Month: March 2016

With analysts calling NatGas's glut even bigger than crude's, the following 'chart' has just become the scariest in the world for the energy complex. As Bloomberg warns, if you live in the eastern U.S., it’s almost time to put that snow shovel away and get out the gardening tools, as March temperatures are expected to be considerably higher than expected across the entire US (except Florida, sorry).

As Bloomberg continues, after a slight hiccup later this week — which could bring a little sleet and even a few snowflakes — the warmth that has dried out the West Coast and drought-stricken California during most of February will shift east.

Temperatures may reach 8 degrees Fahrenheit (4 Celsius) above normal by mid-month from the Midwest to the Atlantic, and even higher across the Great Lakes and parts of Ontario and Quebec, said Commodity Weather Group LLC in Bethesda, Maryland.

 

“The pattern is going to change,” said Rob Carolan, owner of Hometown Forecast Services Inc. in Nashua, New Hampshire.

March is expected to be considerably hotter than expected everywhere (except Florida)

New York City could see 64 next week, according to MDA Weather Services in Gaithersburg, Maryland. Boston may make the 60s, too, along with Cincinnati, Chicago and Minneapolis. Washington, Philadelphia and St. Louis might reach the 70s, MDA said.

That’s enough to put a garden stake through the heart of winter. Not that winter has had much of a bite, especially along the East Coast. New York’s Central Park had 11 days above 50 in February and four at 60 or better. While the snowfall total is higher than normal for the season, it was 5.2 inches (13 centimeters) below average since Feb. 1, according to the National Weather Service.

Almost all of New York’s snow, 26.6 inches out of 31.2, came from a Jan. 23 storm.

The rest of the Northeast has done pretty well this season, too, unless you like to ski.

“Boston is closing in on at least its second-mildest winter on record,” Carolan said.

Which explains why Nattie is plumbinmg new record lows…

 

As this morning's hope crashes…

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After attempting a valeant, pardon the poor pun, Leap Day surge to close green for the month, a bout of late day selling resulted in the S&P500 closing just red for the month following a dramatically turbulent January, a continuation of the disappointing post Fed hike price action; indeed as noted earlier for global equities, February was the 4th consecutive month in which stocks declined and in many cases continued their presence in bear market territory.

So while many assets failed to work, some did. Below we present the full breakdown of the best and worst performing assets of both February and 2016 YTD in local currency terms and in USD terms.

Here is DB’s Jim Reid with the full breakdown:

Having been through one of the worst Januarys in the post-Lehman era, February offered some stability in selected asset classes although for most parts risky assets in DM are still down on the month. Oil was largely flat in February and has been mostly trading inside the $30-$35/bbl range for the past month. That perhaps gave the EM complex some breathing space with the likes of Bovespa and EM bonds actually up on the month. Against the backdrop of lower DM equities, February was again another positive month for core rates whilst credit total returns were mostly flat to small down with weakness led by higher-beta parts of the market. Net net year to date performances are still negative for most key risk benchmarks while core rates and precious metals are some of the standout performers to date.

Taking a closer look at the month and starting with equities, the DAX and Stoxx 600 were 2-3% lower on a total returns basis whereas the S&P 500 finished the month basically unchanged. In EM, the MSCI EM equity benchmark is also flat on the month. Chinese equities was down almost 2% in February (after a late month reversal) which was still relatively speaking a much better showing versus the 23% decline in January.

The Shanghai Composite remains one of the biggest YTD underperformer in our selected sample of global asset classes.

In terms of fixed income, Treasuries, Gilts and Bunds were up around 1.0-1.5% in Feb which takes their total returns to date to low-to-mid single digits. Impressive given the low starting yield. Credit performance is somewhat more mixed but generally total returns for higher quality segments benefitted from the rates rally.

In Commodities Gold (+11%), Sugar (+11%) and Silver (+5%) were the top performers. In currencies JPY rallied nearly 8% against the Dollar on the back of safe-haven flows but generally the Dollar index is 1.4% lower on the month. Please refer to the PDF for our usual table and charts.

Below are the best performing assets in local currency…

… and USD terms.

 

And the same for 2016 YTD local currency:

And rebased into US Dollars.

