Tag: finance

Haters gonna hate, but the “Bitcoin bubble” meme has become the financial equivalent of a viral online cat video – wildly popular but pretty vacuous. In an effort to separate fact from fiction, ConvergEx’s Nick Colas reviews 11 bitcoin myths (and dispels them). Still, there’s no doubt that the public is entranced: there are now 3x more Google searches for “bitcoin” than “Western Union”, and 33x more than for “Gold coins”.  We started writing about bitcoin back in February because it was – and still is – a fascinating invention (for better or worse). How it plays out, we will just have to wait and see.

Via ConvergEx’s Nick Colas,

In the spirit of the old high school essay question about the Holy Roman Empire, consider the following query: bitcoin is often described as an online crypto-currency, even though it is none of these things – discuss.  The Cliff Notes suggested essay outline might go something like this:

Bitcoin doesn’t have to be just “Online.”  There are meetups in parks around the world where you can bring your cash, hand it over to a guy or gal with a smartphone, and watch your Benjamins get deposited to an online bitcoin wallet.

 

The “crypto” part is also only partially correct.  Yes, at its core the bitcoin system runs as a piece of open-source puzzles which individuals and businesses try to solve.  The winner gets 25 new bitcoins for their trouble, currently worth about $23,000.  Not bad, but the genius of the system is that everyone playing the puzzle must also register all bitcoin transactions that occur in the 10 minutes it typically takes to solve the puzzle.  Those are also all visible to the system, but by forcing everyone to keep track and reconcile at the end of the 10 minute window, the chance of double-spending the same bitcoin is very low. Bottom line: you don’t need to know how to code to use bitcoins.

 

“Currency”… This is actually the hardest part of the question.  Currencies exist primarily as a way for societies to avoid having to barter goods and services.  It is much more efficient to hand over a $10 bill for dinner rather than contract with the restaurant owner to wash dishes for your meal.  There are some places to spend bitcoin – a simple web search will find them.  But the most accurate thing you can say about bitcoin as truly useful currency is ‘Not yet’.

We’ve been writing about bitcoin since February 2013 because we thought it was a remarkable and intellectually elegant solution to one key social problem: it simply costs too much money to move money.  Want to send $100 to a friend in Argentina by Western Union?  That will set you back $12.  How about paying for a $1 bag of chips with a credit card in the US?  Good luck with that – you’ll likely have to buy a 10 pack to meet the card minimum at the store.  We had no idea the value of a bitcoin would skyrocket from our first report at $31 to about $900 today.  We just thought it was cool.

Still, with all that capital appreciation comes a lot of misinformation.  Part of that is understandable – bitcoin is new and very different from traditional notions of “Money”.  Still, in the rush to understand what bitcoin is – and isn’t – the public discussion on the topic has gotten a bit muddy.

Today we offer up 11 bitcoin myths and our interpretation of the reality under the hype and confusion.

Myth #1: Bitcoin is huge

Reality: By any objective measure, bitcoin is tiny at a total value of $10.8 billion.  Since one of the complaints about bitcoin is that it can enable hard-to-trace criminal activity, let’s compare that amount to the real enabler of drug sales, tax evasion, and even more heinous crimes the world over: the U.S. $100 bill.  There are about $400 billion of those floating around the world.  Total stock of cash money in the U.S.:  about $800 billion.  And when you look at total cash around the world, the number is about $3.8 trillion.  Bottom line: bitcoin at current valuation is 0.3% of the world’s cash money.  That is not huge.

Myth #2: Bitcoin is a major problem in dealing with drugs and terrorism

Reality: Bitcoin is way too volatile at the moment for any serious criminal element.  These are not people that take capital risks where they don’t have to.  Seriously – go try to steal 10% of a dealer’s cash and tell him it is frictional losses due to an illiquid market.  I have heard enough Biggie Smalls raps to tell you how that story ends…  Yes, some enterprising dealers clearly use bitcoin.  But a serious problem?  Bitcoin would be $10,000 or higher if it had any real share of the global drug trade.  Consider that the UN Office on Drugs and Crime estimates the heroin trade into Europe is worth $20 billion on its own. 

Now, it is entirely true that bitcoin businesses will have to develop the same anti-money laundering and know-your-customer rules as any other money transfer enterprise.  And, as we will discuss briefly, that is very good for bitcoin.

Myth #3: Bitcoin is a currency.

Reality: Bitcoin really is a cross between a mutually held company or large partnership and a money transfer business.  Its utility is that the bitcoin miners – those trying to solve the puzzles to get the 25 bitcoin reward – manage the transaction stack (blockchain, in bitcoin-speak) essentially for free.  You want to be part of the partnership? Great – buy some bitcoins and hold on.  But if you just want to send that friend in Buenos Aires money cheaply, you and she might both own bitcoins for a fraction of a second.  You drop dollars in, she gets pesos out.  Bitcoin is a system much more than it is a “Currency”.  Maybe one day she will buy a beer with bitcoins, but the entire system has tremendous utility even without that functionality.

Myth #4: Bitcoin has never been more volatile than now, with all the attention it is getting.

Reality: Check out the two charts we’ve included after this note.  They show trailing one month returns for bitcoin back to August 2010 as well as the standard deviation of those returns.  May 2011 was the peak for trailing 28 day returns at 853%.  The last peak was 11/30/2013 at 479%.

Myth #5: Chinese citizens are shut out of buying bitcoins by government regulation of the banking system.

Reality: According to data aggregator bitcoincharts.com, yuan-based bitcoin demand is still greater than dollar based transactions. Over the past 24 hours, 85,588 bitcoins changed hands on BTC China, while only about 56,000 traded on dollar-based exchanges.

Myth #6: Bitcoin is a store of value.

Reality: The phrase “Store of value” should be used very carefully and only with specific historical proof. It implies that when social or political floodwaters come, the asset in question will allow you to buy shelter, clothing and food.  Gold has that history, as does silver.  Perfect one-carat diamonds also make the grade, albeit only in the last 50
-100 years.  Bitcoin may one day prove it deserves to sit alongside those assets.  It isn’t there yet.

Myth #7: Bitcoin is untraceable.

Reality: Bitcoin transactions flow through an open-source piece of software, so everyone sees every trade.  No, there are no name/address identifiers, but Forbes magazine showed how easy it is to trace bitcoins through the system back in September. Methods to “Launder” bitcoins certainly exist, but so do the risks of handing over your coins to an online thief.  Bottom line: after hearing about what the NSA can do with your computer and phone records, if you think anything you do online is secret, I can’t help you.  OK, if you have mad hacking and crypto-skills, maybe.  But chances are pretty good that you’d just screw it up.  And get caught.

Myth #8: Loss of anonymity will make bitcoin worthless.

Reality: Remember, as long as banks and money transfer businesses have to maintain expensive data centers to run their businesses, bitcoin will always be a cheaper way to transfer money.  Now, how many business build attractive and secure consumer and business offerings on the core bitcoin system – that is an interesting question and is certainly the most important issue regarding its long term price.

Myth #9: It’s a Ponzi scheme!

Reality: A Ponzi scheme is one that has no use other than to defraud later victims into giving money to earlier participants.  Again, bitcoin has a potentially significant positive social value.  Two regional Federal Reserve papers, published in the last month, agree with that statement.  But if you still think bitcoin is a Ponzi scheme, you should probably get rid of your Federal Reserve notes as well.  They aren’t “Backed” by anything either.  Please remit them directly to: Nick Colas, ConvergEx, 1633 Broadway, NY NY 10019.  I will forward them to one of my favorite charities – the USO – where they will do a world of good.

Myth #10: Bitcoin is ready for prime time.

Reality: I don’t own any bitcoin (I lost the 0.10 someone gave me in a demo) and I won’t be using them any time soon.  The reason?  I am afraid that there is simply no safe place to hold them.  Hackers attack bitcoin “Wallets” with disturbing regularity.  As the price continues to rise, their incentives to up. Their game goes higher as well. I don’t think I am alone in this sentiment.  I want a company I recognize to start a bitcoin storage site.  It could be a bank, or Paypal, or Apple.  I don’t care which.  There are plenty – they call me regularly – bitcoin millionaires out there.  How about some of you start reinvesting in the system that has made you so wealthy?

Myth #11: Something better will come along and wipe bitcoin off the map.

