Tag: news

With fears that the surge in anti-establishment parties in Italy could result in another Euroskeptic government, this time affecting Europe’s 4th largest economy and reincarnating the specter of “Italeave”, suddenly Ray Dalio’s bearish bet on Europe, which as of a month ago amounted to $22 billion…

… makes much more sense.

In which case one wonders if the manager of the world’s largest hedge fund is also starting to aggressively short the US, following his publication moments ago of a LinkedIn blog post in which he warns that a “US-China trade war would be a tragedy” noting that while good deals are to be had for both countries, “a trade war has the risk of tit-for-tat escalations that could have very harmful trade and capital flow implications for both countries and for the world.”

Needless to say, Dalio is clearly conflicted, and is motivated in preserving the status quo with Beijing due to his extensive cross-holdings in China. Overnight the SCMP published “The US billionaire investor treated like a rock star in China …” in which it wrote the following:

US billionaire investor Ray Dalio has attracted massive publicity over the past week in China with a gala event in his name in Beijing, an interview with state television and lines from his latest book widely shared on social media. The popularity of Dalio comes after four decades of links to China’s economy.

He first set foot on Chinese soil in 1984 when he was invited by the Chinese state conglomerate Citic, to teach China – then a relative economic Communist backwater eager to learn from market economies – how financial markets work.

The 68-year-old American billionaire, whose fund now manages about US$160 billion in assets, took to the stage like a rock star on Tuesday, addressing hundreds of Chinese financial professionals and researchers in a packed room at the Grand Hyatt Beijing. His speech was live-streamed on a number of Chinese media platforms.

A group of China’s most renowned economists – including Zhu Min, a former deputy central bank governor, and Qian Yingyi, dean of the school of economics and management at Tsinghua University – showered praise on Dalio and his ideas.

Which is why his main hope is that Trump is, in typical style, exaggerating: “I think and hope that both sides know this, and I believe that what is happening now is more for political show than for real threatening.” The reason for this is that “the actual impacts of the tariffs that have been announced on the US-China trade balance will be very small.”

Still, “if tariffs are imposed as indicated, I would hope and expect the Chinese response to be small and symbolic so that both sides will have rattled their sabers without actually inflicting much harm.”

However, Dalio concludes that “what will come after that will be more important. I wouldn’t expect it to amount to much anytime soon. If on the other hand we see an escalating series of tit for tats, then we should worry.“

“We”… maybe. Bridgewater, on the other hand, certainly as a result of the hedge fund’s prevailing bullish bet on the global economic recovery. Unless, just like in the case of Europe, Dalio has been quietly building up a substantial short bet in preparation for just this contingency.

* * *

Dalio’s full note below (source link):

A US-China Trade War Would Be a Tragedy

The markets’ reactions to newly imposed tariffs and, more importantly, the possibility of a US-China trade war convey appropriate tip-of-the-iceberg concerns of what a trade war would mean for the US, China, and world economies and markets. To me, these concerns are reminiscent of the markets’ first reactions to the possibility of a military war with North Korea—i.e., the seemingly aggressive posture of Donald Trump conjures up pictures of war that are very scary, so the markets react, but that doesn’t mean that such a war is likely (at least in the near term).

While I’m not a geopolitical analyst, here’s my thinking based on the time I’ve spent in both the US and China. Take it with a grain of salt.

The Chinese way of negotiating is more through harmony than through confrontation, until they are pushed to have a confrontation, at which time they become fierce enemies. They are more long-term and strategic than Americans, who are more short-term and confrontational, so how they approach their conflicts is different. The Chinese approach to conflict is more like playing Go without direct attack and the American approach is more like playing chess with direct attack. The Chinese prefer to negotiate by finding those things that the people they are negotiating with really want and that the Chinese are comfortable giving up, in exchange for those people they are negotiating with doing the same. Because there are now many such things that can be exchanged to help both parties (e.g., opening the financial sector in China, Chinese investment in the US, agricultural product imports to China, etc.), there is plenty of room for there to be big win-wins.

For these reasons, it’s in the Trump administration’s interests to make clear what it wants most and, if they can’t do that, to not be aggressive until they figure out what beneficial exchanges are. Of course, trade is extremely complex because there are all sorts of interconnections globally, so being clear without adequate time and exchanges of thinking isn’t easy.

However, as important as the real trade issues is politics, which is especially important at this very political moment in both countries (i.e., ahead of “elections”). Politics can make politicians act tougher than they should be if they were operating solely in their country’s best interests because looking tough with a foreign enemy builds domestic support. Politically for Donald Trump, two of his three biggest strongman promises were 1) to build the wall with Mexico and 2) to reduce the trade deficit with China, by getting tough with them both. Xi Jinping has similarly made commitments to be strong in dealing with adversaries, including the US.

For these reasons, it seems to me that good deals are to be had for both countries, while a trade war has the risk of tit-for-tat escalations that could have very harmful trade and capital flow implications for both countries and for the world. At the same time, I think and hope that both sides know this, and I believe that what is happening now is more for political show than for real threatening. The actual impacts of the tariffs that have been announced on the US-China trade balance will be very small. If tariffs are imposed as indicated, I would hope and expect the Chinese response to be small and symbolic so that both sides will have rattled their sabers without actually inflicting much harm. What will come after that will be more important. I wouldn’t expect it to amount to much anytime soon. If on the other hand we see an escalating series of tit for tats, then we should worry.

