Month: February 2016

Since the beginning of 2014, Initial jobless claims and Challenger Job Cuts have decoupled as the former “trended” in its seasonally adjusted manner while the latter appeared to reflect a different reality. That all changed in October last year as the trend in claims began to turn. Last week’s jump to 285k dragged the less noisy 4-week average to 285k – the highest since March 2015 as initial claims begin to catch up to Challenger Job Cuts…

 

 

Continuing Claims’ rising trend is still in place with the 4-week average at its highest since September.

 

Charts: Bloomberg

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Another day, and another round of increasingly uglier news from the global energy sector.

Moments ago, energy giant ConocoPhillips announced it would cut the company’s quarterly dividend to 25 cents per share, compared with the previous quarterly dividend of 74 cents per share. This took place after reporting its biggest quarterly loss in almost a decade as independent oil producers feel the squeeze from the sharp decline in crude prices.

The company also lowered capital expenditures guidance to $6.4 billion from $7.7 billion and operating costs guidance to $7 billion from $7.7 billion.

The commentary from CEO Ryan Lance was dire: “While we don’t know how far commodity prices will fall, or the duration of the downturn, we believe it’s prudent to plan for lower prices for a longer period of time.”

“The actions we have announced will improve net cash flow by $4.4 billion in 2016. The decision to reduce the dividend was a difficult one. The dividend has been, and will continue to be, a top priority. We still intend to provide a competitive dividend, while significantly lowering the breakeven price for the company and substantially reducing the level of borrowing in 2016. Our actions also position us to deliver strong absolute and relative performance as prices recover.”

The company had previously emphasized it would prioritize maintaining the dividend while being more flexible with capital spending and the balance sheet. 

As quoted by Bloomberg, “The pressure obviously built up on them,” said James Sullivan, an analyst at Alembic Global Advisors, who has an “overweight” rating on the share.. “The assumption a lot of us made was that the dividend is not sustainable.”

The stock was clearly surprised by the announcement, and was down over 5% in the premarket.

Elsewhere, another energy giant Weatherford International assured that next month’s Challenger report would also be ugly, when it announced plans to lay off an additional 6,000 workers, about 15 percent of its workforce, over the first half of this year to cope with the worst crude market downturn in 30 years.

The latest round of cuts brings to 20,000 the number of people who have been or will be let go by the world’s fourth-largest oilfield services supplier as oil prices tumbled by more than two thirds.

“We have geared the company, and will increasingly do so, for a prolonged period of very low activity,” Chief Executive Officer Bernard Duroc-Danner said Wednesday in an earnings statement. “We are ready for as protracted a downcycle as markets will dictate.”

It appears slowly but surely the realization is dawning on everyone: far lower prices are here to stay, and for a long period of time.

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While we await the heavily massaged Initial Claims report from the DOL, moments ago we got the report of actual job layoff announcements tracked by Challenger Gray, and it was quite grim: in the first month of 2016, US-based employers reported 75,114 planned job cuts. Not only was this a 218% increase from the 23,622 in December, it was 42% higher than the same month a year ago, when employers announced 50,041 job cuts. According to Challenger, “heavy downsizing in the retail and energy sectors pushed monthly job cut announcements to their highest level since last summer.”

January represents the highest monthly tally since July 2015, when cuts reached 105,696. Most troubling, it was the largest January total since 241,749 job cuts were announced during the first month of 2009.

Despite relatively strong holiday sales to close out 2015, retailers led all other industries in January job cuts, announcing plans to cut 22,246 jobs from their payrolls. That was the highest retail total since January 2009, when retailers announced 53,968 planned layoffs.

Retail cuts were dominated by Walmart, which announced plans to close 269 stores worldwide, which is expected to impact 16,000 workers. Macys is also planning to close stores in 2016, a move that will affect 4,820 employees.

In addition to increased retail job cuts, January also saw the return of heavy job cuts in the energy sector. Overall, these firms announced plans to reduce headcounts by 20,246, up from 1,682 in December.

The January total for the energy sector was higher than month since the decline in oil prices began in late 2014. The previous high was January 2015, when 20,193 jobs in the sector were eliminated.

“The pace of downsizing in the energy sector ebbed in the second half of 2015, but the latest activity, which included more cuts from Halliburton and Schlumberger, is evidence the industry is far from concluding its cost-cutting initiatives. With oil prices expected to stay low for the foreseeable future, the potential for continued layoffs remains elevated,” said John A. Challenger, chief executive officer of Challenger, Gray & Christmas.

Since oil prices began their decline, Halliburton has announced 22,000 job cuts through multiple job-cut announcements. Schlumberger has also reported multiple layoff events since late 2014, with total job cuts exceeding 30,000. Baker Hughes has also announced multiple layoffs, totaling 16,000.

“Retail job cuts came on the heels of a relatively strong holiday sales, which increased by nearly 8.0 percent. However, a growing portion of the sales gains are occurring online. At Macy’s, for example, November and December sales at its brick-and-mortar stores fell by about 5.0 percent, while orders through its online entities were up 25 percent from a year earlier, according to reports,” said Challenger.

“This shift is making it necessary for retailers like Macy’s and Walmart to rethink their strategy; moving away from traditional stores and investing more into Internet sales. Unfortunately, this shift is resulting in widespread job cuts across the industry, even in times of good health,” said Challenger.

