as the firm continues to expand from private equity. The deal is valued at $33 million, plus a possible $70 million if the hedge-fund firm achieves a certain level of performance.

* McGraw Hill Financial Inc said on Monday it hired Citigroup Inc executive Neeraj Sahai to run its Standard & Poor’s Ratings Services unit, the world’s largest ratings firm.

 

FT

Brussels unveiled proposals on Monday to plug tax loopholes and force multinationals to pay more in corporate taxes to members of the European Union.

European Commission is set to warn the United States on Wednesday that its technology firms may lose exemption from privacy rules if Washington does not protect EU citizen’s data online.

Chancellor George Osborne will face renewed demands to put in place stringent banking regulations as pressure amounts over controversies plaguing Royal Bank of Scotland, the Co-operative Bank and payday lenders.

Authorities in China have launched an antitrust investigation into U.S. mobile chipmaker Qualcomm. The company however said it was not aware of any charge of breaking the law by the regulators.

Walmart appointed company veteran Doug McMillon as the fifth chief executive replacing Mike Duke. The announcement comes at a time when the company is struggling with falling U.S. sales and bribery allegation in Mexico.

Blackberry’s interim Chief Executive John Chen said the company’s finance and operating chief along with the chief marketing officer would leave the company in a management rejig.

 

NYT

* Security experts say they believe that government spies hit the big Internet companies at a weak spot – the fiber-optic cables that connect their data centers.

* As Walmart enters a fiercely competitive holiday season while still hampered by sluggish sales, the company’s board announced on Monday that Michael Duke, its chief executive, would retire early next year and a longtime executive, C. Douglas McMillon, would replace him.

* Orrick, Herrington & Sutcliffe and Pillsbury Winthrop Shaw Pittman were in advanced merger talks that would have created one of the country’s ten largest firms with about 1,700 lawyers. But on Monday, the firms issued a joint statement that the deal was off.

* Chrysler will not move forward with an initial public offering until next year at the earliest, giving its parent company, Fiat, more time to negotiate the purchase of a 41.5 percent stake held by a union health care trust.

* One of the top executives at Nasdaq OMX, Eric Noll, is leaving the company to lead the brokerage firm ConvergEx Group.

* Patients injured by a flawed hip implant sold by Johnson & Johnson have directed their anger at myriad places over the years. The regulatory system that allowed the product’s sale. The company that repeatedly denied problems with the device. Even the doctors who implanted the hips. Now, some patients have found a new target for their ire: the legal system and the lawyers they hired to sue Johnson & Johnson.

 

Canada

THE GLOBE AND MAIL

* Struggling Sears Canada Inc’s so-far unsuccessful attempt to find a buyer underscores a fast-changing domestic retail landscape. Just three years ago, Canada was considered a golden spot for expansion, with U.S. chains clamoring to find store locations from which they could launch.

* A prominent judge has found tha
t a Canadian spy service has not been forthcoming with Federal Court. In a highly unusual statement, the Federal Court said Justice Richard Mosley found last week that the Canadian Security Intelligence Service was not sufficiently open about all the surveillance alliances it planned to form.

Reports in the business section:

* New BlackBerry Ltd executive chairman and interim CEO John Chen has begun what is expected to be an extensive purge of the company’s top ranks. Gone are predecessor Thorsten Heins’s top lieutenants, chief operating officer Kristian Tear and chief marketing officer Frank Boulben, the company said Monday.

* Brighter job prospects in Alberta and more challenging ones in the eastern side of the country are altering the country’s population flows. Alberta saw another year of above-average population growth in 2012-13, driven by record levels of net international migration and interprovincial migration, Monday’s preliminary population estimate from Statistics Canada shows.

NATIONAL POST

* The Harper government’s case for the defense in the Senate scandal has morphed from the lone gunman theory – that Nigel Wright acted alone – to a full-fledged cover-up by a number of rogue operatives.

* Mayor Rob Ford blames a 2.5 percent tax hike proposed by city staff on his effective demotion as chief magistrate and lashes out at the “embarrassing” return to “tax and spend” ways. Councillor Doug Ford says the “political will” to cut costs has evaporated at city hall.

FINANCIAL POST

* Canada’s banking regulator delivered a warning Monday about the state of the housing sector, reminding industry players to remain vigilant to the dangers of a correction in the market and what it would mean for borrowers.

 

China

CHINA SECURITIES JOURNAL

– China plans to adopt measures to encourage direct financing, said Yao Gang, vice chairman of the China Securities Regulatory Commission on Monday at a forum. Plans include the development of the multi-level capital market, an increase in direct financing instruments and the regulation of information disclosure.

CHINA DAILY

– China’s central government is planning to reduce by as much as 60 percent the range of corporate investment needing review and approval from the National Development and Reform Commission and other central government agencies, NDRC vice-minister Lian Weiliang, told a news conference on Monday.

SHANGHAI SECURITIES NEWS

– The China Securities Regulatory Commission has partnered with the Singapore Exchange (SGX) to build a direct listing framework to encourage Chinese companies to list in Singapore, SGX announced on Monday.

– The Shanghai Futures Exchange (SFX) plans to launch trading in non-ferrous metal futures for copper, aluminium, zinc and lead, on the evening of Dec. 20, the SFX said in a notice on Monday.

PEOPLE’S DAILY

– In order to improve the education of the masses, China must look back to identify problems with its previous system, said a commentary in the paper that acts as the party’s mouthpiece.