 

via Zero Hedge http://ift.tt/2Fh9PDh Tyler Durden

In an unusual step, a US National Security panel that monitors foreign M&A has ordered Qualcomm to delay its March 6 shareholder meeting to give the panel more time to investigate a takeover bid by Broadcom.

As Reuters reports, the Committee on Foreign Investment in the US (CFIUS), which has the power to stop deals that could harm national security, ordered the delay after a request from GOP Senate No. 2 John Cornyn, who asked that Broadcom’s proposal be examined on national security grounds.

Representatives from CFIUS, which Reuters describes as “an opaque, interagency panel” met last month with Qualcomm officials to discuss the deal, which Qualcomm has actively resisted, even as Broadcom raised its offer to $82 a share last month. CFIUS has the power to stop foreign companies from purchasing US firms – though Broadcom recently announced it would redomicile in the US, in part to help increase the chances that the deal gets done. The company plans to complete a move of its headquarters from Singapore back to the United States by mid-May to remove a roadblock to the proposed deal, Reuters reported on Friday.

CFIUS asked Qualcomm to delay the meeting for 30 days. However, the company said last week it had no intentions of delaying the meeting, and what happens next is still unclear.

Broadcom has six nominees for Qualcomm’s board who are up for a vote at the meeting. Qualcomm had not disclosed any approach to CFIUS in meetings between the two sides over the past month.

Broadcom accused Qualcomm of masterminding the interference by the regulator, even as Qualcomm has sought to convince its shareholders that it is open to a deal, provided it’s done at the right price.

“This can only be seen as an intentional lack of disclosure – both to Broadcom and to its own stockholders,” the Singapore-based chipmaker said in a statement.

* * *

Depending on your level of familiarity with US trade policy, it’s possible you may have heard of the US Committee on Foreign Investment in the United States – an agency that has risen in clout and stature in recent administrations – and especially so during the Trump era, as TechCrunch explained in a post published last night.

As TC explains, not only is Qualcomm the largest chip-maker in the US, it’s also the only domestic chip-maker capable of competing in the race for 5G – something the Trump administration has labeled a national security priority.

Majority Senate Whip John Cornyn is in charge of Republicans’ efforts to reform CFIUS. He reportedly asked Treasury Secretary Steven Mnuchin on Monday to order CFIUS to preemptively review the deal – something that isn’t exactly standard practice. In fact, if CFIUS were to unilaterally stop Broadcomm before a deal is struck, it would be a watershed moment for the once obscure CFIUS and signal a shift toward an ever more aggressive posture – considering that Broadcomm has already announced that it plans to redomicile in the US.

CFIUS’ interest in blocking deals for intellectual property-related reasons has, in recent years, chiefly focused on China. But CFIUS’ involvement at Cornyn’s behest shows the Trump administration is taking its promise to protect essential US IP extremely seriously.

via Zero Hedge http://ift.tt/2H4qNVM Tyler Durden

With the assistance of Ransquawk

Curious “What Happens Next in Italy” after this weekend’s elections which resulted in a surge for anti-establishment parties, doomed Matteo Renzi after a disastrous showing by the PD, and resulted in a hung parliament, or perhaps even a goverment of Euroskeptic parties (Five-Star and Northern League)? Then the following primer courtesy of Ransquawk  should answer most of the pressing questions.

Italy exit polls pointed to a hung parliament with anti-establishment 5-Star Movement as the largest single party and the Centre-Right seen as the leading coalition, with far-right junior coalition partner Northern League having possibly outperformed Berlusconi’s Forza Italia.

Timeline

• 23rd March: Parliament will gather for the first time
• 23rd – 30th March: Both the upper and lower houses will elect their respective Presidents and then begin consultations with President Mattarella
• 30th March – 6th April: President Mattarella will name his chosen candidate to form a government. Note, Mattarella will choose the candidate which he deems to have the best chance of forming a government, not necessarily the candidate whose party gained the largest share of the vote.
• **In the week that follows this, the candidate will either accept the mandate and both houses will hold a vote on the appointment. Alternatively, if no deal can be agreed, Italy will then move on to a fresh round of consultations.**

Potential outcomes

• Centre-right coalition (Forza Italia/Northern League): This had been touted as a likely option heading into the election. However, that’d been under the assumption that Forza Italia would outperform the Northern League. Since this has not been the case, serious questions have been raised over the possibility of this partnership being formed as Berlusconi (Forza Italia) is unlikely to want to play junior to the Northern League or back its leader Matteo Salvini as a candidate for PM. Therefore, some serious compromises would need to be made in order for this option to go-ahead.
• Grand coalition (Forza Italia/Democratic Party): Heading into the election, this had been touted as the most likely outcome. However, the below-par performance by the Democratic Party makes this option mathematically difficult without involving the support of one of the more radical parties; an unlikely outcome. Furthermore, the poor performance of the Democratic Party makes the prospect of a centre-left coalition unviable.
• Populist Government (Five Star/Northern League/Brothers of Italy): Such a coalition would depend on the willingness of the Five Star Movement which at this stage appears to be unlikely (despite a recent softening of their opposition to coalitions) given their anti-establishment views. Furthermore, despite being of the populist mould, the coalition would hold fairly wide-ranging views.
• Repeat elections: Should all of the above options fail, Italian voters would be sent back to the voting booths in an attempt to break the deadlock. During this period, the current Gentiloni government would operate on a caretaker basis but the ongoing political uncertainty would likely act as a negative to Italian assets.

