Month: March 2014

22nd Century group, a biotech firm that specializes in the DNA reconstruction of tobacco plants to be used in the smoking cessation process announced yesterday that it has cleared the hurdles required to list on the NYSE, Virtu will be the DMM:

22nd Century Group, Inc. (OTCQB:XXII)
today announced that the Company received approval to list its common stock on the NYSE MKT. Trading on the NYSE MKT is expected to commence on Tuesday, March 11, 2014 under the Company’s current symbol, XXII. In connection with this NYSE MKT listing, 22nd Century Group will cease trading on the OTCBB and OTCQB….[Read More Here]

22nd Century is a Buffalo based firm and aside from trying to find value looking at metrics of growth or debt sensitivity will make you nuts.  XXII has it’s Alpha inside of it’s technology, the same technology that was verified when British American Tobacco signed a business/re-licensing agreement.  

I’m standing by this stock.  I met with the management guys and seen both operations in Buffalo, haven’t traveled to NASCO facility but this operation is legit and the technology is outrageously valuable.  I would seriously consider your risk levels and take a gander at grabbing exposure sooner than later.

I’ll cover more over the weekend.   In the meantime, I’m takign today off and going shooting and riding out at my families land with a buddy.  Enjoy NFP and Twitter Hate, at least I won’t be there to add more to the disintegration of Twitter’s effort to bring us together.

(LINK) XXII Message Forum Board

Chardan Research Note XXII by calibrateconfidence

Mergent XXII by calibrateconfidence

via Zero Hedge http://ift.tt/1e98sRZ CalibratedConfidence

• Putin rebuffs Obama as Ukraine crisis escalates (Reuters)
• Behind the $100 Billion Commodity Empire That Few Know (BBG)
• Initial Public Offerings Hit Pace Not Seen in Years (WSJ)
• Russian Parliament Will Back Crimea Split From Ukraine (WSJ)
• Nakamoto Named as Bitcoin Father Denies Involvement, Flees Press (BBG)
• Chaori Can’t Make Payment in China’s First Onshore Default (BBG)
• Zombies Spreading Shows Chaori Default Just Start (BBG)
• Pimco’s Gross declares El-Erian is ‘trying to undermine me’ (Reuters)
• U.S. Fighters Circle Baltics as Putin Fans Fear of Russia (BBG)
• College Grads Taking Low-Wage Jobs Displace Less Educated (BBG)
• Malaysia’s Anwar convicted of sodomy, political future in doubt (Reuters)
• Biggest Wealth Fund Urged to Explain Formula One Investment (BBG)
• Regulator Deletes Red Flags From Brokers’ Records, Says Study (WSJ)

Overnight Media Digest

WSJ

* Crimea’s Moscow-backed government voted to secede from Ukraine and join Russia and accelerated a snap referendum to ratify the move, a dramatic escalation of tension that pushed the West closer to imposing sanctions if Russian troops don’t withdraw.

* As Crimea’s legislators voted for secession on Thursday, residents expressed a mixture of shock and satisfaction about the prospect of splitting from Ukraine and joining Russia.

* With the U.S. Supreme Court poised to rule on race-conscious college-admissions policies, University of California officials say they still struggle to meet diversity goals for their university system 18 years after state voters banned affirmative action

* The Financial Industry Regulatory Authority “routinely” strips out some possible red flags on brokers from its database in the information it makes available to investors, according to a study released Thursday by an organization of lawyers who represent investors in claims against brokers.

* When the leaders running law firm Dewey & LeBoeuf LLP realized in the depths of the financial crisis that they were about to violate the terms of their bank loan, prosecutors allege they took the easy way out and cooked the books.

* Canadian regulators on Thursday approved a plan by Enbridge Inc to reverse the flow of a major pipeline and ship more oil to refineries in the East, a move designed to ease bottlenecks that have depressed prices of crude from Western Canada.

* Abercrombie & Fitch Co is preparing to reposition its surfer-themed Hollister chain as a fast-fashion brand, hoping to better compete with rivals such as H&M and Forever 21 Inc. that have eaten into sales to teens.

* Hundreds of workers at an International Business Machines Corp plant struck for a fourth day as the company prepares to transfer the computer-server factory to Lenovo Group Ltd.

* One of the country’s biggest retailers sounded a worrying call for the future of brick and mortar: Staples Inc is not only closing a big swath of its North American stores, but it also wants those that remain to be half the size.

* General Electric Co raised $3 billion in a sale of new debt Thursday, stocking its coffers while rates are low.