The layoffs were highest in Texas with over 27K layoffs, driven by energy, followed by Arkanas’s 16,100 as a result of Walmart’s terminations, Ohio with over 6,000 and Virginia with just shy of 4,000.

 

The cuts by industry as noted above, were focused in Retail and Energy:

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Seven days ago, Deutsche Bank turned in what various sellside desks described as “horrible”, “grim” results for both Q4 and 2015 as a whole.

The bank posted its first annual net loss since the financial crisis, reporting red ink that totaled more than $7 billion as investment banking revenue fell plunged by some 30%.

On Thursday, we learn that Credit Suisse lost nearly $6 billion in the fourth quarter. The 2015 net loss came to nearly $3 billion. 

Shares in the Swiss bank plunged 13% to their lowest levels since 1991 as Tidjane Thiam’s “turnaround” hit a rather large bump in the road.

The shares are down 32% this year alone.

The $5.8 billion quarterly loss is the largest since the crisis and it would certainly appear that the focus on wealth management (as opposed to investment banking) comes at a rather inopportune time, given the emphasis placed on AsiaPac where Thiam plans to double pretax income in just two years. 

“The latest report is the first to reflect Credit Suisse’s new structure under Chief Executive Tidjane Thiam, who took over in July and announced his strategic plans for the bank in October,” WSJ writes. “Those plans include bolstering wealth management, particularly in regions such as Asia, while reducing the resources directed to its investment bank.”

Some of the loss was attributable to a CHF3.8 billion impairment charge tied to the costly 2000 acquisition of investment bank Donaldson, Lufkin & Jenrette for $11.5 billion which The Journal reminds us was “a price widely viewed at the time as expensive.

But even as the Street expected a rather disappointing performance, “these numbers are terrible,” to quote Dieter Hein, an analyst at AlphaValue based near Frankfurt who spoke to Bloomberg. “In the mid- to long-term, it’s right to focus on growth in Asia, but what bad timing given the current environment.”

Yes, “what bad timing.” And “what” horrific results across the board. Analysts were expecting things to be bad (consensus was for a CHF4.97 billion loss) but the CHF5.8 billion was far worse than most anticipated. Even excluding the goodwill write-down, as well as significant litigation and restructuring charges, the underlying pre-tax loss was “far worse” than consensus, Citi’s Andrew Coombs writes. “Underlying revenues are 7% below consensus… overall we view these as very poor results,” he said on Thursday.

Restructuring and litigation costs were CHF355 million and CHF564 million for Q4, respectively. 

Investment banking was a nightmare as revenues fell 17% in 2015 due to “lower debt and equity underwriting” attributable to “volatility in capital markets.” “They’re the ones we control the least,” Thiam said of the Global Markets and Investment Banking & Capital Markets units. “We want to have an investment bank with stable earnings,” he added. Here’s what investment banking looked like in Q4:

And here’s a look at equity and fixed income trading:

“Revenue from fixed-income trading fell by more than two thirds — a much steeper decline than at Deutsche Bank or any of its U.S. peers,” Bloomberg notes. The culprits: widening HY spreads in the US, “subdued client activity” and of course, “significant mark-to-market losses.” 

“Revenue at the units that house trading, advisory and underwriting businesses outside of Switzerland and Asia, slumped 35 percent to a combined $1.5 billion,” Bloomberg continues. “Excluding goodwill impairments and restructuring costs, the units posted a pre-tax loss of $761 million combined for the period, compared with a profit of $516 million a year earlier.”

Contrary to reports, the bank will not, Thiam says, be selling a portion of the investment banking business to Wells. 

“The environment has deteriorated materially during the fourth quarter of 2015 and it is not clear when some of the current negative trends in financial markets and in the world economy may start to abate,” Thiam said, in an attempt to explain the results.

The bank will cut some 4,000 jobs in an effort to supercharge cost savings. Bonuses were cut by 11% last year. “We continue to believe that wealth management, supported by our investment banking capabilities, remains a uniquely attractive long-term opportunity,” Thiam continued, justifying the shift away from investment banking. The international wealth management unit lost CHF20 million in Q4 and saw net asset outflows of CHF4.2 billion during the period.

Here’s Citi’s Coombs summing things up outlook wise: “We do not believe the 2018 targets are achievable.”

No, probably not, because as Andreas Brun, an analyst at Zuercher Kantonalbank put it after the results: “Even to just get in the direction of their goals, they need the market as a tailwind, but at the moment they have rough winds blowing at them from all directions.”

Indeed.

*  *  *

Full press release (because you really have to read it to believe it)

Csg Media Release 4q15 En

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While everyone was focused on the “front end” of central bank announcements in the form of Draghi jawboning, Yellen hemming and Kuroda panicking, something more troubling took place on Monday afternoon on the “back end”, when the FED released its latest quarterly senior loan officers survey.

What it showed was that in Q4, lending standards tightened for the second consecutive quarter.

This is problematic because as DB’s Jim Reid writes, two consecutive quarters of tightening standards “has never happened before without it signalling an eventual move into recession and a notable default cycle. Once we have 2 such quarters lending standards don’t net loosen again until the start of the next cycle.”

If there is any silver lining, it is that as DB points out, so far the tightening of standards are still only mild, especially relative to recessionary levels. So although it does continue to feel like we’re late cycle, it could still be a number of quarters for the full cycle to unravel.