* * *

Finally, here is Goldman explaining why Italy is now “more vulnerable than before the general election“, and why the vote has “negative medium-term implications for stability in the Euro Area and markets.”

Italy more vulnerable than before the general election

The official result of the Italian general election is yet to be announced. Electoral projections based on the votes counted so far (from roughly two thirds of the polling stations) suggest that no major party or electoral coalition will win an absolute majority of seats in the Lower House and Senate. These projections indicate that the centre-right coalition will win most seats in both the Lower House and Senate (about 37.1% and 37.5% of seats respectively, according to the latest numbers), with Lega (the anti-immigration, anti-European party led by Mr. Salvini) the leading party of the centre-right, ahead of Mr. Berlusconi’s Forza Italia. The Five Star Movement (the anti-establishment party led by Mr. De Maio) is projected to win the highest share of seats for an individual party in Parliament (about 32.1% and 31.9% of Lower House and Senate seats respectively).

If these projections are confirmed, the Italian elections will result in a hung parliament. We expect a bumpy and potentially long period before a new government is in place. In the meantime, the current government will remain as a caretaker. The formation of a new government will come only after a period of negotiations all among political forces.

Centre-left and centre-right parties are unlikely to have enough seats between them in the Parliament to create the weak centrist coalition government that we were expecting. Both the Partito Democratico (centre-left party led by Mr. Renzi) and Forza Italia are projected to win fewer seats than opinion polls suggested.

Given the strong showing of the Five Star Movement, the President of the Republic could grant them first the exploratory mandate to form a government. Based on current projections, an absolute majority of seats could be held, for example, by (i) the Five Star Movement in coalition with the Partito Democratico and its spin-off Free and Equal; (ii) the right-wing coalition with the support of PD; or (iii) by an anti-establishment coalition of Five Star Movement, Lega, and the right-wing party Brothers of Italy. These post-electoral alliances will not be easy to pursue and none of them would be a “friendly” outcome for markets.

A failure for any of these alliances to materialize will likely lead to a technocratic/caretaker government operating under a narrow mandate, most likely limited to a revision of the (recently approved) electoral law. It is conceivable that the Five Star Movement and the centre-right coalition parties will support an electoral law that will include a majority premium to increase their chances of winning an absolute majority in Parliament at the next election. Hence, new elections could occur quite soon, perhaps in a year’s time.

Even if a technocratic/caretaker government takes office and pursues continuity in economic policy over the near term, the Italian economy – with its longstanding weaknesses on the growth, fiscal, structural and institutional fronts – remains vulnerable, probably more so than before the election. As we discussed in a recent note (A tale of three macro fundamentals and three catalysts), the outcome of the election is unlikely to lead to a government able or willing to address the fundamental economic frailties in Italy, but rather – were some electoral promises implemented – to exacerbate them.

In our view, the inconclusive Italian vote has negative “medium-term” implications for stability in the Euro area and thus for markets. Even though the prospect of a caretaker government could diffuse tensions for now, the Italian vote suggests little appetite for economic policies that would keep Italian fiscal deficit under the 3 percent Maastricht limit, for example. This will create tension between Italy and its European partners. More generally, the composition of the new Parliament will not be seen as favourable by those partners, especially in northern Europe. We expect the northern Europeans to demand more risk reduction at the national level before further steps towards integration and risk sharing can be made across the EU. The Italian Parliament will likely oppose the former.

 

via Zero Hedge http://ift.tt/2H66pUq Tyler Durden

President Trump took a break from confirming his intent to retaliate for years of unfair-trade-deals with America’s so-called ‘allies’, to return to another topic that is as existentially-threatening to the status quo as globalists would have us believe Trump’s trade war ideals will be.

That topic is the Obama administration’s efforts to discredit Trump’s 2016 campaign, via investigation, while also failing to act on Russian efforts to influence the election.

“Why did the Obama Administration start an investigation into the Trump Campaign (with zero proof of wrongdoing) long before the Election in November?” Trump tweeted.

“Wanted to discredit so Crooked H would win. Unprecedented. Bigger than Watergate! Plus, Obama did NOTHING about Russian meddling,” he continued.

Why did the Obama Administration start an investigation into the Trump Campaign (with zero proof of wrongdoing) long before the Election in November? Wanted to discredit so Crooked H would win. Unprecedented. Bigger than Watergate! Plus, Obama did NOTHING about Russian meddling.

— Donald J. Trump (@realDonaldTrump) March 5, 2018

The tweet was a continuation of Trump’s argument that the FBI under Obama was out to get him. Trump has repeatedly said his campaign did not collude with Russia, which intelligence officials believe meddled in the election with the goal of helping Trump and hurting Clinton.

