Payroll Preview: Who Expects What

From RanSquawk:

The two most important consensus numbers:

  • US Unemployment Rate (Jan) Exp. 6.7% (Low 6.5%, High 6.9%), Prev. 6.7%, Nov. 7.0%
  • US Change in Nonfarm Payroll (Jan) Exp. 180K (Low 105K, High 270K), Prev. 74K, Nov. 241K

Broken down by bank:

  • HSBC 171K
  • Barclays 175K
  • Citigroup 180K
  • Bank of America 185K
  • Deutsche Bank 200K
  • UBS 200K
  • Goldman Sachs 200K
  • JP Morgan 205K

Today sees the release of the nonfarm payrolls report for January, which follows Decembers’s large miss on expectations at 74k versus a consensus of 197k. The Bureau of Labor Statistics (BLS) has acknowledged that weather conditions had a significant effect on last month’s reading. Ahead of the polar vortex in the US,  adverse weather kept 273k employed workers at home (versus a 10-year average of 166k) and temperatures remained lower than average in January, particularly in the first half of the month. The market reaction to another low reading may therefore be subdued, if it is believed to be representative of weather effects rather than economic fundamentals.

Wednesday saw a relatively strong, albeit lower than expected reading of the ADP report (175K vs. Exp. 185K), often considered to be a strong indicator of NFP because of the two data points’ methodological similarities. However, last month’s reading showed 238k, which versus an NFP reading of 74k represented the largest discrepancy between the two readings since Moody’s began compiling the figure in 2012; the average miss between the two releases is 50k. In terms of other data points, although this week’s ISM manufacturing missed expectations the major regional manufacturing surveys from New York, Philadelphia and Chicago were all better than expected, and the ISM non-manufacturing reading was also higher than consensus, with the employment component rising to 56.4 (prev. 55.6).

In terms of the unemployment figure, last month’s drop from 7.0% to 6.7% was the largest decline since December 2010. Consensus currently points to an unchanged reading this month, however, the figure may be influenced by the expiration of emergency unemployment benefits at the end of December. A proportion of the 1.3mln people whose benefits came to an end will have left the labour force if unable to find work, which if proved true could have the effect of reducing the unemployment rate.

Market Reaction

With the Fed now seemingly on a USD 10bln per-month tapering path, participants may view the central bank as less likely to be influenced by the report than previous months unless the reading falls far short, or far exceeds expectations.

As a result, a strong reading indicative of a healthy labour market will likely see a knee-jerk reaction higher in US equities and the USD, and downside in Treasuries and gold. A reading largely influenced by weather conditions in January could mean the initial fast-money moves will fail to be sustained, although a large beat is likely to support the view of another taper by the FOMC at their next meeting in March. Another drop in the unemployment rate, which would edge closer to the Fed’s 6.5% unemployment threshold for the first Fed funds rate hike, is unlikely to cause an aggressive shift towards the view of a near-term rate hike due to the fact the Fed continue to reiterate that the Fed will maintain accommodative policy for some-time to come yet.


    



via Zero Hedge http://ift.tt/1gacUSo Tyler Durden

Dutch Bankers “Swear To God” They’ll Be Honest From Now On

Following rate-rigging scandals, FX manipulation debacles, insider-trading idiocy, and over-aggressive lending practices, bankers are taking a different approach in regaining some public trust. As Jamie Dimon gives himself a “well-deserved” pay rise, Dutch bankers are turning to God… As Bloomberg reports, all 90,000 Dutch bank employees will take an oath ‘to do no harm’ as it were, punishable by the Banking Association. While Goldman may be doing God’s work; the Dutch are vowing to Him to enhance confidence in their industry.

 

 

Via Bloomberg,

The oath…

 

“I swear that I will do my utmost to preserve and enhance confidence in the financial-services industry. So help me God.”

 

…is the first of its kind in Europe, became binding on board members of Dutch banks last month as the government sought to rein in an industry with assets more than four times the size of the country’s economy.

 

All 90,000 Dutch bank employees must take the pledge, or a non-religious affirmation, starting the second half of this year. They’ll be punished should they break new ethical rules, Banking Association Chairman Chris Buijink said in an interview in Amsterdam.

 

Dutch bankers who fail to abide by the new rules may be blacklisted, face fines or suspensions

 

 

It’s a good signal to your employees and brings back awareness of the importance of these values,” said Bruggink, 50, who’s been CFO of the biggest Dutch mortgage lender since 2004. “It fits in with these times, where banks have to work hard to restore trust.”

 

 

“Other professions, such as lawyers and doctors, have a long-standing tradition of ethics,” he said. “With bankers, however, we don’t really know what the professional standards entail. More so, we don’t really know what ‘‘the banker” is. There is a large variation of roles within the industry.’’

It would seem they have a long way to go…

Thirty-four percent of Dutch citizens expressed trust in the finance industry last year compared with 90 percent in 2008


    



via Zero Hedge http://ift.tt/1gacStS Tyler Durden

Dutch Bankers "Swear To God" They'll Be Honest From Now On

Following rate-rigging scandals, FX manipulation debacles, insider-trading idiocy, and over-aggressive lending practices, bankers are taking a different approach in regaining some public trust. As Jamie Dimon gives himself a “well-deserved” pay rise, Dutch bankers are turning to God… As Bloomberg reports, all 90,000 Dutch bank employees will take an oath ‘to do no harm’ as it were, punishable by the Banking Association. While Goldman may be doing God’s work; the Dutch are vowing to Him to enhance confidence in their industry.

 

 

Via Bloomberg,

The oath…

 

“I swear that I will do my utmost to preserve and enhance confidence in the financial-services industry. So help me God.”

 

…is the first of its kind in Europe, became binding on board members of Dutch banks last month as the government sought to rein in an industry with assets more than four times the size of the country’s economy.

 

All 90,000 Dutch bank employees must take the pledge, or a non-religious affirmation, starting the second half of this year. They’ll be punished should they break new ethical rules, Banking Association Chairman Chris Buijink said in an interview in Amsterdam.

 

Dutch bankers who fail to abide by the new rules may be blacklisted, face fines or suspensions

 

 

It’s a good signal to your employees and brings back awareness of the importance of these values,” said Bruggink, 50, who’s been CFO of the biggest Dutch mortgage lender since 2004. “It fits in with these times, where banks have to work hard to restore trust.”

 

 

“Other professions, such as lawyers and doctors, have a long-standing tradition of ethics,” he said. “With bankers, however, we don’t really know what the professional standards entail. More so, we don’t really know what ‘‘the banker” is. There is a large variation of roles within the industry.’’

It would seem they have a long way to go…

Thirty-four percent of Dutch citizens expressed trust in the finance industry last year compared with 90 percent in 2008


    



via Zero Hedge http://ift.tt/1gacStS Tyler Durden

Connect the Dots: The Power of the Lone Dissenter to Produce Positive Change

Today there are literally hundreds of millions of people protesting their economic situations in dozens of countries in every single region of the world. While these protests are valid, and government corruption is the equilibrium state for all governments worldwide, the missing component is the ability of protesters to connect the dots and determine the underlying common denominator in the terrible economic state worldwide that has resulted in the middle class being decimated in the US and the horrific 15% suicide rates among all deaths in the 25 to 34 year old demographic in Spain.

 

In the below video, we discuss the power of the lone dissenter to connect the dots of global economic disenfranchisement for billions of people worldwide, and why the silence of good people working for morally bankrupt industries is just as powerful an enabler of economic destruction as is the courage of a lone dissenter to re-focus and re-shape protests and revolutions on only the most pertinent and salient of issues. In fact, having the honor of a lone dissenter amongst us may be the difference between our financial life and death in the next couple of years, and in the case of 9/11 survivors in the South tower that met lone dissenters as they were returning to their offices after the first plane hit the North tower, the difference between literal life and death for them (we discuss this situation in the video below).

 

 

Other recent SmartKnowledgeU videos:

What the Chinese Yuan is Telling Us, Part 1


What the Chinese Yuan is Telling Us, Part 2

Does Your Gang Affiliation Preventing You From Thinking Clearly?

#AskJPM Provides Blueprint to Rein in Criminal Bankers


The One Global Bubble We Can NOT Let Pop   

 

Subscribe to the SmartKnowledgeU YouTube channel here

Subscribe to the SmartKnowledgeU Twitter feed here


    



via Zero Hedge http://ift.tt/1o0m2hZ smartknowledgeu

German Top Court Finds ECB’s OMT Is Illegal, Then Promptly Washes Its Hands Of Final Decision

In what was a shocking and disappointing at the same time decision, overnight the German Constitutional court, which had been contemplating the legality of the ECB’s still non-existent OMT program, conceived in July 2012 to prevent the collapse of the Eurozone and still only existing in Mario Draghi’s head as it has zero legal documentation supporting it, said that, in its judgment, the ECB’s Outright Monetary Transactions program likely exceeded the central bank’s powers.

