Tag: news

Having slashed both growth and inflation outlooks,  one could be forgiven for wondering why ECB President Mario Draghi would choose now to stop its massive bond-buying program (which has done so much good for the European economy and markets)…

With stocks and the euro weak, Draghi will do his utmost to crush any reporters’ efforts to shift The ECB’s actions narrative in a hawkish direction.

“I got this…”

And here is what The ECB looks like on Bloomberg’s Hawk-Dove-o-meter:

Watch live (starting at 0830ET) to see Draghi talk his way out of this…

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Blain’s Morning Porridge submitted by Bill Blain

“I put them with my own, can’t make it all alone, I’ve built my dreams around you.”

As I said yesterday; if May wins the UK remains a SELL.

She won her confidence vote, but, the essential reality is 2 in 5 Conservative MPs oppose her. As a result, nothing will be solved about Brexit. The latest polls broadly suggest the UK is hung 50/50 leave/remain, but break it down and it’s still 50% remain, but 25% of leavers who would accept the current deal are vehemently opposed by the 25% who’d prefer a no deal Brexit. That’s the critical political fault line exposed by yesterday’s vote.

These are the numbers party strategists will be making their calculations upon. Every politician is each assessing their own chances and opportunities. The UK is now a game of political optimisation.

Pro-Brexit MPs with leave majorities should be concerned – their vote is split. For MPs sitting on Remain majorities or even modest minorities, their political maximization strategy is probably to align with Remain as the Leave vote becomes increasingly fractured, split and disenchanted. The extreme Brexiteers will fulminate, get angry, drop their allegiances, and waste their votes on the extreme right or whatever Nigel Farage comes up with.. 25% of the electorate will win one or two seats at the next election. Discount them.

The exact numbers are something we need to analyse in terms of individual MPs, on a party to party basis, at a constituency parliamentary and referendum level – I’ve got someone in mind to work on it.

Smart investors should be able to make some educated guesses how these scenarios play out… and thus: when to buy into a cheap UK. More than happy to discuss timing…

My own guess is we’re likely to see a parliamentary shift towards Remain and even a second referendum – simply on the basis that’s where MPs are likely to see the best chance of holding onto their jobs. Democracy be damned. (For clarity – I am a soft Brexiteer. I’d accept the current deal and move on! I think a second referendum would be abject surrender.)

We’re likely to see further Brexit-led instability, but little new, through Jan into Feb. No compromise from Europe. Then, as the deadline approaches, I expect Theresa’s final act will be for the  UK to step back and delay Brexit – citing the need for more time to avoid the No Deal (which only 25% support). The EU will graciously allow us more time, even suggest we pause or annul Article 50. They know the argument is heading their way if they exhibit patience.

Then we head towards inevitable elections – Theresa May will be gone. She will be persuaded to step down to let a “strong and stable” leader take over.. (something familiar about that phrase…?). Who? Does it matter? I suspect the prospect of electoral suicide means the Tories won’t vote for a prominent Brexiteer. Will the party split? Who knows? Who cares? It would have serious impact on our electoral calculations.

Voter disenchantment with the Tories – or the BSBP (back-stabbing b******s party) – is very real. At least Boris has learnt to keep his mouth shut. The minister for the 19th Century might care to take note. Smart Tories are making positive sounds about listening. I suspect fear of a Labour Government means an election isn’t likely to lead to electoral cataclysm for the Tories (although it’s a very attractive thought). A good chum is quoted in the WSJ this morning saying: “a Jeremy Corbyn government is far worse than any Brexit or no Brexit,” and “It would be apocalyptic for the economy.”

Of course it would.. Wouldn’t it? Would Labour really be that bad? Momentum, to be frank, controls far fewer seats than its given credit for, and is running out of “momentum”.. All it needs is for grass roots labour supporters to support moderates. Corbyn’s ability to deliver his Red policies on nationalisation etc will be extremely limited by the parliamentary party which remains vehemently opposed to him. Even momentum candidates know their electorates objectives are not the same as the 40 unwashed Trotskyites that won them the right to stand.   