The Hill points out that Trump has previously claimed the Obama administration “did nothing” to stop Russian election interference, particularly after special counsel Robert Mueller filed charges against 13 Russian nationals and three Russian organizations for their role in the meddling. Obama issued sanctions against Russia for the meddling after U.S. intelligence officials said they had found evidence that the country had hacked U.S. groups and leaked emails in an effort to influence the 2016 vote.

Trump is not alone in his perspective, as The Hill reports that even some Democrats have acknowledged the Obama administration could have taken a more forceful stance to oppose Russian meddling. Ex-Obama administration officials, including Vice President Joe Biden, have said they did not want to take action that would make it appear they favored one candidate over the other.

via Zero Hedge http://ift.tt/2H2fxcD Tyler Durden

It’s a busy week with everything from politics (what’s next for Italy), central banks (the ECB and BOJ), China’s NPC, and US payrolls, where all eyes will be on the average hourly wages print, the catalyst that started the latest period of market volatility one month ago.

A key event will be the ECB meeting on Thursday, where most economists believe policy will remain unchanged, but expect the ECB will begin to gradually change their language by dropping the easing bias to QE, especially since any especially adverse developments from the Italian elections or German SPD vote this weekend were avoided. Given this base case, BofA’s rates strategists anticipate a selloff in Bunds and tightening of swap spreads.

Friday’s BoJ meeting should be a less exciting affair with the status quo maintained. Perhaps of most interest will be whether or not policy board member Goushi Kataoka officially puts forward his proposal for another easing.

Also look out for rates meetings in Japan, Canada and Australia, where central banks are expected to remain on hold. There are also monetary policy meetings in Turkey, Poland, Malaysia, Peru and Kazakhstan. Sovereign rating review in Kazakhstan. Real GDP release in South Africa. CPI inflation data in China, Brazil, Mexico and Turkey.

China’s National People’s Congress starts on Monday and continues through to March There are ten issues for investors to watch, summarized last night, including an amendment of the constitution, growth target, fiscal and monetary policy, property market regulation, financial regulation, personnel and institutional arrangement, industrial policies, further loosening in the birth policy, trade and opening up the service sector and finally environmental protection.

The main event, however, will be the US nonfarm payrolls print where consensus expects an unchanged 200k payrolls print in February, although BofA expects a slowdown from 200K to 160K due to sectors such as trade, transportation and warehousing, and retail trade experiencing negative payback after a strong January. They also believe the unemployment rate will remain unchanged at 4.1% for the fifth month in a row. Remember though
that it was the bumper average hourly earnings print last time out (+0.3% mom) which dominated headlines. The consensus is for another +0.3% mom in February however base effects mean that the YoY rate would hold at +2.9% if that is the case.

A visual recap of the week’s main events from BofA:

A detailed breakdown of daily events from Deutsche Bank:

• Monday: Politics should dominate the start to the week for markets. In China the National People’s Congress is due to begin in Beijing, with Premier Li due to present a draft of his work plan for 2018 (continues to March 20th). Away from politics, the main data releases on Monday will be the final February services and composite PMIs around the globe, along with Euro area retail sales for January, the Sentix investor confidence reading for March and the February ISM non-manufacturing in the US. Elsewhere BOJ Deputy Governor nominee’s confirmation hearing will begin, while the Fed’s Quarles is also due to speak. It’s worth also highlighting that EU Council President Donald Tusk may circulate draft negotiating guidelines about the future relationship between the EU and UK on Monday.
• Tuesday: Tuesday’s diary is a bit quieter by comparison. With nothing of note in Europe, the main focus should be on the US where we are due to receive January factory orders data along with final revisions to durable and capital goods orders. Over at the Fed, Dudley is due to speak at 12.30pm GMT.
• Wednesday: A relatively busy day for data releases with the highlight in the European session being the final revisions to Q4 GDP for the Euro area. UK house price data for February and France trade data will also be released. In the US the main focus should be on the February ADP employment change reading, while final Q4 revisions for nonfarm productivity and unit labour costs are due, as well as the January trade balance reading and consumer credit print. Away from the data, the Fed’s Brainard (12am GMT), Kaplan (1.30am GMT), Dudley (1pm GMT) and Bostic (1pm GMT) are all due to speak, while the Fed will also release the Beige Book. It’s worth noting that late in the evening Japan will release final revisions to Q4 GDP. Brexit will again be a focus with ambassadors from all EU countries excluding the UK due to meet to hold their first discussion on draft guidelines about the future relationship between the UK and EU.
• Thursday: The big highlight on Thursday will be the ECB meeting at 12.45pm GMT, followed by President Draghi’s press conference. In terms of data, China’s trade stats for February will most likely warrant the closest attention, while January factory orders in Germany and the latest weekly initial jobless claims reading in the US are also due.
• Friday: It should be an interesting end to the week on Friday. Overnight the main focus will be on the BoJ meeting outcome, however China’s CPI and PPI reports for February will also be closely watched. In Europe January trade data in Germany will be due along with January industrial production reports for Germany, France and the UK. Finally the week ends in the US with the February employment report including the ever important nonfarm payrolls print.  Average hourly earnings data will be just as closely watched however. Following that report, the Fed’s Rosengren and Evans will speak at 5.00pm GMT and 5.45pm GMT on monetary policy.