 

Fly On The Wall 7:00 AM Market Snapshot

ANALYST RESEARCH

Upgrades

ASML (ASML) upgraded to Buy from Hold at Societe Generale
Agnico-Eagle (AEM) upgraded to Overweight from Equal Weight at Morgan Stanley
Autoliv (ALV) upgraded to Neutral from Sell at Citigroup
Danaher (DHR) upgraded to Buy from Neutral at Goldman
FireEye (FEYE) upgraded to Overweight from Equal Weight at Barclays
Forest Labs (FRX) upgraded to Neutral from Underweight at Piper Jaffray
Huntsman (HUN) upgraded to Buy from Neutral at Goldman
Kinross Gold (KGC) upgraded to Equal Weight from Underweight at Morgan Stanley
Peabody Energy (BTU) upgraded to Outperform from Neutral at Macquarie
Summit Hotel (INN) upgraded to Outperform from Market Perform at BMO Capital
Workday (WDAY) upgraded to Outperform from Neutral at RW Baird

Downgrades

AutoZone (AZO) downgraded to Neutral from Buy at Goldman
Cardiovascular Systems (CSII) downgraded to Hold from Speculative Buy at Benchmark Co.
DealerTrack (TRAK) downgraded to Underweight from Equal Weight at Barclays
Eldorado Gold (EGO) downgraded to Equal Weight from Overweight at Morgan Stanley
Francesca’s (FRAN) downgraded to Neutral from Buy at Janney Capital
Freeport McMoRan (FCX) downgraded to Neutral from Buy at Goldman
IAMGOLD (IAG) downgraded to Underweight from Equal Weight at Morgan Stanley
Lionbridge (LIOX) downgraded to Neutral from Buy at B. Riley
Omega Protein (OME) downgraded to In-Line from Outperform at Imperial Capital
The Fresh Market (TFM) downgraded to Neutral from Buy at Goldman
Waters (WAT) downgraded to Neutral from Buy at Goldman
Weingarten Realty (WRI) downgraded to Market Perform from Outperform at Wells Fargo

Initiations

58.com (WUBA) initiated with a Buy at Citigroup
Container Store (TCS) initiated with a Hold at Jefferies
Container Store (TCS) initiated with a Market Perform at Wells Fargo
Container Store (TCS) initiated with a Neutral at Guggenheim
Container Store (TCS) initiated with an Outperform at Credit Suisse
Container Store (TCS) initiated with an Overweight at JPMorgan
Costamare (CMRE) initiated with a Neutral at Credit Suisse
Galena Biopharma (GALE) initiated with an Outperform at Oppenheimer
Gulfport Energy (GPOR) initiated with a Buy at KeyBanc
Haemonetics (HAE) initiated with a Buy at Jefferies
Integrys Energy (TEG) initiated with an Equal Weight at Barclays
Mallinckrodt (MNK) initiated with a Buy at Jefferies
Marcus & Millichap (MMI) initiated with a Buy at Citigroup
Marine Products (MPX) initiated with a Neutral at B. Riley
Prospect Capital (PSEC) initiated with an Outperform at BMO Capital
Sapiens (SPNS) initiated with an Overweight at Barclays
Surgical Care Affiliates (SCAI) initiated with a Buy at BofA/Merrill
Tuesday Morning (TUES) initiated with an Outperform at Credit Suisse
Veracyte (VCYT) initiated with an Overweight at Morgan Stanley
West Marine (WMAR) initiated with a Buy at B. Riley

HOT STOCKS

Gabelli said Superior Industries (SUP) should be repurchasing stock
Philip Morris (PM) sees continued currency headwinds in 2014
Justice Department moved to intervene in H&R Block (HRB) lawsuit alleging disability discrimination
FDA to review efficacy of Plan B contraception in overweight women (TEVA), DJ reports
Laredo Petroleum (LPI) announced corporate reorganization, merger with subsidiary
Signet Jewelers (SIG) expects to open 75-85 new Kay, Jared stores in FY14

EARNINGS

Companies that beat consensus earnings expectations last night and today include:
Hormel Foods (HRL), LDK Solar (LDK), Dycom (DY), Perfect World (PWRD), Nuance (NUAN), Palo Alto (PANW), Workday (WDAY)

Companies that missed consensus earnings expectations include:
Copart (CPRT), Hillenbrand (HI), Fifth Street Finance (FSC)

Companies that matched consensus earnings expectations include:
21Vianet (VNET), Culp (CFI)

NEWSPAPERS/WEBSITES

• Soon after Microsoft’s (MSFT) Xbox One went on sale  Friday morning, some customers were taking to Twitter (TWTR) to complain that their new devices were malfunctioning.Microsoft has acknowledged a problem, but said it isn’t widespread, the Wall Street Journal reports
• For M&A’s this year, U.S. companies are paying just 19% more, on average, than their acquisition target’s trading price one week before the deal was announced. That’s the lowest takeover premium since at least 1995, as far back as records go at Dealogic, the Wall Street Journal reports
• The FAA is set to direct airlines to avoid flying Boeing (BA) 787 Dreamliners and 747-8 jumbo jets with GE (
  GE) engines near thunderstorms after some planes experienced ice buildup in their engines, Reuters reports
• Singapore’s DBS Group Holdings (DBSDY) and ABN AMRO are among the suitors to place final bids for Societe Generale’s (SCGLY) Asia private bank, in a $400M deal. Credit Suisse (CS) is also submitting a final bid, sources say, Reuters reports
• Since its IPO, Twitter (TWTR) has been targeting retailers to advertise on its service, especially important during the most lucrative shopping season of the year. The company has met with Best Buy (BBY), Target (TGT) and others, as it lags behind Facebook (FB) in dollars flowing from retailers, Bloomberg reports
• U.S. corporations are changing CEOs at the fastest pace in five years as companies from Wal-Mart Stores (WMT) to Microsoft (MSFT) deal with shifting customer tastes, competition from upstarts and restive shareholders, Bloomberg reports

