Tag: news

Remember yesterday when The Trump administration confidently proclaimed victory in the US-China trade wars, explaining that they believe the threats are working.

“China basically surrendered [with the Xi speech] and he [Trump] is probably going to put even more pressure on them before he accepts whatever their bottom line becomes,” said a person familiar with White House views.

Administration officials argue the Chinese are already bending to the U.S.’s will:

“It was the most conciliatory thing we’ve heard since the whole discussion began,” said a White House official. “Up to then, it was mean, nasty, cruel name-calling.”

China vehemently denied this acquiescence and this morning have struck back, albeit subtley.

The Wall Street Journal reports that unidentified people familiar with the matter say that China is holding up deal reviews that could clear the way for U.S. companies Qualcomm and Bain Capital to make multi billion dollar acquisition of semiconductor companies.

The delay could end up quashing Qualcomm’s planned $44 billion acquisition of Dutch semiconductor company NXP Semiconductors NV, a deal widely seen as critical to Qualcomm’s future, according to one person familiar with the matter.

And both companies’ share prices are sliding…

WSJ notes that China is the only country that has not yet signed off on that deal, along with Toshiba Corp.’splanned $19 billion sale of its chip unit to a consortium led by U.S. private-equity firm Bain Capital. Neither deal is likely to move forward amid the looming trade war, the people said.

“The review process is basically on pause because of the trade tension,” a senior Toshiba official said. “We’ve been afraid of that.”

Stalling these deals is another possible leverage point for China as it seeks to fend off the Trump’s administration’s plans to impose tariffs on up to $150 billion in Chinese goods in response to what it says are unfair trade practices.

While markets had seemed ready to shrug off any looming trade war – which The Fed’s Kashkari called “enormously bad” for the US economy – it seems we are not even out of the first inning in this fight…

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One month after the BLS reported that according to last month’s JOLTS survey, the number of job openings soared from 5.667 million, a six-month low which spooked analysts into wondering if the labor market is peaking, to 6.312 million, a 645,000 monthly increase and the second biggest monthly jump on record, the latest, just released JOLTS report predictably showed a sharp contraction, as the number of job openings dropped from a downward revised 6.228 million to 6.024 million, a drop of 176K, as the series becomes increasingly volatile.

The job openings rate dropped from 4% to 3.9%, while the number of job openings edged down for total
private and was little changed for government. Job openings increased in a handful of industries, including finance and insurance (+69,000) and state and local government education (+31,000); openings decreased in a greater number of industries with the largest decreases being in accommodation and food services (-91,000), construction (-56,000), and wholesale trade (-38,000). The number of job openings decreased most in the West region.

It wasn’t just job openings that dropped: total hires declined as well, sliding from a revised 5.574 million in January to 5.507 million in February, still just shy of the highest print on record which was last October’s 5.609 million.  The
number of hires was little changed for total private and for government. Hires decreased in educational services (-48,000). The number of hires was little changed in all four regions.

Meanwhile, the other closely watched category, the level of quits – which indicates workers’ confidence they can leverage their existing skills and find a better paying job, also known as the “take this job and shove it” indicator- reversed last month’s decrease and in february rose modestly from 3.191MM to 3.210MM, suggesting workers were feeling just a more less confident about demand for their job skills than the previous month. t. Quits decreased in other services (-41,000). The number of quits was little changed in all four regions

And with a total 5.2 million separations (a 3.5% rate), this means that there were 1.6 million layoffs and discharges in February, virtually unchanged from January. The layoffs and discharges rate was 1.1 percent in February. The number of layoffs and discharges decreased in state and local government education (-13,000). The number of layoffs and discharges decreased in the Northeast region.

Putting all this in in context

• Job openings have increased since a low in July 2009. They returned to the prerecession level in March 2014 and surpassed the prerecession peak in August 2014. There were 6.1 million open jobs on the last business day of February 2018.
• Hires have increased since a low in June 2009 and have surpassed prerecession levels. In February 2018, there were 5.5 million hires.
• Quits have increased since a low in September 2009 and have surpassed prerecession levels. In February 2018, there were 3.2 million quits.
• For most of JOLTS history, the number of hires (measured throughout the month) has exceeded the number of job openings (measured only on the last business day of the month). Since January 2015, however, this relationship has reversed with job openings outnumbering hires in most months.
• At the end of the most recent recession in June 2009, there were 1.2 million more hires throughout the month than there were job openings on the last business day of the month. In February 2018, there were 545,000 fewer hires than job openings.