Finally, looking at just the US…

… the key economic releases next week are the ISM nonmanufacturing index on Monday and the employment report on Friday. There are several speaking engagements from Fed officials this week. A full breakdown from Goldman Sachs:

Monday, March 5

• 09:45 AM Markit US Services PMI, February (last 55.9): Markit US Composite PMI, February (last 55.9)
• 10:00 AM ISM non-manufacturing index, February (GS 58.9, consensus 58.8, last 59.9): We estimate the ISM non-manufacturing index edged 1.0pt lower to 58.9 in February after the index rose to a new cycle high in the prior month. Regional surveys were mixed, as the Philly Fed and Richmond Fed service sector surveys strengthened while the New York Fed and Dallas Fed surveys pulled back. On net, our non-manufacturing survey tracker moved up 0.3pt to 58.0. Overall, the report is likely to continue to point toward a solid pace of growth in the service sector.
• 01:15 PM Vice Chairman for Supervision Quarles (FOMC voter) speaks: Federal Reserve Vice Chairman for Supervision Randal Quarles will give a speech on foreign bank regulation at the Institute of International Bankers annual conference in Washington. Audience Q&A is expected.

Tuesday, March 6

• 07:30 AM New York Fed President Dudley (FOMC voter) speaks: New York Federal Reserve President Dudley will participate in a discussion on last year’s hurricanes’ impact on the local economy in St. Thomas, US Virgin Islands. Audience Q&A is expected.
• 10:00 AM Factory orders, January (GS -0.9%, consensus -1.2%, last +1.7%); Durable goods orders, January final (last -3.70%); Durable goods orders ex-transportation, January final (last -0.3%); Core capital goods orders, January final (last -0.2%); Core capital goods shipments, January final (last +0.1%): We estimate factory orders fell 0.9% in January following 1.7% increases in November and December. Core measures for durable goods were fairly weak in January, with a small pullback in core capital goods orders and a 0.1% increase in core capital goods shipments.
• 07:00 PM Federal Reserve Governor Brainard (FOMC voter) speaks: Federal Reserve Board Governor Lael Brainard will give a speech on the outlook for monetary policy and the economy at the Money Marketeers forum in New York. Audience Q&A is expected.
• 08:30 PM Dallas Fed President Kaplan (FOMC non-voter) speaks: Dallas Federal Reserve President Robert Kaplan will participate in a moderated Q&A at the CERAWeek event in Houston. Audience Q&A is expected.

Wednesday, March 7

• 08:00 AM Atlanta Fed President Bostic (FOMC voter) speaks: Atlanta Federal Reserve President Raphael Bostic will give a speech in Fort Lauderdale, FL. Audience Q&A is expected.
• 08:15 AM ADP employment report, February (GS +220k, consensus +195k, last +234k): We expect a 220k increase in ADP payroll employment in February. While we believe the ADP employment report holds limited value for forecasting the BLS’s nonfarm payrolls report, we find that large ADP surprises vs. consensus forecasts are directionally correlated with nonfarm payroll surprises.
• 08:20 AM New York Fed President Dudley (FOMC voter) speaks: New York Federal Reserve President William Dudley will give a presentation on the economic situation in Puerto Rico at an event in San Juan. Audience Q&A is expected.
• 08:30 AM Nonfarm productivity (qoq saar), Q4 final (GS -0.1%, consensus -0.1%, last -0.1%): Unit labor costs, Q4 final (GS +2.0%, consensus +2.0%, last +2.0%): We estimate non-farm productivity will remain at -0.1% in the second vintage, below the +0.75% trend achieved on average during this expansion. Similarly, we expect Q4 unit labor costs – compensation per hour divided by output per hour – to remain at +2.0% (qoq saar).
• 08:30 AM Trade balance, January (GS -$55.1bn, consensus -$55.0bn, last -$53.1bn): We expect the trade balance to widen by $2.0bn to -$55.1bn in January. The Advance Economic Indicators report last week showed the trade deficit in goods increased to its widest level since 2008.
• 02:00 PM Beige Book, March FOMC meeting period: The Fed’s Beige Book is a summary of regional anecdotes from the 12 Federal Reserve districts. The January Beige Book noted that economic activity continued to expand across all districts. Labor market conditions were widely characterized as “tight” in most districts, an apparent downgrade from the widespread labor market tightness reported in the previous three Beige Books. In the March Beige Book, we look for additional anecdotes about the state of consumption, price inflation, and wage growth.
• 03:00 PM Consumer credit, January (consensus +$19.0bn, last +$18.4bn)