SYNDICATE

America First Tax Exempt Investors (ATAX) files to sell 6M shares for limited partners
BitAuto (BITA) files to sell $100M in common stock
Sprouts Farmers Markets (SFM) 17M share Secondary priced at $37.00

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/Jwt-6jO4aeo/story01.htm Tyler Durden

If yesterday Goldman was pitching going long of the S&P in AUD terms (the world renowned Goldman newsletter may cost $29.95 but is only paid in soft dollars) as its first revealed Top Trade of 2014, today’s follow up exposes Top Trade #2: which is to “Go long 5-year EONIA vs. short 5-year US Treasuries.” Goldman adds: “The yield differential between these two financial instruments is currently -61bp, and we expect it to reach around -130bp. On the forwards, the differential is priced at around -95bp at the end of 2014 at the time of writing. We have set the stop-loss on the trade at a spread of -35bp. The choice of Treasuries over OIS or LIBOR on the short leg is motivated by the fact that yields on the former could underperform more than they have already in relative space as the Fed scales down its asset purchase program.”

More from Goldman on this trade recommendation:

• We unveil today the second of our Top Trade recommendations for 2014
• Long 5-year EONIA vs. short 5-year US Treasuries at -61bp for a target of -130bp
• The spread is already priced to widen in the forwards, led mostly by the US leg
• We look for a bigger term premium at the belly of the US curve …
• …while disinflation and the AQR should preserve the ECB’s easing bias

We present today the second of our Top Trade recommendations for 2014: long Euro area 5-year rates vs short their US counterparts. Specifically, we recommend receiving 5-year EONIA fixed rates against shorting 5-year US Treasury Notes. The yield differential between these two financial instruments is currently -61bp, and we expect it to reach around -130bp. On the forwards, the differential is priced at around -95bp at the end of 2014 at the time of writing. We have set the stop-loss on the trade at a spread of -35bp. The choice of Treasuries over OIS or LIBOR on the short leg is motivated by the fact that yields on the former could underperform more than they have already in relative space as the Fed scales down its asset purchase program. We will, however, be watching to see if the decline in US borrowing requirements more than compensates for these effects. The greater liquidity of 5-year Treasuries compared with 5-year US$ OIS has also been a consideration. In the Euro area, we are of the view that German bonds may ‘cheapen’ further relative to EONIA as fixed income portfolios are rebalanced in favour of higher-yielding securities, particularly if the ECB eases further. Three macro factors underpin our new Top Trade recommendation, which we review in the sections below.

Separately, and from a tactical standpoint, we now recommend going long Mar-14 Australian Bank bill futures (IRH4) (see Trade Update: Position for further RBA easing, published earlier today). Our view is that the weakness in the Australian economy will remain in place through 2014. As such, we expect the RBA to cut rates by a further 25bp, most likely by the March policy meeting, with a move as early as in December quite possible. At this point, we believe the market only discounts a 25% chance of an easing move in March.

1. Growth Differential Widens

We expect real GDP growth to accelerate across the major developed economies over the coming quarters. As economic activity picks up speed, and core inflation slowly makes its way back up, we expect intermediate maturity yields to re-price higher. Against this backdrop, we note that:

• On our central forecasts, these dynamics are likely to materialize sooner and faster in the US than in the Euro area. In the former, we project sequential quarter-on-quarter annualized real GDP growth of 3.0%-3.5% during most of 2014 and 2015 – an above-trend expansion, following three years with growth close to its potential rate. We also expect an improvement in the economic outlook in the Euro area, but with GDP growth heading to around 1.0%-1.5% – roughly the potential rate of growth – over the corresponding period.
• Our 2014 GDP growth forecast for the Euro area is in line with the latest consensus (as collated by Consensus Economics), while our US GDP forecast is around 50bp above consensus. The downside skew to our crude oil forecasts (we see Brent at US$105/bbl at the end of 2014, from US$110/bbl at end-2013) could benefit the US economy more than Europe’s, given the larger pass-through to retail gasoline prices, which would support household disposable income.
• Downside risks to economic activity are arguably higher in the Euro area than in the US. As we have written in the past (See Global Viewpoint EMU Policies and Market Implications, October 21), ‘banking union’ represents a key institutional upgrade, which will help contain systemic risks and, over time, support the recovery. The transition towards it, however, presents several challenges. A further deleveraging of banks’ balance sheets and the possibility of private creditor ‘bail-ins’ as the Comprehensive Assessment is carried out could weigh on growth more than we already anticipate.

2. Service Price Inflation Diverges

Recent data show that consumer price inflation has stabilized in the US, while it is still trending downwards in the Euro area. Our forecasts indicate that the ongoing divergence in price dynamics on the two sides of the Atlantic will extend into next year: US CPI inflation is seen increasing from an estimated 1.5% in 2013 to 1.7% in 2014, while Euro area inflation goes from 1.4% to 1.1%, with no inflection point expected until the third quarter of 2014.

