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Following yesterday’s ‘exchange-pricing-adjustment’-driven plunge in cryptocurrencies, the major coins had rebounded back to highs, erasing the flash crash. However, the last few hours have seen selling pressure accelerate with Ripple leading the plunge… with no good excuse this time.
No obvious catalyst for the selling for now.
Ethereum touched $1250 record highs overnight.
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Love or hate him, President Trump certainly can make America’s small business feel good about their future. For confirmation look no further than the latest report from the NFIB Small Business Optimism Index, according to which “small business confidence blasted off the day after the 2016 election and remained in the stratosphere for all of 2017,” making last year an all-time record setter for the NFIB Index of Small Business Optimism.
Having hit an all time high in November, the December NFIB Small Business Optimism Index fell 2.6 points to 104.9 in December, down from the 107.5 last month which the NFIB said was one of the highest in the series’ history. The drop suggested that the burst of confidence in November was more of a rebound after two months of lower readings in September and October related to uncertainties after three brutal hurricanes in late August and early September. Discounting the November index, the December reading is in line with the overall strong tone for 2017 as a whole, and reflected solid conditions.
Two of the December components posted gains, five declined, and three remained unchanged. Moving the Index moderately lower were declines in Expected Better Business Conditions (11-point decline) which tends to fluctuate sharply and Inventory Plans (8-point decline). Small business owners were bedeviled by a labor shortage in 2017 that grew more intense as optimism rose. The NFIB Jobs Report last week showed that problem reaching record levels.
Offsetting the dip in Expected Better Business Conditions was a dramatic,14-point improvement in Actual Sales for December. In November, a net negative five percent of all firms reported sales increases. A net nine percent reported higher sales in December, indicating a very strong holiday season for small business.
But the real story was not the modest slowdown in December optimism, but the monthly data in 2017: “2017 was the most remarkable year in the 45-year history of the NFIB Optimism Index,” said NFIB President and CEO Juanita Duggan. “With a massive tax cut this year, accompanied by significant regulatory relief, we expect very strong growth, millions more jobs, and higher pay for Americans.”
The Optimism Index for last month came in at 104.9, slightly lower than the near-record November report but still a historically exceptional performance. That makes 2017 the strongest year ever in the history of the survey. The average monthly Index for 2017 was 104.8. The previous record was 104.6, set in 2004.
“We’ve been doing this research for nearly half a century, longer than anyone else, and I’ve never seen anything like 2017,” said NFIB Chief Economist Bill Dunkelberg. “The 2016 election was like a dam breaking. Small business owners were waiting for better policies from Washington, suddenly they got them, and the engine of the economy roared back to life.”
“There’s a critical shortage of qualified workers and it’s becoming a real cost driver for small businesses,” said Dunkelberg. “They are raising compensation for workers in order to attract and keep good employees, but that’s a positive indicator for the overall economy.”
Driving record optimism in 2017 was the expectation of better economic policies from Washington. Suspending the regulatory assault on business and now a massive tax cut answered two of the three top concerns for small business owners, according to NFIB research.
“The lesson of 2017 is that better policies make for better economic results,” said Duggan. “The evidence is overwhelming that small business owners pay close attention to Washington, and that federal policies affect their decisions on whether to hire, whether to invest, whether to grow inventory, and whether to seek capital.”
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Overnight Media Digest
WSJ
– Apple Inc defended its record of providing parental controls and other protections for children who use its iPhones and other devices, after a pair of prominent investors, Jana Partners LLC and Calstrs, called on the tech giant to take more steps to curb the ill effects of smartphones. on.wsj.com/2qJcfHY
– Leucadia National Corp is exploring a sale of part or all of its stake in its National Beef Packing Co unit, one of the biggest U.S. meat-processing companies. on.wsj.com/2qJngcc
– President Donald Trump told a gathering of farmers Monday that he is seeking a better trade deal with Canada and Mexico that will benefit both the agricultural industry and manufacturing, but he didn’t reiterate previous warnings on withdrawing from the North American Free Trade Agreement. on.wsj.com/2qHgK5V
– AT&T Inc has walked away from a deal to sell smartphones made by Chinese electronics giant Huawei Technologies Co. on.wsj.com/2qLmDPv
– Facebook Inc and Chinese smartphone company Xiaomi Corp are teaming up to launch a virtual-reality headset in China that would give the American tech giant a toehold in a growing market where its main business has long been blocked. on.wsj.com/2qI0eCv
FT
Altice announced an organisational shake-up on Monday which would see a spin-off of its U.S. business, Altice USA, and its European operations would be restructured into three units. The telecoms and cable group also said $1.5 billion cash dividend would be paid immediately before separation with plans for a $2 billion share buyback to follow.
The European Central Bank sold its entire holding of bonds from scandal-hit South African retailer Steinhoff International last week, data showed on Monday, booking steep losses to offload debt from the company that is facing multiple probes into its accounting practices.