In other words the countdown is on, not only for the Fed to admit policy error, which Bill Dudley hinted at yesterday, but also a countdown to the admission that the US is in a recession and the long overdue collapse in the world’s most crowded (if only until recently) trade, being long the US Dollar.

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• EU Slashes 2016 Inflation Forecast to 0.5% as Growth Seen Slower (BBG)
• Bank of England cuts UK growth forecasts (FT)
• Investors Cast Wary Eye on Fed Rate Increases (WSJ)
• U.N. halts Syria talks as government closes in on Aleppo (Reuters)
• Credit Suisse Drops as Investment Bank Slump Deepens Losses (BBG)
• Six OPEC states ready for emergency meeting with non-OPEC members — Venezuela’s minister (TASS)
• Redstone seen resigning as Viacom chair after stepping down at CBS (Reuters)
• A Divided Libya Struggles Against Islamic State Attacks (WSJ)
• Shell Profit Drops 44%, Matching Estimates, as Crude Tumbles (BBG)
• Delta Names Bastian CEO as Anderson Departs After Merger Success (BBG)
• WikiLeaks’ Assange ‘unlawfully detained’ in Ecuador embassy, U.N. panel to rule, BBC says (Reuters)
• Oil Seen `Lower for Longer’ by Morgan Stanley as Forecasts Cut (BBG)
• Weatherford Cutting 6,000 More Jobs as Oil Downturn Worsens (BBG)
• Beer, Cars and Mortgages? Super Bowl Ads Go Financial This Year (BBG)
• Dunkin’ Donuts reports surprise drop in U.S. store sales (Reuters)
• Bond Markets Are Underestimating the Fed, Goldman and Pimco Warn (BBG)
• The Secretive Hedge Fund That’s Generating Huge Profits for Yale (BBG)
• Democratic hopefuls Sanders and Clinton spar over ‘progressive’ credentials (Reuters)

 

Overnight Media Digest

WSJ

– Investors are rethinking their expectations for interest-rate increases this year, converging on a view that the U.S. Federal Reserve is unlikely to raise rates in March and possibly not even for the rest of the year. (http://on.wsj.com/1meG5MI)

– Sharp Corp has decided to enter exclusive talks with Taiwanese electronics assembler Foxconn over a takeover, people familiar with the matter said Thursday, in a last-minute turnabout that could clear the way for one of the most prominent investments by a foreign company in Japan. (http://on.wsj.com/1PBxm35)

– Media mogul Sumner Redstone is stepping back from the helm of an entertainment empire that includes some of the most iconic names in American business. Redstone has resigned as chairman of CBS Corp and will be succeeded by Chief Executive Leslie Moonves, the company said Wednesday. (http://on.wsj.com/1SHSghN)

– Millions of pounds of provisions, stuffed into three-dozen 747 cargo planes, arrived at Caracas from countries around the world in recent months to service Venezuela’s crippled economy. But instead of food and medicine, the planes carried another resource that often runs scarce here: bills of Venezuela’s currency, the bolivar. (http://on.wsj.com/20rjq2z)

 

FT

* DraftKings is planning to launch in the UK looking for international revenues to “mitigate the risk” of being regulated out of the U.S. The company had planned to make its games available to British users on Wednesday night, but the launch was delayed because of technical issues.

* Mondelez International Inc warned investors that it has braced for a further downfall in economic conditions in emerging markets, as the company gave a cautious outlook for the year.

* Bain and TPG are among several private equity firms weighing potential approaches for Yahoo Inc’s core internet business, after the struggling company announced it was exploring options for the unit.

* ChemChina sought to pre-empt political opposition to its $43.8 billion bid for Syngenta AG, saying that China’s biggest overseas takeover should not alarm politicians wary of the attempt to shore up the country’s food security

 

NYT

– Bad debts have been a drag on economic activity ever since the financial crisis of 2008, but the threat appears to be rising, and China is the biggest source of worry. (http://nyti.ms/1R4rZdL)

– In the latest sign that automakers are still struggling to understand the scope of the Takata Corp airbag crisis, Honda Motor Co Ltd said on Wednesday that it would expand its recall by more than a third in North America. (http://nyti.ms/1Qe1dL0)

– Media mogul Sumner Redstone, under pressure from shareholders and facing a lawsuit challenging his mental competence, has resigned as executive chairman of CBS Corp . The company’s board announced on Wednesday that it had appointed Leslie Moonves, the CBS chief executive, as his successor. (http://nyti.ms/1Pjg5YI)

– State-owned China National Chemical Corporation, known as ChemChina, has clinched a deal to buy Syngenta AG, a giant in farm chemicals and seeds, for $43 billion, underscoring China’s desire to secure a sustainable food supply for its population of 1.4 billion people. (http://nyti.ms/20aIIMT)

 

Canada

THE GLOBE AND MAIL

** Lowe’s Inc got it right the second time. The U.S. home improvement chain has won a C$3.2 billion ($2.34 billion) deal to acquire Quebec based Rona Inc by taking some savvy steps to get key stakeholders in the province on board. (http://bit.ly/1SXHEga)

** Quebec Economy Minister Dominique Anglade warned in an interview that her government would intervene in future takeovers of Quebec based companies if the offers are non solicited. (http://bit.ly/20bdZ2a)

** TransCanada Corp said it has an agreement with the Canadian arm of Zurich based ABB for the manufacture of at least 22 electrical stations in the Montreal area. The deal is valued at “several million dollars”.

