Germany's DAX Halted On Draghi-Driven Dump

No sooner had the ECB statement been released with its disappointing lack of unsterlizied QE or negative rate promises than European stocks mini-flash-crashed. Most notable was Germany’s DAX which collapsed over 200 points only and was promptly halted in the futures markets. Only to magically re-appear after the halt almost unchanged…

 


    



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ECB Keeps All Rates Unchanged

For once, the vast majority of economists was correct, with 62 of 66 predicting accurately what the ECB would do today: nothing. At least so far – moments ago Mario Draghi’s central bank just announced no cuts across all three major rates.

From the press release:

At today’s meeting the Governing Council of the ECB decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.25%, 0.75% and 0.00% respectively.

 

The President of the ECB will comment on the considerations underlying these decisions at a press conference starting at 2.30 p.m. CET today.

European stocks not happy, and the EURUSD engaging in its usual acrobatics first surging then plunging…

… perhaps because there is still a chance Draghi may announce the end of SMP sterilization in the press conference in 45 minutes, which would free up some liquidity, but hardly have the desired impact.


    



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Frontrunning: February 6

  • Draghi as ECB Master of Suspense Keeps Investors on Edge (BBG)
  • Abe lays out detailed plan for expanding defense powers (Nikkei)
  • Inflation Fuels Crises in Two Latin Nations (WSJ)
  • Obama walks into crossfire of Asian tensions (FT)
  • Harvard Makes Professor Disclose More After Blinkx Slides (BBG)
  • Hedge Funds Rework Currency Positions in Market Drop (BBG)
  • Canada, U.S. Strike Tax-Information Sharing Deal (WSJ)
  • Indonesia calls for greater clarity from Fed on tapering (FT)
  • Sony to cut 5,000 jobs, split off PC, TV operations (Reuters)
  • US shale under fire over thirst for water (FT)
  • Carney must avoid another unforced error (FT)
  • Australia’s Exports to China Still Firing (WSJ)
  • Carney Seeks to Maintain Low-Rate Outlook as U.K. Economy Gains (BBG)

 

Overnight Media Digest

WSJ

* The Obama administration will narrow its controversial drone program in Pakistan to target a short list of high-level terrorists, and aim to end it during the prime minister’s current term, senior U.S. officials have told their Pakistani counterparts.

* Insurers are facing pressure from regulators and lawmakers about plans that offer limited choices of doctors and hospitals: a tactic the industry said is vital to keep down coverage prices in the new health law’s marketplaces.

* CVS Caremark Corp, United States’ second-largest pharmacy chain, would stop selling all cigarettes and tobacco products nationwide by October, saying they have no place in a drugstore company that is trying to become more of a health-care provider.

* Apple Inc is facing a claim for about $2 billion in damages from a German patent-holding company, IPCom GmbH, that alleges the U.S. technology giant infringed on a cellphone technology it owns, a German court said Wednesday.

* Twitter Inc’s fourth-quarter revenue surged, but so did concerns about the site’s ability to grow and engage users. Costs continued to rise faster than revenue, and shares fell after hours.

* Google Inc under a tentative deal with European Commission regulators agreed to tweak the way it presents search results in Europe to address concerns that it is abusing its dominance in online search to favor its own services at the expense of rivals.

* Relations between Bill Gates and Steve Ballmer were strained at times as they worked with the board to find the third CEO in Microsoft Corp’s history. The six-month search started with 100 candidates.

* Pandora Media Inc provided guidance for the first quarter and 2014 that missed Wall Street’s consensus views, though the Internet-radio service continued to report strong revenue growth in its fourth quarter.

* More than one in six men aged 25 years to 54 years don’t have jobs. It is partly a symptom of a U.S. economy slow to recover from the worst recession in 75 years and also a chronic condition that shows how technology and globalization are transforming jobs faster than many workers can adapt.

* Work to expand the Panama Canal has virtually halted, and the group in charge of construction said the project is on the “brink of failure” after talks to resolve $1.6 billion in cost overruns broke down.

* Union Pacific and BNSF Railway allege inadequate repair work led to several derailments in cases that raise questions about whether repair shops or railroads are responsible for equipment safety.

* Government investigators looking into the cyber attacks on Neiman Marcus Group LLC and Target Corp believe the malicious software used in the heists was specifically tailored to exploit vulnerabilities in each retailer’s checkout systems.

* Time Warner Inc broke out financial results for HBO for the first time on Wednesday, showing that the premium cable channel is generating far bigger profits than emerging rival Netflix Inc but HBO’s revenue is growing at a much slower pace.

* Ralph Lauren Corp reported a 9.7 percent climb in its third-quarter profit. The company whose upscale brands include Polo and Club Monaco has continued to post stronger sales in recent quarters as consumers in the luxury sector have proved to be more resilient after the recession.

* The ranks of U.S. public companies grew last year for the first time since the go-go days of the Internet boom, getting a long-awaited boost from an expanding economy and renewed investor interest in U.S. stocks.

* The arrest of bitcoin advocate Charles Shrem is a blow to a currency that has been red-hot with users and some investors. But “2014 will be like the Industrial Revolution for bitcoin,” he says.

* More lenders are introducing fees on checking accounts, just as consumers and business are pouring record amounts into the most basic of banking services.

* Merck & Co unveiled an unusual plan to collaborate with three rivals, Pfizer Inc, Amgen Inc and Incyte Corp to study how Merck’s immunotherapy cancer drug performs in combination with other treatments.

* GlaxoSmithKline PLC managed to increase sales marginally last year despite problems in China, reversing two years of falling revenue for the U.K.’s largest drug maker.

* The National Labor Relations Board on Wednesday revived a sweeping proposal to streamline and speed union-organizing elections at companies, positioning the agency for a fight with business groups, which stymied the original 2011 measure in court on a technicality.