A significant cross-country divergence in inflation dynamics is also evident when looking beneath the surface (i.e., headline numbers), and accounting for the common international effect of lower commodity prices on retail prices. We notice that services, which typically exhibit a ‘sticky’ or persistent price behaviour, represent about half of the total CPI basket in the US and in the Euro area, and more than two-thirds of ‘core’ CPI. The spread between service price inflation in the US and the Euro area is wide, and possibly set to increase. According to the latest available data, inflation in this category is running at 2.3% in the US, and at just 1.2% in the Euro area. Our econometric estimates of trend service inflation, derived through an econometric approach following the methodology proposed by Stock-Watson (2007), point to an acceleration in the US and, by constrast, a deceleration in the Euro area.

3. Forward Guidance is in the Price

Our 2014 outlook is characterized by central banks cementing their ‘forward guidance’ on policy rates. Currently, a very accommodative monetary policy stance is largely priced in the US, while the market is underestimating the possibility that the ECB can provide further easing, even by cutting the deposit rate below zero. More specifically:

The US$ OIS curve discounts that Fed Funds rates will be kept low for all of 2014 and most of 2015. The 3-month US$ OIS rate in 2-years’ time is around 75bp, back to the levels it stood at in June. The US$ OIS curve steepens considerably beyond this horizon, with the 3-month US$ OIS rate in 3-years’ time currently at 1.65%. But this is just in line with our (dovish) Fed fund forecasts, indicating that the ‘ex-ante’ risk premium is extremely limited. In our previous work, we have shown that estimations of the ‘ex-post’ risk premium in the Eurodollar strip is also very depressed (i.e., investors price negative returns on cash through early 2017) conditioning for the current macro outlook. As we transition to an above-trend growth environment in 2014 and the tapering of Fed bond purchases gets underway, we believe investors may start to challenge the ‘time inconsistency’ of the Fed’s approach, and test its commitment to keep
front-end rates so depressed for so long.

In the Euro area, the front end of yield curve is priced ‘fairly’ relative to our baseline views: the 3-month EONIA in 2-years’ time is currently at around 45bp, increasing to 100bp in the following year. That said, ECB officials have on several occasions said that they judge the costs of deviations from their central objective to keep inflation ‘close but below 2%’ as symmetrical, and may be prepared to ease further should disinflation become more entrenched. Even on our more optimistic central scenario for CPI (the annual inflation on our economists’ forecasts does not fall much below 1%), we expect the ECB to offset any sell-off emanating from developments in the US and any negative shock occurring in the Euro area while the Asset Quality Review gets underway.
All told, we see room for markets to re-price US rates higher during 2014 without much spillover into EUR rates. To be sure, our US economists expect the Federal Reserve to strengthen its forward guidance in March when tapering begins. As discussed above, however, this outcome appears to us already largely reflected in the forwards and its announcement could result in a steepening of the curve, as investors discount that more aggressive easing in the near term would result in more tightening later.

4. The Risks to the Trade

We see the main risks to this recommended trade coming from two sides:

The first is timing. The market reaction to the strengthening of ‘forward guidance’ could, contrary to our expectations, be associated with a flattening of the 2-5-year US curve, at least initially, as investors try to squeeze more ‘carry and roll down’ from the US term structure (for a 5-year UST note, the latter is currently in the region of 70bp per annum). Although the EONIA curve would also likely move in the same direction, the net result could be a tightening of the US-Euro area rates differential instead of the widening we expect. Under our central assumptions for growth and inflation, we would view such an outcome as an opportunity to build up positions in the direction we suggest, as the anchoring to short-term rates should result in an easing of US financial conditions, and increase inflation expectations.

The second risk, as is always the case, stems from the fact that our macro forecasts may not be realized, or at least not to the extent that they ‘beat the forwards’. Evidence of a softer US growth trajectory than we currently anticipate could, for instance, delay the tapering of Fed bond purchases and lead to a flattening rally in the US curve, led by the Treasury curve. This risk is amplified by the large consensus that growth will improve next year (albeit at a slower pace than we project). On the Euro area side, the trade we recommend would suffer from a faster normalization of inflation, which could lead market participants to reassess the ECB’s easing bias.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/sa7Iuf9DC3I/story01.htm Tyler Durden

If yesterday Goldman was pitching going long of the S&P in AUD terms (the world renowned Goldman newsletter may cost $29.95 but is only paid in soft dollars) as its first revealed Top Trade of 2014, today’s follow up exposes Top Trade #2: which is to “Go long 5-year EONIA vs. short 5-year US Treasuries.” Goldman adds: “The yield differential between these two financial instruments is currently -61bp, and we expect it to reach around -130bp. On the forwards, the differential is priced at around -95bp at the end of 2014 at the time of writing. We have set the stop-loss on the trade at a spread of -35bp. The choice of Treasuries over OIS or LIBOR on the short leg is motivated by the fact that yields on the former could underperform more than they have already in relative space as the Fed scales down its asset purchase program.”

More from Goldman on this trade recommendation:

• We unveil today the second of our Top Trade recommendations for 2014
• Long 5-year EONIA vs. short 5-year US Treasuries at -61bp for a target of -130bp
• The spread is already priced to widen in the forwards, led mostly by the US leg
• We look for a bigger term premium at the belly of the US curve …
• …while disinflation and the AQR should preserve the ECB’s easing bias

We present today the second of our Top Trade recommendations for 2014: long Euro area 5-year rates vs short their US counterparts. Specifically, we recommend receiving 5-year EONIA fixed rates against shorting 5-year US Treasury Notes. The yield differential between these two financial instruments is currently -61bp, and we expect it to reach around -130bp. On the forwards, the differential is priced at around -95bp at the end of 2014 at the time of writing. We have set the stop-loss on the trade at a spread of -35bp. The choice of Treasuries over OIS or LIBOR on the short leg is motivated by the fact that yields on the former could underperform more than they have already in relative space as the Fed scales down its asset purchase program. We will, however, be watching to see if the decline in US borrowing requirements more than compensates for these effects. The greater liquidity of 5-year Treasuries compared with 5-year US$ OIS has also been a consideration. In the Euro area, we are of the view that German bonds may ‘cheapen’ further relative to EONIA as fixed income portfolios are rebalanced in favour of higher-yielding securities, particularly if the ECB eases further. Three macro factors underpin our new Top Trade recommendation, which we review in the sections below.