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From decoupled American to deteriorating China, PMIs (and plenty of other data) is rapidly descending into the ugly reality that every mainstream economist is in denial about. Of course, this terrible news is terrific news for stocks (moar stimulus) but it is Gold that appears to be benefitting most as the inevitability of the next extreme monetary policy makeover looms ever closer…

 

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Gold Rose Another 10% In February – Best Month Since January 2012

Gold bullion rose 10.1% in February adding to the 7% gains seen in January. This means that gold is the best performing asset this year, up 17% so far in 2016. Silver is the next best performing asset with an 8% gain year to date, followed by US Treasuries (30 Year Bond) which have gained 7.8% so far in 2016.

Comparatively, the S&P 500 index is down 4.7% this year, the Dow Jones Industrial Average is down 4.5% and the NASDAQ is down 7.8%. International indices have also seen losses with the FTSE down 2.6%, the DAX down 10.7% and the Nikkei down 13.7% (see table below).

Market Performance in February – Finviz.com

Gold is again acting as a hedge for investors and pension owners exactly when they need a hedge.

The biggest influence going forward for gold is “likely to be risk appetite and concerns about markets and the global economy,” Mark O’Byrne, research director at GoldCore told Marketwatch.

“If stock markets begin to recover and make gains and risk appetite returns, then gold could come under selling pressure,” he said. “However, we believe the volatility seen in the first two months is likely to continue.”

Read more on Marketwatch here

 

‘7 Real Risks To Your Gold Ownership’ – Must Read New Gold Ownership Guide Here

 

LBMA Gold Prices
01 Mar: USD 1,240.00, EUR 1,141.70 and GBP 886.09 per ounce
29 Feb: USD 1,234.15, EUR 1,131.46 and GBP 890.95 per ounce
26 Feb: USD 1,231.00, EUR 1117.58 and GBP 878.87 per ounce
25 Feb: USD 1,235.40, EUR 1,121.41 and GBP 887.10 per ounce
24 Feb: USD 1,232.25, EUR 1,122.33 and GBP 885.52 per ounce

Gold and Silver News and Commentary
– Gold scores for biggest monthly gain in four years – Marketwatch
– Gold extends gains on safe-haven bids, fund inflows – Reuters
– Gold prices gain strongly in Asia after weak China PMI reading – Investing
– Gold Assets in World’s Top ETP Reach Highest Since September – Bloomerg
– Barclays shares drop 6% after £1.9bn loss and divi cut – FT

– Eurozone Slides Back Into Deflation – Telegraph
– Socialism has created a humanitarian disaster in Venezuela – City AM
– Gold Glows As Stocks Suffer Longest Losing Streak Since 2011 – Zero Hedge
– Patiently Climbing Aboard New Gold Bull – AU Report
– Wall Street Gold Buying Binge Continues – GLD back to 25M ozs – GoldSeek

Read more here

by Mark O’Byrne

www.Goldcore.com  

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With Super Tuesday upon us, it appears no matter what the establishment throws at Donald Trump, nothing seems to stick and reduce his core support's enthusiasm. Many on 'the other side' are unable to comprehend this support and so Indianapolis residents Jon and Elsa Sands wrote to The FT to explain why they are voting for Trump…

Sir, My wife and I are affluent Americans with postgraduate degrees. We are socially liberal and fiscally mildly conservative. We are not the sans-culottes you see as the prototypical Trump voter. We are well aware of his vulgarity and nous deficiency yet we contemplate voting for him. Why?

 

Electing the standard-bearer of the Democratic Party seems purposeless. The neanderthal Republicans barely respected the legitimacy of Bill Clinton’s or Barack Obama’s election, let alone that of Hillary who would arrive tainted with scandal and the email lapses hanging over her head. We would get four years of gridlock and “hearings”.

 

The Republican tribunes, Ted Cruz and Marco Rubio, are backward, foolish and inexperienced. John Kasich, a moderate with extensive governmental experience and a willingness to compromise, is an also-ran.

 

That leaves The Donald, really a moderate in wolf’s garb, who would owe nothing to either party and might strike deals, for instance on tax reform.

 

Yes, we could be like the good citizens who voted for a "tameable" Hitler in 1933 to get things back on track. But the alternatives look worse.

Simply put, as Liberty Blitzkrieg's Mike Krieger summed up:

Trump is the protest vote against ever-bigger government and the failure of Summers/Keynesian policies

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This past Friday morning, when the tremendous bear market rally finally fizzled after an initial spike higher following by gradual daylong selling which closed the market in the red, following by another red close on Monday, we warned the bulls early that the “Rally is in Jeopardy” for one simple reason: Gartman had covered his shorts. 