* Cerberus Capital Management LP agreed to buy Safeway Inc in a deal the companies valued at more than $9 billion that would be the private-equity firm’s latest acquisition of a big U.S. grocery chain.

* A top Food and Drug Administration official on Thursday rejected the cosmetic industry’s latest proposal for a regulatory overhaul aimed at improving the safety of beauty and personal-care products.

FT

Britain might have to go through another year of austerity due to a 20 billion pound black hole in public finances, according to economic models used by the Office for Budget Responsibility.

Russia was at receiving end of the western powers over its intervention in Ukraine, with the United States issuing visa bans on Russian officials and EU signing an integration agreement with Kiev.

A consortium led by private equity firm Cerebus Capital Management will acquire Safeway Inc in a deal worth $9 billion, and merge it with Albertsons supermarket chain.

Two years after the collapse of Dewey & LeBoeuf, the U.S. authority has charged its former management with “a massive effort to cook the books”.

Shares of Reynolds American Inc and Lorillard Inc jumped this week on talks of a potential deal between the U.S. cigarette makers.

NYT

* Former executives at Dewey & LeBoeuf were accused of manipulating the firm’s books to keep it afloat during the financial crisis.

* An article about a man in Southern California named Satoshi Nakamoto has prompted many enthusiasts to question whether the right person had been identified as the creator of the virtual currency Bitcoin.

* With the music industry turning digital, music companies can now understand their customers’ listening habits in greater depth than ever before.

* John Lefevre, the man behind the @GSElevator Twitter account, has lost his book deal after his true identity came to light.

* Some employers are offering as many as 25 health care plans to employees from a variety of insurers, including Blue Cross and UnitedHealthcare, to lower their costs for the benefit. ()

* Gene McQuade, the chief executive of Citibank, the entity that holds 70 percent of the company’s assets and runs its international businesses, is leaving, as is Cece Stewart, who runs Citigroup’s consumer and commercial banking operations in the United States. ()

Canada

THE GLOBE AND MAIL

* Enbridge Inc has won approval to reverse the flow of oil in its Line 9 pipeline between Southern Ontario and Quebec, a contentious project aimed at giving Quebec refiners access to more affordable Western Canadian and North Dakota oil.

* The union representing 41,000 teachers in British Columbia has voted overwhelmingly in favour of job action, although its president says there will be no immediate school closures or disruptions to students, and members are committed to a negotiated settlement.

Reports in the business section:

* As grocers slash prices to win bargain-hungry customers, makers of food and consumer goods are pushing back against heavy discounting of their products. In the intensified competition, grocers have demanded price cuts from their suppliers. Now vendors are retaliating by setting minimum advertised prices in a bid to stop retailers from using their merchandise as loss leaders.

* Canada is on the verge of clinching a free-trade deal with South Korea after more than half a decade of on-and-off negotiations, and an announcement is expected early next week.

NATIONAL POST

* British Columbians will soon be able to buy wine and beer at the same grocery store where they pick up their eggs and bread.

* Toronto moved one step closer to having a ranked ballot vote in municipal elections, an initiative that is getting support from across the political spectrum.

FINANCIAL POST

* John Chen has surprised skeptics and pleased investors, but the BlackBerry chief says his next aim is to get the devices business growing and to expand its BBM messaging service.

* Target Corp made a splash with colourful billboards, ads and flyers in Canada. But in this country of heavy Internet usage, it’s website doesn’t show much of what it sells.

China

CHINA SECURITIES JOURNAL

– The two-way movements of China’s yuan against the dollar are favourable for further financial reforms, including the liberalisation of deposit rates and the introduction of foreign exchange derivative products, a commentary by the newspaper said.

SHANGHAI SECURITIES NEWS

– China (Shanghai) Pilot Free Trade Zone plans to shorten its negative list for foreign investment in 2014, Shanghai’s Party Secretary, Han Zheng, said in a sub-session of China’s on-going annual parliamentary meeting in Beijing.

CHINA BUSINESS NEWS

– China’s central bank has finished drafting regulations governing the country’s first deposit insurance mechanisms, which are expected to be promulgated soon.

PEOPLE’S DAILY

– The Chinese government should keep economic reforms a top priority and step up enforcement of pronounced reform polices, the mouthpiece of the ruling Communist Party of China said in an editorial.

Britain

The Telegraph

UKRAINIAN TENSIONS COULD HAVE SERIOUS IMPLICATIONS FOR EUROPE – DRAGHI

Tensions in Ukraine could pose a “very serious” threat to the rest of Europe, Mario Draghi has warned. The president of the European Central Bank (ECB) said the impact of the Ukrainian crisis on the energy market, while minimal in the short term, could escalate.