Reality: Of course something better will come along.  That’s what happens in technology.  I personally think a charity-based bitcoin product would be huge.  Donate bitcoin in New York, and let the charity redeem them at very close to 100 cents on the dollar where they are needed.  Somalia, as one example, is facing almost total isolation as Barclay’s – the last foreign bank in the country – threatens to leave at the end of the year.  The $100 million remitted by Somalis working abroad will then have to pay even higher fees to send their money home.  What if a famine or other calamity occurs?  And how will the economy have a chance with no access to outside capital?

 

 

At the same time, I simply do not see why a competing product will wipe out the utility of bitcoin.  It has a first mover advantage and a large existing network of miners to support it.  There are scores of early adopters with eight and even nine figure net worths to reinvest and build the system.  There are other online money transfer products out there, of course, and more to come.  The challenges will be the same for all of them: security, utility and legal compliance.

Let me sum up with a final thought: I absolutely understand why there are so many bitcoin haters out there.  But don’t hate the player, hate the game.  Technology is a tremendously disruptive force in society, and it knows no boundaries.   It disturbs every status quo.  That’s what is does.  Just don’t make the mistake of thinking that you can reverse it by calling it a bubble.  Sticks and stones, that…

Now, if someone hacks the entire bitcoin system just to crash it (there’d be no actual value in the effort, since bitcoin would be worthless), then of course will go to zero.  But that won’t be the end – something else will come along.  Technology doesn’t stop.  Get used to it.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/9LKglHEfkSc/story01.htm Tyler Durden

With even Bank of England head Mark Carney admitting UK housing prices may be a little bubbley (and affordability plumbing new depths), RT reports that a hostel in east London has come up with the ingenious idea, to try and solve homelessness amid soaring rents in the British capital, of converting a shipping container from China into a tiny low cost home for hard up and desperate Londoners. The boxes, called mYpads, cost GBP75 per week – around one-quarter of the rent of most distant yet commutable borough in London – and are affordable for even those on minimum wage.

 

 

Via RT,

Although it’s only a steel box, they are calling it mYpad, as notwithstanding how small it is, it’s a compact home with a tiny kitchen, bathroom and living quarters complete with a flat screen TV and a single bed.

Lying on your bed, you could almost imagine you were in a bunk on a ship, perhaps the one on which the containers were transported.

But as rents in London continue to soar, putting most flats and houses out of reach of many people on low incomes or benefits, these may be part of the solution.

 

A mYpad costs just £75 a week. While in some parts of the UK this is cheap but not a giveaway, in London it’s unheard of. In the British capital the average rent, even in a distant borough where oligarchs wouldn’t venture, alive or dead, is around £300 a week.

At 30% of the minimum wage, mYpad is affordable to those who need it most. Louise Stephenson used to live in a hostel but will be one of the first mYpad tenants.

“I think it’s difficult for anyone right now to get comfortable accommodation at a good price, without paying extortionate amounts of rent,” she told RT’s Sarah Firth.

MYpad is the brainchild of Timothy Pain and the YMCA Forest hostel in Walthhamstow East London.  The containers get shipped to Tilbury from China and are then sent to a company for fitting out.

 

“Society takes the carpet out from under them, because the moment they get into work, they can’t afford to live in a hostel and they can’t afford to live anywhere else. It doesn’t make any moral or economic sense,” Pain told RT.

Each container costs £20,000 and to start with they will be built at just two sites in 2014, both of which are connected to the Forest Hostel and are only for young people the charity is working with. 

But with some funding from the Greater London Authority, it is hoped that more charitable housing associations will take them on.

While there are plans to build thirty more mYpads next year, this is not even a drop in the ocean. Unless Britain increases the rate at which it is building affordable, new homes, then by 2020 there will be a shortfall of 2 million homes in the UK.

In London this means that some people may never be able to afford a home of their own.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/mTxCG4lR2D8/story01.htm Tyler Durden

There was much concern that heading into the holiday season the US consumer would hunker down, which is why the just released retail sales came as a bit of good news: the headline and core (ex-autos) numbers both beat expectations of 0.6% and 0.2%, printing at 0.7% and 0.4% respectively, and refuting rumors of a big consumer slowdown into the holiday season. On the other hand, core retail sales, ex-autos, showed a declining growth rate, following the 0.5% increase in October, declining to 0.4% in the past month, while the ex-autos and gas number remained flat from October to November, or 0.6%. It is unclear if this number is good enough to send futures sliding on the back of the horrible claims report which has so far managed to push futures into green territory, but with the bulk of the monthly change contained in the seasonal adjustment, any 0.1% increments of change or beats of expectations are very much noise.

Looking at the strong sectors, aside from autos which posted a 1.8% increase in October, there was strength in Building materials and garden supplies dealers, whose sales also rose by 1.8%, while non-store retailers’ increase of 2.2% was the largest jump since July 2012. Also good news for electronics stores: their sales increased by 1.1%, as did furniture and home furnishing stores, rising by 1.2%. The last place where sales posted a notable increase: food and drinking places, whose sales rose 1.3%. The bad news: all the clothing retailers, whose margins are already imploding: they saw November sales decline by -0.2% from the prior month. Hardly good news for an industry that has been battered in the past few months.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/PwZ687WrCLE/story01.htm Tyler Durden

While the Labor Department admits “difficulties in seasonally adjusting” the data, this is the biggest spike ex-Sandy in the all-important initial claims data since 2005. At 368k (versus 320k expectations), this is the worst miss sicne Sandy also (absent the government shutdown debacles) and the Labor department says no states were estimated. This is the worst initial claims print since March… just enough bad news to provide the Fed some leeway? Of course, with enough statistical noise to sink an economy, it would appear another government-inspired data series has become next-to-useless ammo for the baffle ’em with bullshit brigade.

 

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/T-sLbTvnxV8/story01.htm Tyler Durden

No new news as a catalyst this morning but it appears someone decided it was highly inappropriate for the precious metals to be holding their gains as stocks and bonds revert back to pre-payrolls ‘taper’ levels. Gold and Silver have been monkey-hammered lower this morning as heavy volume hit futures markets about 419ET and 645ET. Futures were not halted. Some speculation that gold’s drop followed positive comments from Ukraine’s foreign minister but that seems a stretch…

 

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

The more the cops, the safer: that’s what conventional wisdom says. The contrarian view, of course, is that when police per capita are far above average, there is usually a reason. Or, it the distribution could be just pure noise, depending on how much money can be allocated to police budgets or how prone to cop extortion a given country is. The chart below doesn’t provide a definitive answer, with Russia leading the world in most police per 100,000 persons according to the UN and ONS, while Greece and Serbia mark the trailing end. Still, those who would rather avoid police brutality and paying a bribe to corrupt law enforcers, may be urged to avoid the left end of the chart below…

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/LxP_3MS9Ho4/story01.htm Tyler Durden

The more the cops, the safer: that’s what conventional wisdom says. The contrarian view, of course, is that when police per capita are far above average, there is usually a reason. Or, it the distribution could be just pure noise, depending on how much money can be allocated to police budgets or how prone to cop extortion a given country is. The chart below doesn’t provide a definitive answer, with Russia leading the world in most police per 100,000 persons according to the UN and ONS, while Greece and Serbia mark the trailing end. Still, those who would rather avoid police brutality and paying a bribe to corrupt law enforcers, may be urged to avoid the left end of the chart below…

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/LxP_3MS9Ho4/story01.htm Tyler Durden

• J.P. Morgan to Pay Over $1 Billion to Settle U.S. Criminal Probe Related to Madoff (WSJ)
• Ford board aims to pin down CEO Mulally’s plans (Reuters)
• Raising Minimum Wage Is a Bad Way to Help People (BBG)
• Japan Lawmakers Demand Speedy Pension Reform (WSJ)
• EU reaches landmark deal on failed banks (FT)
• In which Hilsenrath repeats what we said in August: Fed Moves Toward New Tool for Setting Rates (WSJ)
• Senators Vow to Add to Iran Economic Sanctions in 2014 (BBG)
• Centerbridge in $3.3bn LightSquared bid (FT)
• Banks, Agencies Draw Battle Lines Over ‘Volcker Rule’ (WSJ)
• Swedish Housing Surges to Unsafe Value as Debt Soars (BBG)
• In the land of the holy cow, fury over beef exports (Reuters)
• Pensions Make the Most of Stocks’ Surge (WSJ)
• No Longer Motor City (BBG)
• Pilots of Asiana crash knew speed was low (Reuters)

 

Overnight Media Digest

WSJ

* Stanley Fischer, widely seen as a dean among the world’s top central bankers, is President Barack Obama’s choice to become second-in-command at the Federal Reserve, according to people familiar with the matter.