As a reminder, this is what he the perennial CNBC guest said early on Friday morning:

We have been short one unit of equities in rather global terms, by being short one third of a unit of US equities; one third of a unit of the EUR STOXX 50 and one third of a unit of the Nikkei. The trade started off properly and almost immediately we were profitable; however we are now almost at a small loss on the trade… and actually we are marginally profitable. This is a concern and we fear that perhaps we are about to see a period of time when the monetary authorities throw caution to the inflationary wind, expand the supply of reserves to the banking systems around the world in a fashion that really can only be considered egregious with caution tossed to the winds. That is, we may be in for a period of time when gold and equities move in tandem together to the upside.

 

At any rate, although we were willing to risk this position rather materially from its outset, we are not willing to do so now. Hence, rather than waiting to be stopped out of our position some 3+% higher we wish to cover the position immediately upon receipt of this commentary, taking a very small profit and refraining from taking a loss and living to fight another day and in the end succeed.

We were particularly amused because just one day prior, Dennis said that “there are many still arguing that this is not a fully-fledged bear market, but they are wrong. This is not only fully fledged, this is a fledged carnivore rather than a herbivore, for this bear market is consuming everything in its path with no intention of slowing down its “eating” habits.”

So from “carnivorous bear market” to covering shorts in one day.

In any case, having lost money once again on his “net long” position over the past 48 hours, Gartman has done what he does best – we won’t even use the term any more – and has decided to troll not just his readers and this website, but certainly the CTAs who went short yesterday, and announced that he is once again short.

We are selling the markets short once again, having been short recently and having covered that short only a “short” while ago. But we are sellers once again this morning, noting that as the global markets have rallied they have done so on lesser volume on balance. Volume should follow the trend and the trend and volume are pointing lower, not higher.

Thsi may or may not explain why US equity futures are up nearly 1% as of this writing.

We close with some more inexplicable Gartman P&L math:

On balance we’ve done very little in the past few days and we are up a bit more than 10%… 10.3% to be precise…for the year-to-date. We have been very fortunate, hoping that our good fortunate shall obtain a while longer.

If anyone figured out how that works, please let us know.

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Don’t look now, but Barclays just joined the chorus of European banks reporting horrific results.

Shares plunged by double-digits on Tuesday after the bank said it swung to a £1.9 billion pre-tax loss in Q4 and moved to cut the dividend and shed its African subsidiary.

The payout will be cut by more than half this year and next in an effort to shore up the bank’s capital. For all of 2015, the red ink summed to £394 million, markedly worse than 2014. Adjusted pre-tax profit (which, as FT put it, strips out “lots” of one-offs) was £5.4 billion, a miss on consensus of £5.8 billion.

The bank will look to exit a 62% stake in Barclays Africa going forward and new CEO Jes Staley plans to exit the continent altogether. For the foreseeable future, Barclays will focus on its businesses in the US and the UK. The dividend will be cut to 3 pence per share from 6.5p in 2015.

“While we believe that the cut in dividend will be taken negatively initially, it will help to allay fears of capital weakness,” analysts at Haitong Research wrote on Tuesday.

“In the few months since Staley’s appointment, Barclays has made sweeping cuts across its investment bank and exited several businesses including in Asia, aiming to trim costs, reduce risk and shore up its balance sheet,” Reuters notes. “However, legacy issues continue to hurt the bank, with 4.01 billion pounds of provisions made against an array of regulatory missteps, compared with 2.36 billion a year earlier.”

“Staley, who joined the bank three months ago, is in the midst of reorganizing the bank around two lines: UK retail banking and its corporate and investment bank,” FT reminds us. “By splitting into two main divisions, he says Barclays would prepare for new ringfencing regulations forcing it to hive off its UK retail banking unit and its US activities into standalone entities.”

Revenues were up slightly in 2015 and the ratio of costs to income was 81%. Staley plans to reduce that figure to 60% or less. Previously, Barclays was looking at a target in the “mid-50s.”

Barclays Africa Group Limited will will be sold down until it can be deconsolidated, a move Staley says will beef up the bank’s capital ratio by 1%. As FT goes on to say “Barclays remains one of the most weakly capitalised banks in Europe, on a par with Deutsche Bank and Credit Suisse.”