UK HOUSE PRICE GROWTH ‘APPROACHING MADNESS’

The speed UK property prices are rising at is “approaching madness”, analysts have warned, after data showed house prices jumped 2.4 percent in February, the biggest monthly increase in five years.

The Guardian

LOSS-MAKING RBS TO GIVE MILLIONS IN SHARES TO EXECUTIVES

Royal Bank of Scotland is poised to release millions of pounds worth of shares to its top executive team through bonus schemes put in place by the loss-making bank over the last three years.

LLOYDS BANKING GROUP TO PAY EXTRA 1BN POUND TO BUY BACK BONDS

The bailed-out Lloyds Banking Group is to take an unexpected 1 billion pound accounting charge as the result of a complex scheme to buy back financial instruments it issued during the banking crisis.

The Times

BNP TRADER SUSPENDED AS FOREX SCANDAL ESCALATES

A senior currency trader who served on the Bank of England’s foreign exchange committee has been suspended by his bank BNP Paribas, dealing a further blow to London’s position as the world’s leading centre for forex trading.

BP CHIEF GIVEN HUGE PAY RISE AS REWARD FOR PLAYING IT SAFE

BP more than tripled its chief executive’s pay to $8.7 million last year after it hit new performance targets put in place after the Gulf of Mexico disaster in 2010.

Sky News

CURTAIN TO FALL ON BARCLAYS’ 120-YEAR AUDIT

Barclays is to end its 120-year audit relationship with PricewaterhouseCoopers (PwC) and appoint one of its main rivals in the latest shake-up at the embattled bank.

SHELL BOSS REJECTS SCOTTISH INDEPENDENCE

The chief executive of Royal Dutch Shell has said he wants Scotland to remain part of the UK. At the company’s annual reception in London, Ben van Beurden said he valued the “continuity and stability” of the UK.

Fly On The Wall 7:00 AM Market Snapshot

ECONOMIC REPORTS

Domestic economic reports scheduled for today include:
Nonfarm payrolls for February at 8:30–consensus 150K
Unemployment rate for February at 8:30–consensus 6.6%
International trade balance for January at 8:30–consensus -$39.0B
Consumer credit for January at 15:00–consensus $14.0B

ANALYST RESEARCH

Upgrades

Copa Holdings (CPA) upgraded to Buy from Neutral at UBS
Cross Country Healthcare (CCRN) upgraded to Buy from Hold at Cantor
Cross Country Healthcare (CCRN) upgraded to Buy from Neutral at Citigroup
GT Advanced (GTAT) upgraded to Outperform from Neutral at Credit Suisse
Omnicare (OCR) upgraded to Buy from Neutral at UBS
Polycom (PLCM) upgraded to Buy from Neutral at Citigroup
Quality Systems (QSII) upgraded to Market Perform from Underperform at FBR Capital
Safeway (SWY) upgraded to Neutral from Sell at UBS
Skullcandy (SKUL) upgraded to Outperform from Market Perform at Northland Securities
Teva (TEVA) upgraded to Overweight from Equal Weight at Barclays
The Buckle (BKE) upgraded to Neutral from Sell at Janney Capital
The Fresh Market (TFM) upgraded to Buy from Neutral at UBS

Downgrades

Alpha Natural (ANR) downgraded to Sell from Neutral at Goldman
American Capital Mortgage (MTGE) downgraded to Hold from Buy at Deutsche Bank
CYS Investments (CYS) downgraded to Hold from Buy at Deutsche Bank
Houghton Mifflin (HMHC) downgraded to Hold from Buy at Stifel
Houghton Mifflin (HMHC) downgraded to Neutral from Buy at Goldman
Humana (HUM) downgraded to Hold from Buy at Jefferies
Kindred Biosciences (KIN) downgraded to Neutral from Buy at Roth Capital
New York Mortgage (NYMT) downgraded to Hold from Buy at Deutsche Bank
Numerex (NMRX) downgraded to Hold from Buy at Canaccord
Pinnacle Financial (PNFP) downgraded to Hold from Buy at Wunderlich
Safeway (SWY) downgraded to Hold from Buy at BB&T
Star Bulk Carriers (SBLK) downgraded to Equal Weight from Overweight at Morgan Stanley
TCP Capital (TCPC) downgraded to Hold from Buy at Deutsche Bank
Violin Memory (VMEM) downgraded to Underperform from Buy at BofA/Merrill