* Circassia, a company specializing in treating cat, grass and dust-mite allergies is planning to float an offering on the London Stock Exchange, a move that people familiar with the situation said is aimed at raising 175 million pounds ($285 million), which would rank as one of the biggest U.K. biotech listings ever.

* Akamai Technologies Inc, whose fourth-quarter earnings rose 18 percent, benefited from increasing demand for content over the Internet with its network of servers and other equipment to expedite content delivery.

* Yelp Inc said its fourth-quarter loss narrowed as revenue soared as the Internet company continued to attract more visitors and added local business accounts.

 

FT

Ben Lawsky, New York’s superintendent of financial services, has demanded documents from more than a dozen banks related to foreign exchange trading, as a global probe into possible market manipulation widens.

The banks include Deutsche Bank, Goldman Sachs , Lloyds, Royal Bank of Scotland, and Standard Chartered, one person familiar with the matter said.

Google’s three-year antitrust probe is set to end in settlement after it reached a deal with the European Union, agreeing to make concessions on how it displays competitors’ links on its website.

Twitter’s shares fell as much as 18 percent after the micro-blogging website reported slowing growth in new users and falling engagement, even though its revenue and net loss of $512 million for 2013 were better than expected.

British luxury sports carmaker Aston Martin is recalling nearly 18,000 cars – 75 percent of the cars it built since 2008 – after learning a Chinese sub-supplier had used counterfeit materials in its cars’ accelerator pedals.

Disney’s first-quarter net income rose by a third to $1.84 billion as the box office hits ‘Frozen’ and ‘Thor: The Dark World’ lifted the media group’s earnings beyond analysts’ forecasts.

 

NYT

* CVS Caremark Corp, United States’ largest drugstore chain, announced on Wednesday that it planned to stop selling cigarettes and other tobacco products by October.

* Despite the diminished state of late-night television and technology that has altered viewing habits, the “Tonight” show remains one of the signature franchises of broadcasting and still carries unusual resonance with Jay Leno exiting the stage for the last time on Thursday, making way for Jimmy Fallon.

* The American International Group is continuing its quest to upend an $8.5 billion settlement between Bank of America and a group of mortgage securities investors.

* After years in philanthropy, many wonder how Bill Gates, a luminary of the tech world, will choose to position Microsoft Corp going forward. The last time Bill Gates played an active role at Microsoft, as chief software architect, he witnessed the company muffing its earliest efforts to become a major player in search, smartphones and tablet computers.

* Apple Inc has taken down one of the last remaining iPhone mobile applications that allowed users to buy and sell Bitcoin. The app, named BlockChain, had been downloaded 120,000 times, and was commonly used as a way to hold and spend Bitcoins.

* Google Inc has agreed to a settlement with European competition regulators that leaves the company with a few bruises, yet victorious over all, and would end half a decade of wrangles with antitrust authorities across the globe.

* Twitter has finally acknowledged what any newcomer could have told the company within five minutes of signing up: The messaging service is too hard to use. Discussing the company’s fourth-quarter results in a call with analysts, Chief Executive Dick Costolo said that he was working on improving its web software and mobile apps to make it easier for new users to sign up and current ones to find the most relevant information on topics they care about.

* The makers of the blood-thinning drug Pradaxa were so worried that an internal research paper would damage drug sales that some employees not only pressured the author to revise it, but suggested it should be quashed altogether, according to newly unsealed legal documents.

* The Coca-Cola Co agreed on Wednesday to buy a 10 percent stake in Green Mountain Coffee Roasters, as it seeks to cement ties with the fast-growing coffee company.

* Anheuser-Busch InBev, United States’ largest brewer, has agreed to buy the Blue Point Brewing Co in a move that could help it capitalize on the popularity of craft beer.

* Investigators say they believe they have identified the entry point through which hackers got into Target Corp’s systems, zeroing in on the remote access granted through the retailer’s computerized heating and cooling software, according to two people briefed on the inquiry.

* Lazard Ltd said on Wednesday that its profits rose 35 percent in the fourth quarter, as it benefited from improvements in its advisory and asset management businesses.

* Whether or not Mario Draghi and his European Central Bank colleagues plan to do anything about it at the monthly meeting Thursday, many economists are sounding the alarm. It is time, they say, to act defensively against the danger of deflation.

* Growth picked up in the service sector in January, with steady strength in private sector hiring, suggesting that the severe winter weather over the last several weeks had a limited effect on the economy.

* Investors’ faith in Puerto Rico’s debt appeared undaunted on Wednesday after Standard & Poor’s cut the island’s credit rating to junk a day earlier.

 

Canada

THE GLOBE AND MAIL

* Ottawa will start routinely sharing vast amounts of financial data about Americans living in Canada with U.S. tax authorities. Canada and the United States signed an agreement on Wednesday that paves the way for full implementation of a controversial U.S. crackdown on offshore tax evasion in 2015.

* Mayor Rob Ford will not attend World Pride in Toronto because he has not gone to a Pride parade yet and he is “not going to change the way I am,” he said at the first mayoral debate of the 2014 campaign.

Reports in the business section:

* Ontario is seeking to vastly expand its proposed pension plan, aiming to create a new nationwide retirement savings system. The province announced plans to set up its own pension late last year, after Ottawa rebuffed an attempt to expand the Canada Pension Plan. Now, Ontario is asking the rest of the country to join it, which would effectively produce a second national pension plan, alongside CPP, albeit one controlled jointly by the provinces and territories.

NATIONAL POST

* The Supreme Court of Canada decision that struck down parts of Canada’s prostitution laws, but suspended its judgment for a year to let Ottawa come up with a new legislative umbrella, has left the country with a myriad of approaches to prostitution. Several provinces, in fact, have not yet figured what their approach will be, leaving local authorities to figure it out as they go.