* Private-equity firm Centerbridge Partners LP reached a tentative deal to buy LightSquared Inc out of bankruptcy proceedings, said people familiar with the matter, potentially upstaging a bid by Dish Network Corp to take over the wireless-telecommunications firm.

* Just days before the latest “Hobbit” movie hits theaters on Friday, it has landed in court. Independent movie moguls Harvey and Bob Weinstein, along with their former company Miramax LLC, sued Time Warner Inc’s Warner Bros late Tuesday for a share of the proceeds from the coming second and third “Hobbit” movies.

* Avon Products Inc is pulling the plug on a $125 million software overhaul that has been in the works for four years after a test of the system in Canada drove away many of the salespeople who fuel the door-to-door cosmetics company’s revenue.

* Top Google Inc executives for six years flew their private jet fleet on discounted fuel purchased from the federal government that they weren’t entitled to buy, according to a new inspector general review released Wednesday.

* Japan overtook the United States to become the world’s No. 1 country in app store revenue, thanks to an explosion in growth of smartphone and tablet games. Japanese consumers spent roughly 10 percent more than U.S. consumers did on all apps found on smartphones and tablets in October, according to app tracker App Annie.

* PokerStars’ ambitions to re-enter the U.S. market suffered a major setback Wednesday when New Jersey gambling regulators, citing the company’s legal woes, said that it would not receive a license to operate online poker in the state for at least two years.

* After a years-long decline in Barnes & Noble Inc’s stock price, even the company’s chairman, Leonard Riggio, is taking a loss on at least a portion of his shareholding. Riggio disclosed on Wednesday that he sold 2 million shares a day earlier, realizing a loss of about $40 million.

* Fortis Inc has signed a deal to acquire UNS Energy Corp for about $2.5 billion, as the Canadian utility moves to boost exposure within the U.S. by acquiring a firm with a presence in the U.S. Southwest.

* Boeing Co’s largest union presented a preliminary contract proposal to the aerospace giant to secure manufacturing of the planned 777X jetliner in Washington state, marking a fresh start to negotiations after the union overwhelmingly rejected a Boeing offer last month.

* Kontagent and Medium Entertainment, two closely held companies that create tools for mobile game makers to improve their products, are merging businesses in an effort to offer a fuller set of products to customers.

 

FT

The second-largest U.S. oil company Chevron said the Australian Gorgon project it is leading has slipped further behind schedule and over budget – the plant’s expected cost, which was estimated at $37 billion when it was launched in 2009, has been increased to $54 billion.

Six years after taking Hilton Worldwide private in one of the largest deals of the leveraged buyout boom, Blackstone Group LP is set to return the hotel operator to the public markets after it raised $2.35 billion in its IPO.

State-backed Royal Bank of Scotland will pay U.S. regulators a $100 million fine to resolve probes that the lender violated sanctions prohibiting business dealings with Iran, Sudan and other regimes.

The European Central Bank could make eurozone banks hold capital against sovereign bonds, in a bid to stop weak lenders from using its cash to buy up debt from crisis-hit countries, according to ECB executive board member Peter Praet.

JPMorgan Chase Chief Executive Jamie Dimon signalled the bank intended to pay penalties over allegations that it had failed to notify U.S. authorities that it suspected Bernard Madoff was running a Ponzi scheme.

PSA Peugeot Citroen and state-owned Chinese carmaker Dongfeng have agreed to an industrial and commercial alliance that will include a sizable capital injection into the French group in return for technology sharing.

 

NYT

* JPMorgan Chase and federal authorities are nearing settlements over the bank’s ties to Bernard Madoff, striking tentative deals that would involve roughly $2 billion in penalties and a rare criminal action. The government will use a sizable portion of the money to compensate Madoff’s victims.

* The number of people selecting health insurance plans in the federal and state marketplaces increased last month at a brisk pace, bringing the overall figure to nearly 365,000, the Obama administration said on Wednesday. The November number was more than double the one for October, but still well below the administration’s goal.

* In an unusual deal that goes far beyond the soda wars, PepsiCo is to announce on Thursday that it is unseating Coca-Cola as the beverage supplier to one of the nation’s hottest restaurant chains, Buffalo Wild Wings.

* The Boies, Schiller & Flexner law firm is paying bonuses of as much as $300,000 to some of its associat
es, with the average young lawyer taking home an additional $85,000, a firm spokeswoman, Dawn Schneider, confirmed late Tuesday. Last year, the maximum bonus handed out to some of the young lawyers at the firm, which specializes in trial and appellate litigation, was $250,000.

* Shares in China Cinda Asset Management rose as much as 33 percent on their trading debut in Hong Kong on Thursday after it raised around $2.5 billion last week on huge demand for its initial public offering.

* They might prominently feature the Barclays logo and the bank’s light-blue corporate color, but ever since a popular bike-sharing program started here three years ago, Londoners have referred to the bicycles as “Boris bikes,” after the capital’s cycling mayor, Boris Johnson. But Barclays is ending its sponsorship of the program in 2015, the bank and Transport for London, a city agency, said Wednesday.

* Spanish lender Banco Santander has agreed to buy an 8 percent stake in Bank of Shanghai for 470 million euros as part of its strategy to increase its presence in Asia.

* The British soccer team Manchester United has made a poor showing on the field this season. Now the British hedge fund manager Crispin Odey is making a multi-million dollar bet that the club’s New York-listed shares are destined for a similar trajectory. Odey Asset Management, Odey’s fund, has taken a $22 million short position against Manchester United shares.

* With competition growing in the streaming music market, Spotify announced a series of changes meant to entice new customers and extend its digital footprint farther around the world.

* The Royal Bank of Scotland is paying $100 million in fines to New York and federal banking regulators to settle civil investigations into accusations that some of its former employees helped conceal transactions involving customers from Iran, Sudan and other nations subject to international sanctions for about a decade.

 

Canada

THE GLOBE AND MAIL

* Ontario Premier Kathleen Wynne is seeking her legislature’s blessing for an expansion of the Canada Pension Plan in a final push ahead of a crucial federal-provincial meeting next week.

* First Nations leaders in British Columbia are seeking multibillion-dollar loan guarantees from the federal government to enable them to take ownership stakes in various liquefied natural gas projects being planned in the province, and have also traveled to China and Japan looking for backers.

Reports in the business section:

* Canada Post’s decision to raise stamp prices and shift to community mailboxes has sent shivers through small businesses and home offices. The mail carrier unveiled a series of changes on Wednesday aimed at reversing its losses, including phasing out urban home delivery and cutting between 6,000 and 8,000 jobs.

* Shopify Inc has become Canada’s first internet startup since the dot-com crash to reach a billion-dollar valuation, thanks to one of the largest venture financings in Canadian history.

* A spokesman for TransCanada says the company is looking to address concerns raised by the mayor of Edmundston about the route for the Energy East pipeline project.

NATIONAL POST

* The governing Liberals confirmed on Wednesday that ousted Ornge CEO Chris Mazza collected $9.3 million over six years at Ontario’s publicly funded air ambulance service.

* Police Chief Bill Blair flatly denied any suggestion that a probe into Toronto Mayor Rob Ford’s dealings was payback for past budget cuts, before facing questions at a meeting of the budget committee on Wednesday that did not produce anticipated fireworks.

FINANCIAL POST

* Toronto-Dominion Bank surpassed Royal Bank of Canada as Canada’s largest lender by assets for the first time after a decade-long expansion in U.S. consumer lending.

* The Canadian economy is forecast to lag that of the United States in 2014, even as exports and business investment begin to recover next year. That’s the new outlook from CIBC World Markets, which expects the Canadian economy to grow by 2.3 percent in 2014, compared with a forecast of 3 percent for the United States.

* The head of Canadian National Railway Co says he understands public concern about the movement of dangerous goods by rail through urban centers in the aftermath of the Lac-Megantic disaster last summer. But Claude Mongeau said it would be impractical to reroute the shipments elsewhere because many of those goods are integral to the way Canadians live.

 

China

CHINA SECURITIES JOURNAL

– China’s plans to make the management of growth enterprise market (GEM) refinancing easier aim at opening up companies to market forces, said industry insiders. A key proposal is that the refinancing of GEM companies no longer be limited by equity investment projects.

– The number of A-share accounts opened under China’s QFII scheme in November hit a 4-month high, according to statistics from the China Securities Depository and Clearing Limited. On the Shanghai stock exchange 12 accounts were opened, while Shenzhen saw 10.