Initiations

Bridge Capital Holdings (BBNK) initiated with a Buy at DA Davidson
Conatus Pharmaceuticals (CNAT) initiated with a Buy at Roth Capital
E2open (EOPN) initiated with a Buy at B. Riley
Jazz Pharmaceuticals (JAZZ) reinstated with an Overweight at Barclays
Ladder Capital (LADR) initiated with a Buy at Deutsche Bank
Regency Energy Partners (RGP) initiated with a Hold at Deutsche Bank
Rouse Properties (RSE) initiated with a Neutral at BofA/Merrill
Salesforce.com (CRM) initiated with a Neutral at B. Riley
ServiceNow (NOW) initiated with a Neutral at B. Riley
Tallgrass Energy (TEP) initiated with an Outperform at Wells Fargo
Thomson Reuters (TRI) initiated with a Hold at Deutsche Bank

COMPANY NEWS

Albertsons to buy Safeway (SWY) for $40 per share
Kimco Realty (KIM) to own 9.94% of combined Safeway-Albertsons
Gap (GPS) reported February SSS down 7%
Ford (F) to move production of F-650, F-750 medium-duty trucks to Ohio from Mexico
American Apparel (APP) gave a FY14 revenue outlook that came in below estimates, and said February preliminary SSS were down 5%
Cooper Companies (COO) said foreign currency continues to have negative effect
Big Lots (BIG) said wind down of Canadian operations remains on schedule, sees Q1 “slightly positive” to “slightly negative”
FreeWheel confirmed that it has been acquired by Comcast (CMCSA)
Casablanca Capital nominated six for election to Cliff’s Natural (CLF) board

EARNINGS

Companies that beat consensus earnings expectations last night and today include:
Achillion (ACHN), Information Services (III), Qihoo 360 (QIHU), Comtech (CMTL), Ambarella (AMBA), Alamo Group (ALG), Korn/Ferry (KFY), Numerex (NMRX), Emergent BioSolutions (EBS), Jamba (JMBA), Cooper Companies (COO), U.S. Auto Parts (PRTS)

Companies that missed consensus earnings expectations include:
Timmins Gold (TGD), Denison Mines (DNN), BPZ Resources (BPZ), The Fresh Market (TFM), Baxano Surgical (BAXS), Analogic (ALOG), Novatel Wireless (NVTL), H&R Block (HRB), Thor Industries (THO), Synergetics (SURG), Quantum (QTWW), Quiksilver (ZQK)

Companies that matched consensus earnings expectations include:
Craft Brew (BREW), Manitex (MNTX), Violin Memory (VMEM), Finisar (FNSR)

NEWSPAPERS/WEBSITES

Facebook (FB) faces privacy advocates who want WhatsApp deal stopped, Reuters reports
Atlanta Fed’s Lockhart: Keep reducing policy accommodation, Reuters reports
AT&T (T) CEO: Comcast (CMCSA), Time Warner Cable (TWC) a ‘redefining’ industry deal, WSJ reports
Oil industry (CVX) facing rising production costs, WSJ reports
Cigarette manufacturers (RAI, LO,TYBY, BTI) surge on deal discussions, FT reports
Twitter (TWTR) paid IBM (IBM) $36M for 900 patents to end dispute, Bloomberg reports
U.S. clients of Credit Suisse (CS) face uncertainty over probe, Bloomberg reports
Time Warner’s (TWX) Warner Bros. plans to lead an investment of $18M in Machinima, WSJ reports

SYNDICATE

Alimera Sciences (ALIM) files to sell 6.25M shares of common stock
Applied Optoelectronics (AAOI) files to sell 2.7M shares of common stock
Aquinox (AQXP) 3.7M share IPO priced at $11.00
Artisan Partners (APAM) 8.07M share Secondary priced at $62.00
CDW Corporation (CDW) files to sell 10M shares of common stock for holders
Coupons.com (COUP) 10.5M share IPO priced at $16.00
FireEye (FEYE) 14M share Secondary priced at $82.00
Flamel Technologies (FLML) files to sell common stock
Recro Pharma (REPH) 3.75M share IPO priced at $8.00
Windstream (WIN) files to sell 4.32M shares of common stock for holders

via Zero Hedge http://ift.tt/NF5Vsz Tyler Durden

Today’s nonfarm payroll number is set to be a virtual non-event: with consensus expecting an abysmal print, it is almost assured that the real seasonally adjusted number (and keep in mind that the average February seasonal adjustment to the actual number is 1.3 million “jobs” higher) will be a major beat to expectations, which will crash the “harsh weather” narrative but who cares. Alternatively, if the number is truly horrendous, no problem there either: just blame it on the cold February… because after all what are seasonal adjustments for? Either way, whatever the number, the algos will send stocks higher – that much is given in a blow off top bubble market in which any news is an excuse to buy more.