* Winter blasted Southern Ontario Wednesday, as two massive weather-related collisions, collectively involving almost 200 vehicles, crippled Highway 401 between Toronto and Cornwall.

FINANCIAL POST

* Canadian banks will soon begin collecting detailed citizenship and residency information about their clients, some of which will make its way through the Canada Revenue Agency to authorities in the United States as that country cracks down on tax cheats.

* Partners of law firm Heenan Blaikie LLP, a Canadian legal powerhouse which has for years been a favourite place for retired prime ministers, premiers and cabinet ministers to spend their post-political days, have decided to wind up the firm.

 

Britain

The Telegraph

GSK ADDS TEN NEW DRUGS TO LATE STAGE PIPELINE AS IT SEEKS TO MOVE ON FROM CHINA

GlaxoSmithKline has announced plans to launch late stage clinical trials on ten new drugs covering key areas including respiratory disease and cancer.

ASTON MARTIN RECALLS 17,590 CARS OVER ACCELERATOR PROBLEM

Aston Martin is recalling 17,590 sports cars due to a problem with the accelerator pedal. The manufacturer, the favoured brand of the James Bond film franchise, said that the fault risked the driver being unable to maintain or increase engine speed, increasing the risk of a crash.

UK TO GET FIRST DIRECT LINK TO COLOMBIA FOR A DECADE

Heathrow Airport will announce on Thursday a deal with Colombia’s national airline that will give the UK its first direct connection to the Latin American country for a decade.

FRENCH CONNECTION ENJOYS BETTER THAN EXPECTED CHRISTMAS

The under-pressure fashion retailer French Connection says its losses over the last year will be lower than expected after a productive Christmas.

The Guardian

SCOTTISH INDEPENDENCE: CABLE SAYS RBS WOULD HAVE TO MOVE TO LONDON

Vince Cable has insisted it is “almost certain” that an independent Scotland would need its own currency and warned that Royal Bank of Scotland would move to London in the wake of a breakaway.

ANGLO IRISH BANK CHIEFS’ LENDING PRACTICES ‘ABSOLUTELY ILLEGAL’, COURT TOLD

Former executives at the Anglo Irish Bank broke company law and carried out lending practices that were “absolutely illegal”, a Dublin court heard on Wednesday.

The Times

ROYAL MAIL SEALS STAFF HARMONY WITH 9 PCT PAY DEAL

Postal workers have voted to accept a 9 percent pay rise over three years and a 200 pound ($330) Christmas bonus in a ground-breaking pay and conditions deal which indicates that both peace and goodwill has finally broken out at the Royal Mail .

OSBORNE’S AUSTERITY DRIVE COULD END IN 2015

Britain may be able to scrap austerity shortly after the 2015 election because the pace of the recovery alone could be enough to fix the public finances, according to analysis from one of the country’s leading think tanks.

The Independent

STEPHEN HESTER COUP REDUCES ‘CHANCES OF A TAKEOVER’ AT RSA

The decision to appoint Stephen Hester as RSA Insurance boss has reduced the likelihood of a takeover of the troubled group and a fire sale of any its assets, analysts claimed today.

BP’S LEGAL BILL FOR THE GULF OIL SPILL DISASTER SOARS TO $1 BLN

The Gulf of Mexico oil spill has cost BP more than $1 billion in lawyers’ fees, the company revealed yesterday, as it announced a further $150 million charge to cover its external legal expenses for the disaster.

 

Fly On The Wall 7:00 AM Market Snapshot

ECONOMIC REPORTS

Domestic economic reports scheduled for today include:
Jobless claims for week of Jan. 1 will be reported at 8:30–consensus 337K
Trade balance for December will be reported at 8:30–consensus $36B deficit
Q4 productivity will be reported at 8:30–consensus up 2.6%
Q4 unit labor costs will be reported at 8:30–consensus down 0.7%

ANALYST RESEARCH

Upgrades

Akamai (AKAM) upgraded to Neutral from Underperform at Credit Suisse
American Express (AXP) upgraded to Buy from Neutral at Janney Capital
Booz Allen (BAH) upgraded to Buy from Neutral at BofA/Merrill
Boyd Gaming (BYD) upgraded to Outperform from Market Perform at FBR Capital
Buffalo Wild Wings (BWLD) upgraded to Buy from Hold at Miller Tabak
CACI International (CACI) upgraded to Buy from Hold at Stifel
Compass Minerals (CMP) upgraded to Neutral from Underperform at Credit Suisse
Coty (COTY) upgraded to Outperform from Market Perform at Wells Fargo
Crown Holdings (CCK) upgraded to Outperform from Market Perform at Wells Fargo
Douglas Dynamics (PLOW) upgraded to Outperform from Neutral at RW Baird
Fifth Third Bancorp (FITB) upgraded to Buy from Neutral at BofA/Merrill
Glu Mobile (GLUU) upgraded to Overweight from Neutral at Piper Jaffray
Green Dot (GDOT) upgraded to Neutral from Sell at Janney Capital
Green Mountain (GMCR) upgraded to Hold from Sell at Stifel
Intelsat (I) upgraded to Outperform from Market Perform at Wells Fargo
Lennar (LEN) upgraded to Conviction Buy from Neutral at Goldman
Level 3 (LVLT) upgraded to Buy from Hold at Canaccord
Mettler-Toledo (MTD) upgraded to Buy from Neutral at UBS
Veeco (VECO) upgraded to Overweight from Neutral at JPMorgan
WEX Inc. (WEX) upgraded to Outperform from Market Perform at Wells Fargo
Yelp (YELP) upgraded to Outperform from Market Perform at Raymond James