SHANGHAI DAILY

– An expat who knocked down a woman while on a motorcycle without a license will be deported after serving five days administrative detention for working without a permit, said police in Beijing on Wednesday. His father, who was also working without a permit, will also be departed, while their employer will be fined 20,000 yuan ($3,300).

CHINA DAILY

– China’s antitrust office plans to recruit at least 170 new employees for its enforcement team, said Xu Kunlin, head of the department of price supervision at the National Development and Reform Commission. The expansion is being hailed as a means for protecting fair competition in China.

PEOPLE’S DAILY

– To build a beautiful and sustainable Chinese nation is the grand goal of the government, said a commentary in the paper that acts as the party’s mouthpiece. Xi Jinping has stressed repeatedly the extreme importance of environmental concerns, it said.

 

Britain

The Telegraph

RBS AGREES $100 MLN U.S. SETTLEMENT OVER SANCTION BREACHES

The Royal Bank of Scotland has agreed to pay $100 million to a trio of U.S. regulators to settle civil allegations that the bank broke sanctions relating to Iran, Sudan, Cuba and Burma.

FIRSTGROUP INVESTOR CLAIMS HE HAS BACKING FOR BREAK-UP

The activist investor proposing a break-up of FirstGroup said he had early expressions of support from other investors as he claimed the group’s U.S. assets alone were worth more than the current share price.

FERROVIAL EYES HEATHROW’S REGIONAL AIRPORTS

Spain’s Ferrovial, the biggest investor in Heathrow, has expressed an interest in buying the airport’s three regional businesses, the Aberdeen, Glasgow and Southampton airports.

GSK TO PUMP 200 MLN STG INTO UK MANUFACTURING

GlaxoSmithKline is to pour 200 million pounds ($327.4 million) into two of its oldest UK manufacturing sites as it continues to buck industry trends by investing in Britain.

SUPERMARKETS URGED TO BIN “DAMAGING” FUEL PROMOTIONS TIED TO GROCERY SHOPPING

Independent forecourts beg Office of Fair Trading to reopen petrol market investigation after Australia’s biggest supermarkets agree to limit fuel promotions funded by other parts of their business.

ASDA CLAIMS BLACK FRIDAY WAS A ‘PHENOMENON’ IN UK

The boss of supermarket group Asda claims its U.S.-style “Black Friday” discounts were a “phenomenon” with customers and has pledged to run the initiative again next year despite scuffles between customers battling for products.

The Guardian

LLOYDS BANKING GROUP FINED RECORD 28 MLN STG IN NEW MIS-SELLING SCANDAL

Former and current directors of Lloyds Banking Group could fa
ce having their bonuses clawed back, after the bailed-out bank was hit with a record £28m fine for putting staff under intense pressure to sell products customers did not want – or face demotion and pay cuts.

HOUSE PRICE RISES REALISE BUBBLE FEARS, SAYS ECONOMIST

The average UK home has seen its value rise by 10,329 pounds over the past year, or by 28.30 pounds a day, according to figures from property search engine Zoopla. This follows research from a leading economics professor that around three-quarters of properties in the UK are overvalued, with a 93 percent probability that London is already in the grip of a house price “bubble”.

The Times

BORIS FURY AS COMMISSION ‘PLUMPS FOR HEATHROW’

Boris Johnson called into question the independence of the Airports Commission yesterday amid claims it is backing Heathrow to the exclusion of a new hub airport.

MILLBURN INSURANCE SLIPS INTO ADMINISTRATION

A specialist insurer that was founded in the aftermath of the Second World War has collapsed into administration in a rare example of an underwriter failing.

The Independent

GLENCORE OIL TRADER ANDREW KEARNS LOSES WRONGFUL DISMISSAL CLAIM AFTER HE WAS SACKED FOR ‘HEAVY NIGHT’ OF DRINKING

An oil trader sacked because he was said to be not in a fit state after a heavy night out in Singapore has lost his damages action for wrongful dismissal and now faces having to pay at least 150,000 pounds in costs.

VICTOR DAHDALEH CORRUPTION CASE: BILLIONAIRE’S FRAUD TRIAL COLLAPSES AFTER KEY SFO WITNESSES REFUSE TO GIVE EVIDENCE

A major anti-corruption trial involving a billionaire Labour donor who is a friend of Tony Blair collapsed yesterday following an embarrassing error by Britain’s Serious Fraud Office.

 

Fly On The Wall 7:00 AM Market Snapshot

ANALYST RESEARCH

Upgrades

Hancock Holding (HBHC) upgraded to Buy from Hold at Wunderlich
ICICI Bank (IBN) upgraded to Buy from Hold at Jefferies
iRobot (IRBT) upgraded to Neutral from Underweight at JPMorgan
Johnson Controls (JCI) upgraded to Overweight from Equal Weight at Barclays
LyondellBasell (LYB) upgraded to Top Pick from Outperform at RBC Capital
Micron (MU) upgraded to Buy from Neutral at Nomura
NewBridge Bancorp (NBBC) upgraded to Outperform from Market Perform at Raymond James
Southwest (LUV) upgraded to Buy from Neutral at BofA/Merrill
Synchronoss (SNCR) upgraded to Strong Buy from Outperform at Raymond James
Zale (ZLC) upgraded to Buy from Neutral at Northcoast

Downgrades

Apache (APA) downgraded to Neutral from Buy at Citigroup
Brown & Brown (BRO) downgraded to Underperform from Market Perform at William Blair
HD Supply (HDS) downgraded to Sell from Neutral at Goldman
ImmunoCellular (IMUC) downgraded to Hold from Buy at MLV & Co.
ImmunoCellular (IMUC) downgraded to Neutral from Buy at Roth Capital
Infinity Pharmaceuticals (INFI) downgraded to Neutral from Outperform at Credit Suisse
Marathon Oil (MRO) downgraded to Neutral from Buy at Citigroup
Oracle (ORCL) downgraded to Equal Weight from Overweight at Morgan Stanley
Oracle (ORCL) downgraded to Sector Perform from Outperform at RBC Capital
Progress Software (PRGS) downgraded to Market Perform  at JMP Securities
Scripps Networks (SNI) downgraded to Sector Perform from Outperform at RBC Capital
Sherwin-Williams (SHW) downgraded to Outperform from Top Pick at RBC Capital
Sigma Designs (SIGM) downgraded to Hold from Buy at Needham
Teradata (TDC) downgraded to Sector Perform from Outperform at RBC Capital

Initiations

ARM Holdings (ARMH) initiated with an Outperform at FBR Capital
Accenture (ACN) initiated with an Outperform at RBC Capital
Altera (ALTR) initiated with an Outperform at JMP Securities
Brixmor (BRX) initiated with a Buy at UBS
CONSOL Energy (CNX) coverage reinstated with a Buy at Deutsche Bank
Cempra (CEMP) initiated with an Outperform at RW Baird
FTI Consulting (FCN) initiated with a Hold at Stifel
L Brands (LB) initiated with a Buy at Brean Capital
Microchip (MCHP) initiated with a Buy at Drexel Hamilton
Microsemi (MSCC) initiated with a Hold at Drexel Hamilton
Navigant Consulting (NCI) initiated with a Hold at Stifel
Plum Creek Timber (PCL) initiated with a Neutral at JPMorgan
Rayonier (RYN) initiated with an Underweight at JPMorgan
Relypsa (RLYP) initiated with a Buy at B. Riley
Sapiens (SPNS) initiated with an Outperform at William Blair
Tetra Technologies (TTI) initiated with a Neutral at Credit Suisse
United Natural Foods (UNFI) initiated with a Hold at Jefferies
Weyerhaeuser (WY) initiated with an Overweight at JPMorgan
Xilinx (XLNX) initiated with an Outperform at JMP Securities
Yelp (YELP) initiated with a Neutral at B. Riley

HOT STOCKS

Ziggo said in talks to be acquired by Liberty Global (LBTYA)
Toyota (TM): GM (GM) Holden decision to place ‘unprecedented’ pressure on supplier network in Australia
Peugeot (PEUGY), GM (GM) reported progress on strategic alliance implementation
UNS Energy (UNS) to be acquired by Canada’s Fortis for $60.25 per share
Air Canada (AIDIF) to buy up to 109 Boeing (BA) 737 Max jets, replacing Airbus aircraft (EADSY)
Rouse Properties (RSE) acquired two malls for $292.5M
Emergent BioSolutions (EBS) to acquire Cangene Corp.
Exelis (XLS) to spin off new publicly traded military and government services company
Vista Gold (VGZ) to convert interest in Awak Mas project into royalty