So while everyone is focused on the NFP placeholder, the real key event that nobody is paying attention to took place in China, where overnight China’s Shanghai Chaori Solar defaulted on bond interest payments, failing to repay CNY 89.9mln (USD 14.7mln), as had been reported here extensively previously. This marked the first domestic corporate bond default in the country’s history – indicating a further shift toward responsibility and focus on moral hazard in China. Whether or not this is China’s “Bear Stearns” moment remains to be seen, however nearly a dozen deals were postponed or canceled in the aftermath of this development meaning that as expected the entire bond market is set for a repricing now that moral hazard may have to be taken out of the equation – the end result will be yields that are hardly lower which for a $12 trillion corporate bond market can only spell bad news. But since the market has long ago lost its discounting capabilities, expect to feel the impact of future bond defaults in real time.

In the meantime, copper (futures down over 2.0% this morning) which is heavily used for debt financing in China specifically, and Shanghai Chaori Solar’s failure to repay is being seen as a warning shot that many more could follow, as the Chinese authorities pull away from their previous policy of bailing-out-at-all-costs. As such, copper prices have fallen in tandem with a declining appetite for credit in China.

Stocks in Europe traded lower this morning, with Bunds also better bid as market participants positioned ahead of the release of the latest jobs report by the BLS later on in the session. Despite the absence of apparent appetite for risk, it was the health care related stocks that led the move lower which indicates that the price action  was largely result of investor positioning and not a fundamental shift in the outlook. Still, safe haven related flows supported JPY which in turn weighed on the USD and ensured that EUR/USD and GBP/USD traded in the green.

Going forward, apart from awaiting the release of the latest jobs report by the BLS, market participants will also get to digest the release of the latest jobs report from Canada.

Bulletin news summary from Bloomberg and RanSquawk

Treasuries steady, long end leads, before report forecast to show U.S. economy added 149k jobs in February while unemployment rate held at 6.6%.

The U.S. and EU put Russia’s Vladimir Putin on notice that they will be united on imposing sanctions if he’s unwilling to defuse the Ukraine crisis and pursue a negotiated solution

The crisis in Ukraine is putting the question of Poland’s accession to the euro back on the agenda as the military standoff stirs memories of the Cold War

German industrial production rose 0.8% in January, the third consecutive monthly gain and in line with median estimate in Bloomberg survey

EUR/USD rose as much as 0.35% to 1.3909, strongest since October 2011

Shanghai Chaori, a Chinese solar-cell maker failed to pay full interest on its bonds, leading to the country’s first onshore default and signaling the government will back off its practice of bailing out companies with bad debt

California Governor Jerry Brown, who decries a widening gulf between rich and poor, is campaigning for a fourth and final term presiding over a state that’s outpacing the U.S. in producing both millionaires and food-stamp recipients

Gary Cohen, the top U.S. health insurance regulator accused by congressional Republicans of misleading them before the troubled start of the Obamacare website, will resign

Sovereign yields mixed. EU peripheral spreads narrow. Asian equities mixed, Nikkei +0.9%; Shanghai Composite little changed. European equity markets decline, U.S. stock-index futures gain. WTI crude and gold little changed, copper falls

US event calendar

• 8:30am: Trade Balance, Jan., est. -$38.5b (prior $38.7b);
• 8:30am: Change in Nonfarm Payrolls, Feb., est. 149k (prior 113k); Change in Private Payrolls, Feb., est. 145k (prior 142k); Change in Manufacturing Payrolls, Feb., est. 5k (prior 21k)
  • Unemployment Rate, Feb., est. 6.6% (prior 6.6%)
  • Average Hourly Earnings m/m, Feb., est. 0.2% (prior 0.2%)
  • Average Hourly Earnings y/y, Feb., est. 2% (prior 1.9%)
  • Average Weekly Hours All Employees, Feb., est. 34.4 (prior 34.4)
  • Change in Household Employment, Feb. (prior 638k)
  • Underemployment Rate, Feb. (prior 12.7%)    —
  • Labor Force Participation Rate, Feb. (prior 63%)
• 3:00pm: Consumer Credit, Jan., est. $14b (prior $18.756b) Central Banks
• 12:00pm: Fed’s Dudley speaks in New York
• 12:30pm: Former Fed Chairman Bernanke speaks in Houston

Asian Headlines

Shanghai Chaori Solar defaulted on bond interest payments, failing to repay CNY 89.9mln (USD 14.7mln), alongside expectations. (WSJ) Despite the small size of the default, this marks the first domestic corporate bond default in the country’s history – indicating a further shift toward responsibility and focus on moral hazard in China.