Separately, and from a tactical standpoint, we now recommend going long Mar-14 Australian Bank bill futures (IRH4) (see Trade Update: Position for further RBA easing, published earlier today). Our view is that the weakness in the Australian economy will remain in place through 2014. As such, we expect the RBA to cut rates by a further 25bp, most likely by the March policy meeting, with a move as early as in December quite possible. At this point, we believe the market only discounts a 25% chance of an easing move in March.

1. Growth Differential Widens

We expect real GDP growth to accelerate across the major developed economies over the coming quarters. As economic activity picks up speed, and core inflation slowly makes its way back up, we expect intermediate maturity yields to re-price higher. Against this backdrop, we note that:

• On our central forecasts, these dynamics are likely to materialize sooner and faster in the US than in the Euro area. In the former, we project sequential quarter-on-quarter annualized real GDP growth of 3.0%-3.5% during most of 2014 and 2015 – an above-trend expansion, following three years with growth close to its potential rate. We also expect an improvement in the economic outlook in the Euro area, but with GDP growth heading to around 1.0%-1.5% – roughly the potential rate of growth – over the corresponding period.
• Our 2014 GDP growth forecast for the Euro area is in line with the latest consensus (as collated by Consensus Economics), while our US GDP forecast is around 50bp above consensus. The downside skew to our crude oil forecasts (we see Brent at US$105/bbl at the end of 2014, from US$110/bbl at end-2013) could benefit the US economy more than Europe’s, given the larger pass-through to retail gasoline prices, which would support household disposable income.
• Downside risks to economic activity are arguably higher in the Euro area than in the US. As we have written in the past (See Global Viewpoint EMU Policies and Market Implications, October 21), ‘banking union’ represents a key institutional upgrade, which will help contain systemic risks and, over time, support the recovery. The transition towards it, however, presents several challenges. A further deleveraging of banks’ balance sheets and the possibility of private creditor ‘bail-ins’ as the Comprehensive Assessment is carried out could weigh on growth more than we already anticipate.

2. Service Price Inflation Diverges

Recent data show that consumer price inflation has stabilized in the US, while it is still trending downwards in the Euro area. Our forecasts indicate that the ongoing divergence in price dynamics on the two sides of the Atlantic will extend into next year: US CPI inflation is seen increasing from an estimated 1.5% in 2013 to 1.7% in 2014, while Euro area inflation goes from 1.4% to 1.1%, with no inflection point expected until the third quarter of 2014.

A significant cross-country divergence in inflation dynamics is also evident when looking beneath the surface (i.e., headline numbers), and accounting for the common international effect of lower commodity prices on retail prices. We notice that services, which typically exhibit a ‘sticky’ or persistent price behaviour, represent about half of the total CPI basket in the US and in the Euro area, and more than two-thirds of ‘core’ CPI. The spread between service price inflation in the US and the Euro area is wide, and possibly set to increase. According to the latest available data, inflation in this category is running at 2.3% in the US, and at just 1.2% in the Euro area. Our econometric estimates of trend service inflation, derived through an econometric approach following the methodology proposed by Stock-Watson (2007), point to an acceleration in the US and, by constrast, a deceleration in the Euro area.

3. Forward Guidance is in the Price

Our 2014 outlook is characterized by central banks cementing their ‘forward guidance’ on policy rates. Currently, a very accommodative monetary policy stance is largely priced in the US, while the market is underestimating the possibility that the ECB can provide further easing, even by cutting the deposit rate below zero. More specifically:

The US$ OIS curve discounts that Fed Funds rates will be kept low for all of 2014 and most of 2015. The 3-month US$ OIS rate in 2-years’ time is around 75bp, back to the levels it stood at in June. The US$ OIS curve steepens considerably beyond this horizon, with the 3-month US$ OIS rate in 3-years’ time currently at 1.65%. But this is just in line with our (dovish) Fed fund forecasts, indicating that the ‘ex-ante’ risk premium is extremely limited. In our previous work, we have shown that estimations of the ‘ex-post’ risk premium in the Eurodollar strip is also very depressed (i.e., investors price negative returns on cash through early 2017) conditioning for the current macro outlook. As we transition to an above-trend growth environment in 2014 and the tapering of Fed bond purchases gets underway, we believe investors may start to challenge the ‘time inconsistency’ of the Fed’s approach, and test its commitment to keep front-end rates so depressed for so long.

In the Euro area, the front end of yield curve is priced ‘fairly’ relative to our baseline views: the 3-month EONIA in 2-years’ time is currently at around 45bp, increasing to 100bp in the following year. That said, ECB officials have on several occasions said that they judge the costs of deviations from their central objective to keep inflation ‘close but below 2%’ as symmetrical, and may be prepared to ease further should disinflation become more entrenched. Even on our more optimistic central scenario for CPI (the annual inflation on our economists’ forecasts does not fall much below 1%), we expect the ECB to offset any sell-off emanating from developments in the US and any negative shock occurring in the Euro area while the Asset Quality Review gets underway.
All told, we see room for markets to re-price US rates higher during 2014 without much spillover into EUR rates. To be sure, our US economists expect the Federal Reserve to strengthen its forward guidance in March when tapering begins. As discussed above, however, this outcome appears to us already largely reflected in the forwards and its announcement could result in a steepening of the curve, as investors discount that more aggressive easing in the near term would result in more tightening later.