When it comes to Labour, the Trend is our Friend. Every time Labour wanders too far left, it eventually goes into autocorrect – and swings back right. Think about Militant and Clause 4 last century! What we really need is a sans Blair Blairite revolution. That’s why I mentioned David Miliband yesterday. The Time is Now! If Labour could get a palatable leadership in place in the next few months they are assured of power. As might a new soft centre party.. there’s a thot!

I’m just a market commentator. I’m not a political pundit. But it’s clear the current unresolvable political environment creates a series of very interesting market outcome scenarios. All of which means the UK remains uncertain, and markets hate uncertainty – except to the extent it generates wonderful volatility to gamble against!

Don’t expect this to end any time soon.

Meanwhile, back in the real world..

I have to laugh at Macron’s France blithely breaking EU debt guidelines while Italy is forced to put new policies in place to get their budget deficit back in line at 2.04%. Actually, that’s bullsh*t. Italy is not going to cut the deficit number. It simply says it will. That’s not quite same thing. More on where European Govt spreads are going next week. Meanwhile, what is Draghi going to say about the end of QE? As Europe sinks towards recessions… I’m sure he’ll find some other way to deluge the continent in free money to keep the happy party going…

The German govt is apparently keen for Commerz and Deutsche to merge. That will be the end of Finanzplatz Deutscheland. Merging two troubled banking dinosaurs to create a larger basketcase is a recipe for years of conflict as their competing cultures of mediocracy duke it out. Sorry to be harsh… but in recent years neither bank has been batting in doubt digits. What about the European dream? Domestic mergers like this are born from political protectionism. There still isn’t a single successful example of pan-European banking – and don’t quote me Santander.. there are sound reasons they kept The Shabby-Abbey.

What to say about the US? Who would you trust? Michael Cohen or Donald Trump? Or neither?

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A day after collapsing to the ominous $6.66 March 2009 closing lows, GE stock is soaring in the pre-market after long-time bear JPMorgan analyst Steve Tusa upgrades the company to neutral from underweight.

Citing the fact that the liabilities and “known unknowns” are better understood and priced into the stock price, Tusa (who has been a “sell” since May 2016) wrote that:

“We believe a more negative outcome on these liabilities (equity dilution, for one) is at least partially discounted, and it’s possible that the company can execute its way through an elongated workout that limits near-term downside,”

And that was good enough to juice the stock up 12% in the pre-market…

 

Still, he warned that a reset in free cash flow expectations may be necessary, even as it could provide a bottom for the stock.

Additionally, as Bloomberg reports, GE Digital said it would sell a majority stake in its ServiceMax cloud-based field-service software to Silver Lake and create a new industrial Internet-of-things firm with starting annual revenue of $1.2 billion.

As one wise old equity trader said to us on the news of another bottom-caller – “It can’t get any worse… right?” – well it can still fall 100% more from her.

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As expected, the ECB – which obviously is keeping its rates unchanged – confirmed it would end its asset purchases in December 2018, while clarifying for the first time that it would “continue reinvesting, in full, the principal payments from maturing securities purchased under the APP for an extended period of time past the date when it starts raising the key ECB interest rates.” Previously, the ECB had only committed to reinvesting “for an extended period after the end of QE.”

Also of note, the ECB announced it “expects interest rates to remain at their present levels at least through the summer of 2019” which however the market no longer believes, having priced out a full rate hike in 2019.

In any case look for more clarity in 45 minutes when Draghi speaks.

Full statement below:

At today’s meeting the Governing Council of the European Central Bank (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 0.00%, 0.25% and -0.40% respectively. The Governing Council expects the key ECB interest rates to remain at their present levels at least through the summer of 2019, and in any case for as long as necessary to ensure the continued sustained convergence of inflation to levels that are below, but close to, 2% over the medium term.

Regarding non-standard monetary policy measures, the net purchases under the asset purchase programme (APP) will end in December 2018. At the same time, the Governing Council is enhancing its forward guidance on reinvestment. Accordingly, the Governing Council intends to continue reinvesting, in full, the principal payments from maturing securities purchased under the APP for an extended period of time past the date when it starts raising the key ECB interest rates, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation.