EU & UK Headlines

Analysts at BNP Paribas revise their ECB QE forecast and now see QE in Q4 vs. Prev. view that the ECB would engage in asset purchases after ECB staff projections in June.

Fitch affirms ESM at AAA; outlook stable. (DJN)

UK BoE/GfK Inflation Next 12 Mths (Feb) 2.8% (Prev. 3.6%). 40% of Britons expect rate increase in the next year vs. 34% in November, rate-increase expectation at highest since May 2012. (BBG/RTRS)

According to official models from the Office of Budget Responsibility, the UK faces a GBP 20bln black hole in public finances, suggesting further austerity and throwing doubt on whether the recovery will eliminate the deficit. (FT)

US Headlines

Fed’s Lockhart (non-voter, dove) said is prepared to consider overshooting on inflation, up 2.5%, to aid job gains. (RTRS)

Lockhart also commented that passing the 6.5% jobless rate should be a trigger to update forward guidance on forward rates and that bad weather may have cut GDP by 0.75 percentage points. (BBG)

Equities

While all ten sectors traded in the red this morning, the underperformance was led by health care and basic materials sectors, with the latter driven by concerns over potential implications that the first corporate bond default in China will have on the use of metal to finance debt. This also saw copper futures fall over 1.5%, with other precious and base metals also trading lower.

FX

With little in the way of major macroeconomic releases during the first half of the session this morning meant that the price action was largely driven by positioning ahead of the upcoming release of the latest jobs report by the BLS. As a result, risk off related flows weighed on USD/JPY and weighed on the USD. Consequently, despite cautious comments by RBA governor Stevens who stated that AUD/USD over 0.90 is higher than the RBA’s assessment, together with lower gold prices, meant that AUD/USD remained bid.

Commodities

Copper (futures down over 2.0% this morning) is heavily used for debt financing in China specifically, and Shanghai Chaori Solar’s failure to repay is being seen as a warning shot that many more could follow, as the Chinese authorities pull away from their previous policy of bailing-out-at-all-costs. As such, copper prices have fallen in tandem with a declining appetite for credit in China.

US House Speaker John Boehner said the US should open gas exports in order to counter the actions of Russian President Putin. (WSJ) Boehner believes a lifting of the de-facto ban on exporting US produced LNG would lessen dependence on Russian gas exports across west and eastern Europe.

CME lowered natural gas Henry Hub futures for specs by 18.5% to USD 4,400 per contract from USD 5,225. (RTRS) Russian NatGas and crude oil transit flows via Ukraine are uninterrupted and at normal levels, according to Gazprom. (BBG)

BP is seen to be skirting the US oil export ban, by taking on at least 80% of the capacity in the new USD 360mln Splitter mini-refinery that will produce just enough to escape restrictions on sales outside the US. (BBG) Meanwhile, the Co. has warned that fines over the Gulf of Mexico oil disaster in 2010 could exceed the USD 18bln it is braced for. (Telegraph)

ANZ said that gold consumption growth in China is slowing and that Indian gold demand remains robust. ANZ also raised its gold forecast for 2014 by 5.5% to USD 1339/oz and raised its spot silver forecast by 8.3% to USD 22.20/ oz, but added that gold may drop below USD 1300/oz in the near-term as China demand wanes. ANZ has also stated that platinum ‘has room’ to rally against gold. (BBG)

* * *

We conclude with the overnight summary from DB’s Jim Reid

It’s fascinating that in this period where the S&P 500 is 277% higher, nominal and real GDP are only 11% and 19% higher respectively and the average monthly payroll has only been 72k. It clearly shows how important the Fed (and other central banks) have been. We still think markets will be a lot more challenging once the Fed’s balance sheet starts to level off but for now it’s still increasing at $65bn/month. Talking of payrolls it’s that time of month again. After two disappointing numbers for December (+75k) and January (+113k) and disappointing readings from Wednesday’s ADP (+139k vs +155k expected) and the ISM non-manufacturing employment component (47.5 vs 56.4 last month) the market consensus is for a February figure of +149k whilst DB is forecasting +120k. The consensus may actually be lower than this but maybe not everyone has updated their forecasts after this week’s data. Consensus is expecting the unemployment rate to hold steady at 6.6% whilst
DB’s US Economists expect it to fall -0.1% to 6.5% although they note a larger decline is possible due to the expiration of extended unemployment benefits last December. Whilst the consensus NFP number would mark an improvement on January, a +149k reading would represent a sharp discount from the +204k averaged through the first eleven months of 2013 so it easy to see how bad weather is playing a role here even if the size of the impact is difficult to calculate. As DB’s Joe LaVorgna notes, if weather really is weighing on the numbers then we would expect to see a jump in the number of people who have a job but did not report to work because of “bad weather” which is data the BLS provides within the Household Survey. Even accounting for the past few month’s numbers, DB continues to expect average monthly payroll gains of around +240k in 2014. This would be some pick-up on the post crisis average of 72k discussed above.