4. The Risks to the Trade

We see the main risks to this recommended trade coming from two sides:

The first is timing. The market reaction to the strengthening of ‘forward guidance’ could, contrary to our expectations, be associated with a flattening of the 2-5-year US curve, at least initially, as investors try to squeeze more ‘carry and roll down’ from the US term structure (for a 5-year UST note, the latter is currently in the region of 70bp per annum). Although the EONIA curve would also likely move in the same direction, the net result could be a tightening of the US-Euro area rates differential instead of the widening we expect. Under our central assumptions for growth and inflation, we would view such an outcome as an opportunity to build up positions in the direction we suggest, as the anchoring to short-term rates should result in an easing of US financial conditions, and increase inflation expectations.

The second risk, as is always the case, stems from the fact that our macro forecasts may not be realized, or at least not to the extent that they ‘beat the forwards’. Evidence of a softer US growth trajectory than we currently anticipate could, for instance, delay the tapering of Fed bond purchases and lead to a flattening rally in the US curve, led by the Treasury curve. This risk is amplified by the large consensus that growth will improve next year (albeit at a slower pace than we project). On the Euro area side, the trade we recommend would suffer from a faster normalization of inflation, which could lead market participants to reassess the ECB’s easing bias.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/sa7Iuf9DC3I/story01.htm Tyler Durden

In fitting with the pre-holiday theme, and the moribund liquidity theme of the past few months and years, there was little of note in the overnight session with few event catalysts to guide futures beside the topping out EURJPY. Chinese stocks closed a shade of red following news local banks might be coming  under further scrutiny on their lending/accounting practices – the Chinese banking regulator has drafted rules restricting banks from using resale or repurchase agreements to move assets off their balance sheets as a way to sidestep loan-to-deposit ratios that constrain loan growth. The return of the nightly Japanese jawboning of the Yen did little to boost sentiment, as the Nikkei closed down 104 points to 15515. Japan has gotten to the point where merely talking a weaker Yen will no longer work, and the BOJ will actually have to do something – something which the ECB, whose currency is at a 4 year high against Japan, may not like.

In Europe the main highlight with the outperforming Spanish IBEX index, where Repsol gained around 4% following reports that Argentina has reached an agreement to compensate Spain’s Repsol for the nationalisation of energy firm YPF. We wouldn’t get any hopes up until CFK actually wires the money and receipt is confirmed. The Italian FTSE-MIB was the underperformer with Monte Paschi under pressure amid reports that the bank is to consider a capital increase of EUR 3bln, which is bigger than previously planned. This, together with another uptick in EONIA fix, driven by month-end and touted liquidity squeeze linked to ECB’s suspension of LTRO repayments after December 23rd until mid-Jan supported Bunds, which as a result outperformed USTs.

In the US, building permits, Case-Shiller home prices, the Conference
Board Consumer Confidence and the Richmond Fed Manufacturing index
(Nov) are the highlights.

 

 

US event calendar:

US: Building permits, cons 930k (8:30)
US: S&P /CS comp-20 y/y, cons 13.0% (9:00)
US: Consumer confidence index, cons 72.4 (10:00)
US: POMO for bonds maturiting 02/15/2036 – 11/15/2043: $1.25 – $1.75 billion
US: sells $35bn 5y notes (13:00)

 

Overnight news bulletin:

Bunds continue to remain bid, supported by month-end related flow and also uncertainty over the stability of the Italian banking system, where Monte Paschi shares are down over 6% amid reports that the bank is to consider a capital increase of EUR 3bln.

Argentina has reached an agreement in principle to compensate Spain’s Repsol for the nationalisation of energy firm YPF.

Looking ahead for the session there is the release of US Building Permits, S&P CS 20 City, Consumer Confidence Index, API US Crude Oil Inventories, USD 35bln 5y Note Auction by the US Treasury.

 

Market Re-Cap

Stocks traded mixed in Europe, with the IBEX index in Spain outperforming throughout the session where Repsol gained around 4% following reports that Argentina has reached an agreement in principle to compensate Spain’s Repsol for the nationalisation of energy firm YPF. At the same time, Italian FTSE-MIB  lagged its peers, with Monte Paschi under pressure amid reports that the bank is to consider a capital increase of EUR 3bln, which is bigger than previously planned. This, together with another uptick in EONIA fix, driven by month-end and touted liquidity squeeze linked to ECB’s suspension of LTRO repayments after December 23rd until mid-Jan supported Bunds, which as a result outperformed USTs. Looking elsewhere, the recent removal of USD/JPY RKO barriers  which left market short JPY calls saw R/R lose topside bias and left the spot rate vulnerable to downside. Going forward, market participants will get to digest the release of the latest CaseShiller housing data, as well as the Consumer Confidence report for the month of November.

 

Asian Headlines

PBOC’s governor Zhou said that domestic inflation is stable and key China indicators are in reasonable range. Zhou added that they must continue prudent monetary policy and must continue proactive fiscal policy. In Japan specific news flow, BoJ minutes from October 31st Meeting stated that most members said 2% inflation is likely in the second half of the projection period. The JPY swap curve bull-flattened on the back of receiving in 10s and receiving ultra-long end following the strong 40y auction.