“There are important reasons to assume that [the OMT] exceeds the European Central Bank’s monetary policy mandate and thus infringes the powers of the member states, and that it violates the prohibition of monetary financing of the budget,” the German court said Friday. “Subject to the interpretation by the Court of Justice of the European Union, the Federal Constitutional Court considers the OMT decision incompatible with primary law,” the German court said.

At that point it quickly washed its hand of the consequences of having founds the OMT illegal, and referred the final decision on the legality of the European Central Bank’s bond-purchase program to the European Court of Justice, and in doing so gave the ECB a panel of judges that is more sympathetic to the OMT and the central bank’s ability to conduct monetary policy as it sees fit. It also killed two birds with one stone: allowed Germans to claims internally that the OMT is illegal, while everyone else in Europe gets to pretend that the continent is solvent, and that the ECB can backstop sovereign bond purchases with an imaginary contraption that contrary to mass delusion, simply does not exist and would fall apart the second it is used for the first time.

The WSJ reports:

The European Court of Justice has traditionally sided with European Union institutions on their interpretation of EU law.

 

“The announcement should clearly reduce the Karlsruhe fear factor for the ECB,” said Carsten Brzeski, an economist at ING Bank, referring to the city that is home to Germany’s top court.

 

Friday’s announcement “could either be a sign that the court has reached its legal limits on European issues or that the issue is so tricky and touchy that it is better to pass it on,” Mr. Brzeski said.

 

 

The OMT is widely seen as a success. Spanish and Italian bond yields fell sharply after Mr. Draghi’s July 2012 speech and subsequent creation of the OMT, and have remained low since. The pledge to buy bonds was so successful in shoring up investor confidence in the euro’s future that the OMT has yet to be used.

 

But the program, which was vehemently opposed by Germany’s central bank, raised concerns in Germany that the ECB was blurring the line between fiscal and monetary policy and making it easier for governments to backtrack on their commitments to reduce debt.

 

“The ECB reiterates that the OMT program falls within its mandate,” the ECB said in a statement after the German court’s announcement.

 

But German judges had a different view.

It remains to be seen if the Germans react to this decision in any way, although at this point it is safe to assume that things in Europe will continue on their unmerry path until finally one of the unintended consequences of the monetary union – such as completely social collapse and record poverty and unemployment – force one of the member nations to revolt on its own and finally bring the entire artificial construct crashing down.

 

For those who wish to learn more, here is Open Europe’s flash analysis of the Constitutional Court’s decision:

* * *

New Open Europe flash analysis: I’m the German Constitutional Court, get me out of here! Court sees ECB bond buying as illegal but refers questions to ECJ

Summary: The German Constitutional Court (GCC) – Bundesverfassungsgericht – has referred several questions surrounding the ECB’s Outright Monetary Transactions (OMT) programme to the European Court of Justice (ECJ). It is evident that the Court believes the OMT is illegal and incompatible with EU and, therefore, German law. However, the Court only has jurisdiction to rule on matters of German domestic law. It therefore argues that it must refer the key questions to the ECJ – the body which interprets EU law – given that the ECB’s mandate and any overstepping of EU treaties is obviously a question about EU law.

The ECJ is likely to side with the EU institutions and rule that the OMT is compatible with EU law, with the GCC likely to therefore say its hands are tied. Still, the decision throws new uncertainty into the fragile eurozone economy and could hamper the recovery. The GCC may also, in its interpretation of the OMT’s compatibility with German law, insist in new red lines – potentially limiting the level of purchases. This itself would severely restrict the role of the ECB.

What are the new developments?

Surprising news out of Karlsruhe this morning as the GCC has asked the ECJ to rule on whether the ECB’s OMT programme – a promise by the ECB to buy an unlimited number of government bonds if the eurozone crisis worsened – is “compatible with the primary law of the European Union”. The legality of the OMT is a hugely important issue given that it is widely seen as a key factor in stabilising the eurozone and preventing a break-up.

The Court stresses that it believes the programme does violate the law, but can be brought in line with the treaties.

“The subject of the questions referred for a preliminary ruling is in particular whether the OMT Decision is compatible with the primary law of the European Union. In the view of the Senate, there are important reasons to assume that it exceeds the European Central Bank’s monetary policy mandate and thus infringes the powers of the Member States, and that it violates the prohibition of monetary financing of the budget. While the Senate is thus inclined to regard the OMT Decision as an ultra vires act, it also considers it possible that if the OMT Decision were interpreted restrictively in the light of the Treaties, conformity with primary law could be achieved.”[[1]]

What questions have been referred to the ECJ?

The GCC only has competence over German law and cannot make judgements surrounding EU law. Clearly from the above, the GCC believes that the OMT violates the mandate of the Bundesbank and the ECB. However, to conclusively prove so, it requires the ECJ to make a judgement on the OMT as well. The first key question it asks is:

Is the OMT “to be qualified as an independent act of economic policy?”

The GCC believes that it is and that it therefore goes beyond the mandate of the ECB, which only refers to monetary policy. It also stresses that the OMT could lead to “considerable redistribution between the Member States”, which is forbidden by the treaties. The GCC also asks the ECJ to rule whether:

The OMT programme “violates the prohibition of monetary financing of the budget (Art. 123 TFEU)”.

Again, here it seems the GCC believes that it may well do, and that if it were decided so, the GCC would have to stop the German authorities from taking part. Essentially, the GCC has asked the ECJ to rule whether the OMT is fundamentally compatible with the primary law of the EU.

Will the GCC still provide its own ruling?

Yes, but likely only after the ECJ has ruled. The GCC seems to be stuck. It has serious concerns over the OMT and its compatibility with the EU treaties and German law. However, it feels it cannot rule on issues of German law until the questions over EU law have been settled – which are outside of its jurisdiction. Once the ECJ has ruled, the GCC will likely re-examine how the OMT fits with German law, however, it will be constrained by the ECJ’s ruling and interpretation of EU law.

How might the GCC and ECJ rule?

It is patently obvious that the GCC believes that the OMT does violate primary EU law, because it goes beyond the mandate of the ECB and breaks the EU Treaties, and therefore violates German law.

“The OMT Decision does not appear to be covered by the mandate of the European Central Bank.”

“The existence of an ultra vires act as understood above creates an obligation of German authorities to refrain from implementing it and a duty to challenge it. These duties can be enforced before the Constitutional Court at least insofar as they refer to constitutional organs.”

However, given that the GCC cannot rule on EU law it has referred this decision to the ECJ. That said, as the quote below shows, it could still be forced to accept that the OMT is legal if the ECJ approves it and/or there are further restrictions put on it.

“Subject to the interpretation by the Court of Justice of the European  Union, the Federal Constitutional Court considers the OMT Decision incompatible with primary law; another assessment could, however, be warranted if the OMT Decision could be interpreted in conformity with primary law.”

“In the view of the Federal Constitutional Court, the OMT Decision might not be objectionable if it could be interpreted or limited in its validity in conformity with primary law in such a way that it would not undermine the conditionality of the assistance programmes of the EFSF and the ESM, and would indeed only be of a supportive nature with regard to the economic policies in the Union. In light of Art. 123 TFEU, this would probably require that the acceptance of a debt cut must be excluded, that government bonds of selected Member States are not  purchased up to unlimited amounts, and that interferences with price formation on the market are to be avoided where possible.”

Importantly, the GCC flags up that it could be willing to accept the OMT if it is no longer seen as being “unlimited” and if it is no longer seen as its own economic policy – but as long as it continues to have conditionality. This would require a significant reworking of the OMT and would severely hamper the ECB’s approach to tackling the crisis. It may also provide new boundaries (both legal and practical) on what the ECB can do in a crisis.

Ultimately, then the GCC ruling will depend heavily on how the ECJ rules. That being said, it seems very unlikely that the ECJ would rule against something as significant as the OMT, which has played a huge role in securing the eurozone.

Does this mean the OMT is now invalid?

It certainly casts significant doubt on the issue, however, it remains somewhat in limbo for the time being. The GCC evidently believes that it is illegal and should be invalid or at the very least amended. However, it also cannot provide such a categorical ruling before the ECJ has had a chance to rule or before the OMT has been amended and clarified.