The President of the ECB will comment on the considerations underlying these decisions at a press conference starting at 14:30 CET today.

As usual, much more during the presser at 830am ET when Draghi is expected to cut both the ECB’s inflation and GDP forecasts.

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Theresa May is in power. But she’s not in charge.

That’s essentially the takeaway from last night’s ‘no confidence’ vote, where more than half of the Tory backbenchers who aren’t on the PM’s payroll (i.e. don’t hold formal positions within the government) voted against the PM, narrowing her margin of victory to just 83 votes, which was hardly the overwhelming margin of victory for which the PM had hoped.

And even this number doesn’t accurately reflect the waning enthusiasm for the prime minister; to avoid an even narrower victory, which might have prompted May to resign, May was forced to offer a serious concession on Wednesday: During a speech ahead of the secret ballot, May indicated that she would step down before the next general election (set for 2022), prompting speculation that she could resign as soon as early next year.

And while Brexiteers – who have been criticized by some pro-government MPs for their poor timing in orchestrating the vote – are reportedly “hunkering down” for “trench warfare” (suggesting that few will break ranks to back May’s draft deal), according to the Times of London, some former members of May’s government – including former Brexit Secretary Dominic Raab – said during an early Thursday interview that it’s “hard to see” how the PM can continue to lead.

Here’s Reuters:

“We will have to back her as best we can but problem is that both in relation to Brexit and wider sustainability of the government given likelihood of any changes to the deal, given the likely scale of opposition, it looks very difficult to see how this PM can lead us forward,” Raab told reporters.

In another sign that May has been seriously weakened by the vote, the Times reported that several senior cabinet ministers are pushing May to bring back a vote on her deal before Christmas so that it can be voted down, and Parliament could proceed with holding a series of “indicative” votes on every conceivable deal option. This could give May leverage with the EU, while also demonstrating to intransigent MPs that there is sufficient political will to avoid ever triggering the backstop.

Cabinet Brexiteers and Remainers were agreed last night that Mrs May should push ahead with the vote on her Brexit plan before Christmas, both camps expecting her to lose heavily, according to the Times of London (though rumors of this plan first surfaced last month).

Five cabinet ministers – David Gauke, Amber Rudd, David Lidington, Greg Clark and Mr Hammond – want Mrs May to bring back her deal for a vote as early as next week. They then want the Commons to hold a series of “indicative” votes on every conceivable option, from a no-deal Brexit, a Canada-style agreement, a single market and customs union to a second referendum.

“They will all fail,” one cabinet minister said. “At that point we will probably be able to rule out no-deal and Canada.”

Though Commons leader Andrea Leadsome denied reports that a ‘meaningful vote’ will be called before Christmas.

With May heading back to Brussels on Thursday, EU leaders are reportedly digging in their heels, warning that, while they would be willing to agree to some minor “clarifications” and “legal assurances” about the backstop, the deal text – as it stands – must remain unchanged. According to one report, EU leaders are only planning to give May “ten minutes of their time” (after all, there are other burgeoning crises in Europe that are dividing the bloc’s attention).

This should surprise nobody. Because, as one analyst told RT, what incentive does Europe have to fold? After two years of fraught negotiations, May has failed to unify her party. Given that any concessions could still face rejection, the only sensible approach for the EU is “take it or leave it.”

Speaking shortly after the Wednesday vote, May said she is determined to fight for changes to her Brexit deal at an upcoming EU meeting on Thursday.

But it’s unlikely that Brussels won’t soften its stance on that, Szamuely said: “They figured that even if they make more concessions, there’s really no guarantee that she’ll be any more successful in winning the vote for Brexit.”

And even if May lost the confidence vote, finding somebody else to lead the Tories might be difficult. Because, given the quagmire that the party has found itself in, what sane politicians would really want the job?

“What’s really worked for her is that nobody wants that job because it’s one of the worst jobs in the world,” says George Szamuely, Senior Research Fellow of London Metropolitan University.