Thursday, March 8

• 08:30 AM Initial jobless claims, week ended March 3 (GS 225k, consensus 220k, last 210k); Continuing jobless claims, week ended February 24 (consensus 1,919k, last 1,931k): We estimate initial jobless claims moved back up 15k to 225k in the week ended March 3, after a sizeable decline in the prior week. The trend in initial claims appears to be falling, and we look for another low reading. Continuing claims—the number of persons receiving benefits through standard programs—rebounded by 57k in the prior week.
• Friday, March 9
• 08:30 AM Nonfarm payroll employment, February (GS +210k, consensus +205k, last +200k); Private payroll employment, February (GS +200k, consensus +195k, last +196k); Average hourly earnings (mom), February (GS +0.3%, consensus +0.3%, last +0.3%); Average hourly earnings (yoy), February (GS +2.8%, consensus +2.8%, last +2.9%);  Unemployment rate, February (GS 4.0%, consensus 4.0%, last 4.1%): We estimate nonfarm payrolls rose 210k in February, compared to a consensus forecast of +205k. Our forecast reflects warmer weather and unseasonably light snow in the month of February. Following a fourth 4.1% reading in a row, we estimate the unemployment rate edged lower to 4.0% in February as the underlying job growth trend likely remained strong; labor market perceptions improved, and initial claims continued to decline. For average hourly earnings, we estimate a +0.3% month-over-month gain (with risks tilted to the downside) and +2.8% from a year ago, reflecting favorable calendar effects.
• 10:00 AM Wholesale inventories, January final (consensus +0.7%, last +0.7%)
• 12:45 PM Chicago Fed President Evans (FOMC non-voter) speaks: Chicago Federal Reserve President Evans will give a speech on economic conditions and monetary policy at an event titled “The Fed’s Return to Normalcy” at the Manhattan Institute in New York.

Source: BofA, DB, Goldman

 

 

via Zero Hedge http://ift.tt/2oQXVsL Tyler Durden

Authored by Dmitri Speck via Acting-Man.com,

Stretched to the Limit

There are good reasons to suspect that the bull market in US equities has been stretched to the limit. These include inter alia: high fundamental valuation levels, as e.g. illustrated by the Shiller P/E ratio (a.k.a. “CAPE”/ cyclically adjusted P/E); rising interest rates; and the maturity of the advance.

The end of an era – a little review of the mother of modern crash patterns, the 1929 debacle. In hindsight it is both a bit scary and sad, in light of the important caesura it represented. In many ways the roaring 20s were the last hurrah of a world in its death throes, a world that never managed to make a comeback. The massive expansion of the State that had begun in the years just before WW1 resumed in full force as soon as the post-war party on Wall Street ended. The worried crowd that formed in the streets around the NYSE in the week of the crash may well have suspected that the starting gun to profound change had just been fired. [PT]

Near the end of a bull market cycle there is always the question of when a decline will begin, and above all, how large will it be. I believe it possible that the retreat in prices will begin soon and that it could possibly even start out with a crash. I will explain in the following what led me to draw this conclusion.

2015 – 2018: the S&P 500 Index Moves Up Along a Well-Defined Trend Line

Let us first look at a chart of the S&P 500 Index over the past three years including the major  trend line formed by its rally. Prices moved up steadily along this trend line for a long time, until the advance suddenly began to steepen significantly in January of 2018. Thereafter prices plunged very rapidly in early February, followed by a swift rebound. This rebound appears to have ended earlier last week.

S&P from 2015 to 2018 with trend line providing support: for now the trend line still holds.

 

In 1987 the Market Crashes after Breaking Through a Similar Trend Line

Let us now compare the developments of recent years to a chart showing the move in the DJIA from 1986 to 1987 (focus on the general shape of the move rather than details such as percentage gains and duration). The similarities between the patterns are quite stunning.

DJIA with trend line, 1986 – 1987. After breaking through the trend line, the index quickly plummeted.

 

In 1986/87 prices also moved up along a rising trend line; there was a similar acceleration of the rally into the peak, followed by an initial test of the trend line and a rebound. After a short while the trend line was tested a second time. When it failed to hold, the crash commenced, soon culminating in a loss of almost 23% in a single trading day on October 19 1987.

Whiplash… the bull market mascot one week after the initial trend line test. [PT]

 

DJIA in 1929 – The Market also Crashes Right after Breaking a Major Trend Line

Let us ponder a chart of the DJIA from 1928 to 1929 as our next example, once again with the major trend line that supported the advance. Once again there are strong similarities to both the current situation and the pattern observed in 1987.

DJIA with support trend line, 1928 – 1929; once again the market crashed right after it tested the trend line that defined the uptrend for a second time and broke through it.

Just as happened both in 1987 and very recently, the market rose along the trend line until the rally suddenly accelerated and peaked; this was followed by sharp pullback and a first test of the trend line, a rebound, and eventually a second test that failed and immediately morphed into a crash.

A particularly dire bear market ensued in this case – by the summer of 1932, the market had lost almost 90 percent from the early September 1929 top (peak on Sept. 03 1929: 381.17 points; low on July 08 1932: 41.22 points).

 

1990 –  A Similar Pattern and Trend Line Break Precede the Crash in Japan’s Nikkei

What about non-US equity markets? One of the biggest bear markets of all time has been underway in Japan since 1990. The next chart shows the Nikkei 225 Index, also including the trend line that served as support in the final years of its bull market advance.

Nikkei 225 with major support trend line, 1987 – 1990; prices decline strongly after the trend line is broken.

Once again prices rose along a well-defined trend line, and once again the rally accelerated into the peak, after which an initial test of the trend line and a rebound followed. On the second test the Nikkei broke through the trend line and a lengthy and severe bear market began. The decline eventually reached a staggering 82% (the low was made in 2009, almost twenty years after the top).

 

When is the Crash Danger Acute?

In summary, there are very strong similarities between the chart formation that is in place right now and the patterns that could be observed at the pre-crash peaks of the DJIA in 1929 and 1987 and the Nikkei in 1990.