Given that the ECJ tends to rule in line with EU policy and with EU institutions it seems highly doubtful that it would rule against the OMT. If it were to support OMT without any changes, this would put the GCC in a very difficult position. It would be stuck between believing it falls outside the mandate of the German institutions as to their responsibilities to the EU, however, it would not have any clear basis in terms of EU law.

In the meantime, it is clear the ECB still considers the OMT practically operational. In its response to the referral the central bank stated that, “The ECB reiterates that the OMT programme falls within its mandate.”[[2]]

What does this mean for eurozone?

This could well spark further jitters in the eurozone. For all the talk or institutional and structural change as well as national governments pushing reform, the OMT has been the key factor in easing the crisis. It certainly throws a new bout of uncertainty into the very fragile economic recovery in the eurozone. It could drive flows back to where they were previously, with the core countries benefitting from safe haven flows and the periphery being hit by the uncertainty. That said, it is likely that most investors will take a wait and see approach given the number of moving parts in this decision.


    



via Zero Hedge http://ift.tt/1o0m1KX Tyler Durden

German Top Court Finds ECB's OMT Is Illegal, Then Promptly Washes Its Hands Of Final Decision

In what was a shocking and disappointing at the same time decision, overnight the German Constitutional court, which had been contemplating the legality of the ECB’s still non-existent OMT program, conceived in July 2012 to prevent the collapse of the Eurozone and still only existing in Mario Draghi’s head as it has zero legal documentation supporting it, said that, in its judgment, the ECB’s Outright Monetary Transactions program likely exceeded the central bank’s powers.

“There are important reasons to assume that [the OMT] exceeds the European Central Bank’s monetary policy mandate and thus infringes the powers of the member states, and that it violates the prohibition of monetary financing of the budget,” the German court said Friday. “Subject to the interpretation by the Court of Justice of the European Union, the Federal Constitutional Court considers the OMT decision incompatible with primary law,” the German court said.

At that point it quickly washed its hand of the consequences of having founds the OMT illegal, and referred the final decision on the legality of the European Central Bank’s bond-purchase program to the European Court of Justice, and in doing so gave the ECB a panel of judges that is more sympathetic to the OMT and the central bank’s ability to conduct monetary policy as it sees fit. It also killed two birds with one stone: allowed Germans to claims internally that the OMT is illegal, while everyone else in Europe gets to pretend that the continent is solvent, and that the ECB can backstop sovereign bond purchases with an imaginary contraption that contrary to mass delusion, simply does not exist and would fall apart the second it is used for the first time.

The WSJ reports:

The European Court of Justice has traditionally sided with European Union institutions on their interpretation of EU law.

 

“The announcement should clearly reduce the Karlsruhe fear factor for the ECB,” said Carsten Brzeski, an economist at ING Bank, referring to the city that is home to Germany’s top court.

 

Friday’s announcement “could either be a sign that the court has reached its legal limits on European issues or that the issue is so tricky and touchy that it is better to pass it on,” Mr. Brzeski said.

 

 

The OMT is widely seen as a success. Spanish and Italian bond yields fell sharply after Mr. Draghi’s July 2012 speech and subsequent creation of the OMT, and have remained low since. The pledge to buy bonds was so successful in shoring up investor confidence in the euro’s future that the OMT has yet to be used.

 

But the program, which was vehemently opposed by Germany’s central bank, raised concerns in Germany that the ECB was blurring the line between fiscal and monetary policy and making it easier for governments to backtrack on their commitments to reduce debt.

 

“The ECB reiterates that the OMT program falls within its mandate,” the ECB said in a statement after the German court’s announcement.

 

But German judges had a different view.

It remains to be seen if the Germans react to this decision in any way, although at this point it is safe to assume that things in Europe will continue on their unmerry path until finally one of the unintended consequences of the monetary union – such as completely social collapse and record poverty and unemployment – force one of the member nations to revolt on its own and finally bring the entire artificial construct crashing down.

 

For those who wish to learn more, here is Open Europe’s flash analysis of the Constitutional Court’s decision:

* * *

New Open Europe flash analysis: I’m the German Constitutional Court, get me out of here! Court sees ECB bond buying as illegal but refers questions to ECJ

Summary: The German Constitutional Court (GCC) – Bundesverfassungsgericht – has referred several questions surrounding the ECB’s Outright Monetary Transactions (OMT) programme to the European Court of Justice (ECJ). It is evident that the Court believes the OMT is illegal and incompatible with EU and, therefore, German law. However, the Court only has jurisdiction to rule on matters of German domestic law. It therefore argues that it must refer the key questions to the ECJ – the body which interprets EU law – given that the ECB’s mandate and any overstepping of EU treaties is obviously a question about EU law.

The ECJ is likely to side with the EU institutions and rule that the OMT is compatible with EU law, with the GCC likely to therefore say its hands are tied. Still, the decision throws new uncertainty into the fragile eurozone economy and could hamper the recovery. The GCC may also, in its interpretation of the OMT’s compatibility with German law, insist in new red lines – potentially limiting the level of purchases. This itself would severely restrict the role of the ECB.

What are the new developments?

Surprising news out of Karlsruhe this morning as the GCC has asked the ECJ to rule on whether the ECB’s OMT programme – a promise by the ECB to buy an unlimited number of government bonds if the eurozone crisis worsened – is “compatible with the primary law of the European Union”. The legality of the OMT is a hugely important issue given that it is widely seen as a key factor in stabilising the eurozone and preventing a break-up.

The Court stresses that it believes the programme does violate the law, but can be brought in line with the treaties.

“The subject of the questions referred for a preliminary ruling is in particular whether the OMT Decision is compatible with the primary law of the European Union. In the view of the Senate, there are important reasons to assume that it exceeds the European Central Bank’s monetary policy mandate and thus infringes the powers of the Member States, and that it violates the prohibition of monetary financing of the budget. While the Senate is thus inclined to regard the OMT Decision as an ultra vires act, it also considers it possible that if the OMT Decision were interpreted restrictively in the light of the Treaties, conformity with primary law could be achieved.”[[1]]

What questions have been referred to the ECJ?

The GCC only has competence over German law and cannot make judgements surrounding EU law. Clearly from the above, the GCC believes that the OMT violates the mandate of the Bundesbank and the ECB. However, to conclusively prove so, it requires the ECJ to make a judgement on the OMT as well. The first key question it asks is:

Is the OMT “to be qualified as an independent act of economic policy?”

The GCC believes that it is and that it therefore goes beyond the mandate of the ECB, which only refers to monetary policy. It also stresses that the OMT could lead to “considerable redistribution between the Member States”, which is forbidden by the treaties. The GCC also asks the ECJ to rule whether:

The OMT programme “violates the prohibition of monetary financing of the budget (Art. 123 TFEU)”.

Again, here it seems the GCC believes that it may well do, and that if it were decided so, the GCC would have to stop the German authorities from taking part. Essentially, the GCC has asked the ECJ to rule whether the OMT is fundamentally compatible with the primary law of the EU.

Will t
he GCC still provide its own ruling?

Yes, but likely only after the ECJ has ruled. The GCC seems to be stuck. It has serious concerns over the OMT and its compatibility with the EU treaties and German law. However, it feels it cannot rule on issues of German law until the questions over EU law have been settled – which are outside of its jurisdiction. Once the ECJ has ruled, the GCC will likely re-examine how the OMT fits with German law, however, it will be constrained by the ECJ’s ruling and interpretation of EU law.

How might the GCC and ECJ rule?

It is patently obvious that the GCC believes that the OMT does violate primary EU law, because it goes beyond the mandate of the ECB and breaks the EU Treaties, and therefore violates German law.

“The OMT Decision does not appear to be covered by the mandate of the European Central Bank.”

“The existence of an ultra vires act as understood above creates an obligation of German authorities to refrain from implementing it and a duty to challenge it. These duties can be enforced before the Constitutional Court at least insofar as they refer to constitutional organs.”

However, given that the GCC cannot rule on EU law it has referred this decision to the ECJ. That said, as the quote below shows, it could still be forced to accept that the OMT is legal if the ECJ approves it and/or there are further restrictions put on it.

“Subject to the interpretation by the Court of Justice of the European  Union, the Federal Constitutional Court considers the OMT Decision incompatible with primary law; another assessment could, however, be warranted if the OMT Decision could be interpreted in conformity with primary law.”