Unless May can pull off a miracle in Brussels, it’s very likely that May’s deal will eventually be voted down. And after that (as Deutsche Bank analysts noted the other day) the probability of either a second referendum or – worse – a general election triggered by a Labour-led vote of no confidence (there have been several anxiety-provoking reports about a possible DUP alliance with Labour to sabotage the government) will continue to climb.

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With algos trying to force a rally for the third day in a row, the “STFR” crowd arrived early as stocks in Europe and S&P futures surrendered early gains as investors initially bought on the latest optimistic developments in America-China trade relations, which however turned into selling after a BBG report that the ECB – as everyone had already expected – will lower its inflation forecast for 2019 when it publishes an updated outlook on Thursday.

Europe’s Stoxx 600 declines were led by energy shares as oil slide back under $51, offsetting gains in raw materials as the index erased an early advance to turn lower. Hong Kong and Chinese stocks outperformed as equities across Asia continued their rebound ignoring news that a second Canadian citizen had “disappeared” in China.

In the U.K., gilts climbed and the FTSE 100 edged lower after May won a vote of confidence in her leadership of the Conservative Party, though it’s likely to be only a temporary reprieve as the embattled premier faces hardened opposition to her Brexit deal.

Earlier, the Nikkei and other Asian stocks had pushed roughly 1 percent higher ahead of several central bank meetings including a landmark one for the ECB which was set to end its quantitative easing program. Gains were concentrated in Chinese shares, with Chinese blue-chips up 1.5 percent and Hong Kong’s Hang Seng index gaining 1.1 percent. Japan’s Nikkei stock index ended 1 percent higher, while Australian shares gained 0.1 percent.

“All eyes will be on the ECB,” said Morgan Stanley FX strategist Hans Redeker. “It may revise its growth projections lower but continue to prepare the markets for allowing QE to end.”

Futures on the S&P 500 initially rose after news broke that Chinese importers have bought U.S. soybeans, though they since hit an air pocket and dropped after US traders got to their desks and after PBOC Governor Yi Gang warned that China’s economy faces rising downward pressure. And since the market is entirely controlled by algos, spoos hit yesterday’s lows before rebounding.

Investor optimism was boosted on Wednesday after China resumed purchases of American soybeans and reiterated its officials were in close contact with U.S. counterparts on negotiating details of a broader deal, while considering revising the controversial “Made in China 2025” strategy. Still, worries for global relations remain after China detained a second citizen of Canada for questioning, further heightening tensions between those two countries. Also on Wednesday, Trump administration officials signaled that Beijing will have to do more to end the tariff war.

Yoshinori Shigemi, a global market strategist at JPMorgan Asset Management, cautioned against reading too much into trade headlines: “U.S.-China trade negotiations are subject to very high uncertainty. So lots of headlines come and go, and markets come and go also,” he said. “We have to see the evolution of this negotiation.”

US Treasuries popped higher as NBC suggested that Trump is increasingly concerned about impeachment, while in Europe Italy’s BTPs resume their upward trend, breaking through 126.00 after PM Conte confirmed that Italy’s proposed budget deficit has been cut to just the laughably precise 2.04% in Italy’s latest concession to the European Commission.

Two-year Italian bond yields tumbled to 0.51 percent which took them back to where they were before a late May eruption of tensions triggered the worst day for short-term Italian debt in 25 years. Italy’s five-year and 10-year government bond yields dropped to their lowest level in 2 1/2 months and the closely watched Italy/Germany 10-year bond yield spread improved to its tightest since the start of October.

“I think the momentum can carry on in the near term as we have a number of supportive factors for Italian debt beyond just the hopes the budget deal can be reached,” said Commerzbank rates strategist Christoph Rieger.

The euro was steady as the ECB was said to be lowering its inflation forecast for 2019 in an outlook due Thursday, while the dollar was little changed. The pound added to its advance after May survived an attempted ouster, although little has changed on the ongoing Brexit impasse. The Norwegian krone was the biggest gainer versus the dollar as the central bank maintained its key rate but said it sees a hike “most likely” in March 2019. The yen weakened against all of its major peers as demand for haven assets waned amid signs of a further thaw in U.S.-China trade ties.