Moving back to the other big event of the week, the ECB yesterday kind of told us that they are only going to act when absolutely necessary as they yet again missed an opportunity to be proactive in the fight against future possible low inflation/deflation. It now seems last November’s pre-emptive rate cut was an anomaly and not part of a new policy trend for the ECB. Overall our economists thought it would be difficult for the ECB to publish an inflation forecast materially below its own definition of price stability without providing more accommodation. However, this is indeed what they chose to do. They now think the ECB seems to be “hoping for the best”, and in their call for a cut yesterday they acknowledged they may have underestimated the Governing Council’s lack of room for manoeuvre. They now expect policy rates to be unchanged throughout 2014 given this. Given the above it wasn’t a surprise to see the Euro trade at the highest point since October 2011. Indeed will their lack of action be the spur for a sustained strong currency which continues to put downward pressure on inflation and forces them to act later in the year? Our bias remains that it will but yesterday proved that the ECB will need hard facts for them to be able to act.

After a mid-week lull, Ukrainian and Russian headlines increased yesterday, but for now global markets have been able to weather the newsflow. That isn’t to say that there haven’t been pockets of volatility as Russian equities (MICEX – 0.97%) and Russian fixed income (10 year +13bp) had a week day. On Thursday, Crimea’s parliament decided overwhelmingly to “enter into the Russian Federation with the rights of a subject of the Russian Federation” in a non-binding parliamentary vote. The parliament also set a referendum for March 16th for Crimean voters to decide if they wanted the peninsula to join Russia. If the move is approved by the referendum, all state property would be “nationalised”, the Ruble adopted and Ukrainian troops would be treated as occupiers and forced to surrender or leave, according to the Vice Premier of Crimea. Obama described the proposed referendum as a violation of the Ukrainian constitution and a violation of international law and announced potential sanctions against Russian officials who are involved in military action in Ukraine. The EU also looks set to follow with targeted sanctions. So the crisis doesn’t look like it’s over even if markets have become a bit more sanguine about the endgame.

Looking at overnight markets, Asian equities are trading with modest gains led once again by the Nikkei (+0.8%), mirroring a similar gain for the S&P 500 on Thursday (+0.17%). Onshore Chinese equities are once again lagging today possibly due to the news of China’s first corporate bond default (more below). In Asian currencies, the Indian Rupee (+0.15%) is adding onto yesterday’s 1.04% gain, further cementing its spot as one of the best performing currencies of late in Asia and the EM world. In China, domestic Chinese interbank rates continue to range around multi-month lows and both CNY (+0.05%) and CNH (+0.05%) are on track for one of their strongest weeks in two years.

On the topic of China, according to the WSJ the country’s first onshore corporate bond default has occurred earlier today in the form of Shanghai Chaori Solar Energy’s missed/incomplete RMB89.8m coupon payment. As we have written over the last couple of days, the bond is relatively small (RMB1bn or US$160m in face value) and the issuer is small (US$1.2bn in assets) but it’s an interesting case for a number of reasons. Firstly, it’s a bond where the majority of bondholders are retail investors (WSJ, citing company management) which widens the scope of the impact from the market’s typical institutional investor base. Weibo, China’s version of Twitter, is showing photos of retail investors at a local Shanghai government office protesting the authorities’ lack of action in assisting the issuer (21st Century Business Herald). Secondly, it should be highlighted that Shanghai Chaori avoided a default on its annual coupon payment last year due to the intervention of a local Shanghai government who persuaded banks to roll over loans. This time around, the policy appears to have changed with no last-minute assistance on the cards. Indeed, state-affiliated news agency Xinhua wrote in an opinion piece that a default would be the “the market playing its own decisive role”. Interesting, given that the Chinese solar energy market was heavily subsidised by the Chinese government in recent years. The Xinhua article also commented that Chaori was not going to be China’s “Bear Sterns moment”. In addition, domestic media are reporting that the company’s bankers and bond underwriters will not be helping the company make interest payments (21st Century Business Herald). Though this is a relatively small bond, there are potentially wider ramifications. Bloomberg reports that China’s  renewable energy industry faces US$7.7bn in bond maturities this year, and already three domestic bond issuances have been postponed or cancelled in recent days
according to Reuters. This is certainly a macro story to watch in 2014.