EU & UK Headlines

ECB’s Weidmann said government bonds should be risk weighted and banks’ exposure to sovereign debt should be capped. Weidmann also commented the ECB’s bank supervisor role should not be permanent, that he sees a gradual economic recovery in Europe and that data shows no need to revise forecast.

ECB’s Noyer said the Euro area recovery is weak and fragile and fragmentation in the Euro Areas is decreasing.
BoE’s Carney says timing of 7% threshold is subject to uncertainty.
BoE’s Dale says if we start to see inflation expectations pick up, we will react.

Barclays month-end extensions: Euro Aggr (+0.04y)
Barclays month-end extensions: Sterling Aggr (+0.06y)

US Headlines

The US wont change its flight operations to comply with China’s newly claimed air defence zone in the East China Sea, according to a Pentagon spokesman. There were also reports that Japan and US may deploy an unmanned plane to East China Sea.

Barclays month-end extensions: Treasuries (+0.10y) – Of note, although the avg. is around 0.06y, larger than avg. increase had been expected given the 3y, 10y and 30y refunding auctions last week.

Equities

As mentioned, the Spanish IBEX is very much leading the way for European equities after Repsol shares were seen up around 4% following reports that Argentina has reached an agreement in principle to compensate Spain’s Repsol for the nationalisation of energy firm YP. In comparison it is the FTSE-MIB is leading the way downwards after it was reported that Monte Paschi are to consider a capital increase of EUR 3bln. Therefore, marking a divergence in the performance of the periphery.

FX

From an FX perspective, EUR strength was being observed across the board following stops being tripped on the break of 1.3550 amid USD weakness which resulted from USD/JPY trading in negative territory following recent topside RKO barrier removal leaving market short JPY calls with risk reversals highlighting positioning as flows favour downside.

Commodities

Heading into the North American open WTI and Brent crude futures trade in positive territory in a continuation of the paring of yesterday’s declines, with the WTI-Brent spread narrowing amid increased doubts of how quickly the P5+1 and Iran deal could translate to increased supplies.

The Russian government mulls helping refinance debts of metals and mining giants. According to reports, the Russian government may guarantee loans and subsidize interest rates as well as urging sales of loss-making assets and allow layoffs.

Akbar Hashemi Rafasnjani, one of Iran’s most influential political leaders, has raised hopes of a comprehensive nuclear deal with world powers within a year, saying that Sunday’s interim deal has been the hardest step because it meant overcoming decades of diplomatic estrangement with the US.

 

SocGen recaps today’s macro events, or rather lack thereof:

A fifth straight monthly decline in US pending home sales in October (-2.2% yoy) does not send the message of a strong recovery in housing market demand but fortunately there are other indicators that do. As this is Thanksgiving week, the decline does not warrant a significant market response either. Part of the drop was blamed on
the government shutdown that helped to deflate UST yields for a third session on the trot which will help to set up for demand for this week’s 5y and 7y supply. Elsewhere, the fall in commodity prices has spilled over into a fifth successive week and is causing trouble for currencies like the AUD, NOK, RUB and BRL which staged the biggest losses yesterday vs the EUR and USD.

The release of US consumer confidence data and its employment sub-component will garner close attention today. A collapse of 9pts pulled confidence down to 71.2 in October but if we assume that this was related in part or in its entirety to the federal shutdown, then a bounce back should be on the cards for November. The labour differential deteriorated last month as well but given the statistical irrelevance for hiring trends last month, the data may not carry much significance as we start collecting anecdotal evidence ahead of next week’s US employment report.

It is set to be a quiet day for eurozone data, as it only features second tier Italian confidence data. We also look for decent demand for the EUR3bn DSL bonds up for sale from the Netherlands. Statistics from our FI colleagues show that the sovereign has completed 93% or EUR46bn of its EUR50bn annual issuance programme compared to this time last year. A turn for the better in the economic data has been observed in the Netherlands in recent weeks with industrial output rising at an annual rate of 0.4% and consumer confidence rising to levels last seen in July 2011. The Dutch central bank yesterday started a review of Dutch commercial banks’ commercial real estate loans which it hopes to conclude before the ECB inquiry.

 

DB’s Jim Reid concludes the overnight even recap:

It was by no means the most fascinating day for markets yesterday with the early boost from the Iran news failing to gather much momentum through the US session. Even Brent retraced most of its Asian session losses to finish the day broadly unchanged at around US$111/bbl. Some late selling in US equities saw the S&P 500 (-0.13%) finish the day on a softer tone. The US data flow was generally disappointing yesterday which may have impacted markets a touch. Although we can’t help thinking that slightly disappointing data is the ideal scenario for these liquidity hungry markets.

The earlier stronger European risk tone after the Iran story was perhaps cemented by dovish notes from ECB’s Hansson who suggested that a further ECB  rate cut could be ruled out. Indeed the day saw major equity benchmarks in Germany, France, and UK close +0.88%, +0.55% and +0.30% higher respectively. Credit continued to steadily grind tighter and barring any major macro events the appetite for spread products seems firm into year-end as the search for additional carry continues. Indeed the tightening in credit spreads has been fairly notable of late with Crossover and Main indices about 20bp and 5bp tighter since the end of October and 85bp and 26bp off their recent late September wides. On the other side of the pond, the CDX IG index is 5bp tighter this month and 17bps away from its early October wides.

Recapping yesterday’s data weakness, pending home sales fell -0.6% mom/-2.2% yoy in October. This was partly due to the government shutdown but higher mortgage rates and higher house prices may have also been a contributing factor so it will be interesting to see if we’ll get a rebound in the series next month. Away from housing the Dallas Fed survey (1.9 v 5.0 expected) was also disappointing which extends the weakness that we saw in earlier surveys from the New York and the Philly Fed. With this weakness the Chicago PMI tomorrow will be an interesting leading indicator for next week’s ISM manufacturing report.