On Brexit UK Prime Minister May was heading to an EU summit in Brussels following her confidence vote win to try and get some additional concessions on the controversial Irish border aspect of the agreement to placate rebels within her own party and Ulster unionist allies. Markets reckon May’s continued premiership for now makes a ‘no deal’ Brexit less likely at the margins and her survival takes at least some of the immediate headline risk out of the market – even if the Brexit impasse is really no clearer.

Elsewhere, WTI oil slipped below $51 a barrel as a smaller-than-expected decline in U.S. crude stockpiles renewed fears a global glut. In terms of recent newsflow, the latest IEA’s monthly report saw the agency cut non-OPEC oil supply growth forecasts by 415,000 BPD to 1.5mln BPD vs. 2.4mln BPD in 2018. The IEA also left global oil demand growth unchanged at 1.3mln BPD and 1.4mln BPD for 2018 and 2019 respectively. This follows yesterday’s monthly OPEC report where demand estimates were left unchanged. Gold is trading flat within a slim USD 2/oz range, as the dollar steadies with the DXY unchanged on the day. Base metals continue to see support after yesterday’s news that China are preparing to increase access for overseas companies with sentiment also bolstered this morning after the Chinese Commerce Ministry stated that they would welcome a US trade delegation visit.

Market Snapshot

• S&P 500 futures down 0.1% to 2,653.5.50
• STOXX Europe 600 down 0.2% to 349.21
• MXAP up 0.6% to 151.37
• MXAPJ up 0.8% to 488.58
• Nikkei up 1% to 21,816.19
• Topix up 0.6% to 1,616.65
• Hang Seng Index up 1.3% to 26,524.35
• Shanghai Composite up 1.2% to 2,634.05
• Sensex up 0.3% to 35,901.53
• Australia S&P/ASX 200 up 0.1% to 5,661.61
• Kospi up 0.6% to 2,095.55
• German 10Y yield unchanged at 0.28%
• Euro up 0.09% to $1.1379
• Italian 10Y yield fell 11.9 bps to 2.637%
• Spanish 10Y yield fell 0.8 bps to 1.421%
• Brent futures down 0.6% to $59.79/bbl
• Gold spot little changed at $1,245.01
• U.S. Dollar Index down 0.1% to 96.96

Top Overnight News from BBG:

• The European Central Bank is set to lower its inflation forecast for 2019 when it publishes an updated outlook on Thursday, according to people familiar with the matter
• Theresa May heads for Brussels Thursday to plead for a lifeline after her Brexit plans provoked a revolt from her Conservative Party. “I will be seeking legal and political assurances that will assuage the concern that Members of Parliament have” on the backstop, May said
• EU27 leaders will affirm after dinner at their meeting in Brussels that the EU stands by the withdrawal agreement “and intends to proceed with its ratification,” Politico reported, citing draft summit conclusions
• Mario Draghi is about to end an era by halting the European Central Bank’s flagship stimulus program even with an economic outlook that is murky at best
• China is considering plans to delay some targets in its strategy to dominate high-end technologies as it tries to ease trade tensions with America. Beijing may postpone some aspects of its ambitious industrial program by a decade to 2035, according to people familiar with the matter
• Chinese importers have purchased 1.5m to 2m metric tons of American soy over the past 24 hours, the U.S. Soybean Export Council said, citing industry sources
• President Recep Tayyip Erdogan put Turkey on course for another clash with the U.S. by threatening to start a military operation within a few days targeting America’s Kurdish allies in northeastern Syria
• Italian Prime Minister Giuseppe Conte proposed to cut the deficit target to 2.04% of output for next year in a significant concession to the European Commission
• Global funds snapped up a record amount of Japanese bonds last week in a trend that threatens to complicate the central bank’s yield-curve-control policy