“In the view of the Federal Constitutional Court, the OMT Decision might not be objectionable if it could be interpreted or limited in its validity in conformity with primary law in such a way that it would not undermine the conditionality of the assistance programmes of the EFSF and the ESM, and would indeed only be of a supportive nature with regard to the economic policies in the Union. In light of Art. 123 TFEU, this would probably require that the acceptance of a debt cut must be excluded, that government bonds of selected Member States are not  purchased up to unlimited amounts, and that interferences with price formation on the market are to be avoided where possible.”

Importantly, the GCC flags up that it could be willing to accept the OMT if it is no longer seen as being “unlimited” and if it is no longer seen as its own economic policy – but as long as it continues to have conditionality. This would require a significant reworking of the OMT and would severely hamper the ECB’s approach to tackling the crisis. It may also provide new boundaries (both legal and practical) on what the ECB can do in a crisis.

Ultimately, then the GCC ruling will depend heavily on how the ECJ rules. That being said, it seems very unlikely that the ECJ would rule against something as significant as the OMT, which has played a huge role in securing the eurozone.

Does this mean the OMT is now invalid?

It certainly casts significant doubt on the issue, however, it remains somewhat in limbo for the time being. The GCC evidently believes that it is illegal and should be invalid or at the very least amended. However, it also cannot provide such a categorical ruling before the ECJ has had a chance to rule or before the OMT has been amended and clarified.

Given that the ECJ tends to rule in line with EU policy and with EU institutions it seems highly doubtful that it would rule against the OMT. If it were to support OMT without any changes, this would put the GCC in a very difficult position. It would be stuck between believing it falls outside the mandate of the German institutions as to their responsibilities to the EU, however, it would not have any clear basis in terms of EU law.

In the meantime, it is clear the ECB still considers the OMT practically operational. In its response to the referral the central bank stated that, “The ECB reiterates that the OMT programme falls within its mandate.”[[2]]

What does this mean for eurozone?

This could well spark further jitters in the eurozone. For all the talk or institutional and structural change as well as national governments pushing reform, the OMT has been the key factor in easing the crisis. It certainly throws a new bout of uncertainty into the very fragile economic recovery in the eurozone. It could drive flows back to where they were previously, with the core countries benefitting from safe haven flows and the periphery being hit by the uncertainty. That said, it is likely that most investors will take a wait and see approach given the number of moving parts in this decision.


    



via Zero Hedge http://ift.tt/1o0m1KX Tyler Durden

Frontrunning: February 7

  • Here is why AAPL bounced off $550: Apple Repurchases $14 Billion of Own Shares in Two Weeks (WSJ)
  • German Court Refers OMT Decision to Europe’s Top Court (WSJ)
  • Inflation Fuels Crises in Two Latin Nations (WSJ)
  • U.S. job growth seen snapping back from winter chill (Reuters)
  • Google to own $750 million Lenovo stake after Motorola deal closes: HK exchange (Reuters)
  • Frigid Winter Spells Trouble for U.S. Economy (BBG)
  • Winter Games to open, Putin keen to prove doubters wrong (Reuters)
  • Regulators Ready to Proceed on Bank Leverage Limit (WSJ)
  • Abe Eyes Window for Biggest Military-Rule Change Since WWII (BBG)
  • Fidelity Joins D.E. Shaw Opposing Wider Ticks as Small-Cap Fix (BBG)
  • Stellar 2013 Hard to Top for U.K. Builders After 60% Surge (BBG)
  • Hidden Billionaire Daughters Emerge From Simmons Estate (BBG)

Overnight Media Digest

WSJ

* Apple Inc has bought back $14 billion of its shares in the two weeks since reporting financial results that disappointed Wall Street, Chief Executive Tim Cook said in an interview.

* Sony Corp moved to deal with its two most troubled electronics units, saying it will eliminate 5,000 jobs in the company’s television and personal computer businesses while splitting off its TV division into a separate subsidiary.

* High-frequency traders have been paying to get direct access to market-moving news releases, a practice that can give firms the ability to trade fractions of a second ahead of less fleet-footed investors.

* Investors swapped out of U.S. equity funds and into bonds at the fastest clip on record last week, according to Lipper Inc, as they grasped for safety while the stock market swooned.

* The Pentagon has dropped a plan to retire one of its nuclear-powered aircraft carriers, USS George Washington, after the White House intervened to head off a brewing political fight.

* House Speaker John Boehner squashed growing expectations that Congress would rewrite immigration laws this year-dealing a setback to the White House, a group of U.S. businesses and a bloc of fellow Republicans seeking to improve their party’s chances with Hispanic voters.

* Greenbrier Co Inc, the nation’s second-largest maker of railcars, said the industry needs to move faster to make tank cars more crash-resistant, and will begin offering to retrofit older tanker cars that carry potentially explosive crude oil.

* Expedia Inc posted a bigger-than-expected jump in fourth-quarter revenue as the online travel agent reported growth in bookings, as well as early success in its partnership with Travelocity.

* Twitter Inc shares fell 24 percent Thursday, erasing about $8.7 billion in market value, on concerns about the messaging services’ sluggish user growth.

* The hackers that carried out the massive data breach at Target Corp appear to have gained access via a refrigeration contractor in Pittsburgh that connected to the retailer’s systems to do electronic billing.

* LinkedIn Corp reported solid growth in its core business selling to corporate recruiters, but disappointed investors by projecting revenue lower than analysts’ expectations for the current quarter. The company’s shares fell 8% in after-hours trading.

* General Motors Co reported a 13 percent decline in its fourth-quarter profit as strength in North America and China failed to offset declines elsewhere, with currency problems and costs related to plant closings eroding profitability.

* Spirit AeroSystems Holdings Inc on Thursday booked a raft of new charges against work on its commercial and business aircraft that analysts said raised concerns about the ability of jet maker Boeing Co to maintain momentum in reducing costs on its flagship 787 program.

* Aetna Inc said it expects to lose money on its business in the health-law marketplaces this year, with the demographics of enrollees skewing slightly more than expected toward people likely to rack up higher costs.

* International Business Machines Corp is exploring the sale of its semiconductor manufacturing operations, said a person familiar with the matter.

* The Swedish company behind the Truecaller phone-number identification app has attracted a large equity injection from Silicon Valley investor Sequoia Capital in a funding round that values the still-unprofitable company at $80 million.

* Alcatel-Lucent SA swung to a fourth-quarter profit and said it is in exclusive talks to sell a majority stake in its office-phone business to a Chinese state-owned investment company.

* Some foreign airlines are restricting ticket sales in Venezuela because of worries that the government’s currency moves last month could reduce the value of the billions of dollars they hold in the country by as much as 45 percent.

* 21st Century Fox lowered profit guidance for its fiscal year ending in June as higher expenses related to TV channel launches, the weaker performance of singing-competition show “X Factor” and poor results at its film unit took a toll on earnings in the December quarter.

* Activision Blizzard Inc shares surged on Thursday on better-than-expected earnings and a turnaround in subscribers for one of its most important videogames, “Warcraft.”

* News Corp’s revenue fell 4 percent in its fiscal second quarter as a drop in advertising and subscription revenue at the news and information business offset growth at its other businesses.

* BHP Billiton Ltd and Mitsubishi Corp will cut around 230 jobs from a mine in Australia’s Queensland state, highlighting the challenges facing coal producers here as prices stagnate near multiyear lows.

* Harsh weather chilled sales for many retailers in January, when stores were trying to clear excess inventory following the holidays. Gap Inc, L Brands Inc and Costco Wholesale Corp managed to buck the negative trend, buoying the overall result.

* AOL Inc’s chief executive angered employees Thursday when he said that care for two staffers’ “distressed babies” in 2012 cost the company about $1 million each, expenses that helped drive up AOL’s overall benefits costs and forced management to make difficult decisions.

* A continuing spill of coal ash into the Dan river from a man-made pond adjacent to a power plant in North Carolina is renewing questions about the safety of the hundreds of U.S. sites storing the byproduct of energy generation.

 

FT

IBM, the world’s biggest technology service provider, is considering the sale of its semiconductor unit, and has appointed Goldman Sachs to sound out possible buyers for the business, according to people familiar with the matter.

A federal jury in New York found Mathew Martoma, a former portfolio manager at billionaire Steven A. Cohen’s SAC Capital hedge fund, guilty on all counts of being part of the largest insider trading case on record.

Barclays has made junior trader Daniel Ryan the interim head of its London spot foreign exchange desk, a post left open after the suspension of Chris Ashton last November amid a global probe into alleged market manipulation, two people close to the situation said.

Alcatel-Lucent has received an offer from China Huaxin that will see the telecoms equipment maker selling 85 percent of its enterprise business, taking Alcatel closer to meeting its targeted 1 billion euro ($1.36 billion) asset-disposal programme.