Britain’s financial watchdog fined a former Royal Bank of Scotland Group Plc trader Neil Danziger 250,000 pounds ($339,125.00) for his role in the Libor-rigging scandal and barred him from working in any regulated financial activity.
Facebook Inc’s Oculus is teaming up with smartphone maker Xiaomi (IPO-XMGP.HK) to launch its new mobile virtual-reality headset in China, giving the social media giant a foothold in a market where most of its internet services are barred.
NYT
– The popular electronic toymaker VTech Electronics agreed to pay $650,000 to settle charges that it had collected digital data on children without parents’ permission and failed to keep that information secure from hackers, the Federal Trade Commission said Monday. nyti.ms/2CRI6vA
– Conde Nast has picked Samantha Barry to be the next editor in chief of Glamour. She will be first person with an exclusively digital and television background to lead a Conde Nast magazine. nyti.ms/2CW6gFi
– Federal regulators on Monday rejected a proposal by Energy Secretary Rick Perry to subsidize struggling coal and nuclear plants, in a major blow to the Trump administration’s efforts to revive America’s declining coal industry. nyti.ms/2CW0UKn
Canada
THE GLOBE AND MAIL
** The federal ethics commissioner has dismissed opposition accusations that Bill Morneau benefited from insider trading, but has yet to rule on whether the finance minister was in a conflict of interest when he introduced pension legislation. tgam.ca/2AHT3tV
** Ontario is investigating reports of businesses that have allegedly violated workplace rules after the hike to the minimum wage, and the province’s Labour Minister says he’s hiring up to 175 new inspectors to enforce the law. tgam.ca/2maiK0R
** Loblaw Companies Ltd offer of free $25 gift cards to make amends for fixing bread prices over 14 years is “a misleading and deceitful public relations” campaign designed to benefit the grocer, says a complainant seeking to launch a class-action lawsuit against the retailer. tgam.ca/2qKRgnV
NATIONAL POST
** In an email, the Department of National Defence told Postmedia the decision to hold off on the $20 million military spending. Construction on the vessels, at Seaspan Shipyards in Vancouver, is supposed to start this year, but the project’s timing now appears uncertain. bit.ly/2CWTxSU
Britain
The Times
– Jaguar Land Rover has launched an attack on the government, claiming that ministers’ “demonisation of diesel” was undermining the UK’s largest carmaker. bit.ly/2mgwJmJ
– Justine Greening quit in protest at her demotion from education secretary last night as a reshuffle laid bare UK Prime Minister Theresa May’s lack of authority and revived questions over the competence of her administration. bit.ly/2mfsiJ0
The Guardian
– Britain’s manufacturers are more upbeat about the state of the global economy than at any time since 2014 and believe demand from overseas will sustain their businesses through another year of Brexit uncertainty, a survey by manufacturers’ organisation EEF and the insurance firm AIG has shown.
– UK house prices fell unexpectedly in December, their first fall in six months, according to Halifax. The average price of a home fell by 0.6 percent to 225,021 pounds ($305,353.50) in December. bit.ly/2mhhyJZ
The Telegraph
– Travel companies are hoping the UK Government will move swiftly on its planned crack down against bogus sickness claims as new data showed a fifth of holidaymakers had been approached about trying to get compensation. bit.ly/2mfUcnY
– High street retailers faced a dismal end to 2017 despite Black Friday efforts as inflation-hit households cut back on overall spending and shopped online, figures from the British Retail Consortium and KPMG have revealed. bit.ly/2mgAys5
Sky News
– Vauxhall is to cut a further 250 jobs at its plant in Cheshire as it slashes production of the Astra. The carmaker, sold to Peugeot SA owner PSA by General Motors Co last year, said the losses would be on top of 400 redundancies announced in October. bit.ly/2mgBaxT
– Bailiffs have been unleashed in the UK on almost 41,000 companies struggling to pay higher business rates since last year’s controversial revaluation, an investigation by ratings adviser Altus Group has claimed. bit.ly/2meYEDt
The Independent
– Former BHS owner Dominic Chappell failed to provide information about the firm’s pension schemes to investigators after it collapsed into administration with the loss of thousands of jobs, a UK court heard. ind.pn/2mgdrhr
– A former Royal Bank of Scotland Group Plc trader has been fined 250,000 pounds ($339,250.00) and banned from regulated trading by the City watchdog over his role in the Libor-rigging scandal. ind.pn/2mfrYJV
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Federal Reserve Bank of Atlanta President Raphael Bostic said today that he’s “comfortable continuing with a slow removal of policy accommodation,” because his main concern “is that inflation expectations risk becoming anchored below 2 percent.”
Which is ironic, since the 10-year inflation break-even rate, which reflects the yield premium on the 10-year U.S. Treasury note over the comparable Treasury inflation-protected security, topped 2% on Tuesday for the first time in more than nine months.