NATIONAL POST

** The National Energy Board shouldn’t make a decision on the Trans Mountain pipeline expansion project “by a show of hands”, a lawyer for a group of Canada’s largest oil companies argued Wednesday. (http://bit.ly/1PC3B20)

** Bank of America Merrill Lynch economist Emanuella Enenajor says that, based on her calculations, the Canadian government could spend as much as an additional C$15 billion ($10.95 billion) annually and still meet its goal of lowering the debt to GDP ratio. (http://bit.ly/1SJUe1g)

** Colorado based Intrawest, which operates popular North American ski properties including Mont Tremblant in Quebec and Blue Mountain in Ontario, said season pass sales increased six percent compared to the prior year. (http://bit.ly/1NRIgMx)

 

Britain

The Times

Graham’s The Family Dairy is to supply Starbucks Corp with cream and milk in all its Scottish outlets, making the Bridge of Allan company the exclusive supplier to 68 coffee shops. (http://thetim.es/1PVq4Jq)

GlaxoSmithKline Plc claimed yesterday that it would hit a key sales target two years early, saying that its strategy was paying off in defiance of calls for the company to be broken up. (http://thetim.es/1PVqoYI)

The Guardian

Sports Direct has backed down from its legal battle with Rangers football club and abandoned efforts to prevent disclosure of the pair’s joint venture, which has made the Old Firm club about 4 pence from every pound spent in its Ibrox store. (http://bit.ly/1PVsMhT)

EasyJet Plc founder Sir Stelios Haji-Ioannou’s budget food store, which charges just 25p each for everyday groceries, has been forced to close temporarily after less than two days as it has run out of stock. (http://bit.ly/1PVsUhA)

The Telegraph

Tens of millions of mobile phone customers in Britain could see their bills frozen as part of a plan by Hutchison to gain approval for its 10.25 billion pounds ($14.96 billion) merger of Three and O2. (http://bit.ly/1PVs6t4)

Sky News

Ford Motor Co is to shed hundreds of jobs in the UK and Germany as part of a programme to save $200 million a year. The group said it was launching a voluntary redundancy programme as it looked to slash costs across its European business, in the face of mounting regulatory costs. (http://bit.ly/1PVr2VZ)

David Cameron is to pledge an extra 1.2 billion pounds ($1.75 billion)of UK aid to tackle the Syrian refugee crisis as he co-hosts a major international conference in London. (http://bit.ly/1PVshEC)

The Independent

Britons take 12 years longer than they think they will to pay off their debts, according to a report by the Centre for Economics and Business Research. (http://ind.pn/1PVsnMt)

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After yesterday’s torrid, chaotic moves in the market, where an initial drop in stocks was quickly pared and led to a surge into the close after a weaker dollar on the heels of even more disappointing US data and Bill Dudley’s “serious consequences” speech sent oil soaring and put the “Fed Relent” scenario squarely back on the table, overnight we have seen more global equity strength on the back of a weaker dollar, even if said weakness hurt Kuroda’s post-NIRP world and the Nikkei erased virtually all losses since last Friday’s surprising negative rate announcement. Oil and metals also rose piggybacking on the continued dollar weakness as the word’s most crowded trade was suddenly shaken out.

“We’ve seen commodities across the board in a swift move higher, with the common denominator the weaker dollar,” said Robin Bhar, a London-based analyst at Societe Generale SA. “Everything from gold to oil has benefited. Dwindling expectations of higher rates are affecting markets across the board. Clearly the Fed may struggle to raise rates more than once or twice this year.”

Oil was largely unchanged after rebounding from its biggest drop in almost seven years. Futures were fractionally in the green at $32.36 a barrel after earlier climbing as much as 2.1%. Continuing the on again/off again “OPEC emergency meeting” theme, Venezuelan oil minister Eulogio Del Pino says 6 OPEC members are open to holding an emergency meeting if one is called. To be sure, Saudi Arabia will just say no, while those who are trying to discover which OPEC oil exporters will go bankrupt first, look no further than these 6 countries.

In other oily news, Shell reported its 4Q profit dropped 44% on tumbling crude prices. Elsewhere, Aramco cut its March Arab Light crude price to Asia by 20c, while leaving March Light crude pricing to U.S. unchanged.

“Seems to be the market is trying to settle into a $30-$35 range — it seems when we get to around $30 we see some verbal intervention come in with the reaction to buy more driving prices toward $35 before we run out of steam,” says Saxo Bank head of commodity strategy Ole Hansen. “Traders are coming back in today and seeing price levels they probably didn’t expect at this time yesterday.”

Looking forward, while the US docket has a lot of macro data and at least two central bank speakers on deck, the key tell will be how stocks respond to data: if bad news is once again good for stocks, one can bury the rate hike narrative and just sit back and await admission from Yellen that it has relented and that, as Goldman hinted last night, the number of rate cuts will be dropped from 4 to 3, 2, 1 or even 0 as the US economy stalls.