Silicon Valley-based professional social network LinkedIn disappointed investors after giving a subdued outlook for 2014 that fell short of Wall Street’s expectations.

 

NYT

* A federal jury has convicted Mathew Martoma for insider trading in what may be the last criminal case to emerge from a decade-long investigation of Steven Cohen and his hedge fund, SAC Capital Advisors.

* American labor groups, airlines and pilots say Norwegian Air Shuttle ASA’s expansion plans, which include bringing its pared-down model to the United States and Asia, take unfair advantage of a U.S.-Europe open-skies agreement even though Norway is not a member of the European Union.

* As of Friday, the Treasury will no longer have the authority to issue bonds as necessary to pay the government’s bills. In a matter of weeks, the government could run out of cash and begin defaulting on some payments unless Congress acts to raise the official ceiling on the national debt. And once again, Congress is struggling to avoid a potential fiscal and economic train wreck.

* The Senate failed to move forward on a three-month extension of assistance for the long-term unemployed on Thursday, leaving it unlikely that Congress would approve the measure soon while undercutting a key aspect of President Obama’s economic recovery plan.

* After failing to turn around two of its most troubled consumer electronics businesses, Sony Corp is pushing them aside. The company, which predicted on Thursday that it would lose 110 billion yen ($1.1 billion) in its current fiscal year, said it would sell its unprofitable personal computer unit, split its television division into a separate subsidiary and cut 5,000 jobs from the two businesses.

* General Motors Co on Thursday reported its 16th consecutive profitable quarter, but consistent losses in its troubled European division continued to hurt its results.

* European Central Bank on Thursday kept the benchmark interest rate unchanged for a third straight month, at a record low of 0.25 percent amid the threat of deflation in the euro zone and the region’s unemployment remaining stubbornly high.

* The owner and two executives of the WJB Capital Group were arrested on Thursday and charged with defrauding at least 15 investors out of more than $11 million during the waning days of their now-defunct brokerage company.

* Illinois Tool Works Inc has agreed to sell its industrial packaging unit to the Carlyle Group LP for $3.2 billion, the companies announced on Thursday. The sale of the Illinois Packaging Group signals the end of a process that began last September, when Illinois Tools Works decided to shed the unit and focus on its core businesses.

* After Coca-Cola Co announced its investment in Green Mountain Coffee Roasters on Wednesday, many investors assumed SodaStream International Ltd would suffer, but instead its stock jumped as much as 12 percent on Thursday. Behind Coke’s $1.25 billion investment in Green Mountain is a hedge against the continuing stagnation of the traditional soft-drink business and the rise of the make-your-own-soda sector, led by SodaStream.

* A New York State regulator has dealt a blow to Ocwen Financial Group by halting the transfer of about $39 billion in servicing rights to the company from Wells Fargo & Co .

* The Mercuria Energy Group, a fast-growing energy and commodities trading company, is in exclusive talks to acquire the physical commodities business of JPMorgan Chase & Co , according to a person familiar with the discussions.

 

Canada

THE GLOBE AND MAIL

* Canada is overhauling its citizenship laws, raising the bar for people to apply to become Canadian and increasing penalties for those who scam the system.

* A coalition of journalists is urging Canada’s government to step up pressure on Egyptian officials to release three journalists, including a Canadian, who have been jailed in Egypt for more than a month.

Reports in the business section:

* Baytex Energy Corp has ended a long drought of big acquisitions by Canadian oil companies, launching a $1.8-billion bid for an Australian-based firm to give it a position in a Texas shale oil formation that is key to surging U.S. crude output.

NATIONAL POST

* A former member of the Canadian Forces has been arrested at Canadian Forces Base Wainwright in Denwood, Alberta, after allegedly posting a threat on a social media site. Military officials say the man in his 40s had a loaded 9mm Beretta in his possession when he was taken into custody on Wednesday.

* Canada’s Industry Minister James Moore is expected to flesh out details of Canada’s new space plan on Friday, which could eventually see Canadian hardware and possibly even a Canadian bound for the moon.

FINANCIAL POST

* Typo Products said BlackBerry is trying to hold a monopoly over smartphone keyboards, and that it shouldn’t have to take its new iPhone case off the market. The company, co-founded by “American Idol” host Ryan Seacrest, has filed documents in a California court defending itself against a patent infringement lawsuit.

* Civil liberties activists in British Columbia have filed complaints against Canada’s spy agency and the Royal Canadian Mounted Police for allegedly snooping on opponents of the Northern Gateway pipeline. The BC Civil Liberties Association alleges the spying activities include illegal searches of private information, and says some of the details were shared with oil and energy companies and the National Energy Board.

 

Britain

The Telegraph

ALLIANCE BOOTS FUND MAKES FIRST ACQUISITION

A private equity group launched last year by retail giant Alliance Boots has made its first acquisition, buying a luxury aromatherapy company based in Middlesex.

ANGLO IRISH CHIEFS ‘FIXED WEB OF LOANS TO PROP UP BANK’

Anglo Irish Bank executives hunted for investors across Europe, the Middle East and the U.S. in the months before its collapse in an effort to fund a doomed attempt to prop up its share price.

NEWS CORP RESULTS HIT BY FALLING AD REVENUE

News Corp said revenue at its news and information services unit fell 9 percent to $1.6 billion on soft advertising and subscription sales, especially in Australia.

The Guardian

BARCLAYS PREDICTED TO PAY MORE IN BONUSES THAN LAST YEAR

Barclays will begin to hand out bonuses on Friday to its 140,000 staff around the world from a bonus pool expected to be bigger than last year’s.

BOMBARDIER UK WINS 1 BLN STG CROSSRAIL CONTRACT

Bombardier UK has fought off competition from foreign bidders to win the 1 billion pound ($1.63 billion) contract to build trains for London’s Crossrail project.

The Times

PROPERTY BOOM TO PUSH SPENDING BY BRITONS ‘PAST 1 TLN STG’

Consumers will be opening their wallets this year at the fastest pace in more than a decade and push household spending above 1 trillion pounds for the first time, a leading think-tank has forecast.

SUPERGROUP WINS SUPPORT FOR NEW LOOK

The resolution of SuperGroup’s founder to avoid selling stock on eBay has been rewarded with an increase in sales and margins.

The Independent

ASTRAZENECA HIT BY PATENT EXPIRIES AS SALES SLUMP

Drugmaker AstraZeneca has showed it is still languishing in intensive care after patent expiries triggered an 8 percent fall in revenue to $25.71 billion.

RYANAIR BOSS MICHAEL O’LEARY: ‘UK AIRPORTS NEED MORE RUNWAYS’

Ryanair boss Michael O’Leary expects three more runways to be built at Heathrow, Gatwick and Stansted and says locals should not be able to block plans because they “chose to be a resident under a flight path”.

BSKYB CHIEF JEREMY DARROCH JOINS BURBERRY BOARD

Luxury brand Burberry has bolstered its boards’ media credentials with the appointment of British Sky Broadcasting Chief Executive Jeremy Darroch.

 

Fly On The Wall 7:00 AM Market Snapshot

ECONOMIC REPORTSI

Domestic economic reports scheduled for today include:
Non-farm payrolls for January will be reported at 8:30–consensus 181,000
Unemployment rate for January will be reported at 8:30–consensus 6.7%
Consumer credit for December will be reported at 3:00 pm–consensus $12.0B

ANALYST RESEARCH

Upgrades

Alpha Natural (ANR) upgraded to Neutral from Sell at Citigroup
American Capital Mortgage (MTGE) upgraded to Buy from Hold at Wunderlich
C.H. Robinson (CHRW) upgraded to Hold from Sell at Stifel
Cummins (CMI) upgraded to Outperform from Market Perform at Wells Fargo
DineEquity (DIN) upgraded to Buy from Hold at KeyBanc
Education Management (EDMC) upgraded to Market Perform at BMO Capital
Kellogg (K) upgraded to Neutral from Underweight at JPMorgan
Lennox (LII) upgraded to Equal Weight from Underweight at Morgan Stanley
lululemon (LULU) upgraded to Outperform from Sector Perform at RBC Capital
MWI Veterinary Supply (MWIV) upgraded to Overweight from Neutral at Piper Jaffray
Magellan Midstream (MMP) upgraded to Outperform from Market Perform at Wells Fargo
Myriad Genetics (MYGN) upgraded to Neutral from Underperform at Credit Suisse
Netflix (NFLX) upgraded to Buy from Hold at Stifel
Noble Energy (NBL) upgraded to Buy from Neutral at Mizuho
Sagent Pharmaceuticals (SGNT) upgraded to Buy from Neutral at BofA/Merrill
Sony (SNE) upgraded to Buy from Hold at Jefferies
Starbucks (SBUX) upgraded to Outperform from Market Perform at Wells Fargo
Towers Watson (TW) upgraded to Overweight from Neutral at JPMorgan
WEX Inc. (WEX) upgraded to Neutral from Underweight at JPMorgan
XPO Logistics (XPO) upgraded to Buy from Hold at Stifel