Finally, the infamously broken Beveridge Curve (job openings rate vs unemployment rate), continues to gradually normalize after a nearly decade-long “drift” from its conventional pattern.  From the start of the most recent recession in December 2007 through the end of 2009, the series trended lower and further to the right as the job openings rate declined and the unemployment rate rose. In February 2018, the unemployment rate was 4.1 percent and the job openings rate was 3.9 percent.

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Last night, Business Insider reported that Michael Cohen’s predilection for keeping digital recordings of his conversations with associates could become a major problem for him – and a major boon for investigators – should the FBI find anything incriminating on the tapes.

Which is perhaps why Cohen is seeking a temporary restraining order against the FBI to stop them from using some or all of the seized materials, according to Reuters.

Meanwhile, Bloomberg reports that Cohen is planning to ask a judge to delay the civil lawsuit filed by adult film actress Stormy Daniels because of the FBI raid and Cohen’s newfound legal troubles.

Trump and Cohen say the criminal case “implicates” Cohen’s Fifth Amendment privilege against self-incrimination if he were questioned in the Daniels case, according to a filing in Los Angeles federal court.

“No decision has been made for Mr. Cohen to assert his Fifth Amendment rights,” Brent Blakely, a lawyer for Cohen, said in an email. “No questions have even been posed.”

Daniels sued to undo a non-disclosure agreement she signed in 2016 that she said was intended to silence her about a sexual encounter she had with Trump a decade earlier. Cohen has said that he paid $130,000 to Daniels out of his own pocket just before the presidential election and that he wasn’t reimbursed.

CNN reported this morning that Cohen taped copious conversations with other Trump associates during the campaign – and that these recordings are almost certainly now in the hands of the FBI. Some of those people are now worried that their conversations could incriminate them as well.

A hearing on the searches has been set for 10:30 am ET in a Manhattan federal courthouse.

Since news of the raid broke on Wednesday, details about what the investigators were looking for have slowly trickled out. Aside from materials related to the purported “silencing” of Stormy Daniels and former Playmate Karen MacDougal, the FBI was also reportedly looking for evidence of a $30,000 payment Cohen facilitated to a former Trump property doorman reportedly to stop him from spreading a rumor about a lovechild Trump allegedly fathered with an employee at one of his properties, the AP reported. 

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It all looked so rosy before the open. Banks were up, Boeing was up, The Dow was up… but then humans read the real details under the bank earnings, finally read about Russian sanctions, and saw headlines suggesting China did not fold on Trade Wars…

Boeing is ugly…

Banks have all turned red…

 

And as goes Boeing, so goes The Dow… as Futures tumble back into the red…

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While UMich rose to a 14-year high in March, it was the “poor” that thrived while the “rich” were less confident. April’s preliminary print showed that weakness spreading as the headline sentiment index tumbled from 101.4 to 97.8 (missing 100.4 expectations).

Fewer households reported recent net income gains in early April than March (22%, down from 34%), but the median annual income increase consumers anticipated for the year ahead rose to 2.1%, up from1.7% in March and 1.6% last April

Surprisingly, all of the April gain was among Democrats and Independents.

Current conditions and Future expectations both fell…

Uncertainty surrounding the evolving trade policy has caused many small (and at times inconsistent) changes in expectations. Spontaneous references to trade policies were made by 29% of all consumers in early April, with nearly all the mentions negative (27% out of 29%).

Negative economic developments were reported more frequently than positive economic changes for the first time since last July. Negative economic news was cited by 66% in early April, up from 55% last month and 45% in January.

This drop is the biggest since Oct 2016 (before Trump’s election)…

Both short- and medium-term inflation expectations fell (medium-term back down to 2.4%, near its record low).

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Authored by Jessica Corbett via CommonDreams.org,

Former President Jimmy Carter has added his voice to those urging President Donald Trump to refrain from launching an illegal military attack on Syria, warning of the serious dangers – including nuclear conflagration – that could result.