Downgrades

M.D.C. Holdings (MDC) downgraded to Underperform from Outperform at Raymond James
Meritage Homes (MTH) downgraded to Neutral from Buy at Goldman
Roadrunner (RRTS) downgraded to Market Perform from Strong Buy at Raymond James
Ryland Group (RYL) downgraded to Buy from Conviction Buy at Goldman
Synalloy (SYNL) downgraded to Neutral from Buy at Sterne Agee
Twitter (TWTR) downgraded to Hold from Buy at Stifel
Twitter (TWTR) downgraded to Sell from Neutral at UBS
Twitter (TWTR) downgraded to Underweight from Neutral at Atlantic Equities

COMPANY NEWS

Coca-Cola (KO) said it would buy 10% stake in Green Mountain (GMCR) for $1.25B
Sony (SNE), JIP sign memorandum of understanding for sale of PC business
Sony (SNE) says will cut 5,000 jobs
Harley-Davidson (HOG) raises quarterly dividend 31%, announces 20M share repurchase
CME Group (CME) increases dividend 4% to 47c per share
Cisco (CSCO) and Samsung (SSNLF) enter into patent cross-license agreement
Twitter (TWTR) says ‘doubling down’ in 2014 to accelerate growth in core user base
AstraZeneca (AZN) continues suspension of share buybacks, sees restructuring costs higher by $200M

EARNINGS

Companies that beat consensus earnings expectations last night and today include:
Medidata Solutions (MDSO), AstraZeneca (AZN), Dunkin’ Brands (DNKN), Carlisle (CSL), Sequans (SQNS), Towers Watson (TW), NXP Semiconductors (NXPI), O’Reilly Automotive (ORLY), Education Management (EDMC), Matrix Service (MTRX), Sierra Wireless (SWIR), Badger Meter (BMI), Amerco (UHAL), Schweitzer-Mauduit (SWM), Green Mountain (GMCR), Planar Systems (PLNR), Hanover Insurance (THG), Lincoln National (LNC), Assurant (AIZ), Synchronoss (SNCR), Exponent (EXPO), TTM Technologies (TTMI), FMC Corporation (FMC), EnerSys (ENS), FEI Company (FEIC), Glu Mobile (GLUU), Con-way (CNW), Green Plains (GPRE), Clearwater Paper (CLW), Digital River (DRIV), SolarWinds (SWI), Standard Pacific (SPF), Pandora (P), CBRE Group (CBG), FormFactor (FORM), Callidus Software (CALD), TriQuint (TQNT), Stericycle (SRCL), Shutterfly (SFLY), Mettler-Toledo (MTD), iRobot (IRBT), RealD (RLD), EMCORE (EMKR), Twitter (TWTR), Akamai (AKAM), OraSure (OSUR), Affymetrix (AFFX)

Companies that missed consensus earnings expectations include:
Ingredion (INGR), Sally Beauty (SBH), Invacare (IVC), RetailMeNot (SALE), Flowers Foods (FLO), Prestige Brands (PBH), Diamond Offshore (DO), Aetna (AET), Evolution Petroleum (epm), Geospace (GEOS), WGL Holdings (WGL), Rand Logistics (RLOG), Marathon Oil (MRO), Blue Capital (BCRH), Tesoro Logistics (TLLP), PennyMac (PFSI), Wabash (WNC), Allied World (AWH), Atmel (ATML), Brookdale Senior Living (BKD), Select Comfort (SCSS), Roadrunner (RRTS), Allstate (ALL), Prudential (PRU), FleetCor (FLT), Wesco Aircraft (WAIR), Fiserv (FISV)

Companies that matched consensus earnings expectations include:
Hi-Crush Partners (HCLP), Mueller Industries (MLI), Gildan Activewear (GIL), Solera (SLH), Entropic (ENTR), Yelp (YELP)

NEWSPAPERS/WEBSITES

Volvo (VOLVY) planning 4,400 job cuts this year, AP reports
Amazon (AMZN) acquires ‘Killer Instinct’ developer Double Helix, TechCrunch reports
JPMorgan (JPM) reviews bids for Global Special Opportunities unit, WSJ says
AstraZeneca (AZN): Headwinds to remain challenging, FT reports
Ford (F) cutting close to 300 jobs at its Australian manufacturing facility, Bloomberg reports
Target (TGT) hackers got into systems by using HVAC credentials, NBC News reports
Boeing (BA) sees ‘tough’ defense business climate and flat margins, Reuters reports
BlackRock (BLK) CEO says market decline ‘old-fashioned correction,’ Bloomberg says
Alcatel-Lucent (ALU) in exclusive discussions to sell phone unit to China Huaxin, WSJ reports

SYNDICATE

CM Finance (CMFN) 6.667M share IPO priced at $15.00
Constellium (CSTM) files to sell 25M Class A Ordinary shares for holders
DHT Holdings (DHT) files to sell $227.3M of common stock in direct offering
Egalet (EGLT) 4.2M share IPO priced at $12.00
Eleven Biotherapeutics (EBIO) 5M share IPO priced at $10.00
Envision Healthcare (EVHC) 27.5M share Secondary priced at $30.50
Ladder Capital (LADR) 13.25M share IPO priced at $17.00
Revance Therapeutics (RVNC) 6M share IPO priced at $16.00


    



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Previewing The ECB (No) Decision: The Four Possible Scenarios

Over 92%, or 62 of 66 economists surveyed by Bloomberg, expect no surprises from the ECB in half an hour. Whether that guarantees a “surprise” we leave it up to readers, but here courtesy of ABN Amro’s head of macro research Nick Kounis, are the four possible decisions scenarios that Mario Draghi can reveal to the world today.