Downgrades

AOL (AOL) downgraded to Neutral from Buy at BofA/Merrill
Echelon (ELON) downgraded to Hold from Buy at Needham
Fairway Group (FWM) downgraded to Hold from Buy at BB&T
Fairway Group (FWM) downgraded to Market Perform from Outperform at BMO Capital
Fairway Group (FWM) downgraded to Neutral from Buy at Guggenheim
Fairway Group (FWM) downgraded to Perform from Outperform at Oppenheimer
Fairway Group (FWM) downgraded to Underperform from Neutral at Credit Suisse
Fluidigm (FLDM) downgraded to Market Perform from Outperform at Cowen
Genomic Health (GHDX) downgraded to Neutral from Outperform at Credit Suisse
Genpact (G) downgraded to Market Perform from Outperform at Wells Fargo
Genpact (G) downgraded to Neutral from Overweight at JPMorgan
iRobot (IRBT) downgraded to Underweight from Neutral at JPMorgan
Lowe’s (LOW) downgraded to Neutral from Buy at Goldman
Maximus (MMS) downgraded to Neutral from Buy at Citigroup
PMFG, Inc. (PMFG) downgraded to Hold from Buy at Stifel
Spirit AeroSystems (SPR) downgraded to Hold from Buy at KeyBanc
VeriSign (VRSN) downgraded to Sell from Neutral at Citigroup

Initiations

Rackspace (RAX) initiated with an Outperform at Credit Suisse
Red Hat (RHT) initiated with an Outperform at Credit Suisse
SunCoke Energy Partners (SXCP) initiated with a Buy at Brean Capital

HOT STOCKS

Illinois Tool Works (ITW) sold industrial packaging unit to Carlyle Group (CG) for $3.2B
Baytex Energy (BTE) to acquire Aurora Oil & Gas for C$2.6B
LinkedIn (LNKD) acquired Bright for $120M
Shire (SHPG) reported Vyvanse studies did not meet primary efficacy endpoint
Activision Blizzard (ATVI) CEO Kotick: We have strongest pipeline of games in our history; board authorized debt repayment of $375M
American Apparel (APP) reported January SSS down 5%

EARNINGS

Companies that beat consensus earnings expectations last night and today include:
Globe Specialty Metals (GSM), FMC Technologies (FTI), Brooks Automation (BRKS), OpenTable (OPEN), Bally Technologies (BYI), Kemper (KMPR), Outerwall (OUTR), NCR Corp. (NCR), athenahealth (ATHN), Tempur Sealy (TPX), VeriSign (VRSN), bebe stores (BEBE), News Corp. (NWSA), Netgear (NTGR), Activision Blizzard (ATVI), LinkedIn (LNKD), Expedia (EXPE), Lionsgate (LGF)

Companies that missed consensus earnings expectations include:
Cigna (CI), Snyder’s-Lance (LNCE), Post Holdings (POST), Bristow Group (BRS), MaxLinear (MXL), Fairway Group (FWM), Imperva (IMPV),  Hittite Microwave (HITT), Echo Global (ECHO)

Companies that matched consensus earnings expectations include:
ACETO (ACET), Intermolecular (IMI), ServiceSource (SREV), Genpact (G), Fluidigm (FLDM)

NEWSPAPERS/WEBSITES

IBM (IBM) explores semiconductor manufacturing operations sale, WSJ reports
Apple (AAPL) repurchases $14B of stock after earnings, WSJ reports
Google (GOOG) to hold 5.94% Lenovo (LNVGY) stake after Motorola deal closes, Reuters reports
British Airways (BAIRY) considers replacing Boeing (BA) 747s with 777X, Bloomberg reports
Maryland bill would bar energy drink sales (MNST) to minors, CNBC reports
Oaktree Capital (OAK) to sell Osmose in a deal valued near $900M, Reuters reports
AOL (AOL) CEO upsets employees with ‘distressed babies’ comment, WSJ reports
News Corp. (NWSA) promises ‘fundamental review’ of Dow Jones, FT reports

SYNDICATE

Argos Therapeutics (ARGS) 5.63M share IPO priced at $8.00
Athlon Energy (ATHL) 14M share Secondary priced at $32.00
GeoPark (GPRK) 13.5M share IPO priced at $7.00
Tecogen (TGEN) files to sell 2.03M shares of common stock for holders


    



via Zero Hedge http://ift.tt/1iB4Trn Tyler Durden

Quiet Markets As Algos Quiver In Anticipation Of The Flashing Jobs Headline

It’s that time again, when a largely random, statistically-sampled, weather-impacted, seasonally-adjusted, and finally goalseeked number, sets the mood in the market for the next month: we are talking of course about the “most important ever” once again non-farm payroll print, and to a lesser extent the unemployment rate which even the Fed has admitted is meaningless in a time when the participation rate is crashing (for the “philosophy” of why it is all the context that matters in reading the jobs report, see here). Adding to the confusion, or hilarity, or both, is that while everyone knows it snowed in December and January, Goldman now warns that… it may have been too hot! To wit: “We expect a weather-related boost to January payroll job growth because weather during the survey week itself?which we find is most relevant to a given month’s payroll number?was unusually mild.” In other words, if the number is abnormally good – don’t assume more tapering, just blame it on the warm weather!

And while the risk on/off algos are dormant for now, the biggest piece of news overnight (aside for the BOE being in cahoots with FX manipulators – more on that shortly) is that the German constitutional court effectively said the OMT exceeds the ECB’s mandate, but instead of blocking it decided to send the decision on the OMT to the European Jourt of Justice where it wil summarily pass as the inverse would mean the end of the European dream (for some, nightmare for others).

As a result despite brief volatility which saw stocks move into negative territory following reports that German constitutional court says sees substantial reasons to suggest the OMT bond program exceeds ECB mandate, stocks have gradually recovered and moved into positive territory after the ECB reiterated that the OMT programme falls within its mandate. As a reminder, during the press conference yesterday, ECB’s Draghi said that it is possible to buy government bonds in secondary markets which is allowed by the treaty. As a result, peripheral bond yield spreads progressively pared the initial widening, with Bunds also coming off highest levels of the session. However EUR/USD failed to recover and remains lower on the session, with analysts pointing to profit taking related flow following sharp gains made yesterday. At the same time this ensured that in spite of weaker than expected macroeconomic data from the UK, GBP/USD is seen broadly flat.

The day ahead holds in store a pretty full data calendar on both sides of the Atlantic. We have German trade numbers to start where analysts are expecting export and import growth of 0.8% and 0.9% respectively. The French trade report follows shortly afterwards before industrial production reports for Germany, Spain and the UK. The Fed’s latest consumer credit numbers will be reported today. In the world of EM, inflation updates are due from Brazil and Mexico while Hungary will report its preliminary December trade. But it’s fair to say that payrolls will dictate the tone of trade today – all eyes will be on how treasury markets react, especially the front end of the curve if we do indeed see the unemployment rate edge closer to the 6.5% threshold.