“I pray that he would keep our country at peace and not exaggerate or exacerbate the challenges that come up with North Korea, in Russia, or in Syria,” Carter told The Associated Press about Trump’s recent threats.

“I hope he realizes very profoundly as I did, and as other presidents have done,” Carter continued, “that any nuclear exchange could involve catastrophe for all human beings.”

Carter pointed out that even a military attack that doesn’t escalate into a nuclear exchange “is a dangerous thing” that can unleash unpredictable consequences.

Anti-war activists are also pressuring Trump to proceed cautiously.

“There is no proof yet of a Syrian government gas attack,” noted Veterans for Peace President Gerry Condon. “Even if the reports are true, a military response will only lead to more death and destruction, and dangerous escalations.”

Condon also pointed to nuclear concerns—considering Russia’s support for Syrian President Bashar al-Assad.

“We are talking about a direct confrontation between the two nuclear superpowers,” Condon said.

“Why would the U.S. risk nuclear war over dubious chemical weapons claims?”

Pleas for restraint from peace advocates, members of Congress, international law experts, and at least one former president come amid mixed messages from Trump and an alarming report by Russia’s state-owned television station about possible war with the United States. 

In a news segment on Wednesday, as Common Dreams reported, one Russian anchor “explained to viewers how to prepare for a potential war by stocking a bomb shelter—while images of nuclear explosions were shown behind him.”

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• JPMorgan, Wells and Citigroup Earnings Top Expectations (WSJ)
• TPP Nations Welcome Trump’s Interest, Don’t Want Renegotiation (BBG)
• Trade war backfire: Steel tariff shrapnel hits U.S. farmers (Reuters)
• Mob Boss? Slime Ball? Trump, Comey Trade Barbs Near Book Release (BBG)
• Comey Compares Trump to Mafia Boss (WSJ)
• Trump Forced to Juggle Syria Response, Rage Over Mueller Probe (WSJ)
• Wells Fargo faces $1 billion fine to settle loan abuses (Reuters)
• Companies Pressured to Pay More in Overtime Wonder If It’s Worth It (WSJ)
• Volkswagen’s new CEO asserts authority as sets out on road to reform (Reuters)
• Tesla May Be the Most Hated (and Loved) Stock in America (BBG)
• Russia spied on Skripal and daughter for at least 5 years: UK (Reuters)
• Trade-War Panic Is Hard to Find Outside Stocks (WSJ)
• Catalan parliament calls for Spanish judge to be charged over jailed politician (Reuters)
• The Aramco Accounts: Inside the World’s Most Profitable Company (BBG)
• Russia lawmakers draft list of U.S. imports that could be banned (Reuters)
• Mysterious Swiss Franc Slide Shows Reach of Russia Sanctions (BBG)
• Trump lawyer tries to prevent use of materials found in FBI raid (Reuters)
• Moelis Reminds Staff to Treat Young Bankers Well (BBG)
• The Wall Street Era of Deducting $65 Steaks Could Be Over (BBG)
• China’s Built a Road So Smart It Will Be Able to Charge Your Car (BBG)
• Comcast will add Netflix to cable bundles in U.S. (Reuters)
•  

Overnight Media Digest

WSJ

– U.S.-based private equity firms General Atlantic and Silver Lake Partners are planning to invest in Hangzhou-based Ant Financial Services Group, according to people familiar with the matter. (on.wsj.com/2GUNTTd)

– Wynn Resorts Ltd has been in talks to sell its partially built Boston-area casino project to rival MGM Resorts International according to people familiar with the matter, as Massachusetts regulators continue their investigation into the company’s handling of sexual-misconduct allegations against founder Steve Wynn. (bit.ly/2GW0vJK)

– The Trump White House, confident that its hard-line strategy is succeeding, is planning to ratchet up the pressure on China by focusing on new tariffs and threatening to block Chinese technology investment in the U.S., according to officials familiar with the strategy.(on.wsj.com/2GUdziN)

– John Smith, director of Treasury’s Office of Foreign Assets Control, or OFAC, will leave the position early next month, Treasury said Thursday. Smith’s departure was for personal reasons, according to several people familiar with the matter. (on.wsj.com/2GTQ0Xq)

– Volkswagen AG’s board ousted chief executive Matthias Muller and replaced him with Herbert Diess, who quietly orchestrated a boardroom coup while he was rebuilding the company’s namesake brand. (on.wsj.com/2GYguH6)

 

FT

UK Prime Minister Theresa May won backing from her Cabinet to deploy British forces in any U.S.-led action against Syrian President Bashar al-Assad’s regime, after an emergency meeting in Downing Street.