Just as stocks have soared in recent weeks, so WSJ notes that the measure of the bond market’s expectations for inflation crossed a key threshold in the past week, highlighting investors’ renewed economic enthusiasm.
The break-even rate hovered around 1.8% in November before gathering momentum as energy prices rose and as Congress moved forward with a plan to cut corporate taxes, which is expected to boost growth around 0.5% in 2018, according to BNP Paribas.
Investors are betting on TIPS even as inflation remains below the Fed’s target and as the central bank has embarked on a course of rate increases intended to prevent higher prices from taking root in the economy. Fed officials have signaled their intention to raise rates three times in 2018. Some economists, including those at JPMorgan Chase & Co., have said they expect the central bank to be even more aggressive in damping price pressures, predicting four increases this year.
Signs investors are concerned about higher inflation aren’t confined to the bond market. Commodities such as oil, copper and aluminum – which are key industrial materials and often serve as bellwethers for the direction of consumer prices – are also rallying. So is gold, which has historically served as a store of value in times when inflation has been a concern.
However, the industrial commodity surge appears a little overdone…
Still, WSJ reports that some investors are hesitant to ride the current trend, noting that inflation expectations have climbed before in recent years, only to fall back down again.
Given recent history, long-term investors “are all a little hesitant to say that this is the moment that inflation expectations should be breaking out,” said Dan Dektar, a portfolio manager and head of liquid markets at Amundi Pioneer.
Especially considering just how net short Treasuries everyone already is…
Perhaps the breaking of this 2% threshold is what triggered China to reverse its position – that appeared to be the catalyst for the last few months panic-buying.
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2018 rang in with a bang in the computer security world, as two serious and extensive processor vulnerabilities were discovered in early January. Last week, researchers with Google’s Project Zero and various universities and private security shops announced their troubling findings that the majority of the world’s computer chips manufactured over the past two decades had been susceptible to two exploits—named “Meltdown” and “Spectre”—for years. (Yes, that means your computer, smartphone, and tablet are affected.)
Computer programs are not supposed to be able to read certain data from other programs. Yet the Meltdown and Spectre hardware bugs could allow a malicious actor to bypass memory isolation and access “secrets stored in the memory of other running programs”—like passwords, photos, emails, communications, and personal documents.
While serious vulnerabilities affecting browsers and other software are unfortunately rather common, the Spectre and Meltdown bugs are noteworthy both for the extent of their reach and the fact that they affect the very chips that make all of our devices run. Andrea O’Sullivan explains more about these bugs and how they were found.
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Russian security forces of the Khmeimim air base and Russian Naval CSS point in the city of Tartus ,thwarted a terrorist attack “with massive application of unmanned aerial vehicles (UAVs) through the night of 5th – 6th January 2018,” according to the Russian Ministry of Defence. The attack came just two days after an Islamic faction operating in the area launched a barrage of mortar rounds at the airbase severely damaging two planes.
The Khmeimim airbase in Syria
As darkness fell, Russia air defense systems detected “13 unidentified small-size air targets at a significant distance” swarming towards the bases. Ten assault drones were fast approaching the Khmeimim air base, and another three were advancing towards the naval base. All attack drones had payloads of what appears to be mortar rounds.
Photos believed to show damage to aircraft following a previous attack on New Year’s Eve
As the drones approached both bases, Russia unleashed the Pantsir-S anti-aircraft missile and Electronic Warfare Units. Seven UAVs were destroyed by the Pantsir-S anti-aircraft missile system, and another six UAVs were hacked with radio equipment. Three of the UAVs landed in a safe area just outside the base, but the others exploded on various landing attempts. The Defense Ministry notes that the defense systems eliminated all threats with no casualties or damages.
It was the “first time that terrorists massively used unmanned combat aerial vehicles of an aircraft type that were launched from a distance of more than 50 kilometers, and operated using GPS satellite navigation coordinates,” the ministry said in a statement.
The Defense Ministry said experts are analyzing the aircraft’s flight components and bomb ordnances for clues. Flight data from the GPS indicates the UAVs could have been launched at a range of 100 kilometers (62 miles). If so, this would be the first long-range drone attack by militants in the Syrian War.
Currently, the Russian military experts are analyzing the construction, technical filling and improvised explosives of the captured UAVs. Having decoded the data recorded on the UAVs, the specialists found out the launch site. It was the first time when terrorists applied a massed drone aircraft attack launched at a range of more than 50 km using modern GPS guidance system. Technical examination of the drones showed that such attacks could have been made by terrorists at a distance of about 100 kilometers.
Further, the Defense Ministry says the extremists may have been aided by a “technologically advanced state,” as Russian specialist are now attempting to determine where the flight systems of the drones originated from.
Terrorists’ aircraft-type drones carried explosive devices with foreign detonating fuses. The Russian specialists are determining supply channels, through which terrorists had received the technologies and devices, as well as examining type and origin of explosive compounds used in the IEDs. The fact of usage of strike aircraft-type drones by terrorists is the evidence that militants have received technologies to carry out terrorist attacks using such UAVs in any country.