1. ECB ends SMP sterilization: this is ABN’s central scenario

  • Would more than double excess liquidity, spurring expectations of lower short rates and supporting EGBs — especially 5Y sector; euro would come under pressure
  • May make investors see ECB QE as more likely, supporting peripheral bonds

2. ECB leaves policy and forward guidance unchanged, without clear signal of easing in March

  • This would disappoint markets, which would start pricing higher short rates; govt bonds would probably sell-off, led by periphery; euro would strengthen

3. ECB cuts rates, possibly alongside ditching SMP sterilization

  • This would likely involve cuts to both refinancing and deposit rates
  • Would probably spur market to expect lower front-end rates, steepen curves, compress peripheral spreads and trigger decline in euro

4. Large-scale QE program: very low probability

  • All EGBs would likely benefit near-term, especially peripherals due to hunt for yield; euro would “fall off a cliff”

Source: Bloomberg


    



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Equities Supported By Optimism Of Positive ECB Surprise

Today the lingering problems of the “emerging” world and concerns about the Fed’s tapering take a back seat to what the European Central Bank may do, which ranges from nothing, to a rate cut (which sends deposit rates negative), to outright, unsterilized QE – we will find out shortly: with 61 out of the 66 economists polled by Bloomberg looking for no rate changes from the ECB today it virtually assures a surprise . However, despite – or perhaps in spite of – various disappointing news overnight, most notably German factory orders which missed -0.5% on expectations of a +0.2% print, down from 2.4%, the USDJPY has been supported which as everyone knows by now, is all that matters, even if it was unable to push the Nikkei 225 higher for the second day in a row and the Japanese correction persists.

Stocks in Europe traded higher since the get-go, with the German DAX index outperforming following consensus beating earnings by Daimler pre-market. On the sector breakdown, telecommunications sector outperformed, supported by earnings by Vodafone, with health care lagging following pre-market earnings by AstraZeneca. Looking elsewhere, Bunds remained under pressure even after supply from Spain (19k Mar-Bund contracts) and France (85k Mar-Bund contracts) was successfully observed, with Spain selling just above the targeted range. At the same time, given the absence of any tier 1 macroeconomic releases this morning, EUR/USD and GBP/USD traded steady, as market participants refrained from making directional commitments ahead of monetary policy announcements by the BoE and the ECB.

Headline bulletin summary from RanSquawk and Bloomberg

  • European equities trade in the green ahead of today’s key risk events with the DAX leading the way after positive earnings from Daimler.
  • SP/GE 10y spread continues to tighten (-5bps), with Spanish paper outperforming peripheral counterparts, which comes after the Spanish Treasury sold above targeted amount of EUR 5.5bln in today’s auctions.
  • Apart from digesting comments from ECB’s Draghi, the latter half of the session will also see the release of the latest US Trade Balance data and the weekly jobs report.
  • Treasuries steady, 10Y yield rising further from Monday’s YTD low 2.568% as market prepares for January payrolls report tomorrow, est. +183k, unemployment rate holding at 6.7%.
  • ECB is likely to keep policy on hold at today’s meeting, with strong risk of easing in coming months as inflation slows, analysts say. Danske Bank and BNP Paribas joined Deutsche Bank, RBS and Barclays this week in expecting ECB  to cut rates today
  • Decision due at 7:45am ET, with Draghi presser at 8:30am
  • German factory orders unexpectedly declined in Dec. on weaker domestic demand, falling 0.5% M/m vs est. of 0.2% gain, +2.4% (revised) in Nov.
  • Bank of England also meets today, economists expect no change in policy, as Carney and colleagues debate how they can reflect the strength of the U.K. economy in their forecasts without suggesting that interest rates are about to go up; decision due at 7am
  • Bank of Japan Deputy Governor Kikuo Iwata says he’s emphasizing the bank’s commitment to ease until inflation is     stable at 2%, saying that this may “not have been so clear to the public”
  • Japan’s Abe is considering the biggest change to Japan’s military engagement rules since World War II; would allow the nation to come to the aid of its allies
  • Germany’s SPD wants counterespionage against the U.S.; interior policy expert Michael Hartmann says that “who spies on us must expect to become a target as well,” in interview with Rheinische Post newspaper
  • Sovereign yields higher. EU peripheral spreads tighten. Asian stock mixed, European stocks higher, U.S. stock-index futures gain. WTI crude, gold and copper higher

Asian Headlines

The Nikkei 225 pared early gains to close with a minor loss of 0.2%, whilst the rest of the Asian equity markets were higher as they continued to stabilise following the heavy sell-off seen at the beginning of the week.

EU & UK Headlines

German Factory Orders (Dec) M/M -0.5% vs Exp. 0.2% (Prev. 2.1%, Rev. 2.4%)
– German Factory Orders WDA (Dec) Y/Y 6.0% vs Exp. 6.3% (Prev. 6.8%. Rev. 7.2%)

UK Halifax House Prices (Jan) M/M 1.1% vs Exp. 1.0% (Prev. -0.6%)
– UK Halifax House Prices 3Mths/Y (Jan) 3M/Y 7.3% vs Exp. 7.2% (Prev. 7.5%)

Markets remain relatively subdued ahead of today’s key risk events. Analysts remain split on today’s ECB rate decision, with the latest source comments suggesting the board is divided on further action from the central bank, as the ECB face constrained liquidity, disinflationary pressures and a strong domestic currency. Full rate decision due at 1245GMT/0645CST, with the following press conference at 1330GMT/0730CST. (RANsquawk)

US Headlines

Newsflow remains light from the US as participants look ahead to tomorrow’s Nonfarm Payrolls release, with various banks cutting their forecasts for the figure after yesterday’s softer than expected ADP reading.

Equities

Credit Suisse shares are trading marginally lower (-1%), underpinned by somewhat less than impressive earnings pre-market. As a result, the SMI index has underperformed its peers and is seen little changed.

Twitter shares initially moved higher in after-market trade following the release of the EPS and revenue figures but then reversed to trade down as much as 15% as monthly active users were lower than expected and EBITDA for Q1 was below forecasts.