Asian equity markets traded positively as the region followed suit to the gains on Wall St amid trade-related hopes after news of further potential concessions by China. As such, ASX 200 (+0.1%) and Nikkei 225 (+1.0%) were higher but with gains in Australia capped by losses in the telecoms sector after the competition regulator expressed preliminary concerns regarding proposed TPG Telecom – Vodafone Hutchison Australia merger which resulted to a near-17% drop in TPG shares, while property-related weakness also restricted upside. Hang Seng (+1.3%) and Shanghai Comp. (+1.4%) were lifted amid the encouraging trade-related developments with China preparing to increase access for overseas companies and is working to replace its Made in China 2025 plan with one that tones down its bid to dominate manufacturing, while Chinese importers have also resumed purchases of US soybeans and are said to purchase as much as 2mln tons of US soybeans vs. earlier reports of 500k tons. Finally, 10yr JGBs traded lacklustre amid gains in stocks and similar subdued price action in T-notes, with a mixed 5yr auction result adding to the drab mood.

Top Asian News

• Philippines Puts Rate Hikes on Pause as Inflation Eases
• Nissan Said to Be Repatriating Cash as Renault Tensions Brew
• Air China Is Said to Have Held Talks to Buy HNA’s Airlines
• Qinghai Provincial Says in Talks With SOEs on Restructuring

Major European Indices are mixed with the FTSE MIB (+1.0%) outperforming due to the indices banks outperforming on Italian PM Conte stating the nations deficit goal is now 2.04%; while the EC comments that good progress has been made on this. FTSE 100 (U/C) is trading flat, with Associated British Foods (-0.6%) and 3I group (-2.1%) trading ex-dividends towards the bottom of the index.  At the top of the index are TUI (+5.0%) expecting 10% underlying earnings growth at constant currencies for 2019. In terms of other notable movers G4S (+9.0%) are reviewing separation options for their cash solution business and Sainsbury’s (+1.3%) are up as they are challenging a refusal for additional time by the regulator regarding their merger with Asda. Sectors are broadly in the red with some underperformance seen in Energy while Utilities are the outperforming sector.

Top European News

• ECB Is Said to Lower 2019 Inflation Forecast as Bond-Buying Ends
• Italy Offers 2.04% Budget Deficit Target in EU Peace Gesture
• France’s Yellow Vests Are Starting to Enjoy the Radical Life
• Ukraine’s Renewed Privatization Drive Falls at First Hurdle
• SNB Sees Downside Risks as It Keeps Crisis Policy Settings

In currencies, GBP, EUR – Sterling the major G10 outperformer in the aftermath of PM May’s confidence vote victory last night, with some support also provided by the a draft document including the possibility that the EU are to look into giving more backstop assurances. As such cable remains firmly above 1.2600, albeit off highs of 1.2685 with large options around 1.2650-60 (1.2bln) perhaps hampering further attempts towards 1.2700. Meanwhile, the EUR also feels some benefit from the softer dollar, but is lagging vs. the Pound as EUR/GBP slips below 0.9000 ahead of the ECB policy decision. Note: please refer to the research suite for a full preview.

• NOK, CHF – Staying with the Central Bank theme, two out of the four end of year meetings have already passed and the Norwegian Crown strengthened in light of the Norges Bank’s current assessment reaffirming that rates will “most likely” be raised in March 2019. This, alongside upgrades to core CPI pulled EUR/NOK to lows of 9.7071 (vs. high of 9.7531).  Conversely, the CHF was largely docile in wake of the SNB keeping its key rate and corridor unchanged, as expected. The Swiss Central Bank also maintained that the Franc is “highly valued” alongside reiterating its preparedness to intervene if required and utilise the balance sheet to react in the event of shocks. Note, SNB Head Jordan stressed the risk of major and sudden exchange rate movements which would significantly alter monetary conditions. As such EUR/CHF remains within a the bottom of a 1.1301-1.1281 range.
• AUD, NZD – The high-beta currencies continue to prosper in the more positive US-China trade environment, with the with AUD/USD building on gains above 0.7200 to just shy of 0.7250 at one stage, but also wary of big option interest at 0.7200 (1.3bln). Meanwhile NZD/USD remains sub-0.6900, albeit near the top of a 0.6880-42 range despite the downward revisions in the New Zealand HY economic and fiscal updates.
• JPY – Rangebound trade for the Yen ahead of tonight’s Tankan Survey release with USD/JPY hovering sub-113.50 (with resistance around the figure). In terms of technical, a key fib level sits at 113.61, with 750mln between 113.60-65. In terms of noteworthy option expiries to the downside, 113.00-10 (1.1bln) and 113.30-40 (1bln)
• TRY – Back to Central Banks, CBRT left its key one-week repo on hold as widely expected and maintained a tightened bias until the inflation outlook displays a significant improvement, though the Bank did acknowledge the recent sub-forecast CPI release, along with import prices and domestic demand condition. As such USD/TRY fell to lows just shy of 5.3000 vs. highs of 5.3837