For now, here is where we stand:

• S&P 500 futures up 0.1% to 1910
• Stoxx 600 up 0.5% to 331
• FTSE 100 up 1.5% to 5922
• DAX up 0.7% to 9502
• German 10Yr yield up 4bps to 0.32%
• Italian 10Yr yield up 7bps to 1.51%
• Spanish 10Yr yield up 8bps to 1.63%
• MSCI Asia Pacific up 1% to 121
• Nikkei 225 down 0.9% to 17045
• Hang Seng up 1% to 19183
• Shanghai Composite up 1.5% to 2781
• S&P/ASX 200 up 2.1% to 4980
• US 10-yr yield up 2bps to 1.91%
• Dollar Index down 0.63% to 96.67
• WTI Crude futures up 0.9% to $32.57
• Brent Futures up 0.5% to $35.20
• Gold spot up 0.4% to $1,147
• Silver spot up 0.6% to $14.78

Looking at regional markets around the globe, we start in Asia where equities traded mostly in the green, bolstered by the turn around in energy stocks following WTI crude futures rising by over 8% in the US, while also drawing comfort from a late rally on Wall Street. As such, the ASX 200 (+2.1 %) had been underpinned by energy and material names, while the Shanghai Comp (+1.5%) was also led higher by the energy, in addition the PBoC strengthened the CNY by the most since December 4th. However, Nikkei 225 (-0.9%) bucked the trend as exporters felt the brunt from the recent strength in the JPY, subsequently erased the majority of its BoJ stimulus inspired gains. JGBs finished trade flat in what was quiet session for Japanese paper.

Asia Top News

• China Sets 6.5% to 7% Growth Target, First Range Since 1990s: NDRC chief says downward pressure on growth “relatively big”
• Sharp Soars on Report It’s Giving Preference to Foxconn Bid: Deal would hand Apple iPhone assembler surprise victory
  • Sharp Says Bailout Talks to Continue With Both Foxconn, INCJ
  • Sharp Reports Fifth Straight Loss as Bailout Talks Continue
• Toshiba Widens Loss Outlook Amid Accounting Scandal Fallout: Net loss is expected to be a record 710b yen ($6b) in FY ending March; compares with an earlier forecast for a 550b yen loss and 505.5b yen loss analyst est.
• Japan Tobacco Forecast Below Estimates Amid Stalling Sales: Sees FY oper profit forecast 566b yen vs est. 607.8b yen.
• China’s Catch-22 Signals Stronger Yuan Surprise to Goldman Sachs: Higher yuan fixings to drive rally in risk assets, Brooks says
• Citigroup Plans Sale of Yen Bonds After BOJ Minus Rate Policy: Would be first yen bond by major foreign issuer since BOJ move
• China’s Biggest Ponzi Scheme Shows Rot in Internet Financing: Regulator says 1,000 of China’s 3,600 P2P sites are “problematic”

Another choppy session for European equities, which have largely remained in positive territory since the open, but endured some volatility. The USD has been the main driver of price action over the past 24 hours which has continued it’s trend lower following dovish comments from the Fed and disappointing US data. Consequently an uptick has been seen in oil; WTI Mar’16 and Brent April’16 have taken USD 32.00 and USD 35.00 handles respectively, leading to an uptick in the energy sector which outperforms in Europe and bolsters indices.

European Top News

• EU Slashes 2015 Inflation Forecast to 0.5% as Growth Seen Slower: Cut its prediction for euro-area economic expansion to 1.7% of GDP this yr, down from a 1.8% forecast in Nov.
• EU Cuts U.K. Economic Outlook, Says Output Gap Has Closed: Sees GDP rising 2.1% in 2016 and 2017, down from the 2.4% and and 2.2% forecasts in Nov.
• Daimler Strikes Cautious Tone, Citing More Risks in Economy: Sees only slight gains in rev. and earnings this year, with the rate of increase in unit sales “rather lower” than in 2015
• Draghi Says Weak Global Inflation No Reason for ECB Inaction: Draghi said the fact that inflation is weak globally won’t stop ECB from adding stimulus for the euro area if needed
• ChemChina Said to Seek Jumbo Commitments on Syngenta Bridge Loan: Banks asked to contribute $5b each to acquisition loan
• Vodafone Service Revenue Shows Europe Rebound, Asian Growth: 3Q organic service rev. growth of 1.4% matches ests., reaffirms its earnings forecast for the full yr
• Beijing Enterprises to Buy EEW as China Acquisitions Ramp Up: Agreed to buy energy-from-waste company EEW from EQT Partners for EU1.44b
• AstraZeneca Sees 2016 Profit Dip as Crestor Gets Competition: 2016 sales to fall by low to mid single-digit percentage; core oper. profit per share will fall by a low to mid single-digit percentage from $4.26 last yr; 4Q core EPS 94c vs est. 94c
• Munich Re Jumps Most in Four Years After Dividend Beats Forecast: Proposes dividend of EU8.25 a share for 2015 vs Bloomberg div. forecast of EU8; 4Q earnings unchanged at EU700m
• Goldman Sees Pound Tumbling by as Much as 20% on ‘Brexit:’ Bank predicts decline to $1.15-$1.20 if U.K. leaves EU
• Osborne Hails EU Pact for Protecting London as Finance Capital
• Statoil Deepens Cuts to Maintain Dividends Amid Crude Slump: Statoil cuts investments to $13b, 35% lower than 2014; introduces scrip dividend, maintains 22c for quarter
• Biggest Danish Mortgage Bank Seeks IPO as Capital Woes Mount: Nykredit is seeking an IPO as looks for ways to generate enough funds to meet increasingly heavy capital requirements

In FX, it has been all about the dollar: the Bloomberg Dollar Spot Index, a gauge of the greenback against 10 major peers, retreated 0.4 percent after sliding as much as 1.9 percent last session.