FX

Ahead of policy announcement by the BoE and the ECB, both EUR and GBP pairs trade little changed, with the USD index unchanged on the session. At the same time, AUD/USD continues to trade higher, albeit off the best levels posted overnight, following the release of the latest trade balance data, with supports seen at the 50DMA line at 0.8917

Commodities

Credit Suisse have raised their 2014 nat gas price forecast, citing extreme weather in US and falling inventories. (RTRS) Iranian fuel oil exports may be reduced by 50% next month as maintenance work at the Abadan refinery is set to cut output.

The country may ship around 200,00 metric tonnes of fuel oil in March, compared with as much as 400,000 this month, and 350,000 in January. (BBG)

Indian gold jewellery imports have surged nearly 4-fold to 4-5 tonnes in January from 1-1.5 tonnes in November. (RTRS)

* * *

DB’s Jim Reid concludes the overnight recap

Today’s main event is the ECB meeting where our economists expect the ECB to cut all policy rates by 5-10bps, which would imply a small negative deposit rate. Mark and Gilles believe that given the decline in excess reserves, a small negative deposit rate will have more signaling content than direct stimulus. It would also signal ECB’s willingness to adopt new non-standard policies as well as a signal that the central bank is happy to accept a weaker EUR. This is certainly not a consensus view with 61 out of the 66 economists polled by Bloomberg looking for no rate changes from the ECB today. Our thoughts are that the ECB will probably have to do QE (or something closely resembling it) later in the year but that any move today (or soon) is a necessary stepping stone as they exhaust alternative options.

Away from the ECB, markets are trading firmer overnight with major Asian bourses higher on the day. Sentiment overnight is perhaps also being helped by stronger-than-expected Australian trade data. The trade surplus in December came in at A$468mn against the market consensus of an A$200m deficit. Whilst our Australian economics team noted that the outsized gain was driven by a large rise in the value of ‘cereal grains and cereal preparation’ exports, markets seem to be taking the strong iron ore export gain (+2.4% mom) as a positive read-through for China. Chinese markets are still closed for Chinese New Year celebrations but the ASX 200 (+1.2%) is up for the first time this week whereas the KOSPI (+0.9%) is extending small gains for the second consecutive day. Asian cash and CDS spreads are mostly tighter across the board. Indonesian sovereigns are around 3/8pts higher across the Dollar curve whilst the bid tone for Korean credit also remains very firm. Treasuries are modestly weaker with the 10yr up 5bps to 2.68% over the last 24 hours or so.

EM sentiment was also supported by Moody’s upgrade of Mexico’s sovereign rating (to A3/Stable from Baa1) during US hours yesterday. Moody’s is the first rating agency to move Mexico into the single-A bucket saying that the decision was driven by the country’s structural reforms which are expected to increase potential GDP growth and improve its fiscal fundamentals. Moody’s upgrade triggered a round of protection selling in credit which moved Brazil and Mexico CDS 6bps and 4bps tighter, respectively. Mexico is rated BBB+/Stable by both S&P and Fitch.

The Asian market is perhaps also responding to the US market closing (-0.20%) off its intra-day lows. Overall the data flow yesterday was mixed. In Europe the final non-manufacturing PMI reading came in slightly below the flash estimate (51.6 v 51.9) with the January US ADP report also modestly below expectations (175k v 185k). The ISM services data for January also came in slightly above market (54.0 v 53.7) with the employment sub-reading also showing some signs of month-on-month improvement. Staying on jobs, with the ADP coming in 25k below DB’s economics forecast, Joe LaVorgna has similarly trimmed their forecast for this Friday’s NFP by 25k to 175k. Their unemployment rate forecast remains unchanged at 6.5% (vs 6.7% in December).

In terms of today, the data docket will feature December’s trade data and weekly jobless claims in the US. The Fed’s Tarullo will also testify on Financial Stability later today. European and German factory orders are due today and we also have BOE’s policy meeting today (no change expected by the market and DB). All eyes will clearly be on the ECB meeting though.


    



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

Gold Supported At $1,200 – Below That Level “Serious Production Cutbacks”

Gold rose $3.20 or 0.25% yesterday to $1,257.90/oz. Silver rose $0.36 or 1.8% to $19.85/oz.

Gold is marginally higher in all currencies today. Gold appears to consolidating above the $1,250 level and strong support is at $1,200/oz.


Gold in US Dollars, 1 Year – (Bloomberg)

Demand for physical gold and silver remains robust. The U.S. Mint has raised its silver coin supply to 850,000 ounces this week. That compares with 761,000 1 ounce American Silver Eagle coins allocated last week, Michael White, a spokesman at the U.S. Mint, told Bloomberg. Sales by the mint last month rose to 4.775 million ounces from 1.2 million ounces in December.

The World Gold Council has confirmed that the all-in production costs to produce one ounce of gold is around $1,200 an ounce. A drop below that level  for a sustained period of time would have a significant effect on miners’ production, World Gold Council Director of Investment Research Juan Carlos Artigas said yesterday.

If gold dips below $1,200 per ounce for a “sustained” period, serious production cutbacks are likely.

About 30% of the gold mining industry becomes unprofitable if prices fall below that threshold, the council estimates.

 

Massive capital writedowns from 2013, from the world’s largest gold miner Barrick Gold Corp. (TSE:ABX) among others, could also “impair future production for some miners,” said the council’s 2014 outlook.

Global mine production is likely to hit 2,980 tons in 2013, up 4% from the year before. Gold mines can take years to come online, up to 20 years after deposits are first discovered. The industry is also  beset by a shortage of qualified mining engineers.

 

“There’s a real cost of getting it out of the ground. And that cost has to be accounted for” said the Council.  The council’s view adds to existing research highlighting $1,200 per ounce as a key price threshold.

Declining scrap or recycled gold supply, which fell to a five-year low in 2013, exacerbates a “tight supply picture”, said Artigas. 