In commodities, Brent (-0.3%) and WTI (-0.4%) are down on the session in a continuation of yesterday’s price action. In terms of recent newsflow, the latest IEA’s monthly report saw the agency cut non-OPEC oil supply growth forecasts by 415,000 BPD to 1.5mln BPD vs. 2.4mln BPD in 2018. The IEA also left global oil demand growth unchanged at 1.3mln BPD and 1.4mln BPD for 2018 and 2019 respectively. This follows yesterday’s monthly OPEC report where demand estimates were left unchanged. Whereas, non-OPEC oil supply in 2018 is forecast to grow by 2.5mln BPD, which was an upward revision of 190k BPD; with this in mind, some suggest that OPEC will need to make further cuts over the second half of 2019. Gold is trading flat within a slim USD 2/oz range, as the dollar steadies with the DXY unchanged on the day. Base metals continue to see support after yesterday’s news that China are preparing to increase access for overseas companies with sentiment also bolstered this morning after the Chinese Commerce Ministry stated that they would welcome a US trade delegation visit. Copper prices have hit a 1-week high on these trade developments. Separately, steel prices have risen on a potential boost to demand arising from expectations that China are to launch more infrastructure products next year.

US Event Calendar

• 8:30am: Import Price Index MoM, est. -1.0%, prior 0.5%; YoY, est. 1.3%, prior 3.5%
• 8:30am: Export Price Index MoM, est. -0.3%, prior 0.4%; YoY, prior 3.1%
• 8:30am: Initial Jobless Claims, est. 226,495, prior 231,000; Continuing Claims, est. 1.65m, prior 1.63m
• 9:45am: Bloomberg Consumer Comfort, prior 60.3
• 2pm: Monthly Budget Statement, est. $199.0b deficit, prior $100.5b deficit

 

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Italian bond yields moved lower for a second day to touch their lowest level since Sept. 27 while Italian bank stocks lead the country’s benchmark index higher after Italian Prime Minister Giuseppe Conti said that the government would cut its deficit projection in a new version of its budget, confirming that the Italians have offered a concession to the EU amid a tense standoff that recently prompted the bloc’s leadership to threaten its third largest economy with billions of euros in fines.

Though it’s still unclear whether Europe would accept the revised figure of 2.04% (down from 2.4%), at least one senior official – Commissioner Pierre Moscovici – told French lawmakers on Thursday that “constructive talks” were ongoing with Italy. Though conflicting reports have abounded earlier this week, it appears that Conti, Deputy Prime Ministers Matteo Salvini and Luigi di Maio (the two populist party chieftans who are effectively running the country) have agreed on the 2% figure.

Cutting against the populists’ claims that any budget-deficit reduction must leave its welfare promises untouched (claims that, from the beginning, sounded somewhat suspect given the magnitude of the cuts), one minister said Thursday that cutting “a few billion” euros from its key reforms would require Italy to roll back its plans to cut the retirement age and introduce a “citizens income”.

Italy’s government will cut “a few billion” euros from its two key reforms in order to hit the new deficit target it proposed to the European Commission, deputy industry minister Dario Galli said on Thursday.

The ruling coalition on Wednesday offered to lower its deficit target for next year to 2.04% of gross domestic product from a previous 2.4% to avoid disciplinary action from the EU.

“A few billions (in savings) compared to the original theoretical forecasts will come from the realistic implementation of the (government’s) most relevant measures from a political point of view,” Galli told La7 broadcaster, referring to income support and the introduction of a lower retirement age.