After Russian President Vladimir Putin ordered a partial withdraw of troops from Syria back in December, militants have been eager to gain an edge with swarming high-tech drones that have remarkable long-range capabilities. The one question that Russia, and others, are asking in this incident: who is supplying the militants with these high-tech, long-range drones?
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In an incident reminiscent of the panic surrounding the Samsung Galaxy 7, an iPhone reportedly exploded at the main Apple store in Zurich, on Bahnhofstrasse according to a report in Swiss press.
According to Blick magazine, an overheated iPhone battery exploded, burning an employee who was handling it at the time. As smoke emanated from the battery, someone inside the store called the fire department, which asked some 50 customers that were browsing in the store at the time of the incident to leave.
Apple employees reacted quickly by sprinkling sand on the overheating battery. Seven people received medical care but did not have to be hospitalized.
Specialists from the Zurich Forensic Institute examined the battery and its associated device to determine what had caused the battery to overheat.
Protection & Rescue was on site with a tank fire truck of the professional fire brigade as well as with several ambulances and an emergency vehicle. Seven people received medical care but did not have to be hospitalized.
While the report is preliminary and not much information has been released yet, if accurate, this could present a another problem for Apple, which has already been forced to defend itself against speculation and media reports that demand for iPhone is far lower than most sellside analysts expects.
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Less than four months after Jamie Dimon lashed out at bitcoin, warning that it was would “eventually blow up” because it was “worse than tulip bulbs” and that “any trader trading bitcoin” will be “fired for being stupid”, the JPMorgan CEO said he “regrets” his infamous criticism of bitcoin, in which he called the cryptocurrency a “fraud.”
In an interview with FOX Business’ Maria Bartiromo, Dimon repented, softening the comments he made in a September banking conference, saying “I regret making them.”
While Dimon said that he personally is still “not interested in the subject at all” he conceded that blockchain “is real.” Dimon also softened his tone on initial coin offerings, saying that ICOs need to be reviewed “individually”.
“The blockchain is real. You can have crypto yen and dollars and stuff like that. ICO’s you have to look at individually”, Dimon told Bartiromo.
“The bitcoin to me was always what the governments are gonna feel about bitcoin as it gets really big, and I just have a different opinion than other people. I’m not interested that much in the subject at all.”
Until today’s recantation, Dimon was one of the highest-profile bitcoin skeptics on Wall Street. His remarks in September were met with anger from many in the cryptocurrencies community, but also echoed by other top executives, including Larry Fink, chairman and chief executive of BlackRock.
Since then, the acceptance of bitcoin has moved to the institutional arena with both the cboe and CME launching bitcoin futures, while Goldman is preparing a cryptocurrency trading desk. It was only a matter of time before Dimon realized all the potential lost revenue, and rushed back in to avoid losing even more market share.
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A day after the Wall Street Journal reported that the US officials are debating whether it’d be possible to mount a limited military strike against the North without provoking a nuclear response (maybe but who’d want to risk finding out?), the North said on Tuesday that, following a session of talks with its South Korean neighbors, the isolated country would be sending a delegation of athletes, dignitaries and journalists to the Winter Games in Pyeongchang next month.
While the US has yet to issue a response, such a move will probably infuriate South Korea’s American allies. President Donald Trump and North Korean leader Kim Jong Un have been engaged in an escalating war of words since the former took office a year ago.
According to Reuters, South Korea had unilaterally banned several North Korean officials from entering the country in response to Pyongyang’s nuclear and missile tests, Seoul said if it needs to take “prior steps” to help the North Koreans visit for the Olympics, it would consider it, together with the United Nations Security Council and other relevant countries, foreign ministry spokesman Roh Kyu-deok said during a press briefing.
The agreement comes after North Korea and South Korea last week agreed to reopen a cross-border hotline that had been shuttered for two years.
As the Guardian pointed out, the agreement represents a cautious diplomatic breakthrough after months of rising tensions over Pyongyang’s nuclear weapons program.
The five-member North Korean delegation traveled to the border in a motorcade and then walked across the military demarcation line into the southern side of the truce village of Panmunjom at around 9.30 am local time, the Guardian reported. The village straddles the demilitarized zone (DMZ), the heavily armed border that has separated the two Koreas for more than six decades.
As the two sides sat down for their first face-to-face talks since December 2015, North Korean media pushed back against Trump’s claim that his tough stance on North Korea had forced it to the negotiating table. The Rodong Sinmun, the newspaper of the ruling Workers’ party, said Trump’s claim that sanctions and pressure on the regime had brought him “diplomatic success” during his first year in the White House was “ridiculous sophism”.
After a day of meetings, South Korean news agency Yonhap reported that the two delegations said in a joint statement that they would also engage in military talks, as well as talks pertaining to a whole host of inter-Korean issues. Meanwhile, they also agreed to “resolve problems” through dialogue and negotiation.