The decision to exit Africa was “a difficult one to make,” Staley says, but it “presents specific challenges to Barclays as owners.” A third of all Barclays staff operate in Africa.

But while Barclays may be abandoning the Africa business, it won’t be exiting investment banking, as some commentators have suggested. “There are some who have recommended we would be wise to exit this business entirely — I strongly disagree,” Staley said on Tuesday. “That’s shortsighted,” he added, before admitting that the business “does not currently generate returns above our cost of equity.”

“Shortsighted” investors have sent the stock down nearly 40% over the past year alone.

Barclays Tier 1 ratio was 11.4% by the end of last year, up from 10.3% a year earlier. Staley says the bank will start paying out a “significant” portion of its profits in 2018. So stick around.  

In any event, this is a train wreck. There’s also £18 billion in O&G exposure on the books and the bank said the SEC and the DoJ are launching “an investigation into certain hiring practices in Asia.”

Although Staley tried to keep it upbeat, he clearly has no idea how this is going to turn out. Here, for instance, is guidance: “[We’re going to] achieve attractive returns for shareholders.”

Fair enough, but “shareholders” aren’t happy. We close with what Nomura’s Chintan Joshi told Staley on the call: “Look at your stock price, and what it is telling you is no one is believing your ‘jam tomorrow’ capital story.”

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• Trump, Clinton poised for big wins on Super Tuesday (Reuters)
• U.S. Index Futures Signal Equities to Rebound After Monthly Drop (BBG)
• Barclays Plummets as Bank Slashes Dividend in Plan to Shrink (BBG)
• Glencore Tumbles to Loss, Promises Accelerated Debt Reduction (WSJ)
• The Angry Americans: Trump, Sanders and the Aftershocks of 2008 (BBG)
• Euro sinks as weak data piles pressure on European Central Bank (Reuters)
• China’s PMI Reports Show Slowdown Deepening as Services Slip (BBG)
• China Manufacturing Slows More Than Expected (WSJ)
• China’s Central Bank Can’t Shed a Culture of Secrecy (WSJ)
• Greece’s Creditors Said to Face Impasse Over Terms of Bailout (BBG)
• OPEC watching Iran, Russia, unlikely to cut output in June (Reuters)
• Oil near two-month high on China demand hopes, easing supply glut (Reuters)
• 1MDB Scandal: Deposits in Malaysian Leader Najib’s Accounts Said to Top $1 Billion (WSJ)
• The Rise and Fall of Commodities Hedge Fund King Willem Kooyker (BBG)
• NYSE Owner ICE, CME Group Mulling Bids for LSE (WSJ)
• Fed’s Dudley sees risks to U.S. economic outlook tilting to downside (Reuters)
• Barclays Falls Under SEC Spotlight for Asian Hiring (WSJ)
• New bin Laden documents show a suspicious, pressured al Qaeda (Reuters)
• U.S. small business borrowing at lowest level since 2014: PayNet (Reuters)

 

Overnight Media Digest

WSJ

– A judge in New York sided with Apple Inc against the Justice Department, in a fight about whether the company can be forced to help unlock a phone – a ruling that could affect a similar case about an assailant’s phone. (http://on.wsj.com/1ejfriJ)

– Valeant Pharmaceuticals said it is under investigation by the Securities and Exchange Commission, the latest issue to face the beleaguered drug company. (http://on.wsj.com/1L0SzDC)

– Deposits into personal accounts of Malaysia’s prime minister totaled more than $1 billion – hundreds of millions more than previously identified – and global investigators believe much of it originated with a Malaysian state fund, people familiar with the matter say. (http://on.wsj.com/1L0Tcgz)

– Some of America’s biggest shale producers are beginning to ratchet back oil and gas production for the first time in years, bending to the reality that a global glut will keep prices depressed. (http://on.wsj.com/1L0TzYr)

 

FT

The Bank of England and Financial Conduct Authority said on Monday that they do not agree with the EU rules forcing the bonus cap, applying to the big banks, on more than 1,000 smaller financial institutions across London.

AstraZeneca said on Monday it had sold the rights to two aging heart drugs to China Medical System Holdings for $500 million, marking the latest step in an ongoing programme of divestments for non-core assets.