Speaking with reporters Wednesday night, Conti insisted that the EU would seriously consider Italy’s “serious” offer.

“We made a serious and reasonable offer,” Conti said.

However, according to one anonymous government source, negotiations with Brussels are ongoing (per the Guardian). 

Newspaper La Stampa cited an EU “source” as saying that there is “still a gap to bridge, hopefully we can do it with the work that will continue in the coming days.”

The yield on the Italian 10-year bond dropped below 3% on Wednesday, leaving it lower than the 10-year Treasury yield. The spread between BTPs and bunds has fallen to its lowest level in 2 months, sliding as low as 260.65bps this morning.

Yields could move higher still if the ECB makes good on expectations that it will announce the end of three-and-a-half years of bond buying, though dovish policy guidance could send spark a reversal.

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Authored by Tom Luongo,

When an event grabs headlines like the protests in France have I temper my reactions to it.  I didn’t give the Yellow Vest protests much thought at first wanting to see where they would lead.

Protests like this and even bigger ones like Catalonian independence are invariably betrayed by the European political establishment.  They become an excuse to move towards tighter control — more cops, more surveillance, crackdowns on free speech, etc. 

So, sometimes it’s hard to separate the manufactured reality show from the spontaneous uprising of human frustration.

But after the past two weekends of violent protests, after the French government backed down on the new diesel tax which was the inciting incident of this story, it’s safe to say this is real and there is real fear brewing among the political elite of Europe.

As Rev. Steve Turley points out in this video, the media across Europe and the U.S. are scared of where this leads.

A return of national sovereignty across Europe is no longer coming.  I think it’s here.  This can no longer be stage-managed as a relief valve of the massive discontent at neoliberal policies rammed down Europeans’ throats as it has in the past.

Something far more significant is here.  They can’t cordon off this movement in France and use it to demonize the leadership and, by extension, the people.

It’s jumped borders.  It’s part of the zeitgeist now.

No matter how many times rags like The Guardian, Der Spiegel and Politico call these people ‘far-right’ or ‘alt-right’ and link them to Nazism it doesn’t stop them because the protestors don’t see themselves that way.  

And well they shouldn’t because they aren’t. 

Macron made numerous mistakes in handling this protests.  But the biggest one was opening up his conversation with the French people with the same, tired insults used in the past to smear them and sow division.

Have they learned nothing in the past three years? 

Brexit was not a fluke.

Trump was not a fluke. 

Salvini isn’t a fluke. 

Orban isn’t a fluke.  

France is not a fluke.

These elections represent gut level revulsion to the path the political and economic discourse is on.  And crying Nazi wolf too many times eventually gets you eaten.

These people are sick of the corruption and demand results, not words.  Not campaign speeches, but results. 

And if these men don’t deliver quickly they will be on a short leash.  A very short one in Macron’s case.  Because it isn’t like 35% of France wasn’t willing to turn hard away from the status quo last year and vote for Marine Le Pen.

Macron was sold as the outsider, the reformer, who wasn’t in office a week before he began betraying the people who voted for him.  And now he’s stuck.

The media turned against him quickly because they know he is done.  Their job now will be to prep the narrative to puff up his replacement.

Kicking the can down the road means replacing the old boss with a new boss who is also just another globalist, neoliberal shill.

It’s what’s happening in Germany as Angela Merkel passes the torch of the CDU to a woman even more on board with Merkel’s agenda than Merkel was.

Theresa May’s attempted cynical betrayal of Brexit could actually fall apart as parliament looks ready to *gasp* do its job.

We’ve become used to France being the epicenter of nearly all the bad ideas coming out of Europe for decades.  But, that may be changing rapidly for the better.  

The villain always looks unbeatable when the second act closes and yet, more often than not, the heroes eventually prevail.  The French people are ready for something different.  They’ve donned vests and gas masks, picked up live grenades and thrown the crumbs Macron has thrown them back in his smug face.

Now the question is, what comes next?  Because political unrest leads to financial unrest really quickly and the market hasn’t even begun pricing France into Europe’s evolving troubles.

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