Yesterday’s sharp turn in the USD set the tone for early European trade, with the constant questioning on whether the Fed should hike again finally taking its toll on the greenback. As stocks and Oil were in the red, USD/JPY took the brunt of the action, but with the inverse relationship with commodities lifting Oil, stocks soon followed. The yen gained 0.1 percent to 117.73 per dollar following a 1.7 percent surge, while the euro traded at $1.1118.

This has tempered losses here, attentions switching to the rest of the majors. EUR gains have extended towards 1.1200 now, while AUD and NZD tip 0.7200 and 0.6700 respectively, but CAD gains have really gathered momentum with Oil higher, with 1.3700 the latest big figure breach.

The won strengthened the most since October after falling every other day this week. The ringgit climbed 1.6 percent, buoyed by crude’s recovery given Malaysia is Asia’s only major net exporter of oil. A Bloomberg gauge of emerging-market currencies climbed 0.2 percent after rallying 1.2 percent on Wednesday.

The pound extended its biggest jump since October before the BOE’s interest-rate decision and economic forecasts. Cable gains may be seen to be a little audacious ahead of the BoE/QIR, but we have still managed to push new highs through the 1.4600’s. EUR/GBP back above 0.7600 though. EM also on the mend, BRL and TRY outperforming RUB, MXN and ZAR for now.

In commodities, WTI and Brent are rather flat on the session as markets take a breather following the dramatic price action in yesterday’s session. The OPEC saga takes a back seat for now and there is no more news on that front anyway. Instead the USD dictates price action in oil, with the risk event in that respect coming in tomorrow’s NFP report.

Gold remained near yesterday’s highs in European trade having posted the best day of gains in 2-weeks yesterday, to trade above USD 1140, a level which it has not taken since early November. This came after dovish comments from the Fed and disappointing US data including services and ISM non-manufacturing PMI’s which saw the USD soften.

The Bloomberg Commodity Index, which measures returns on raw materials, extended the previous session’s advance as it rallied 0.6 percent.

Statoil ASA, Norway’s biggest oil company, deepened investment cuts and offered to pay dividends in stock as a collapse in crude prices eroded earnings. The company said it plans to reduce capital expenditure to $13 billion this year from a revised $14.7 billion in 2015, after reporting a 63 percent drop in fourth-quarter profit on Thursday. Statoil boosted a target for 2016 cost savings to $2.5 billion from $1.7 billion.

Spot gold climbed for a fifth day, the longest run of gains in five months, as expectations of continued low U.S. interest rates seeped through the market. The metal soared to the highest in three months at $1,147.47 an ounce. Investors increased holdings in exchange traded funds for a 13th time, the longest run in three years.

Aluminum for delivery in three months climbed to the highest this year on the LME, reaching $1,543.50 a metric ton, and lead advanced for the eighth day in a row, the longest run since June 2014.

On today’s calendar, we get the first estimates of Q4 nonfarm productivity (expected to fall by 2% on the back of weak output growth) and unit labour costs (expected to gain 4.3%) data, along with the latest initial jobless claims data. December factory orders data follows this along with the final revisions to January durable and capital goods orders. It’s a busy day for earnings also with 33 S&P 500 companies due to report with ConocoPhillips a highlight in the energy sector.

Top Global News:

• Credit Suisse Plunges as Investment Bank Slump Deepens Losses: 4Q net loss CHF5.8b, hurt by a goodwill impairment of CHF3.8b; biggest qtrly loss since 2008 and below the CHF4.3b loss est. of 5 analysts in a Bloomberg survey
• Redstone Tough-Guy Era May Be Drawing to a Close in Hollywood: Sumner Redstone resigned as chairman of CBS; to be replaced by CEO Les Moonves; Redstone may relinquish the executive chairmanship of Viacom
• Delta Names Bastian CEO as Anderson Departs After Merger Success: CEO Richard Anderson, will step down later this year to make way for his longtime second-in-command, Ed Bastian
• China Eases Rules on Foreign Investor Quotas, Fund Withdrawals: Relaxed restrictions on the amount of money foreign investors can bring into China, curbs on when they can take funds out, QFII allocations no longer subject to $1b cap
• Cisco to Buy Jasper for $1.4 Billion, Adding IoT Management: Closely held company helps connect new devices to Internet
• Shell 4Q Profit Drops 44% as Crude Prices Tumble: 4Q CCS net ex-items $1.8bm matches est. $1.8b
• Yum Tops Profit Estimates After Taco Bell, KFC Sales Grow: 4Q adj. EPS 68c, est. 66c, rev. $3.95b, est. $4.03b; same- stores sales gained 4% at Taco Bell and 3% at KFC
• GoPro Forecasts Another Quarter of Disappointing Sales: Sees 1Q rev. $160m-$180m vs est. $287.3m, sees FY2016 rev. $1.35b-$1.5b vs est. $1.59b; Brian McGee to succeed Jack Lazar as CFO
• Allstate Quarterly Profit Declines 41% as Auto Claims Rise: 4Q oper. EPS $1.60 vs est. $1.35
• MetLife Profit Falls 45% on Private Equity, Hedge Fund Slump: 4Q oper. EPS $1.23, est. $1.36
• Weatherford Cutting 6,000 More Jobs as Oil Downturn Worsens: Plans to lay off an additional 6,000 workers, about 15% of its workforce; follows loss of 14,000 workers in earlier cutbacks
• Oil Seen ‘Lower for Longer’ by Morgan Stanley as Forecasts Cut: Now sees oil mostly falling through 2016, compared with a previous outlook for prices to rise each quarter
• Goldman Sachs With Pimco Warn Bond Gains Will Turn Into Losses: Goldman’s Hatzius sees 10-yr yield rising to 3% by yr-end
• Price Spike on $750 Pill Was Shkreli’s, Turing Tells House: Turing, Valeant set to testify at hearing on drug pricing
• Santorum Says He’s Suspending Campaign, Endorsing Rubio
• Jefferies Said to Cut Fixed-Income Staff Linked to Mortgages
• Super Bowl Tests Twitter’s Dominance in Ads Paired With Live TV