 

Find out why Singapore is now one of the safest places in the world to store gold in our latest gold guide – Essential Guide To Storing Gold In Singapore



    



via Zero Hedge http://ift.tt/1iv9DP3 GoldCore

Guest Post: Asia Plays The Nazi Blame Game

Submitted by Zahchary Zeck of The Diplomat,

As many Diplomat contributors have noted, in recent months many have sought to draw comparisons between Asia today and Europe in the run-up to WWI.

Most notably, in a widely covered speech at the World Economic Forum in Davos last month, Japanese Prime Minister Shinzo Abe compared his country’s current bilateral relationship with China to that of England and Germany before WWI. Specifically, Abe used the example of London and Berlin before WWI to warn that China and Japan’s extensive economic ties do not necessarily preclude them from going to war.

Now it appears that some in Asia believe the current regional environment is more similar to Europe just before WWII. However, there appears to be some disagreement over which country in Asia most resembles Nazi Germany.

For the Philippines, it is China that most resembles Nazi Germany. In an interview with The New York Times on Tuesday, President Benigno S. Aquino III called on the international community to provide his country with more assistance in its ongoing dispute with China over parts of the South China Sea. To bolster his case, Aquino compared the threat the Philippines faces from China today to the one Czechoslovakia faced from Nazi Germany immediately before WWII.

“If we say yes to something we believe is wrong now, what guarantee is there that the wrong will not be further exacerbated down the line?” The New York Times quoted Aquino as saying. “At what point do you say, ‘Enough is enough’? Well, the world has to say it — remember that the Sudetenland was given in an attempt to appease Hitler to prevent World War II.”

North Korea disagrees, however, instead asserting that it is Japan who is most like Nazi Germany and Prime Minister Abe that most resembles an Asian Hitler. In an editorial on Tuesday, North Korea’s state media responded to Japan’s recent call for dialogue by writing:

“Their rash acts evoking much criticism in Asia have something in common with the war hysteria whipped up by Hitler in Germany after its defeat in the First World War.

 

“As well known, the First World War ended with the collapse of militarism in Germany, but fascist maniac Hitler’s assumption to power plunged many nations of the world into the bloodbath of another world war.

 

“Prompted by the wild ambition for reoccupying former colonies and, furthermore, building up a new vast empire in the world, Hitler had incited ultra-chauvinism and revanchism and restored the economy serving only for war in Germany. Over-heated in reinvasion, Hitler annexed neighboring countries one after another and, after all, unleashed the Second World War.

 

“Abe’s reckless moves are little different to those of Hitler.”

This follows the People’s Daily editorial team last month responding to PM Abe’s controversial visit to Yasukuni shrine by calling the shrine “a symbol of Asian Nazism/Fascism.” The editorial also spoke of Abe’s “veneration of eastern Nazis,” referring to the Class-A war criminals buried at the Yasukuni shrine.

Sadly, this isn’t the first time Asian nations have played the Nazi game. In 2010 The Diplomat highlighted comments made by then-former Prime Minister Shinzo Abe that implied China’s strategic doctrine was similar to the one pursued by Hitler and Nazi Germany.

 


    



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

Obama’s Minimum Wage Hike “Won’t Meaningfully Help Economy”

The US minimum wage has been a common news topic lately – increasing its sound and fury since President Obama's State of the Union proclamation of a rise in federal employee minimum wages to $10.10 (from $7.25). While obviously a contentious political issue, one question keeps coming up – will this help? As BofAML notes in a recent report, a simple back-of-the-envelope calculation suggests that the rise in wages from a minimum wage increase would amount to fractions of a percentage point on macroenomic data. There simply are not enough people working at (or below, since some jobs are exempted) the minimum wage to have a noticeable impact on the total wage bill and in the end, there are just too few people, earning far too little, at the minimum wage to meaningful affect aggregate macroeconomic statistics. So why is he doing it?

Via BofAML:

The Chart below shows the limited coverage of minimum wages upon the labor force.

According to BLS data, in 2012 there were just over 129mn wage and salary earners in the US, and a little less than 3.6mn were paid at or below the federal minimum on an hourly basis. In other words, only about 2.8% of US wage earners were paid at or below the minimum wage. This share has risen in recent years, likely due to increases in the statutory minimum from 2007 and 2009, as well as the recession pushing some workers into low-paying jobs. Even restricted to just hourly workers, of which there were about 75mn in 2012, according to the BLS, less than 5% are paid at or below the minimum.

To figure out the effect of a minimum wage increase on wages in the aggregate, we have to make a few approximations for unavailable data. First, the share of workers at or below the minimum appears to have been trending slightly lower — as one might expect as the economy recovers — but let’s be conservative and assume it still stands at 2.8% today. Next, we need to figure out the share of wages, not persons, being paid at the minimum. Since those at the minimum wage are earning less than those above, less than 2.8% of wages are at the minimum — in fact, well less.

Chart 1 shows the minimum wage as a share of the prevailing hourly wage for private production and nonsupervisory workers. We plot this measure as it has a long history, which shows that the current share of around a third is not particularly high. The average wage across all workers in 2013 was about US$24/hour — nearly US$4/hour higher than production and non-supervisory workers.

But, as Chart 2 shows, average wages vary significantly across sectors — as do the relative sizes of each sector, shown as the share of total private sector hours along the horizontal axis.

For the sake of argument, let’s assume that the minimum wage does increase from the current US$7.25/hour to the proposed US$10.10/hour. That is a US$2.85/hour increase, or 39%! Surely that has to be inflationary?

Not necessarily. As a rough approximation, US$2.85 on a US$24 average hourly wage is nearly a 12% gain. But with just 2.8% of wages subject to the minimum, the overall impact is a 0.33% increase in average hourly earnings. This is very unlikely to be noticeable at all in the wage, let alone the inflation, data. If we use the 5.5% from the prior paragraph, the impact would be doubled, but still less than a percentage point increase in average hourly wages. Of course, these are very simple computations, but this exercise gives useful ballpark figures.