EARNINGS

Companies that beat consensus earnings expectations last night and today include:
Men’s Wearhouse (MW), Amtech Systems (ASYS), Coldwater Creek (CWTR), Vera Bradley (VRA)

Companies that missed consensus earnings expectations include:
Sigma Designs (SIGM), Nordson (NDSN), Oxford Industries (OXM)

NEWSPAPERS/WEBSITES

• Exxon Mobil (XOM) is calling for the U.S. to lift restrictions on exporting domestic oil that date back to the Arab oil embargo of 1973, the Wall Street Journal reports
• A day after the “Volcker rule” was approved by U.S. regulators, banks and their law firms were busy figuring out how to comply with strict new guidelines on Wall Street firms’ trading activities and how to mitigate any hit to profits. Also, regulators were on a collision course over who gets supremacy in enforcing the rule, the Wall Street Journal reports
• Ford Motor’s (F) board  plans to press CEO Mulally soon for a decision on his future, as speculation intensifies that he may be offered the job of CEO at Microsoft (MSFT), Reuters reports
• Morgan Stanley (MS) launched a formal effort to sell its controlling stake in U.S. oil terminal and transport business TransMontaigne, sources say, following other Wall Street powerhouses in yielding to intense regulatory pressure to get out of commodity investments, Reuters reports
• Daimler (DDAIF) is working to end rebates on its Mercedes-Benz vehicles in China, including pricing of its C- and E-Class sedans, while matching the premium segment’s growth next year, Bloomberg reports
• Samsung Electronics (SSNLF) built the world’s largest smartphone business in China, but will now shift output to Vietnam to secure even lower wages and defend profit margins as growth in sales of high-end handsets slows, Bloomberg reports

SYNDICATE

AES Corp. (AES) files to sell 40M shares of common stock for holders
ARAMARK (ARMK) 36.25M share IPO priced at $20.00
American Midstream Partners (AMID) 2.4M share Secondary priced at $22.47
CatchMark Timber (CTT) 10.526M share IPO price $13.50
Constellium (CSTM) 8.345M share Secondary priced at $19.80
Empire Resorts (NYNY) files to sell 1.08M shares of common stock for holders
Harbinger Group (HRG) files to sell 105.16M sha
res of common stock for holders
Hilton Worldwide (HLT) 117.64M share IPO priced at $20.00
HomeAway (AWAY) 6.019M share Spot Secondary priced at $37.00
Northstar Realty (NRF) files to sell 50M shares of common stock
Pinnacle Foods (PF) 17M share Secondary priced at $26.75
Synthetic Biologics (SYN) files automatic common stock offering
Taminco (TAM) 10M share Secondary priced at $20.00

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/tTlyB83M_dA/story01.htm Tyler Durden

It has been another session of overnight weakness, in which, to quote Deutsche Bank, “something has changed” as ES algos no longer track every tick of the EURJPY (or other JPY pair variants). Usually in such transition periods where the robots are not sure how to trade risk based on highly leveraged inputs, things go bump in the night, and they did just that with the E-Mini trading just off its overnight lows, despite a notable rise in the EURJPY from yesterday’s close. Keep a close eye on the now traditional pre-market ramp in the EURJPY – if unaccompanied by an increase in the E-mini, it may be time to quietly exit stage left.

This morning the taper theme is weighing on Asian EM assets including a number of EMFX crosses such as USDINR (+0.67%) and USDMYR (+0.4%). Despite this, the EUR continues its strong run against the USD and is poised for its eighth consecutive gain. The AUDUSD spiked up shortly after the release of a stronger than expected Australian employment report (+21k vs +10k expected) but the gains were quickly reversed on the combination of the overnight USD strength and resetting of shorts. Asian equities are trading broadly lower with laggards being the Nikkei (-1.3%) and Jakarta Composite (- 1.2%). It’s been a heavy trading session for Asian credit and sovereign bonds which is unsurprising given the weak tone in EM fixed income yesterday.

Stocks traded lower throughout the session, with consumer goods underperforming its peers and Peugeot shares trading lower by 10% in reaction to reports citing sources that the board has approved in principal EUR 3.5bln capital increase with Dongfeng and French government. Initial selling pressure on Bunds which largely stemmed from market participants reacting to reports citing ECB’s Praet who signalled that the ECB will try to force Eurozone banks to hold capital against sovereign bonds gradually ebbed and better buying by Asian, as well as European based real money accounts saw Bunds move into positive territory.

Looking at the rest of the US session, today we get the release of the weekly jobless data from the US and US retail sales.

Overnight bulletin summary from Bloomberg and RanSquawk

• Stocks traded lower throughout the session following the negative sentiment from the US and Asia asFed taper concerns continue to linger.
• ECB’s Praet signalled the ECB will try to force Eurozone banks to hold capital against sovereign bonds, in an attempt to stop weak lenders using its cash to hoover up the debts of crisis-hit countries.
• Looking ahead for the session, today sees the release of the US weekly jobless data, retail sales as well as a 30y bond auction from the US.
• Treasuries 7Y and longer gain before week’s debt auctions conclude with $13b 30Y bonds; yield 3.87% in WI trading after drawing 3.81% in November.
• Yesterday’s $21b 10Y sale awarded at 2.824%, about 0.7bp above 1pm WI yield, first 10Y reopening to tail since July, biggest tail since Jan.; directs lowest since Aug. 2012
• A U.S. budget accord is on track to win passage in Congress largely because its most important accomplishment is pushing off automatic spending cuts that neither party likes
• New Zealand’s central bank stepped up its inflation-fighting rhetoric and signaled it will start raising rates in the first half of next year as the economy strengthens
• The ECB will seek to combine its new powers as principal banking regulator with current role as currency issuer to strengthen requirements on sovereign bonds, which have traditionally been classed as risk free, ECB’s Peter Praet said in an interview with the FT
• Japan’s Government Pension Investment Fund should decrease its allocation to JGBs and increase investments in other assets, Takatoshi Ito, chairman of a group advising lawmakers on pension allocations, said to a LDP committee  today
• Stanley Fischer, said to be the leading candidate for the No. 2 job at the Fed, offers crisis-fighting experience and a dose of skepticism about efforts to shape expectations on the outlook for interest rates
• The U.S. said it’s considering sanctions against Ukraine after riot police tried to clear thousands of anti-government activists off the streets of Kiev
• Sovereign yields higher. EU peripheral spreads widen. Asian and European stocks, U.S. equity index futures fall. WTI crude gains, gold and copper fall

US event calendar

• 8:30am: Retail Sales Advance, Nov., est. 0.6% (prior 0.4%)
• Retail Sales Ex-Autos, Nov., est. 0.2% (prior 0.2%)
• Retail Sales Ex-Autos and Gasoline, Nov., est. 0.3% (prior 0.3%)
• 8:30am: Initial Jobless Claims, Dec. 7, est. 320k (prior 298k)
• Continuing Claims, Nov. 29, est. 2.757m (prior 2.744m)
• 8:30am: Import Price Index m/m, Nov., est. -0.7% (prior -0.7%)
• Import Price Index y/y, Nov., est. -1.7% (prior -2%)
• 9:45am: Bloomberg Consumer Comfort, Dec. 8 (prior -31.3)
• 10:00am: Business Inventories, Oct., est. 0.3% (prior 0.6%) Central Banks
• 3:00am: Draghi speaks in EU Parliament debate Supply
• 11:00am: Fed to purchase $3b-$4b in 2019-2020 sector
• 1:00pm: U.S. to sell $13b in 30Y bonds in reopening

Market Re-Cap from RanSquawk

Stocks traded lower throughout the session, with consumer goods underperforming its peers and Peugeot shares trading lower by 10% in reaction to reports citing sources that the board has approved in principal EUR 3.5bln capital increase with Dongfeng and French government. Initial selling pressure on Bunds which largely stemmed from market participants reacting to reports citing ECB’s Praet who signalled that the ECB will try to force Eurozone banks to hold capital against sovereign bonds gradually ebbed and better buying by Asian, as well as European based real money accounts saw Bunds move into positive territory. Furthermore, in spite of the upticks seen in the Euribor fix which came in at 0.227% vs. yesterday’s previous fix of 0.267%, together with the fact that the EONIA fix rose to 0.144 from 0.131 the day before, the Euribor curve reversed much of that price action in reaction to the release of the latest ECB daily liquidity update which showed that excess liquidity in the system has increased. Elsewhere, Gilts have underperformed their EU counterparts, with prices weighed on by the supply and also  reaction to the BCC increasing its UK 2013 GDP forecast to 1.4% vs. 1.3% and also raising its 2014 GDP forecast to 2.7% vs. 2.2%. Looking ahead for the session, today sees the release of the weekly jobless data from the US and US retail sales.