Overnight headline digest from Bloomberg and RanSquawk

  • Analysts expected the OMT to be declared in line with ECB’s mandate in spite of the fact that the German constitutional court said sees substantial reasons to suggest the OMT bond program exceeds ECB mandate.
  • Stocks have gradually recovered following the initial bout of weakness and moved into positive territory after the ECB reiterated that the OMT programme falls within its mandate.
  • Looking ahead for the session, today sees the ever important Nonfarm Payrolls and Unemployment release from the US.
  • Treasuries steady, 10Y yield holding around 2.70% level before report forecast to show U.S. economy added 180k jobs in January while unemployment rate held at 6.7%.
  • Today’s data probably even less predictable than usual as persistently bad winter weather, the expiration of emergency unemployment aid and annual revisions will all come into play
  • Germany’s top court questioned the ECB’s bond-buying plan and asked the EU’s highest tribunal to rule on the legality of the program
  • German industrial production fell 0.6% in Dec. vs expectations for increase of 0.3%; increased 2.4% in Nov.
  • The worst isn’t over for emerging markets after the benchmark stock index sank to a five-month low and the nations’ currencies tumbled, said Templeton Emerging Markets Group’s Mark Mobius
  • Ukraine’s central bank imposed limits on foreign-currency purchases, bringing relief to the hryvnia after interventions failed to, while President Viktor Yanukovych left to meet Russia’s Vladimir Putin
  • Bank of England officials told currency traders it wasn’t improper to share impending customer orders with counterparts at other firms, according to a person who has seen notes turned over to regulators
  • Some undiplomatic language by the top U.S. diplomat for Europe has rattled relations with the EU and added more tension to the East-West strains over Ukraine’s political crisis; the U.S. suggested Russia’s intelligence apparatus was involved with leaked recording of call
  • Health plans allowed to continue in 2014 though they don’t comply with new Obamacare rules may be extended for as long as three years, Aetna Inc. Chief Executive Officer Mark Bertolini told investors
  • House Speaker John Boehner said yesterday it will be difficult to pass an immigration bill this year because fellow Republicans don’t trust Obama, whose term ends in 2017, to enforce the changes
  • Sovereign yields mostly higher. EU peripheral spreads steady. Asian, European stocks, U.S. stock-index futures higher. WTI crude lower, gold and copper higher

Asian Headlines

Chinese HSBC Services PMI (Jan) M/M 50.7 (Prev. 50.9), the slowest pace of growth in nearly 2½ years. (BBG)

EU & UK Headlines

Following earlier news from the German constitutional court that they see substantial reasons to suggest the OMT bond program exceeds ECB mandate; several banks have responded with their own analysis on the situation, including RBS and UBS.

– UBS say that German court latest move on OMT may be beneficial long term and will be more productive in helping remove uncertainty.
– RBS say that EU court unlikely to strike down the OMT and bund move may fade.

– Citi say the German Constitution Court decision to pass OMT on to European Court Justice is negative, “as it leaves open to question whether the OMT violates the EU treaty. Citi said historically ECJ has tended to a more pro-EU interpretation of the law, which makes it likely, that it will declare OMT to be in line.

UK Industrial Production (Dec) M/M 0.4% vs Exp. 0.6% (Prev. 0.0%, Rev. -0.1%)
– UK Industrial Production (Dec) Y/Y 1.8% vs Exp. 2.3% (Prev. 2.5%, Rev. 2.1%)

UK Manufacturing Production (Dec) M/M 0.3% vs. Exp. 0.6% (Prev. 0.0%, Rev. -0.1%)
UK Manufacturing Production (Dec) Y/Y 1.5% vs. Exp. 2.3% (Prev. 2.8%, Rev. 2.2%)
German Industrial Production SA (Dec) M/M -0.6% vs Exp. 0.3% (Prev. 1.9%, Rev. 2.4%)
German Industrial Production WDA (Dec) Y/Y 2.6% vs Exp. 3.5% (Prev. 3.5%. Rev. 3.8%)
German Trade Balance (Dec) M/M 14.2bln vs. Exp. 17.3bln (Prev. 18.1bln, Rev. 19.1bln)
German Current Account Balance (Dec) M/M 23.5bln vs Exp. 21.5bln (Prev. 21.6bln, Rev. 23.3bln)

In other notable news, SSM draft gives ECB power to supervise smaller banks where necessary. ECB may impose higher capital requirements than those set out at national level.

Ahead of NIESR GDP estimate release later in the session, NIESR raised its 2014 UK growth forecast to 2.5% from 2.0% in November and expects 2.1% growth in 2015.

US Headlines

WSJ’s Hilsenrath writes: “traders are pushing out their expectations for when the Fed will start raising short-term interest rates”. Saying rate expectations are shifting for two reasons: First, the data have been weak lately and a weak economy means an easier Fed. Second, ever since a rate scare last summer – when investors thought an end to the Fed’s bond buying program meant rate hikes were not far behind – officials have been hammering home the message that “tapering isn’t tightening.” That drumbeat continued Wednesday, when Atlanta Fed president Dennis Lockhart said the Fed was likely to continue pulling back on its bond-buying program, but rates would stay low “well into 2015.”

Equities

Basic materials sector supported European equity indices since the get-go, with ArcelorMittal leading the move higher following earnings pre-market. At the same time, less than impressive earnings by Statoil, together with reports of an investigation into potentially improper sales practices by SBM Offshore resulted in oil & gas sector underperforming its peers. In terms of other notable movers this morning, Air France-KLM shares came under significant selling pressure after it was reported that the company said to be studying capital increase before end 2014.

FX

The release of weaker than expected macroeconomic data from the UK failed to weigh on GBP/USD which is seen broadly unchanged and continues to benefit from lower EUR/GBP cross, driven lower by touted profit taking related flow following aggressive short squeeze yesterday amid somewhat hawkish press conference by Draghi. As a result, despite the fact that the OMT is still expected to be passed by the European Court, EUR/USD was unable to recover and heading into the North American cross over remains in negative territory.

RBA raised its June 2014 GDP forecast to 2.75% from 2.5% seen in November and also raised its June core CPI forecast to 3.0% vs. 2.5% seen in November. (BBG)

Goldman Sachs see AUD and CAD falling in the medium-term due to weak capital inflows, with AUD/USD potentially dropping to the high 0.60s in the next two years. (BBG)

Commodities

India has no plans at present to reduce import duty on gold according to a junior finance minister. This is inline with source comment on Tuesday said that India is unlikely to cut gold import duties to the original level of 4% and the rollback is likely to happen in tranches. (RTRS)

De Beers are to step up South African diamond exploration with an expanded program to start the year. (Business Day)

Syria’s Deputy Foreign Minister said today the government would take part in a second round of peace talks on Syria’s civil war in Geneva, according to state media. (RTRS)

Rosneft Oil are to increase supply to China by 9mln tonnes for 2014 and continue talks to increase Eastbound crude supplies. (BBG)

 

* * *

DB’s Jim Reid rounds out the overnight news summary

If someone gave you today’s payroll number and unemployment rate in advance would you know how to trade it? It’s possible that the answer to this question would be different today than it might be in a couple of months time. Although this week has seen a recovery in risk, especially yesterday, markets are still uneasy enough that the relief of a stronger number would probably outweigh any yield rising or tapering worries for now. Although if DB is correct on the unemployment rate hitting 6.5% today, the Fed will have a communication issue to address even if a declining participation rate is the main cause. Maybe Yellen helps clarify this next week at her first major outing as Fed Chair? For the record DB is expecting +175k on payrolls today with the market at 180k. In terms of the unemployment rate, DB’s 6.5% compares to the market’s 6.7%. Clearly we have to watch out for the impact of weather again including any revisions to last month’s surprise big downside miss. Indeed, Bloomberg highlights that looking at previous jobs reports from the past 18 major winter storms, the BLS has revised upwards its initial estimates two-thirds of the time. There has also been a debate as to the extent of the weather impact in January given that average temperatures in the survey week were the most mild out of the whole month. Although some parts of the US were colder than Mars in January, the survey week was a bit more earth like!

The employment report follows the other main event of the week, namely the ECB meeting. When you look at the price action over the last 24 hours you could be forgiven for thinking Draghi must have cut rates yesterday as the Stoxx 600 (+1.49%) had its best day since December 19th and the S&P 500 (+1.24%) its best day since December 18th. However the ECB decided to hold fire which helped the Euro hit a 1-week high ($1.359). Our economists now think their move will come next month alongside the ECB publishing their latest staff forecasts for 2016. The forecasts for 2016 are coming nine-months earlier than usual which creates additional ambiguity. If projected inflation by 2016 remains significantly below the ECB’s definition of price stability, then the ECB would be required, in DB’s view, to act. However our economists see risks that such a forecast may unanchor market inflation expectations. Alternatively, the ECB could opt for an inflation forecast close to target, but argue that the downside risks around this projection are so significant that this warrants pre-emptive action now. Looking at Draghi’s press conference yesterday, the ECB President surprised a few with his cautiously upbeat economic outlook. Draghi appeared to talk down the disinflation risk saying that core inflation was being dragged lower by the decline in prices from the four programme countries, signalling a relative price adjustment in those countries rather than broader deflation. The suspension of sterilization of SMP bond purchases was not discussed specifically but Draghi mentioned it was a tool being considered (consistent with recent media reports).

Overnight markets are trading with a firmer tone, helped by the strong lead from Wall Street. The only exception are onshore Chinese equities (Shanghai Composite -0.25%) after they reopened for the first time since the Lunar New Year holidays. The Nikkei (+2.0%) is leading the region’s gains although still poised to close lower for the week after a volatile few sessions for Japanese equities including Tuesday’s >4% drop. There’s been some focus on the RBA who released their latest Statement of Monetary Policy with a relatively upbeat assessment of economic growth in 2015 and 2016. The AUDUSD initially appreciated 0.3% following the RBA’s Statement, but this move was quickly pared. Asian credit is trading a few basis points better but there is some caution after EPFR funds flow data (Bloomberg) suggested another large outflow from global EM.