This raises the question whether there are also similarities in the temporal sequence of these patterns. Below is a table that shows the time periods between the most important turning points of the patterns in calendar days after the peak.

Time periods between major turning points in past crash patterns

The line designated “initial trend line test” shows how many days it took to decline from the top to the first test of the trend line. In 1929 it took 30 calendar days, but recently it took just 13 days (peak on January 26 2018, first test completed on February 08). In short, the length of time elapsing between these two turning points was quite different in these cases.

The second line designated “peak of rebound” shows the number of days from the top to the peak of the initial retracement rally. In the three historical examples of the US in 1929 and 1987 and in Japan in 1990, it was reached after 37 to 39 calendar days, i.e., these turning points were actually quite close to each other.

Currently this would be equivalent to March 02, March 03, or March 06 (at the moment it appears as though the rebound peak may have occurred on February 26. On Feb 27 the market very briefly traded above the range of Feb. 26, but closed lower).

The last line, designated “break of the trend line”, shows how many days elapsed from the peak to the second test, when the trend line was broken and the crash wave began. It is interesting that this happened between 45 to 53 calendar days after the respective bull market peaks of the three historical examples.

Important trend line acrobatics… [PT]

Once again these events happened quite close to each other; the time interval between the top and the failing retest was almost of the same length. Currently the equivalent time interval would target the time period from March 12 to March 20 for the retest.

More important than the precise number of days is the break of the trend line as such though. For instance, in the sharp decline in 1998 no such trend line break occurred, after the benchmark indexes had rallied along similar well-defined uptrend lines for a very long time;  the strong advance in prices quickly resumed.

 

The Preconditions for a Crash are in Place

Readers may well wonder why such strikingly similar price patterns tend to occur at all. There are probably psychological reasons for these similarities. At first prices rise steadily over a lengthy time period, until euphoria (and the “fear of missing out”) lead to an acceleration of the rally, producing a major peak. Such a phase could be observed in January of 2018, when   the ratio of bullish to bearish advisors according to Investors Intelligence reached an all time high.

What then happens is the opposite of what most investors expect, as prices suddenly decline sharply; initially the pullback tests the trend line successfully. This is what happened in early February this time. By the time the trend line comes into view, sentiment has pivoted completely and has become very bearish, which promptly triggers a rapid rebound. Investors quickly become optimistic again, which paves the way for the decline to resume.

In short, expectations are suddenly disappointed at every turn. The subsequent retest of the trend line is the decisive moment though. If it is broken, there is a significant danger that a crash will ensue. Its psychological function is to thoroughly destroy the faith of investors in perennially rising stock prices.

Will a crash happen this time as well? Crashes happen only very rarely after all – depending on one’s definition, one could well say that a real crash happens perhaps once every few decades. However, the factors discussed above suggest that crash probabilities must at the very least be regarded as elevated in coming weeks.

The beast is ever so slightly bruised, but far from vanquished… Crashes are indeed quite rare, and nigh impossible to predict, since sharp run-of-the-mill corrections that don’t end up violating important trend lines cannot be differentiated from those that do ahead of the event. But when a combination of several factors that are known preconditions for crash waves is in evidence, then it is definitely worth to consider the possibility. It is irrelevant that crashes are “normally” rare events. For one thing, they are less rare when the above discussed confluence of price patterns, sentiment and valuations is present; and secondly, if a low probability event harbors very large expected effects, it is definitely a good idea to actually be prepared and have a plan. Why risk ending up as yet another deer in the headlights? The landscape will already be well stocked with those if push actually comes to shove. [PT]

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Over the past year, the Wall Street Journal has published scoop after scoop about the innerworkings of Amazon.com – publishing revealing stories about everything from the company’s plans to compete with UPS and Fedex to its decision to slash prices at Whole Foods.

Today the Murdoch-controlled paper (which competes with the Bezos-owned Washington Post) published its latest bombshell: Amazon is currently in talks with several of the country’s largest banks to launch a checking-account-like product, in what appears to be Bezos’ initial foray into yet another industry, perhaps the biggest of them all: banking.

Though plans are still in their early stages, the talks with financial firms are focused on creating a product that would appeal to younger customers and those without bank accounts. Whatever its final form, the initiative “wouldn’t involve Amazon becoming a bank” WSJ sources explained, which is somewhat since that is precisely what Amazon hopes to become by offering checking accounts, with loans to follow and iBanking services and prop trading on deck next.

As a reminder, Amazon already offers an Amazon-branded Visa card that, among other benefits, allows customers to save money on purchases at Whole Foods, and on Amazon’s store, with a 5% cash back on Prime purchases. A checking account would only further entrench the Seattle-based e-commerce giant in the lives of its customers.

If the product emerges, it would further inject Amazon into the lives of those who shop on its website and at its Whole Foods grocery stores, read on its Kindles, watch its streaming video and chat with Alexa, its digital assistant. Offering a product that is similar to an own-branded bank account could help reduce fees Amazon pays to financial firms and provide it with valuable data on customers’ income and spending habits.

The company’s latest push also answers a question that bank executives have been asking with increasing worry: When will Amazon show up on their turf?

With millions of customers, troves of data, access to cheap capital and seemingly unlimited leeway from its investors to enter new businesses, Amazon is a fearsome competitor. Its more-than $700 billion market value eclipses the combined value of JPMorgan and Bank of America Corp , the two biggest U.S. banks.