Discussions have focused on North Korean participation in the Pyeongchang Winter Games, but are also thought to have included other inter-Korean issues such as the resumption of reunions between family members who were separated at the end of the 1950-53 Korean war. South Korea has suggested holding reunions during the Lunar New Year holidays next month.
At Tuesday’s talks, the first since December 2015, Seoul also proposed inter-Korean military discussions to reduce tension on the peninsula and a reunion of family members in time for February’s Lunar New Year holiday, South Korea’s vice unification minister Chun Hae-sung said quoted by Reuters.
In the past, the Olympics have provided rare moments of unity for the two Koreas. They previously made joint entrances to Olympics opening and closing ceremonies in Sydney in 2000, Athens in 2004 and at the 2006 Winter Games in Turin.
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The global market melt up continues, with Asian and European stocks rising, sending the MSCI all-country world stocks index to another record high as Europe’s main markets shrugged off a tech wobble in Asia and instead cheered Christmas trading updates and more forecast-beating data from Germany.
The MSCI Asia Pacific Index rose 0.3 percent on optimism earnings and economic growth prospects in the region support the stocks trading near record highs. Japan’s Nikkei closed at its highest since November 1991, catching up to the previous session’s gains as markets reopened after a holiday on Monday. Most equity benchmarks in the region rose except those of South Korea, Malaysia, Indonesia and Pakistan, while Taiwan was little changed. Offsetting Japan’s euphoria, South Korea’s Kospi erased its gains and slipped 0.1 percent, dragged lower by a 3.1% drop in shares of Samsung Electronics Co. Samsung’s guidance fell short of market expectations despite a forecast for a record fourth-quarter profit, as a strong won and one-off staff bonuses offset surging DRAM prices.
European stocks likewise climbed as traders focused on strong economic data in Germany and a chaotic cabinet reshuffle in the U.K. that may bode ill for its government’s ability to navigate the next stage of Brexit talks. The Stoxx Europe 600 Index was up 0.3%, led by miners and telecommunications stocks. The U.K.’s FTSE 100 Index rises 0.4% as sterling weakens after the cabinet reshuffle. Altice NV is the Stoxx 600’s biggest gainer after the company said it will spin off its U.S. cable-television business
While stocks continue their smooth levitation day after day, there were some fireworks in FX, where first the Yen surged after the BOJ trimmed its purchases of long-dated government bonds, reducing buying of 10-to-25 year debt by 10 billion yen to 190 billion, the first cut in the sector since Dec. 28, 2016, and also scaled back purchases of bonds maturing in more than 25 years by 10 billion yen to 80 billion, stoking speculation it could start to wind down its stimulus policy this year, and resulting in a sharp move higher in the Yen against all its G-10 peers.
Investors sold the USDJPY, with bids on bank platforms hit hard by Tokyo-based leveraged accounts following the BOJ operation, according to Bloomberg. The Japanese currency rose against all of its Group-of-10 peers, while yields for government bonds advanced.
“BOJ’s operation was a trigger for yen gain as it came amid a lack of fresh factors and as people were getting cautious about buying in the 113 levels,” said Hiroshi Yanagisawa, chief analyst at FX Prime by GMO in Tokyo. “FX markets had not paid attention to BOJ last year but there may be some expectations that the situation may be changing a bit this year.”
As central banks in the U.S. and Europe start to normalize monetary policies, attention is turning to Japan to see if the BOJ will follow suit, even if inflation has yet to reach its 2 percent target. The
… followed by the PBOC announcing it was suspending its countercyclical buffer, which in turn resulted in the biggest drop in the offshore yuan since September.
Both moves took analysts by Surprise: since it adopted its yield-curve-control policy in 2016, the BoJ has occasionally tweaked its buying, but some market players seemed to take Tuesday’s move as a signal. “It shouldn’t be perceived as a monstrous signal of the end of monetary easing but it shows that even the tiniest announcement on a quiet day can have a reaction,” said Societe Generale’s global head of currency strategy Kit Juckes. “And it shows that when they start turning their ship around from this policy, the yen is going to go miles.”
Commenting on the PBOC’s move, Goldman’s MK Tang said that it would suggest that “the authorities are ready to allow the CNY to be more market-determined… The recent bout of CNY appreciation before today’s move—which had taken the currency’s strength against the CFETS basket close to the Sep ’17 peak—might also have been viewed as too rapid.”
The dollar, meanwhile, rose for the second day against most other major currencies.
The euro – which last week approached three-year highs – slipped further away from $1.20 to a 10-day low of $1.1941. That was despite the biggest increase in German industrial data since September 2009 and suggested investors were becoming more cautious after a rally that has pushed “long” euro positions to records.