The minimum wage increases that have been enacted at the state level this year are smaller in size — the largest, a US$1.00/hour increase, brings the minimum wage for New Jersey to US$8.25/hour. This is only a little more than a 4% increase in the average hourly wage, so even if 8% of the workforce was affected, the impact on wages would still be just 0.33%.

In the end, there are just too few people, earning far too little, at the minimum wage to meaningful affect aggregate macroeconomic statistics

So one has to ask – if the rise in the minimum wage has begligble effects on growth or inflation and has the potential to price some out of the employment market – why is President Obama so insistent on its occurrence?


    



via Zero Hedge http://ift.tt/1jhk8cq Tyler Durden

Obama's Minimum Wage Hike "Won't Meaningfully Help Economy"

The US minimum wage has been a common news topic lately – increasing its sound and fury since President Obama's State of the Union proclamation of a rise in federal employee minimum wages to $10.10 (from $7.25). While obviously a contentious political issue, one question keeps coming up – will this help? As BofAML notes in a recent report, a simple back-of-the-envelope calculation suggests that the rise in wages from a minimum wage increase would amount to fractions of a percentage point on macroenomic data. There simply are not enough people working at (or below, since some jobs are exempted) the minimum wage to have a noticeable impact on the total wage bill and in the end, there are just too few people, earning far too little, at the minimum wage to meaningful affect aggregate macroeconomic statistics. So why is he doing it?

Via BofAML:

The Chart below shows the limited coverage of minimum wages upon the labor force.

According to BLS data, in 2012 there were just over 129mn wage and salary earners in the US, and a little less than 3.6mn were paid at or below the federal minimum on an hourly basis. In other words, only about 2.8% of US wage earners were paid at or below the minimum wage. This share has risen in recent years, likely due to increases in the statutory minimum from 2007 and 2009, as well as the recession pushing some workers into low-paying jobs. Even restricted to just hourly workers, of which there were about 75mn in 2012, according to the BLS, less than 5% are paid at or below the minimum.

To figure out the effect of a minimum wage increase on wages in the aggregate, we have to make a few approximations for unavailable data. First, the share of workers at or below the minimum appears to have been trending slightly lower — as one might expect as the economy recovers — but let’s be conservative and assume it still stands at 2.8% today. Next, we need to figure out the share of wages, not persons, being paid at the minimum. Since those at the minimum wage are earning less than those above, less than 2.8% of wages are at the minimum — in fact, well less.

Chart 1 shows the minimum wage as a share of the prevailing hourly wage for private production and nonsupervisory workers. We plot this measure as it has a long history, which shows that the current share of around a third is not particularly high. The average wage across all workers in 2013 was about US$24/hour — nearly US$4/hour higher than production and non-supervisory workers.

But, as Chart 2 shows, average wages vary significantly across sectors — as do the relative sizes of each sector, shown as the share of total private sector hours along the horizontal axis.

For the sake of argument, let’s assume that the minimum wage does increase from the current US$7.25/hour to the proposed US$10.10/hour. That is a US$2.85/hour increase, or 39%! Surely that has to be inflationary?

Not necessarily. As a rough approximation, US$2.85 on a US$24 average hourly wage is nearly a 12% gain. But with just 2.8% of wages subject to the minimum, the overall impact is a 0.33% increase in average hourly earnings. This is very unlikely to be noticeable at all in the wage, let alone the inflation, data. If we use the 5.5% from the prior paragraph, the impact would be doubled, but still less than a percentage point increase in average hourly wages. Of course, these are very simple computations, but this exercise gives useful ballpark figures.

The minimum wage increases that have been enacted at the state level this year are smaller in size — the largest, a US$1.00/hour increase, brings the minimum wage for New Jersey to US$8.25/hour. This is only a little more than a 4% increase in the average hourly wage, so even if 8% of the workforce was affected, the impact on wages would still be just 0.33%.

In the end, there are just too few people, earning far too little, at the minimum wage to meaningful affect aggregate macroeconomic statistics

So one has to ask – if the rise in the minimum wage has begligble effects on growth or inflation and has the potential to price some out of the employment market – why is President Obama so insistent on its occurrence?


    



via Zero Hedge http://ift.tt/1jhk8cq Tyler Durden

Japocalypse Wow – Foreigners Dump Most Japanese Stocks Since 2010

It would seem, in the case of momo-chasing levered fast-money flows, that Propertius was correct – “fickleness has always befriended the beautiful…” and Japanese stocks are no longer the once beautiful trend that Abe had promised them to be. A tapering of the US flow; a ripple across the bow of emerging markets; and suddenly Kyle Bass’ sarcastically-named “macro tourists” are running for exits as Shakespeare himself once wrote, “was ever feather so lightly blown to and fro as this multitude.” Historical quotations aside, the last time flow swung so violently negative, the Nikkei ended up losing 55% in the next 18 months. We love the smell of nay-sayers in the morning…

Foreigners sold the most Japanese stocks last week since 2010 and before that since the credit crisis started to implode…

 

This outflow was 3x the size of the entire selling following the tumble in May/June last year.

 

and just in case you are banking on that flowing back to the US… think again – as we are trying to explain – it’s not real money, it’s credit-created leverage…

The ironists among market punters will even attempt to construe all this as a reason to buy more developed world stocks on the premise that the money flooding out of such places as Thailand, the Ukraine, Turkey, and Argentina will be parked in the S&P and the DAX (perhaps overlooking the fact that the purchase price of these now-unwanted positions was most likely borrowed, meaning that their liquidation will also extinguish the associated credit, not re-allocate it).

A gentle reminder of days gone by when rational investors roamed the markets…

 

Charts: Bloomberg


    



via Zero Hedge http://ift.tt/1bwBw8a Tyler Durden