In a prudent move, Amazon isn’t trying to enter banking directly – the company certainly has the cash to acquire any of the smaller US banking chains; rather, it’s hoping to recruit banking partners, allowing the company to avoid coming under the thumb of financial regulators, at least initially. As WSJ points out, Amazon’s approach shows how post-crisis financial regulations have helped entrench existing players while disadvantaging any companies, like Amazon, that would like to challenge the status quo.

Amazon clearly wants to avoid any burdensome regulation that could constrain its growth into other industries.

In banking, however, Amazon appears to be arriving more as a partner than a disrupter. Last fall, it put out a request for proposals from several banks for a hybrid-type checking account and is weighing pitches from firms including JPMorgan and Capital One Financial Corp., some of the people said. It is too early to say exactly what the product will look like, including whether it would give customers the ability to write checks, directly pay bills, or access to a nationwide ATM network.

JP Morgan, Bank of America and Capital One are all in the running for the lucrative agreement, which WSJ points out would allow the banks to keep a close eye on one of their largest customers that could someday become a potential rival. Amazon already has a good relationship with JP Morgan, which has only been strengthened by the two companies partnership, along with Warren Buffett’s Berkshire Hathaway, to launch a new health-care venture that would help provide care for the company’s employees.

For JPMorgan or Capital One, winning the assignment would be a chance to keep a potential competitor close and strengthen ties to a company that is popular among millennials, whose financial habits are changing quickly. In a recent poll of 1,000 Amazon customers conducted by LendEDU, an online student lender, 38% said they would trust Amazon to handle their finances equally as they would a traditional bank.

JPMorgan is already close to Amazon. It has issued Amazon-branded credit cards since 2002, and the two companies are teaming up along with Berkshire Hathaway Inc. on an initiative to tackle rising health care costs for their employees.

JPMorgan CEO James Dimon has said he nearly joined Amazon as an executive in the 1990s. He remains an admirer of the company’s CEO, Jeff Bezos, whom he called a “friend of the family” at an investor presentation last week.

Capital One, meanwhile, is one of the largest bank users of Amazon’s cloud-computing business.

Creating a checking account strictly for Amazon customers could help the e-commerce giant save on payments-related fees – though the arrangement would be much more complex than a simply co-branded credit card. Amazon’s push into checking comes as the company hopes to bring Amazon Pay to its brick-and-mortar rivals. A checking account product would likely create important and useful synergies for Amazon Pay.

It’s worth pointing out that Amazon’s reported push into checking comes as US consumers shoulder an ever-increasing share of debt. As the Fed pointed out two weeks ago, US consumer non-mortgage debt in the US has never been higher: As of December 31, 2017, US households had a record $1 trillion of credit card-revolving loans, a record $1.3 trillion of auto loans and a record $1.5 trillion of student loans.

To be sure, Amazon isn’t the first retailer to make a push into the financial space: Back in the early 1980s, Sears purchased brokerage Dean Witter – a deal that was dubbed “stocks and socks.” In retrospect, that particular plan did not work out.

* * *

Meanwhile, putting the news in context, Amazon is much larger than both JP Morgan and Bank of America combined, which is why a joke published on twitter by one technology reporter could prove eerily prescient…

Stories claiming Amazon to buy JPMC in 3…2…1… https://t.co/5FTtK52NjY

— James Wester (@jameswester) March 5, 2018

 

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Vatican City prosecutors have indicted the former head of the Vatican bank along with his lawyer on embezzlement charges – claiming they are responsible for losses exceeding 50 million euros ($62 million USD) on shady real estate transactions.

Former bank president Angelo Caloia, 78, and attorney Gabriele Liuzzo, 94, are charged with a series of embezzlements and self-laundering between 2001 and 2008, when the bank sold “a considerable part of its real estate assets.”

Caloia and Liuzzo allegedly sold 29 Vatican-owned buildings for below market prices to offshore companies involved in the scheme, which then flipped the properties at market rates. The suspects would pocket the difference – depositing some of the proceeds into a Rome bank account that was not registered on the IOR’s balance sheet, according to the order. 

The Vatican bank, known as the IOR, is joining a civil case against the pair alongside a criminal trial in the hopes of recovering some of the losses. From the AP:

The Vatican announced the criminal investigation into Caloia, the IOR president from 1989-2009, attorney Liuzzo and the late bank director general, Lelio Scaletti, in 2014 after bank officials discovered irregularities in IOR accounts and operations.

The suspects have denied wrongdoing.

Caloia and Liuzzo’s trial begins March 15, while Lelio Scaletti died several years ago. 

Reuters reported in December 2014 that the Vatican’s top prosecutor, Gian Piero Milano, had frozen accounts owned by the three suspects containing millions in ill-gotten gains.

Last month the Vatican’s civil tribunal found two other former bank heads liable for mismanagement due to bad investments. Paolo Cipriani and Massimo Tulli were ordered to repay the institution, and the two resigned from the bank in 2013. 

After years of malfeasance at the hands of administrators, Pope Benedict XVI ordered an internal overhaul to reform IOR operations and clean up its reputation as a “scandal-plagued off-shore tax haven” according to AP.

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