“I don’t think right now levels substantially above $1.20 are justified,” Reichelt said. “I know the market is very optimistic about the euro, but if you look at the data and the central bank, the ECB (European Central Bank) is still on an expansionary path.” Nevertheless, euro zone bond yields rose, with traders also making room for new supply from three of the bloc’s best-rated countries at relatively attractive levels. The yield on the region’s benchmark, German 10-year debt, climbed to 0.44 percent, well above the mid-December level of 0.30 percent.
In geopolitical developments, a North Korea delegation head said that inter-Korean talks were expected to go well and that he hoped to achieve precious results. Furthermore, it was later reported after discussions finished, that North Korea is to send a delegation of high-ranking officials, athletes and cheering squad to the Olympics. The news comes as the WSJ reported on Monday that US Secretary of State Tillerson and Secretary of Defense Mattis are reportedly trying to hold President Trump back from striking North Korea, while National Security Adviser McMaster is in favour of a “bloody nose” attack.
In rates, US 10Y Treasuries come under pressure, with the yield curve steepening following decline in Japanese government bonds as focus turns to heavy global bond supply due this week. As a result, 10-year TSY yields rose as much as 2.4bps to 2.504%, the highest level since March.
In commodities, the focus remained on oil. U.S. crude prices hit their highest since 2015 on Tuesday amid OPEC-led production cuts and a dip in American drilling. WTI crude futures were at $62.16 a barrel at 0951 GMT – 43 cents, or 0.7 percent, above their last settlement. They earlier matched a May 2015 high of $62.56 a barrel.
Beyond equaling that 2015 high, which was a short intra-day spike, Tuesday’s high was the strongest for WTI since December, 2014, at the start of the oil market slump. “Speculators continued to increase their net long in ICE Brent … According to exchange data, speculators increased their position by 4,175 lots to leave them with a record net long of 565,459 lots,” ING bank said. Meanwhile, Brent crude futures were at $68.11 a barrel, 33 cents, or 0.5 percent, above their last close. Brent touched $68.27 last week, its highest since May 2015.
Bulletin headline summary from RanSquawk
Market Snapshot
Top Overnight News
Asian equity markets traded mostly higher as the region mirrored the tone seen in US, where all majors posted fresh record highs but the DJIA still snapped its New Year streak. ASX 200 (+0.1%) and Nikkei 225 (+0.6%) were positive in which commodity names led in Australia and the Japanese benchmark outperformed as it played catch up on return from the extended weekend. However, some of the gains in Japan were later pared on tapering concerns after the BoJ reduced its Rinban announcement for longer dated bonds. Elsewhere, KOSPI (-0.1%) was dampened after index-heavyweight Samsung Electronics missed on Q4 preliminary results, while both Hang Seng (+0.4%) and Shanghai Comp. (+0.1%) also gained despite initial cautiousness on further inaction by the PBoC which resulted to a net daily drain of CNY 130bln. Finally, 10yr JGBs were lower by about 15 ticks on concern of BoJ tapering after the Rinban announcement saw a reduction of buying in 10yr-25yr maturities to JPY 190bln from JPY 200bln, as well as the amount in 25yr+ maturities which was cut to JPY 80bln from JPY 90bln. As reported earlier, the Yuan tumbled after China announced it would suspend the counter-cyclical factor in the CNY fix. Earlier,the PBoC skipped open market operations again for the 12th day.
Top Asian News
• Richest Asian Banker Plans a Family Office But Spurns Crypto
• UBS Says Investors Won’t Make Money on Indian Stocks This Year
• Geely Auto Expects Full-Year Profit to Double as Sales Surge
• Ruyi Is Said to Lead Bidding for Swiss Luxury Brand Bally
Global European equities are trading higher across the board (Eurostoxx 50 +0.2%) with all sectors (ex-energy) in the green. Performance is relatively broad-based with some slight outperformance in material names. Focus has also been on the UK supermarket sector after the latest trading update from Morrisons (+2.6%) sent their shares to the top of the FTSE alongside the latest Kantar and Nielsen reports. Elsewhere, focus has also fallen on UK homebuilders with Persimmon shares initially supported by upbeat guidance before upside momentum then dissipated. British American Tobacco shares have been supported after stating that the impact of new US tax legislation would result in a benefit of 6% to FY 2018 EPS. A somewhat belated and limp uptick in Bunds and Gilts given the well-received German and UK supply offerings with the only slight fly in the ointment perhaps coming via the 2027 DMO average yield. The rather muted price moves suggest more supply related topside pressure looming ahead of the start of US refunding and with plenty of EU issuance still to come this week, not to mention corporate deals. US Treasuries also seem to have supply in mind with a steeper bias across the maturity curve, and the 10 year yield just crossing 2.5% again.