British Airways owner International Airlines Group is weighing a takeover offer for Norwegian Air Shuttle ASA , a low-cost airline after buying a 4.6-percent stake in it.

Czech cyber security company Avast Software said on Thursday it is targeting a $4 billion UK flotation in what would be one of the largest technology listings on the London Stock Exchange

 

NYT

– President Donald Trump, in a sharp reversal, told a gathering of farm-state lawmakers and governors on Thursday morning that the United States was looking into rejoining a multi-country trade agreement known as the Trans-Pacific Partnership, a deal he pulled out of days after assuming the presidency. nyti.ms/2EG7Res

– Trump abruptly issued an executive order on Thursday demanding an evaluation of the Postal Service’s finances, asserting the power of his office weeks after accusing Amazon.com Inc, the online retail giant, of not paying its fair share in postage. nyti.ms/2JEywMq

– A Colorado civic group, Together for Colorado Springs, is spearheading an effort to buy the Denver Post, which on Sunday excoriated its owner, a New York hedge fund, in its opinion section by saying, “Denver deserves a newspaper owner who supports its newsroom.” nyti.ms/2GUp6Pd

– Defense Secretary Jim Mattis sought on Thursday to slow down an imminent strike on Syria, reflecting mounting concerns at the Pentagon that a concerted bombing campaign could escalate into a wider conflict between Russia, Iran and the West. nyti.ms/2GVX2qC

 

Canada

THE GLOBE AND MAIL

Doug Ford says his first act as Ontario premier would be to fire the head of the partly privatized Hydro One and the utility’s board of directors if his Progressive Conservatives win power in June. (tgam.ca/2qs5jw2)

Ottawa is set to investigate allegations that Restaurant Brands International Inc has failed to honor commitments made to gain federal approval to buy Tim Hortons. (tgam.ca/2qp0UKz)

Canada’s Parliament will ask the Pope to reconsider his refusal to apologize to the Indigenous people who attended Catholic-run residential schools, and for the Catholic Church to make good on its financial obligations under the Indian Residential Schools Settlement Agreement. (tgam.ca/2qvNZWe)

NATIONAL POST

Battered by some of the lowest approval ratings in the country, Ontario Premier Kathleen Wynne said she considered quitting before this June’s election, but was encouraged to soldier on by the backing of her colleagues. (bit.ly/2INaC03)

 

Britain

The Times

– More high street banks and building societies have curbed the supply of credit to consumers over the past three months than at any time since records began in 2007, according to the Bank of England. bit.ly/2ILDnKk

– Britain could recover as much as 7.5 billion pounds ($10.67 billion)of unpaid taxes every year by digitising government, according to the International Monetary Fund. bit.ly/2v9tNiz

The Guardian

– Walt Disney will have to make a full takeover bid for Sky even if the competition regulator quashes Rupert Murdoch’s 11.7 billion pound attempt to buy 100 percent of Britain’s biggest pay-TV broadcaster, the UK takeover panel has ruled. bit.ly/2IPParc

– Hundreds of poultry workers in Scotland are to lose their jobs due to the closure of a plant belonging to 2 Sisters Food Group, which has been dogged by a controversy over food standards. bit.ly/2IPT3wk

The Telegraph

– U.S. private equity firm Apollo Global Management’s plan to buy rail operator FirstGroup Plc has already hit a hurdle due to the expected intense scrutiny from pension regulators and MPs keen to protect the retirement incomes of the Scottish company’s army of workers. bit.ly/2v9V9oD

– Royal Dutch Shell is shaking off fears that billions of dollars worth of oil and gas investment could be left in the ground as global governments push for a cleaner energy system. In its first major sustainability report the Anglo-Dutch group said it is confident that the business will remain resilient. bit.ly/2ILH9Du

Sky News

– British Airways owner IAG revealed it has acquired a 4.61 percent stake in Norwegian Air Shuttle “to establish a position from which to initiate discussions, including the possibility of a full offer for Norwegian”. bit.ly/2v7UPH0