Bulletin Headline Summary from RanSquawk and Bloomberg:

• Another choppy session for European equities, which have largely remained in positive territory since the open, but endured some volatility.
• WTI and Brent are rather flat but holding yesterday’s gains, as markets take a breather following the dramatic price action yesterday
• Today’s highlights include BoE’s ‘Super Thursday’, US weekly job numbers, factory orders and challenger job cuts and comments from Fed’s Rosengren
• Treasuries lower overnight, led by long-end, as declining consensus for further Fed rate hikes this year pressures USD, helps rally oil, global equity markets.
• Federal Reserve officials Lael Brainard and William Dudley said policy makers need to take into account tighter financial conditions when they meet next month to decide whether to raise interest rates again
• Goldman Sachs and PIMCO say bonds are poised to fall and traders aren’t prepared for how far the Federal Reserve will raise interest rates
• The slowdown in emerging economies is posing a major threat to recovery in the euro area, the European Commission said as it trimmed its 2016 growth forecast and warned inflation would be much slower than expected, cut forecast to 0.5%
• Mario Draghi said the fact that inflation is weak globally won’t stop the European Central Bank from adding stimulus for the euro area if needed
• Credit Suisse posted the biggest quarterly loss in seven years as it wrote off goodwill and set aside provisions for litigation, while a drop in trading deepened losses in the securities unit. The shares slumped to the lowest since 1991
• Jefferies cut employees from its fixed-income unit this week, with a focus on staff handling products tied to mortgages, according to people with knowledge of the matter
• As Japan’s stocks sink, pension funds are loading up. Trust banks, which buy on behalf of retirement savings managers, added ¥271 billion ($2.3 billion) of equities last week, the most since March 2009 and a net ¥1.4 trillion in 10 straight weeks of buying
• Sovereign 10Y bond yields mostly higher, led by Greece (+9bp). Asian, European stocks higher; U.S. equity-index futures rise. Crude oil, gold, copper rally

US Event Calendar

• 7:30am: Challenger Job Cuts y/y, Jan. (prior -27.6%)
• 8:30am: Non-farm Productivity, 4Q P, est. -2% (prior 2.2%)
  • Unit Labor Costs, 4Q P, est. 4.3% (prior 1.8%)
  • Initial Jobless Claims, Jan. 30, est. 277k (prior 278k)
  • Continuing Claims, Jan. 23, est. 2.24m (prior 2.268m)
• 9:45am: Bloomberg Consumer Comfort, Jan. 31 (prior 44.6)
• 10:00am: Factory Orders, Dec., est. -2.8% (prior -0.2%)
  • Factory Orders Ex Trans, Dec. (prior -0.3%)
  • Durable Goods Orders, Dec. F, est. -4.5% (prior -5.1%)
  • Durables Ex Transportation, Dec. F (prior -1.2%)
  • Cap Goods Orders Non-defense Ex Air, Dec. F (prior -4.3%)
  • Cap Goods Ship Non-defense Ex Air, Dec. F (prior -0.2%)

Central Banks

• 7:00am: Bank of England Bank Rate, est. 0.5% (prior 0.5%)
• 8:30am: Fed’s Kaplan speaks in Dallas
• 5:00pm: Fed’s Mester speaks in New York
• 7:30pm: Reserve Bank of Australia issues monetary policy

DB’s Jim Reid completes the overnight wrap

Indeed after a 2-day 11% slump which was the largest in almost seven years, WTI oil rose 8.03% yesterday to close at $32.66/bbl. The move was the second largest one-day gain in the last five months. Interestingly the huge surge came despite more scary supply data after US crude inventories were said to have risen past the 500million barrel mark for the first time since 1982 based on weekly data (although based on monthly data you’ll have to go back to 1930 to find the last time we saw higher inventory levels). We had briefly thought that headlines on the wires suggesting that Venezuela, Iran and Russia had agreed to an emergency meeting with 3 other OPEC and non-OPEC members was the cause for yesterday’s rally, however the story never really gained traction after the initial leak.

Instead, much of yesterday’s move was attributed to a huge fall in the Dollar which came about after fears of a soft non-manufacturing ISM print were realized (53.5 vs. 55.1 expected, -2.3pts from December) with concerns about the employment component in particular. Some dovish comments from the Fed’s Dudley also played a role. More on that and the data later but in terms of the price action, the Dollar index finished -1.60% weaker which was the biggest daily fall since December 3rd, while the Greenback finished down 1.70% against the Euro which was also the weakest day since the ECB failed to meet high hopes two months ago.