Asian Headlines

Head of the GPIF reform panel Takatoshi Ito said the GPIF needs to decrease JGBs, increase other assets and should buy inflation linked bonds.

According to BofAML forecasts, the BoJ are to ease in February, buy more ETFs and boost average maturity of bonds it buys.

Japan Cabinet has approved JPY 5.46trln extra budget for 2013/2014 to fund economic stimulus, no need to sell additional new bonds. Japan Finance Minister Aso plans to approve FY14 budget at December 24th cabinet meeting.

EU & UK Headlines

SNB 3-Month Libor Target Rate (Dec-12) Q/Q unchanged at 0.00-0.25%, as expected; maintains EUR/CHF floor at 1.2000

The SNB expects economy to expand 1.5% to 2% in 2013, does not see inflation approaching 2% price stability threshold for entire forecast horizon. The SNB also sees 2013 CPI at -0.2% vs. Prev. -0.2%. and are prepared to take further steps if necessary, with the value of CHF still high.

ECB’s Praet signalled the ECB will try to force Eurozone banks to hold capital against sovereign bonds, in an attempt to stop weak lenders using i
ts cash to hoover up the debts of crisis-hit countries.

Bondholders and large depositors in a failing European Bank face taking losses from the start of 2016, EU negotiators agreed on Wednesday, in a provisional deal on rules to spare taxpayers from further bailouts.

ECB’s Liikanen said capacity of monetary policy has not been exhausted and ECB are ‘ready and able to act’, whilst ECB’s Hansson said negative deposit rate probably option for ECB in more adverse cases with Deutsche Bank economist says an ECB negative deposit rates would be ‘extortion’.

Eurozone Industrial Production SA (Oct) M/M -1.1% vs Exp. 0.3% (Prev. -0.5%, Rev. -0.2%)

– Eurozone Industrial Production WDA (Oct) Y/Y 0.2% vs Exp. 1.1% (Prev. 1.1%, Rev. 0.2%)

This marked the biggest month on month contraction in output since Sept 2012 with declines across goods were broad based in the Euro Area, with energy appearing to lead the contraction.

Italy Premier Letta’s government wins confidence vote in the Senate as expected.

French CPI (Nov) M/M 0.0% vs Exp. 0.0% (Prev. -0.1%)

– French CPI (Nov) Y/Y 0.7% vs Exp. 0.7% (Prev. 0.6%).

The British Chambers of Commerce said that UK Business Sentiment is to fall 5.3% in 2013 and rise 5.7% in 2014. The BCC also increased its UK 2013 GDP forecast to 1.4% vs. 1.3%, raised its 2014 GDP forecast to 2.7% vs. 2.2%.

US Headlines

Goldman Sachs on Former Bank of Israel’s Fischer (the front-runner for the Fed Vice-Chair position) says that with respect to monetary policy at the zero lower bound, he has generally spoken favorably about quantitative easing but has expressed more skepticism about forward guidance. Nonetheless, we think forward guidance will continue to be a key item in the Fed’s toolkit.

Equities

Stocks traded lower throughout the session following the negative sentiment from the US and Asia after Fed taper concerns continue to linger. In terms of sector specific news, consumer goods are underperforming its peers and Peugeot shares trading lower by 10% in reaction to reports citing sources that the board has approved in principal EUR 3.5bln capital increase with Dongfeng and French government. The underperforming stock this morning in European trade has been Wood Group, following their pre-market release, whilst Ziggo shares are seen up with gains of around 7% following reports that Liberty Global are said to prepare renewed takeover bid for the Co.

FX

Market talk of real names selling EUR/GBP has seen weakness across the board in EUR and strength in GBP as volumes continue to remain light. Furthermore, JPY weakness is being observed despite a lower close in Asia as there is talk of hedge fund buying in EUR/JPY. Furthermore, EUR/CHF proved to be relatively unreactive to the decision by the SNB in early trade as it fell in line with expectations. Whilst overnight despite AUD seeing brief strength after Employment Change for November exceeded expecations, the gains in were quickly pared due to a revision lower to the previous reading.

The lower than expected Swedish inflation and higher than expected unemployment has prompted Nordea and Handelsbanken to revise their interest rate expectations to a cut on December 17th.

Commodities

The RBI said it will infuse an additional INR 10,000 crore into the system on Friday to ease the tight liquidity situation, ahead of commencement of advance tax payments.

China November copper output 654,000 tons and lead production 386,000 tons. according to Statistics Bureau data.

China are to raise fuel prices, raise gasoline price by CNY 60/ton, raise diesel price by CNY 60/ton and raise fuel prices by tomorrow, according to Chem99.com.

 

DB’s Jim Reid concludes the overnight recap

The taper continues to dominate trading and thoughts at the moment. Indeed with less than two weeks to go until Xmas markets are on edge ahead of next week’s ‘in-the-balance’ FOMC meeting. As we discussed yesterday, news of a possible imminent US budget deal must surely increase the probability of a taper even if they are still below 50%. As such the deal creates a source of market volatility even if it should in theory be a welcome development. The S&P 500 fell 1.13% in its worst day in more than a month and equities finished the day at the lows. Taper nervousness was evident in EM currencies particularly MXN (-1.3%) and BRL (- 1.5%) which underperformed against the USD. The UST curve steepened while 10yr yields added 5bp to take it back above 2.85%. So after a brief bounce following Friday’s payrolls, we’ve now had two days of consolidation which have taken equities and 10yr yields back to their pre-payrolls levels.

In the second half of the US trading session, Israeli television reported that former Bank of Israel governor Stanley Fischer is the leading candidate for the job of Fed Vice Chair. The potential appointment of Fischer is reportedly backed by Obama and Yellen. The reports did not cite a source but were quick to point out that Fischer has previously criticised forward rate guidance. This probably exacerbated the selloff that we saw late yesterday. Most commentators pointed to a September article from the WSJ where Fischer was quoted as saying that “If you give too much forward guidance you do take away flexibility” and that “It’s a mistake to try and get too precise”. Apparently Fischer had tried providing signals to the market on becoming governor in 2005, but gave up after he realised it restricted the bank’s future actions. The WSJ also noted that Fischer had previously described QE as “dangerous” but “necessary”. Others had more dovish observations about Fischer, noting that as Bank of Israel governor he employed a Fed-style dual focus on employment and growth alongside price stability, whereas previous governors placed an emphasis on inflation.

Either way, the focus on Fischer’s criticism of forward guidance comes at a particularly awkward time given that Fed tapering may be just around the corner and indeed many are expecting the Fed to strengthen its forward guidance as a means of softening its impact. Some also fear that Fischer may act as an intellectual counterweight to a dovish Yellen given that he also comes with strong academic credentials. It was widely noted that Fischer was a professor of economics at MIT where he oversaw Bernanke’s and was also a  teacher to Mario Draghi.

So with about a week now until we get to the final FOMC for the year, it wasn’t surprising that we began to see market chatter on what course the Fed may take at its next meeting. There was renewed talk of the Fed weighing up cutting interest on excess reserves (Bloomberg) as a means of strengthening its commitment to low rates, and to divert attention away from any imminent slowdown in asset purchases. There were also re-runs of previous discussion that the Fed is testing a reverse-repo facility to give it better control of shortterm rates when it eventually needs to hike.

Coming back to the US budget, markets gained little comfort from the building bipartisan support for the Senate Budget Committee’s deal announced on Tuesday night. Indeed markets seemed to be more concerned that the lessened fiscal drag and possible bump to US growth next year will only serve to bring forward or accelerate the Fed taper. DB’s Joe Lavorgna wrote that the deal does not include an extension of federal unemployment benefits, and the failure to extend these benefits could have a meaningful impact on the unemployment rate. Joe notes that when federal benefits expire at the end of this month, perhaps a quarter of them will drop out of the official labour force. This would have the effect of lowering the unemployment rate by 0.3%, placing it only just above the Fed’s 6.5% rate hike threshold.