French media group Vivendi raised its offer for mobile phone games company Gameloft SE on Monday after the latter rejected Vivendi’s initial takeover bid hours earlier in the day.

 

NYT

– A federal magistrate judge on Monday denied the United States government’s request that Apple extract data from an iPhone in a drug case in New York, giving the company’s pro-privacy stance a boost as it battles law enforcement officials over opening up the device in other cases. (http://nyti.ms/1OJzctk)

– Valeant Pharmaceuticals International said on Monday it was being investigated by the Securities and Exchange Commission, the latest turn of events for the Canadian drug maker, which has come under recent scrutiny for its sky-high drug prices and a once-secret relationship with a mail-order pharmacy. (http://nyti.ms/1oKYFgQ)

– A non-profit watchdog group on Monday called for an investigation of David Stevens, chief executive of Mortgage Bankers Association, arguing that he may have violated ethics laws relating to his previous position as commissioner of the Federal Housing Administration. (http://nyti.ms/1XWNnT2)

– Argentina has agreed to pay $4.65 billion to four hedge funds in a deal that could put an end to more than a decade of mudslinging and legal attacks that had cut the country off from global financial markets. (http://nyti.ms/1LRyzye)

 

Canada

THE GLOBE AND MAIL

** The U.S Agriculture Department has given the Canadian Food Inspection Agency until mid-March to fix significant food safety and sanitation concerns found during an audit of Canada’s meat, poultry and egg inspection systems. (http://bit.ly/1L1Bv0d)

** As Michael Pearson resumed CEO duties at Valeant Pharmaceuticals International Inc, his first day back included a backfired attempt to selectively address some analysts, a slew of negative research reports, a move by a rating agency to potentially downgrade the company and news that Valeant was under investigation by the U.S. Securities and Exchange Commission. (http://bit.ly/1L1ChdD)

NATIONAL POST

** Royal Bank of Canada’s affordability calculator for the fourth quarter of 2015 found that households with median income must now pay 109 percent of pre-tax earnings to buy just an average home in the metro Vancouver area, leaving nothing for food, clothing or other essentials. (http://bit.ly/1L1D7ac)

 

Britain

The Times

* Households are borrowing more than 1 billion pound ($1.39 billion) each month to finance new cars, holidays and big-ticket consumer items in a spending splurge that economists warn could fuel another dangerous debt bubble, according to figures from the Bank of England. (http://thetim.es/1LR7D1o)

* The number of jobs being advertised online has fallen for the second month running in a sign that Britain’s booming labour market may be running out of steam, according to Adzuna, a jobs search engine. (http://thetim.es/1LR8Ohj)

The Guardian

* More than 1,000 fund managers, hedge funds, brokers and smaller banks will be exempt from the EU’s bonus cap after the Bank of England said it had concluded they did not fall within the scope of the rules. (http://bit.ly/1LR8kYA)

* China’s central bank has stepped up action to bolster its cooling economy by loosening the rules on banks’ cash reserves in the hope that they will offer cheaper loans. (http://bit.ly/1LR8mzQ)

The Telegraph

* Central banks must behave more like “pawnbrokers” to stamp out recklessness and put an end to taxpayer backed bailouts, according to the former Bank of England Governor Mervyn King. (http://bit.ly/1LR8q2y)

* Argentina’s new market-friendly government has ended a bitter 15 year battle with creditors led by a US billionaire, opening the door for the South American country to escape financial pariah status. (http://bit.ly/1LR8wah)

Sky News

* A third of jobs in the retail sector will disappear by 2025 thanks to the rising minimum wage and new technology, the British Retail Consortium has said. (http://bit.ly/1LR8xet)

* Transferwise, UK-based fintech group, is close to finalising a new round of funding from prominent investors, according to Sky News. (http://bit.ly/1LR8y1L)

The Independent

* On Monday, Amazon revealed it has teamed up with WM Morrisons Supermarkets Plc to sell food through its Pantry site, even offering fresh food to its Prime Now delivery service customers in five English cities. (http://ind.pn/1LR8BuI)

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With markets happy to put February in the history books because it marked the fourth consecutive monthly decline in global stocks, we move on to March 1st, which doubles down as ‘Super Tuesday’ in the US when Trump’s presidential candidacy will almost certainly be sealed and a day in which stocks decided to join the super fun by super surging overnight on nothing but bad global macro and economic which however was promptly ignored and instead the focus was on ongoing central bank intervention and even more jawboning.