Turning to the overnight session, North Asian equities are trading on a slightly stronger tone than those further south with bourses in China (+0.2%), Hong Kong (+0.2%), Taiwan (+0.7%), and Korea (+0.1%) faring better than markets in India (-0.3%) and Indonesia (-1.0%). Chinese banks might be coming  under further scrutiny on their lending/accounting practices according to Bloomberg. They are suggesting that the Chinese banking regulator has drafted rules restricting banks from using resale or repurchase agreements to move assets off their balance sheets as a way to sidestep loan-to-deposit ratios that constrain loan growth. Chinese banks shares are seemingly unaffected with ICBC and Bank of China up +0.2% and +0.5%, respectively as we type.

Staying on China, there seems to be increased focused on the rising sovereign and corporate bond yields domestically. Indeed China’s 10yr government bond yields have risen to around 4.6% from the lows of 3.4% in May this year. Using Bloomberg’s database the yield has never been this high since data started in June 2005. Issuance volumes have also declined steadily over the last few months and in recent weeks we have seen regular Chinese issuers either scale back or postpone bond deals as the appetite for onshore fixed income assets seemingly weakens. Some statistics reported by the WSJ showed that bond issuance in China fell to RMB687bn in October from RMB786bn in September and RMB822bn in August. Our CNY rates strategist, Linan Liu, noted that the recent sharp rise in CGB yields is a reflection of the tightening liquidity conditions onshore, supply pressure and the crowding out effect on the cash government bond market by commercial banks’ allocation to NSAs. She sees the 10yr yield capped at 4.8% in the near term as supply pressure will fade in December but a further squeeze in money market rates may drive 10Y CGB yield towards 5%.

Looking at the day ahead, Italian consumer confidence, and Spanish budget updates are the main releases from Europe. In the US, building permits, Case-Shiller home prices, the Conference Board Consumer Confidence and the Richmond Fed Manufacturing index (Nov) are the highlights.

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It might have been the Republican shutdown (according to one person at the White House, at least). It might have been the fault of the Syrian leader Bachar Al-Assad gassing his people with chemical weapons. It might have been the National Security Agency that listened in on our conversations and tapped our mails, while intercepting our calls. It might (or probably not) be the President of the USA that never knew about any of this (or all of it at the same time). But, when it boils down to it, it was and always will be Barack Obama. He was the man at the top. He might be the puppet stroke muppet (fill in the blanks as you will, cross the i’s and dot the t’s), but he will be the person that has to pay the price for what the country has got itself into and won’t be in a position to dig itself out of the hole. Perhaps, if the US government digs so far down in that hole, then they will surely come out raging on the other side. They may end up in Timbuktu, but they will certainly be in a damn better place than on Capitol Hill. It’s President Obama that will be burned at the funeral pyre and sent floating down the Ganges one of these days. That day may not be too far off if we believe the pollsters in the US. But, can we believe anyone these days?

Obama Isn’t Liked

A new poll that was carried out by CNN/ORC and released today shows that Obama has gone up in the ratings. Yes, he went up. Of course, we are talking about the fact that there are a growing number of Americans today that consider that he is not the man fit for the job.

• He is not honest and trustworthy either according to 53% of the people polled. Today, many people are starting to question the integrity and honesty of the most-powerful man on the planet.
• Some of us might be answering that we could have told them that long ago. Presidents aren’t trustworthy, they are politicians. That’s antagonist and an antonym if ever there were one! When was the last time you saw an honest politician? Please tell us!
• Since June the President has lost 12% regarding his ability to govern the country. He’s now at just 40% that believe he is able to do so.
• That means that 60% of those polled believed that he was inadequate at the head of the state.
• 56% did not admire President Obama. Although the question in itself begs disbelief. Presidents are not there to get admired; they are there to act and to act well. We don’t have to either look up to them or venerate them. They are people, that’s all. They just act as if they are demi-Gods from Olympus on an internship in the real world.
• 53% of the people polled believed that he was not a strong leader and that he did not take decisions.
• The same number believed that he did not inspire confidence.
• 70% of those polled said that he was ‘likeable’. Yet again. What does being likeable have to do with it all? Have we forgotten what the role of a President of the most powerful economy in the world (for the moment!) is? Have we forgotten that he’s not in office to be ‘liked’ by the people? Isn’t he there to act?

With the mights and may-have’s that are flying around there are times when people (read: ‘citizens, taxpayers and voters’) must take a decision and do away with wishy-washy wherewithal sit-on-the-fence politics. Take a stance. Who is to blame and why are we in this mess? Harping on about the past thirty years and the fact that governments are all the same isn’t going to get you off sitting on that fence. Replacing Obama with another muppet-like marionette that you can stick your fingers up inside like a glove puppet to bow and scrape and come out with the radiant set of teeth when the cameras start flashing isn’t going to change the way things are run or the way things are decided. Harping on about the fact that the governments are all run by the same mafia-like power-crazed and addicted families and have been for centuries now isn’t going to stop the stooges running the show at the Oval Office and in Washington.

The pollsters might be telling the people that they aren’t happy with the President right now after all the stuff that has been launched at the fan.

Remember what happens when the stuff hits the fun? It just gets blasted back and everyone ends up getting splattered; everyone except the one that turned the fan on. Get ready, the fan just got turned on again.

 

Originally posted: The Stooges are Running the Show, Obama

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