This morning the taper theme is weighing on Asian EM assets including a number of EMFX crosse
s such as USDINR (+0.67%) and USDMYR (+0.4%). Despite this, the EUR continues its strong run against the USD and is poised for its eighth consecutive gain. The AUDUSD spiked up shortly after the release of a stronger than expected Australian employment report (+21k vs +10k expected) but the gains were quickly reversed on the combination of the overnight USD strength and resetting of shorts. Asian equities are trading broadly lower with laggards being the Nikkei (-1.3%) and Jakarta Composite (- 1.2%). It’s been a heavy trading session for Asian credit and sovereign bonds which is unsurprising given the weak tone in EM fixed income yesterday.

In other headlines, the FT is suggesting that the ECB may force Eurozone banks to hold capital against sovereign bonds. In an FT interview, ECB Executive Board member Peter Praet indicated that the ECB, using its powers as banking regulator, could change the risk-free classification on sovereign bonds and could try and implement these changes alongside the AQR of European banks. Praet also suggested that this was part of the ECB’s reluctance to have ECB liquidity used to fund purchases of sovereign bonds, something which Draghi also mentioned in his last press conference. Elsewhere in Italy, PM Letta easily passed a confidence vote, as was widely expected.

Turning to the day ahead, the main focus will be on US retail sales where consensus estimates are centred around a headline gain of 0.6%. French/Italian CPI, Eurozone industrial production and initial jobless claims are the other data releases of note. The US House of Reps may vote on the US budget as early as today.

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

It has been another session of overnight weakness, in which, to quote Deutsche Bank, “something has changed” as ES algos no longer track every tick of the EURJPY (or other JPY pair variants). Usually in such transition periods where the robots are not sure how to trade risk based on highly leveraged inputs, things go bump in the night, and they did just that with the E-Mini trading just off its overnight lows, despite a notable rise in the EURJPY from yesterday’s close. Keep a close eye on the now traditional pre-market ramp in the EURJPY – if unaccompanied by an increase in the E-mini, it may be time to quietly exit stage left.

This morning the taper theme is weighing on Asian EM assets including a number of EMFX crosses such as USDINR (+0.67%) and USDMYR (+0.4%). Despite this, the EUR continues its strong run against the USD and is poised for its eighth consecutive gain. The AUDUSD spiked up shortly after the release of a stronger than expected Australian employment report (+21k vs +10k expected) but the gains were quickly reversed on the combination of the overnight USD strength and resetting of shorts. Asian equities are trading broadly lower with laggards being the Nikkei (-1.3%) and Jakarta Composite (- 1.2%). It’s been a heavy trading session for Asian credit and sovereign bonds which is unsurprising given the weak tone in EM fixed income yesterday.

Stocks traded lower throughout the session, with consumer goods underperforming its peers and Peugeot shares trading lower by 10% in reaction to reports citing sources that the board has approved in principal EUR 3.5bln capital increase with Dongfeng and French government. Initial selling pressure on Bunds which largely stemmed from market participants reacting to reports citing ECB’s Praet who signalled that the ECB will try to force Eurozone banks to hold capital against sovereign bonds gradually ebbed and better buying by Asian, as well as European based real money accounts saw Bunds move into positive territory.

Looking at the rest of the US session, today we get the release of the weekly jobless data from the US and US retail sales.

Overnight bulletin summary from Bloomberg and RanSquawk

• Stocks traded lower throughout the session following the negative sentiment from the US and Asia asFed taper concerns continue to linger.
• ECB’s Praet signalled the ECB will try to force Eurozone banks to hold capital against sovereign bonds, in an attempt to stop weak lenders using its cash to hoover up the debts of crisis-hit countries.
• Looking ahead for the session, today sees the release of the US weekly jobless data, retail sales as well as a 30y bond auction from the US.
• Treasuries 7Y and longer gain before week’s debt auctions conclude with $13b 30Y bonds; yield 3.87% in WI trading after drawing 3.81% in November.
• Yesterday’s $21b 10Y sale awarded at 2.824%, about 0.7bp above 1pm WI yield, first 10Y reopening to tail since July, biggest tail since Jan.; directs lowest since Aug. 2012
• A U.S. budget accord is on track to win passage in Congress largely because its most important accomplishment is pushing off automatic spending cuts that neither party likes
• New Zealand’s central bank stepped up its inflation-fighting rhetoric and signaled it will start raising rates in the first half of next year as the economy strengthens
• The ECB will seek to combine its new powers as principal banking regulator with current role as currency issuer to strengthen requirements on sovereign bonds, which have traditionally been classed as risk free, ECB’s Peter Praet said in an interview with the FT
• Japan’s Government Pension Investment Fund should decrease its allocation to JGBs and increase investments in other assets, Takatoshi Ito, chairman of a group advising lawmakers on pension allocations, said to a LDP committee  today
• Stanley Fischer, said to be the leading candidate for the No. 2 job at the Fed, offers crisis-fighting experience and a dose of skepticism about efforts to shape expectations on the outlook for interest rates
• The U.S. said it’s considering sanctions against Ukraine after riot police tried to clear thousands of anti-government activists off the streets of Kiev
• Sovereign yields higher. EU peripheral spreads widen. Asian and European stocks, U.S. equity index futures fall. WTI crude gains, gold and copper fall

US event calendar

• 8:30am: Retail Sales Advance, Nov., est. 0.6% (prior 0.4%)
• Retail Sales Ex-Autos, Nov., est. 0.2% (prior 0.2%)
• Retail Sales Ex-Autos and Gasoline, Nov., est. 0.3% (prior 0.3%)
• 8:30am: Initial Jobless Claims, Dec. 7, est. 320k (prior 298k)
• Continuing Claims, Nov. 29, est. 2.757m (prior 2.744m)
• 8:30am: Import Price Index m/m, Nov., est. -0.7% (prior -0.7%)
• Import Price Index y/y, Nov., est. -1.7% (prior -2%)
• 9:45am: Bloomberg Consumer Comfort, Dec. 8 (prior -31.3)
• 10:00am: Business Inventories, Oct., est. 0.3% (prior 0.6%) Central Banks
• 3:00am: Draghi speaks in EU Parliament debate Supply
• 11:00am: Fed to purchase $3b-$4b in 2019-2020 sector
• 1:00pm: U.S. to sell $13b in 30Y bonds in reopening

Market Re-Cap from RanSquawk

Stocks traded lower throughout the session, with consumer goods underperforming its peers and Peugeot shares trading lower by 10% in reaction to reports citing sources that the board has approved in principal EUR 3.5bln capital increase with Dongfeng and French government. Initial selling pressure on Bunds which largely stemmed from market participants reacting to reports citing ECB’s Praet who signalled that the ECB will try to force Eurozone banks to hold capital against sovereign bonds gradually ebbed and better buying by Asian, as well as European based real money accounts saw Bunds move into positive territory. Furthermore, in spite of the upticks seen in the Euribor fix which came in at 0.227% vs. yesterday’s previous fix of 0.267%, together with the fact that the EONIA fix rose to 0.144 from 0.131 the day before, the Euribor curve reversed much of that price action in reaction to the release of the latest ECB daily liquidity update which showed that excess liquidity in the system has increased. Elsewhere, Gilts have underperformed their EU counterparts, with prices weighed on by the supply and also  reaction to the BCC increasing its UK 2013 GDP forecast to 1.4% vs. 1.3% and also raising its 2014 GDP forecast to 2.7% vs. 2.2%. Looking ahead for the session, today sees the release of the weekly jobless data from the US and US retail sales.

Asian Headlines

Head of the GPIF reform panel Takatoshi Ito said the GPIF needs to decrease JGBs, increase other assets and should buy inflation linked bonds.

According to BofAML forecasts, the BoJ are to ease in February, buy more ETFs and boost average maturity of bonds it buys.

Japan Cabinet has approved JPY 5.46trln extra budget for 2013/2014 to fund economic stimulus, no need to sell additional new bonds. Japan Finance Minister Aso plans to approve FY14 budget at December 24th cabinet meeting.

EU & UK Headlines

SNB 3-Month Libor Target Rate (Dec-12) Q/Q unchanged at 0.00-0.25%, as expected; maintains EUR/CHF floor at 1.2000

The SNB expects economy to expand 1.5% to 2% in 2013, does not see inflation approaching 2% price stability threshold for entire forecast horizon. The SNB also sees 2013 CPI at -0.2% vs. Prev. -0.2%. and are prepared to take further steps if necessary, with the value of CHF still high.