– Carpetright Plc has said it is closing 92 stores resulting in 300 job losses as it fights for survival under a sweeping restructure. bit.ly/2v7VqIK

The Independent

– Metro Bank Plc chairman Vernon Hill is facing the prospect of an embarrassing shareholder rebellion after an investor hit out at more than 21 million pounds ($29.89 million)of payments from the lender to his wife’s architecture firm. ind.pn/2vaZhEX

– Goldman Sachs Group Inc might not have chosen to build its new European headquarters in London if the decision had been made after Brexit, the bank’s Chief Lloyd Blankfein said. ind.pn/2IQxU5j

 

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Back on January 20, the day of Trump’s inauguration, Morgan Stanley pointed out a striking change to the cross-asset regime, noting that “We Haven’t Seen A Shift This Severe In Over A Decade“, after cross-asset correlations had plunged the most on record.

As we noted at the time, there were positive and negative consequences from this shift: from an economic perspective, the dramatic move was troubling because such a decline is common in ‘late cycle’ environments, as ‘idiosyncratic’ stories (company-specific M&A, tweets) become larger drivers than economic or earnings fears. The decline is directly linked to the lower realized volatility seen in credit and equity markets; when underlying components are moving in different directions, it is harder to get large shifts overall. In retrospect, the move also unleashed the record low-vol environment that characterized most of 2017… if not 2018.

At the same time, lower correlations meant a better ‘macro’ trading environment (since each market isn’t the ‘same’ trade), and has traditionally been said to usher in a “stock-picker’s market” (as opposed to a central bank-frontrunning market), although what it mostly ushered in was complaints by banks and hedge funds that “vol was too low.” That said, it is a mixed blessing for diversification, as it lowers overall portfolio volatility, but also makes hedging through ‘proxies’ harder.

* * *

Whatever the consequences of record low correlation may have been, however, they are now over because in a note released overnight, Goldman’s chief equity strategist David Kostin, shows that in a furious reversal of the January 2017 move, over the past 3 months, stock correlations within the S&P 500 have surged to the 95th percentile since 1980.

Specifically, average 3-month S&P 500 stock correlations have increased from just 9% in January to 52% today, a move which Goldman calculates was “the fastest and largest increase outside of 1987.”

Here Goldman throws in its two cents on what caused the initial move lower in correlations:

Average stock correlations declined to an all-time low of 9% driven in part by the creation of winners and losers from tax reform. However, stocks have become more correlated during the risk-off events since January. As our Options Research team highlighted, investors increasingly migrated to ETFs and other index products, offering little stock-level differentiation of the potential impacts from trade and regulation. Furthermore, the S&P 500 drawdowns YTD have come through broad valuation compression rather than earnings weakness, as economic activity has remained healthy.

One more notable thing: despite the two 10% corrections YTD, Goldman cautions that the pickup in equity volatility has been modest when compared with the rise in correlations. This dynamic has resulted in a decline in S&P 500 return dispersion and has made the environment difficult for stock-pickers, meaning that just like before, hedge funds will be complaining they can’t make money due to too much volatility, not to be confused with 2017, when they couldn’t generate alpha due to not enough vol.

What this means in practical terms is that if average stock correlations remain at current levels, the VIX will have to rise substantially:

The 24% increase in average implied stock volatility is smaller than typically associated with a jump in correlations of this magnitude. History would suggest that the 43 pp increase in average stock correlations would have   corresponded with a 36% increase in volatility. Previous stress periods such as 2008 and 2011, though more fundamental in nature, saw substantially larger increases in volatility.

So what happens next? Here Kostin’s underlying argument is that he “does not forecast a bear market or a recession this year” as a result “volatility is unlikely to rise by a sufficiently large amount for return dispersion to move meaningfully above the long-term average.”

It also means that Goldman expects “correlations will fall and push return dispersion higher in 2018.”

On the other hand, it also means that if correlations continue to rise as they have been doing, especially in the past 2 weeks when the entire market rises or falls by several hundred Dow points every day, Goldman will be wrong (again), and not only will stock picking get even more difficult, but the VIX is set to spike to new post-crisis highs, this time finally dragging the vols of all other asset classes with it.

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