Looking at the day ahead, the main focus will be on US payrolls due out at 1:30pm London time which will dictate the tone for the rest of the day. US trade numbers for January will also be released at the same time as payrolls and US consumer credit numbers will be published towards the end of the US session. Ahead of payrolls, Europe will be focused on French trade (January) and German industrial production. Over the weekend, China will publish its February inflation and trade reports. The trade report will be closely watched in light of January’s Chinese exports which were significantly above consensus possibly due to Lunar New Year effects or potential invoicing distortions. For the record, consensus is expecting February export and import growth of 7.5% and 7.6% YoY respectively.

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Submitted by Ankit Panda via The Diplomat,

The biggest Asia-Pacific defense story this week is China’s decision to increase its defense budget by 12.2 percent to about $132 billion for the next fiscal year. Notice that the figure is noticeably uncorrelated with China’s 7.7 percent actual growth rate (with a 7.5 percent target rate). The numbers are expected, of course, and send a clear signal across the region that China is taking its investments in military hardware seriously. Contrast the Chinese trend with the United States’ belt-tightening on defense spending. The United States and China are, of course, nowhere near to a convergence in defense spending. Our China editor Shannon Tiezzi takes a look at the similarities and differences between the two budgets.

Beijing and Washington’s Defense Budgets: A Tale of Two Cities

Recently released defense budgets by China and the U.S. reveal different approaches but similar goals in Asia.

Beijing released its defense budget for 2014 today, as a draft budget was submitted to the National People’s Congress for review. Xinhua reported that the new budget called for a 12.2 percent increase, raising defense spending to 808.2 billion yuan ($132 billion). Outside of China, analysts and reporters viewed this increase with suspicion. “China’s Xi ramps up military spending in face of worried region,” a Reuters headline read. The article cited unease within Japan and Taiwan over a lack of transparency on how the money will be used.

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Ever since the specter of the first real domestic default on a Chinese corporate bond hovered over the markets, the Chinese credit markets have been leaking lower. The last 3 days have seen the biggest drop in Chinese credit markets in almost 4 months. That situation, wistfully occurring half way around the world while US equity markets press on to ever more exuberant (and ignorant) heights, meant at least 3 other Chinese firms pulled their bond issues today and, as Reuters reports, has "triggered widespread upheaval in the bond market." Banks are awash with liquidity (as indicated by low repo rates) but clearly unwilling to lend and external investors are now running scared.

The Chinese corporate bond market has suffered considerably in the last few days…

Even as repo rates have dropped (and CNY has strengthened) – repo rates at multi-month lows, CNY strengthening and stocks weak…

and SHIBOR at multi-month lows (suggesting plenty of liqudity at the banks but as we see below, a clear unwillingness to lend)…

And that has led to pulled issues…

Via Reuters,

The threat of China's first domestic bond default has prompted Suining Chuanzhong Economic Technology Development to delay a one billion yuan ($164 million) debt issue and two other companies have halted deals blaming market volatility.

 

…

 

The run-up in corporate debt since 2008, and overcapacity in sectors such as steel, coal and solar energy, have threatened the solvency of many borrowers.

 

Chuanzhong said late on Wednesday that the news that Chaori Solar was set to miss a coupon payment on Friday "triggered severe upheaval in the bond market", so it had delayed its bond deal.

 

Taizhou Kouan Shipbuilding postponed a 300 million yuan issue of short-term commercial paper, while Xining Special Steel cancelled a 470 million yuan offering of medium-term notes, the companies said.

 

The deals are relatively small, but the delays underline the risk that an unprecedented default will make it harder for other companies to access capital.

 

…

 

Yields on corporate and enterprise bonds pushed higher after Chaori Solar's announcement. Five-year AA rated notes rose 8 basis points to 7.77 percent, the biggest increase since November 15, ChinaBond data showed.

…

This situation is being exacerbated as the lending is being cut to the indistries with the most slack – with the result (as we warned about in the past) that commodity-based collateral for all the shadow loans is getting hammered (through no real demand) and crushing the credit system (through haircuts and forced deleveraging as collateral values collapse)…

This is very negative for the Chinese economy which now more than ever is reliant on credit as its growth-driver… and the China credit-crisis indicator remains flashing red (2Y Swap – 2Y Bond spread)…

Charts: Bloomberg

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