Top European News
In FX, USD is extending recent recovery gains to just over 92.500, with the Greenback getting a boost from reports that the PBoC is planning to suspend the counter-cyclical factor in CNY fixes, which saw USD/CNH spike to 6.51520 from 6.50340 following the earlier 6.4968 USD/CNY mid-point setting. JPY firmer and the G10 outperformer on reduced Rinban activity overnight which alongside monthly BoJ data suggests a concerted slowdown in JGB buying. USD/JPY down to 112.50 from 113.00+ at one stage, but bids around the low held and broader US Dollar gains now nudging the pair back up towards 113.00 again. EUR is still on the back foot across the board as more long positions are trimmed, with EUR/USD now under 1.1950 and eyeing stops said to be in place at 1.1925. AUD/CAD/NZD all off best levels vs their US counterpart, with AUD/USD above 0.7850 on much better than expected Aussie building approvals data overnight, but now back down under 0.7825, USD/CAD looking firmer over 1.2400 after another dip below the figure (another uptick in oil prices and solid BoC business outlook survey supporting the Loonie) and NZD/USD down around 0.7170 having almost touched 0.7200.
In the commodities complex, WTI and Brent crude prices were initially trading in close proximity to recent highs in a continuation of sentiment yesterday after expectations of a draw of 4.1mln bbls for this week’s inventory data. Furthermore, OPEC officials suggested that the Iran situation was being monitored, and output will only be raised in the event that there is a significant and sustained disruption to output. However, prices then began to be dragged lower after comments from the Iranian energy minister who claimed that OPEC does not want oil prices above USD 60/bbl. In metals markets, the recovery in the USD placed some weight on precious metals (Silver tested USD 17.00/oz to the downside) after a relatively uneventful Asia-Pac session. Elsewhere, Chinese iron ore futures were seen higher overnight as production cutbacks in China continues to sway sentiment. Iran oil minister Zanganeh says OPEC does not want oil prices above USD 60/bbl. Indian Trade Ministry official says comprehensive gold policy will likely be prepared by March and that there is also a likelihood for the recommendation of lower import tax on gold.
Looking at the day ahead, the November unemployment rate for the Eurozone came in (8.7%, Exp. 8.7%, Last 8.8%), along with Germany’s IP (3.4%, Exp. 1.9%, last -1.2%). Over in the US, there is the December NFIB small business optimism index and JOLTS job openings. Onto other events, the Fed’s Kashkari speaks at a moderated panel.
US Event Calendar
DB’s Jim Reid concludes the overnight wrap
The eyes of the holders of US equities continue to stream tears of joy at the moment, as yesterday marked the 5th up day out of 5 so far this year for the S&P (+2.77% so far). Since 1928 we’ve only seen the first 5 days of the year to be consecutively up 7 times and this is the first occurrence since 2010. When the first 5 days are up, the average price return for the year is +13.44%, with the low of +2.03% and high of 20.09%. Notably, the longest streak was in 1976 and 1987 when the S&P rose for 7 consecutive days at the start of the year.
Staying in the US, in a quiet week for data leading up to Friday’s CPI, Fed speakers grabbed the headlines yesterday. The Fed’s Bostic seemed dovish and noted “I’m comfortable continuing with a slow removal of policy accommodation”, but “I would caution that doesn’t necessarily mean as many as three or four moves per year”. On inflation, his main concern is that inflation expectations risk becoming anchored below 2% and if this happened, “it would be increasingly difficult for the Fed to hit our 2% target”. In terms of impacts from the tax cuts, he is making a “positive, but modest boost” to his near term GDP growth profile for the coming year, but is treating a more substantial breakout of tax reform related growth as a “upside risk” to his outlook.
Elsewhere, at the Inflation targeting conference, the Fed’s Rosengren said his “own view is that we should be focused on inflation range (rather than the 2% target), with flexibility to move within the range as the optimal inflation rate changes”. He added that a range of 1.5%-3% could provide flexibility and “don’t think most people are going to notice”. The former Fed governor Bernanke also noted there will be “some pretty serious discussions” on monetary policy frameworks over the next 18 months under the new Fed leadership.
Turning to the US’s 4Q17 earnings season kicking off today, our equity strategists expect the S&P’s 4Q EPS growth to rise to near a 6-year high of 14.6% (vs. 3Q: 7.8%), with earnings supported by stronger US and foreign economic growth, a weaker USD, higher oil price and a dissipation of hurricane related losses. On a sector basis, median growth is expected to be led by the energy (+138%), tech (+18.6%) and financial (+16.6%) sectors while growth from industrials is the relative laggard at 4.8%, impacted by GE. Looking to 2018, our team expect the aggregate S&P effective tax rate to fall from 27% to 19%, with all sectors to benefit but the bigger relative beneficiaries are energy, retailing and telco sectors, while the laggards are Pharma, insurance and tech companies. The new 2018 S&P target is 3,000 (c9% above current levels).