While we’re on EM it’s worth highlighting our latest GEM equity strategy note from JP Smith. JP has been consistently underweight EM vs DM since he joined DB 3 years ago and although he thinks that EM might be a little oversold near-term he still feels the structural negatives remain which are much to do with corporate and sovereign governance. In particular he asks in the note whether the authorities in China can ease policy in the months ahead without increasing moral hazard to an extent where it becomes counter-productive and triggers major outflows? JP even talks about if his bearish scenario begins to materialise, there may be increased talk of a RMB devaluation through 2014, which would be bearish for China and GEM. From a macro point of view it seems that one read through from the report are that dis-inflationary forces will continue to come from EM this year. For us this may influence DM central bank policy as the year progresses.

Yesterday’s US data provided little direction though we noted that the US December trade balance widened (-$38.7B vs. -$34.6B previously) mostly due to a decline in exports (-1.8% vs. +0.8%). Compared to what the BEA had assumed for Q4 real GDP, the slightly wider trade balance subtracts a couple of tenths from the initially reported 3.2% growth number according to DB’s US economist Joe Lavorgna. Elsewhere US jobless claims declined to 331k last week, a five week low. Outside of the data, US house speaker John Boehner said that that no decision has been made yet on conditions for approving an increase in the debt ceiling, but confirmed that the Republicans will not force a default.

The day ahead holds in store a pretty full data calendar on both sides of the Atlantic. We have German trade numbers to start where analysts are expecting export and import growth of 0.8% and 0.9% respectively. The French trade report follows shortly afterwards before industrial production reports for Germany, Spain and the UK. The Fed’s latest consumer credit numbers will be reported today. In the world of EM, inflation updates are due from Brazil and Mexico while Hungary will report its preliminary December trade. But it’s fair to say that payrolls will dictate the tone of trade today – all eyes will be on how treasury markets react, especially the front end of the curve if we do indeed see the unemployment rate edge closer to the 6.5% threshold.


    



via Zero Hedge http://ift.tt/1gSVGOi Tyler Durden

Will Asia Ignite A Second Arab Spring?

Submitted by Zachary Zeck via The Diplomat,

One of the more interesting aspects of the Arab Spring is that it largely spared the Gulf monarchies. To be sure, the monarchies in Bahrain and Jordan had to contend with a degree of unrest. Still, the core of the Arab Spring protests occurred in the Arab Republics, some of which fell from power. By comparison, the monarchies in the region—many of which are located in the Persian Gulf—were spared the worst of the unrest.

Still, the past is often a poor indicator of the future, and the fact that the region’s monarchies were able to weather the Arab Spring does not necessarily mean they are stable. In fact, many fear that the violence in Syria will destabilize monarchies like Jordan, much as the civil war in Syria is already destabilizing countries like Lebanon and Iraq that had previously not witnessed much Arab Spring unrest.

Although this possibility cannot be discounted, the Persian Gulf and other Arab monarchies face a much graver threat to their stability, and that threat originates in Asia. Specifically, the economic slowdowns in Asia in general, and China and India in particular, could very well ignite a second Arab Spring, and this one would not spare the monarchies.

One of the major global developments over the past few decades has been the shift of economic power from Europe and North America to the Asia-Pacific. In few places has this shift been felt more intensely than in the Persian Gulf. In the span of a few years Asia has surpassed the West as the region’s largest trading partner.

Although this development is frequently discussed from the vantage point of Asia’s growing dependence on Middle Eastern oil, the flip-side of the equation—the Middle East’s growing dependence on Asia—usually gets short shrift. This is unfortunate, as the Middle East’s dependence on Asia is nearly as substantial. Take the six countries comprising the Gulf Cooperation Council (GCC), for example. Asia makes up no less than 57 percent of the GCC’s total trade. Asia also purchases an incredible two-thirds of the GCC’s most important export—oil. This figure will continue to rise substantially in the years ahead. According to the International Energy Agency, by 2035 Asian nations will purchase 90 percent of the Persian Gulf’s oil exports.

 

Asia’s willingness and ability to meet these projections are vital to the Persian Gulf’s stability. For the most part, Persian Gulf states like Saudi Arabia maintain stability by buying off their populations. They do this in at least two major ways. First, by maintaining excessively large bureaucracies that keep the population employed doing unproductive and unnecessary work. Additionally, many Persian Gulf states and Arab monarchies provide substantial subsidies to ensure low prices. For example, according to the Financial Times, Saudi Arabia subsidizes water to the tune of $50 billion a year.

The regimes use these subsidies of labor and goods to safeguard their rule, including by increasing wages and subsidies on various household staples when they fear potential unrest. For example, when unrest began afflicting Egypt in early 2011, Saudi Arabia quickly announced a $36 billion increase in subsidies. Jordan similarly authorized a $125 million subsidy package for its population, while Kuwait introduced both higher direct stipends and over a year of free food for its citizens.

This is a shrewd move, as it ties the population’s livelihood to the regime’s survival (much like the Chinese Communist Party’s 80 million person membership roll helps ensure support for the CCP). However, it is also prohibitively expensive to maintain these subsidies, and once they are so given, any government will find it difficult to eliminate them.

The Persian Gulf regimes, of course, use their extensive oil wealth to pay for these subsidies, which is what makes Asia’s slowdown so dangerous to the Persian Gulf states. Since Asia figures to purchase such a larger percentage of the Persian Gulf’s oil exports, if it proves unable to do so the price of oil is likely to plummet. Should this decline in oil prices persist for too long, depleting the monarchies’ treasuries, it would leave them unable to continue buying their populations’ loyalty.

China’s economic course in the coming years will be particularly crucial to Middle East stability. Not only does China directly purchase a greater proportion of Persian Gulf oil than other Asian nations, but China is the top trading partner of most of these other states.  Therefore, a significant downturn in the Chinese economy will greatly disrupt the economies of other important Middle East oil consumers like Japan and South Korea, further reducing petroleum demand.

Especially when combined with rising oil production in the Western Hemisphere, it’s hardly unimaginable that global energy prices could decline sharply in the years ahead. This would be disastrous for many Middle Eastern monarchies, particularly those in the Persian Gulf (as well as other so-called petrol states like Russia and Venezuela). Notably, this process could easily become self-sustaining as instability in the Persian Gulf is likely to cause a spike global energy prices. While this may temporarily help some of the Middle Eastern regimes, it would also further dampen the prospects of an economic recovery in Asia. This in turn would further soften global demand for oil.

Despite the perception in the West that the Arab Spring was largely a movement for greater negative freedoms like the right to vote and limited government, it in fact was principally driven by demands for greater positive freedoms like more economic opportunity. The second Arab Spring would be no different.

 


    



via Zero Hedge http://ift.tt/1kj2eWU Tyler Durden

High Frequency Bitcoins: HFT Firms Now Accepting BTC Payment

While Bitcoin has been relatively more stable than high-frequency-traded US equity markets in the last few weeks, the news that HFT tool provider Perseus Telecom will be accepting Bitcoin for its services. As The FT reports, move highlights high-frequency traders’ increasing interest in trading Bitcoin as global regulators indicate a growing acceptance of fast-emerging digital currencies – despite several high-profile arrests.Perseus CEO, Jock Mr Percy said the extension of high-frequency trading into virtual currencies would change the nature of the Bitcoin market over time.

 


Via The FT,


A company that develops the tools used by high-frequency traders has become the first market infrastructure provider to accept payment for services in Bitcoins.

 

 

Perseus Telecom, a US trading technology group, said on Thursday it would accept the controversial digital currency for its services worldwide and process transactions with GoCoin, the payment platform.

 

 

High-frequency traders use complex algorithms and superfast computers to trade in and out of assets in fractions of seconds. Bitcoin is of interest in part because of its electronic nature and because its high daily volatility potentially offers lucrative returns. Many superfast traders have found profitability tougher in recent years in mature and competitive markets such as equities and foreign exchange.

 

 

Mr Percy said the extension of high-frequency trading into virtual currencies would change the nature of the Bitcoin market over time. “At the moment, [HFT] is still a small part of the market as there are a lot of retail investors trading Bitcoin. In time the spreads will narrow.”


    



via Zero Hedge http://ift.tt/1aBn0xK Tyler Durden