ECB’s Praet signalled the ECB will try to force Eurozone banks to hold capital against sovereign bonds, in an attempt to stop weak lenders using its cash to hoover up the debts of crisis-hit countries.

Bondholders and large depositors in a failing European Bank face taking losses from the start of 2016, EU negotiators agreed on Wednesday, in a provisional deal on rules to spare taxpayers from further bailouts.

ECB’s Liikanen said capacity of monetary policy has not been exhausted and ECB are ‘ready and able to act’, whilst ECB’s Hansson said negative deposit rate probably option for ECB in more adverse cases with Deutsche Bank economist says an ECB negative deposit rates would be ‘extortion’.

Eurozone Industrial Production SA (Oct) M/M -1.1% vs Exp. 0.3% (Prev. -0.5%, Rev. -0.2%)

– Eurozone Industrial Production WDA (Oct) Y/Y 0.2% vs Exp. 1.1% (Prev. 1.1%, Rev. 0.2%)

This marked the biggest month on month contraction in output since Sept 2012 with declines across goods were broad based in the Euro Area, with energy appearing to lead the contraction.

Italy Premier Letta’s government wins confidence vote in the Senate as expected.

French CPI (Nov) M/M 0.0% vs Exp. 0.0% (Prev. -0.1%)

– French CPI (Nov) Y/Y 0.7% vs Exp. 0.7% (Prev. 0.6%).

The British Chambers of Commerce said that UK Business Sentiment is to fall 5.3% in 2013 and rise 5.7% in 2014. The BCC also increased its UK 2013 GDP forecast to 1.4% vs. 1.3%, raised its 2014 GDP forecast to 2.7% vs. 2.2%.

US Headlines

Goldman Sachs on Former Bank of Israel’s Fischer (the front-runner for the Fed Vice-Chair position) says that with respect to monetary policy at the zero lower bound, he has generally spoken favorably about quantitative easing but has expressed more skepticism about forward guidance. Nonetheless, we think forward guidance will continue to be a key item in the Fed’s toolkit.

Equities

Stocks traded lower throughout the session following the negative sentiment from the US and Asia after Fed taper concerns continue to linger. In terms of sector specific news, consumer goods are underperforming its peers and Peugeot shares trading lower by 10% in reaction to reports citing sources that the board has approved in principal EUR 3.5bln capital increase with Dongfeng and French government. The underperforming stock this morning in European trade has been Wood Group, following their pre-market release, whilst Ziggo shares are seen up with gains of around 7% following reports that Liberty Global are said to prepare renewed takeover bid for the Co.

FX

Market talk of real names selling EUR/GBP has seen weakness across the board in EUR and strength in GBP as volumes continue to remain light. Furthermore, JPY weakness is being observed despite a lower close in Asia as there is talk of hedge fund buying in EUR/JPY. Furthermore, EUR/CHF proved to be relatively unreactive to the decision by the SNB in early trade as it fell in line with expectations. Whilst overnight despite AUD seeing brief strength after Employment Change for November exceeded expecations, the gains in were quickly pared due to a revision lower to the previous reading.

The lower than expected Swedish inflation and higher than expected unemployment has prompted Nordea and Handelsbanken to revise their interest rate expectations to a cut on December 17th.

Commodities

The RBI said it will infuse an additional INR 10,000 crore into the system on Friday to ease the tight liquidity situation, ahead of commencement of advance tax payments.

China November copper output 654,000 tons and lead production 386,000 tons. according to Statistics Bureau data.

China are to raise fuel prices, raise gasoline price by CNY 60/ton, raise diesel price by CNY 60/ton and raise fuel prices by tomorrow, according to Chem99.com.

 

DB’s Jim Reid concludes the overnight recap

The taper continues to dominate trading and thoughts at the moment. Indeed with less than two weeks to go until Xmas markets are on edge ahead of next week’s ‘in-the-balance’ FOMC meeting. As we discussed yesterday, news of a possible imminent US budget deal must surely increase the probability of a taper even if they are still below 50%. As such the deal creates a source of market volatility even if it should in theory be a welcome development. The S&P 500 fell 1.13% in its worst day in more than a month and equities finished the day at the lows. Taper nervousness was evident in EM currencies particularly MXN (-1.3%) and BRL (- 1.5%) which underperformed against the USD. The UST curve steepened while 10yr yields added 5bp to take it back above 2.85%. So after a brief bounce following Friday’s payrolls, we’ve now had two days of consolidation which have taken equities and 10yr yields back to their pre-payrolls levels.

In the second half of the US trading session, Israeli television reported that former Bank of Israel governor Stanley Fischer is the leading candidate for the job of Fed Vice Chair. The potential appointment of Fischer is reportedly backed by Obama and Yellen. The reports did not cite a source but were quick to point out that Fischer has previously criticised forward rate guidance. This probably exacerbated the selloff that we saw late yesterday. Most commentators pointed to a September article from the WSJ where Fischer was quoted as saying that “If you give too much forward guidance you do take away flexibility” and that “It’s a mistake to try and get too precise”. Apparently Fischer had tried providing signals to the market on becoming governor in 2005, but gave up after he realised it restricted the bank’s future actions. The WSJ also noted that Fischer had previously described QE as “dangerous” but “necessary”. Others had more dovish observations about Fischer, noting that as Bank of Israel governor he employed a Fed-style dual focus on employment and growth alongside price stability, whereas previous governors placed an emphasis on inflation.

Either way, the focus on Fischer’s criticism of forward guidance comes at a particularly awkward time given that Fed tapering may be just around the corner and indeed many are expecting the Fed to strengthen its forward guidance as a means of softening its impact. Some also fear that Fischer may act as an intellectual counterweight to a dovish Yellen given that he also comes with strong academic credentials. It was widely noted that Fischer was a professor of economics at MIT where he oversaw Bernanke’s and was also a  teacher to Mario Draghi.

So with about a week now until we get to the final FOMC for the year, it wasn’t surprising that we began to see market chatter on what course the Fed may take at its next meeting. There was renewed talk of the Fed weighing up cutting interest on excess reserves (Bloomberg) as a means of strengthening its commitment to low rates, and to divert attention away from any imminent slowdown in asset purchases. There were also re-runs of previous discussion that the Fed is testing a reverse-repo facility to give it better control of shortterm rates when it eventually needs to hike.

Coming back to the US budget, markets gained little comfort from the building bipartisan support for the Senate Budget Committee’s deal announced on Tuesday night. Indeed markets seemed to be more concerned that the lessened fiscal drag and possible bump to US growth next year will only serve to bring forward or accelerate the Fed taper. DB’s Joe Lavorgna wrote that the deal does not include an extension of federal unemployment benefits, and the failure to extend these benefits could have a meaningful impact on the unemployment rate. Joe notes that when federal benefits expire at the end of this month, perhaps a quarter of them will drop out of the official labour force. This would have the effect of lowering the unemployment rate by 0.3%, placing it only just above the Fed’s 6.5% rate hike threshold.

This morning the taper theme is weighing on Asian EM assets including a number of EMFX crosses such as USDINR (+0.67%) and USDMYR (+0.4%). Despite this, the EUR continues its strong run against the USD and is poised for its eighth consecutive gain. The AUDUSD spiked up shortly after the release of a stronger than expected Australian employment report (+21k vs +10k expected) but the gains were quickly reversed on the combination of the overnight USD strength and resetting of shorts. Asian equities are trading broadly lower with laggards being the Nikkei (-1.3%) and Jakarta Composite (- 1.2%). It’s been a heavy trading session for Asian credit and sovereign bonds which is unsurprising given the weak tone in EM fixed income yesterday.

In other headlines, the FT is suggesting that the ECB may force Eurozone banks to hold capital against sovereign bonds. In an FT interview, ECB Executive Board member Peter Praet indicated that the ECB, using its powers as banking regulator, could change the risk-free classification on sovereign bonds and could try and implement these changes alongside the AQR of European banks. Praet also suggested that this was part of the ECB’s reluctance to have ECB liquidity used to fund purchases of sovereign bonds, something which Draghi also mentioned in his last press conference. Elsewhere in Italy, PM Letta easily passed a confidence vote, as was widely expected.

Turning to the day ahead, the main focus will be on US retail sales where consensus estimates are centred around a headline gain of 0.6%. French/Italian CPI, Eurozone industrial production and initial jobless claims are the other data releases of note. The US House of Reps may vote on the US budget as early as today.

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