Over in Europe, our Economists have published a note posing five key questions for the Euro area in 2018. The first question is whether the euro area’s growth will reach new cyclical highs in 2018? Their answer is “possibly”, as their forecast for CY18 of 2.3% is close to the 2.3%-2.4% that they estimate for CY17, and they see the risks around their forecast as broadly balanced but skewed to the upside in early 2018. Moving on, the team expect 2018 to be a year in which market perceptions of inflation improves, albeit that normalisation may be slow, complicated by rigid inflation regimes in some countries, structural changes and the appreciation of the EUR more recently. Notably, the German wage settlements could influence such perceptions as one third of employees are up for renegotiations in 2018 (in metalwork our team expect a settlement clearly above 3%). Elsewhere, our team also pose questions on: iii) will the ECB be able to engineer a soft landing for financial conditions iv) will “integration” or “exit” be the dominant political theme and v) whether the EU27 and the UK will reach a deal in 2018. For more details, please refer to their report.
This morning in Asia, markets continue to be modestly higher. The Nikkei is up 0.53% after trading resumed post yesterday’s holiday, Hang Seng is up 0.24% while Kospi pared early gains to be down 0.51% as we type. Elsewhere, the North and South Korean delegates have started their first high level talks time since 2015, with discussion topics such as North Korea joining next month’s Winter Olympics.
Now recapping market performance from yesterday. The S&P (+0.17%) and Nasdaq (+0.29%) recovered from earlier losses and edged higher for the fifth consecutive day, while the Dow dipped 0.05%. Within the S&P, modest gains in the utilities and real estate sectors were partly offset by losses in healthcare and financials. European markets were broadly higher, with the Stoxx (+0.27%) and DAX (+0.36%) up modestly, while the FTSE (-0.36%) was weighed down by profit downgrades in the tech and healthcare space.
In government bonds, core 10y European bond yields fell c1bp (Bunds & OATs -0.7bp; Gilts -0.8bp) while treasuries were broadly flat. Peripherals outperformed with Portugal’s 10y yields down 6.7bp, in part due to a reversal of weakness back in the end of 2017. Turning to currencies, the US dollar index gained for the second consecutive day (+0.44%), while Sterling and the Euro weakened 0.04% and 0.52% respectively. In commodities, WTI oil rebounded 0.47% to $61.73/bbl.
Elsewhere, precious metals (Gold +0.06%; Silver -0.55%) and other base metals were mixed, but little changed (Copper +0.04%; Zinc +0.79%; Aluminium -0.47%). Away from markets, an unnamed White House official has told Bloomberg that President Trump is close to making a decision on who to nominate to be the next Vice Chairman for the Fed. Elsewhere, Politico has reported that President Trump’s administration is preparing to unveil an aggressive trade crackdown in the coming weeks that is likely to include new tariffs aimed at countering China and other economic competitors’ alleged unfair trade practices.
In the UK, PM May has reshuffled her cabinet with key posts such as Foreign Secretary Johnson, Brexit Secretary Davis and Chancellor Philip unchanged, but the Education Secretary Justine Greening has quit after the PM has offered her an alternative role – the work and pensions portfolio. Health minister Hunt also persuaded her to change her mind about being moved from his position. Mrs May seemed to start the year with a little bit of momentum but most of the British press has seen yesterday’s reshuffle as shambolic and reflective of her weak political position.
Elsewhere the latest ECB holdings were released yesterday, but there was little relevant info as it only contained a few days of secondary purchases data. Net CSPP purchases last week were €0.3bn and Net PSPP purchases €2.5bn. This left the CSPP/PSPP ratio at 12.4% last week (vs. 11.5% before QE was trimmed in April 2017). We expect more meaningful data from next week when we get the first clues to the PSPP/CSPP taper split post January’s QE cut.
Before we take a look at today’s calendar, we wrap up with other data releases from yesterday. In the US, the November consumer credit data rose the most in 16 years, with total credit up $28.0bln (vs. $18bln expected), mainly driven by strong credit card spending which rose the most in 12 months. The confidence indicators for the Eurozone were broadly above market. The December economic confidence index was above expectations at 116 (vs. 114.8) and to the highest since October 2000, with the rise due to an improvement in the outlook for industry and services. The January Sentix investor confidence was also above market at 32.9 (vs. 31.3 expected) – slightly below the 10 year high back in November. Elsewhere, the final reading of consumer confidence was in line at 0.5 while the November retail sales print was above expectations at 2.8% yoy (vs 2.4%). Over in Germany, November factor orders fell 0.4% mom (vs. 0% expected), but prior revisions meant the annual growth remained solid at 8.7% yoy (vs 7.8% expected). In the UK, the December Halifax house price index fell for the first time in six months (-0.6% mom vs. +0.2% expected), so annual growth for the past quarter slowed to 2.7% yoy (vs 3.3% expected).
Looking at the day ahead, the November unemployment rate for the Eurozone and Italy are due, along with Germany’s IP. Then the trade and current account balance stats for France and Germany are also due. Over in the US, there is the December NFIB small business optimism index and JOLTS job openings. Onto other events, the Fed’s Kashkari speaks at a moderated panel.
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