Risk assets swung wildly in response. Despite the gains for Oil, the S&P 500 was down as much as -1.7% in early trading as financials dragged risk assets lower. The rebound kicked into gear with around two-hours in the session left as slowly but surely the energy sector began to reflect the huge gains for Oil, eventually culminating with the S&P 500 recording a +0.50% gain. The Dow was up a more impressive +1.13% by the close although the Nasdaq (-0.28%) failed to fully recover from earlier steep falls. US credit indices mirrored the moves with CDX IG trading as much as 4bps wider intraday, before finishing 1bp tighter by the end of play.

Meanwhile in the rates space we saw 10y Treasury yields fall as low as 1.792% intraday (24 hour high-to-low range of over 10bps) and the lowest in 12 months post the data, before then tracking the Oil move and retracing much of that to finish up 4bps on the day at 1.886%. It had been a much different tone during the European session where risk assets took another hammering (Stoxx 600 -1.54%) on the back of that financials weakness while European bond yields continued their move lower. In fact, 10y Bunds (currently 0.273%) are now under 3month Treasuries for the first time since October 2007 which is another of the interesting stats one can reel off about these heavily repressed government bond markets.

This morning in Asia we’ve seen Oil extend gains in early trading (WTI +0.81%) which is generally helping equity bourses trade higher as we go to print. There’s been little additional newsflow but it hasn’t stopped the Hang Seng (+1.36%), Shanghai Comp (+1.25%), Kospi (+1.34%) and ASX (+2.13%) all following the late US rebound and posting decent gains. The Nikkei (-0.68%) is bucking the overall trend and extending the post BoJ fallout there (it’s currently just +0.16% above where it was in the minutes prior to the negative rate announcement). US equity index futures are currently up half a percent, while in credit markets the Asia iTraxx has rallied back 5bps tighter.

Meanwhile, there’s some news out of China to report as yesterday various news agencies were reporting that the head of the National Development and Reform Commission has said that China’s growth target is set to be 6.5% to 7% this year. DB’s Chief China Economist, Zhiwei Zhang, pointed out that this is the first time China has set an annual growth target in a range rather than a specific number. The growth target for 2015 was 7%. In his mind the wide target range reflects the lack of consensus on growth potential in the policy circle. He highlights that some may believe growth faces severe pressure and a lower target is conducive to more sustainable growth. While others may think cutting the target in the first year of the new five year plan period makes it difficult to achieve the overall target, which is above 6.5% on average.

Back to yesterday’s data. A big focus of that ISM non-manufacturing data (which was the weakest since February 2014) was the aforementioned weakness in the employment component which tumbled 3.9pts to 52.1 and a 12-month low. This of course comes after the soft employment component in the manufacturing ISM. Yesterday’s data does however support our US Economists view of the non-manufacturing converging (by moving lower) to the manufacturing data with the gap now shrinking to 5.3pts from 7.8pts in December. Fears of a soft payroll print on Friday were unsurprisingly raised post the data, however some pointed towards a slightly better than expected ADP employment change reading (205k vs. 195k expected) last month. Elsewhere we saw the final US services PMI revised 0.5pts lower at 53.2.

In terms of that Fedspeak then, it was the cautious comments from NY Fed President Dudley, in an interview with MNI, which initially gained attention when he warned that financial conditions have tightened considerably and that should this remain in place by the time of the March meeting, then the Fed will need to take this into account. Dudley also commented on the weakening outlook for the global economy and acknowledged that the Fed committee is assessing the implications for the labour market and inflation, as well as the balance of risks to the outlook. Later on we heard from Governor Brainard who specifically referred to weakness in emerging markets as posing a risk to US growth. Clearly current market pricing (sub-50% for one rate hike this year) is in contrast to the Fed dot plots, but recent Fed comments have certainly weighed in with a much more dovish tone (Esther George aside).

Before we take a look at today’s calendar, the European data yesterday was firmly focused on the final revisions to the January PMI’s where in the end we saw no change to the Euro area services PMI at 53.6, and so down 0.6pts from December. The composite was revised up a very modest 0.1pts to 53.6 so as to be down 0.7pts from the prior month, albeit near the top of the recent range. Regionally we saw the composite print for Germany reaffirmed at 54.5, however France was revised down 0.3pts to 50.2. We also got the data for Italy where we saw the print fall 2.2pts to 53.8, while Spain was up a modest 0.1pts to 55.3. The UK was also up a solid 0.8pts to 56.1.

Onto today’s calendar now. It’s a quiet start to the day this morning in the European session with no data to report of before attention turns over to the BoE MPC meeting around midday where of course the focus will be on the Bank’s policy outlook assessment (minutes and inflation report will be released). This afternoon in the US we’re kickstarting with the first estimates of Q4 nonfarm productivity (expected to fall by 2% on the back of weak output growth) and unit labour costs (expected to gain 4.3%) data, along with the latest initial jobless claims data. December factory orders data follows this along with the final revisions to January durable and capital goods orders. Fedspeak wise we’ve got Rosengren due to speak shortly after this is out (7.15am GMT) followed by Kaplan (1.30pm GMT) this afternoon and then Loretta (10.00pm GMT) this evening. Also due this morning are comments from ECB President Draghi (8.00am), shortly followed by fellow ECB council member Knott. The IMF’s Lagarde is also due to speak on emerging and developed markets this afternoon at 3pm GMT. It’s a busy day for earnings also with 33 S&P 500 companies due to report with ConocoPhillips a highlight in the energy sector.

via Zero Hedge http://ift.tt/1nIRGVi Tyler Durden