As Bloomberg puts it “global stocks rallied, emerging-market currencies rose and crude oil climbed after investors across Asia responded favorably to stimulus in China” which is odd because the stimulus was announced over the weekend and stocks tumbled on Monday.

There were three key overnight news events:

1) the February plunge in China’s PMI, which missed expectations and where the manufacturing index dropped to a 7 year low, while the service tumbled to the lowest level since 2008:

 

2) the collapse in Glencore’s full year 2015 earnings, which just reported its worst year since going public, as net income plunged 69% to $1.34 billion, and the firm suffered an adjusted loss in its mining division, while announcing plans it will sell another $5 billion in assets.

 

3) the collapsing earnings and dividend cut by UK’s Barclays, whose pretax earnings plunged 56%, sending the stock tumbling by 10%, the biggest crash since June 2012, on the bank’s deteriorating outlook, the sale of its 62% stake in Barclays Africa, and cutting of the Barclays dividend.

 

On the surface, one would think that these are not exactly “good” developments and would not lead to a surge in overnight futures, and yet surge is precisely what global markets and US equity futures have done. What sparked the rebound? Well, the Shanghai Composite was largely unchanged for the day when shortly after midnight Eastern, US Treasury Secretary Jack Lew hit the tape when he spoke in briefing in Hong Kong after meeting Chinese officials in Beijing. And this is what unleashed the rally: Lew said that “China assured him it had no need or plans to devalue currency.”

This of course, came one day after China engaged in the biggest currency devaluation in 8 weeks after the conclusion of the G-20 meeting.

The rest of the jawboning from Lew:

• China’s policy makers gave commitment on reforms, rebalancing economy
• Discussed need to improve communications
• Says global economy faces headwinds, needs more demand
• Lew said U.S. real economy continues to do pretty well

Was this the reason for the buying? Of course not, but it provided a handy cover for the BOJ’s latest round of overnight USDJPY intervention which took the paid higher by 100 pips overnight, and since the markets make the news, why not ascribe the “buying catalyst” to Jack.

Elsewhere, European equities headed for a fourth day of gains for the first time since October as investors assessed earnings reports and deal activity. Russia’s ruble and South Africa’s rand led an advance among major currencies and the yuan strengthened for the first time in eight days after the People’s Bank of China cut lenders’ reserve requirements, freeing up funds to help spur lending. Germany’s bonds declined as nickel led gains in industrial metals prices and crude rose in New York. The cost of insuring corporate junk bonds in Europe fell for the fourth day, the longest run this year.

Where markets stand right now

• S&P 500 futures up 0.8% to 1946
• Stoxx 600 up 1% to 337
• MSCI Asia Pacific up 0.7% to 120
• US 10-yr yield up 2bps to 1.75%
• Dollar Index up 0.06% to 98.27
• WTI Crude futures up 1.5% to $34.25
• Brent Futures up 1% to $36.93
• Gold spot up 0.1% to $1,240
• Silver spot down less than 0.1% to $14.90

Top Global News:

• ICE Confirms It May Bid for LSE Group, Sending Shares to Record: Intercontinental Exchange said to work with Morgan Stanley, sees room to outbid German rival Deutsche Boerse despite risk.
• Trump, Clinton Hope Super Tuesday Tightens Grip on Nomination: The two front-runners are expected to begin pulling away from their rivals when Tuesday’s results are tallied
• Valeant Says It’s Under Investigation by SEC, Shares Plunge: Received a subpoena from the SEC in the fourth quarter and would have disclosed it in due course in its 10-K filing, which has been delayed
• Peabody Energy Says It Has Held Talks With First Lien Lender: talks on its secured credit agreement regarding proposed bond exchanges and other issues, as plummeting coal prices spark an increase in debt defaults among U.S. coal companies
• Apple Goes to Washington With Some Wind in Its Sails: Judge calls U.S. demand for help cracking iPhone ‘absurd’
• Marathon Seeks $1.3 Billion in Stock Sale to Weather Rout: Sale would increase shares outstanding by about 20%. Morgan Stanley is acting as the book-running manager
• BlackRock, Citi Say Buy Munis as Yields Climb From 50-Year Low: Increase in supply means a chance to lock-in higher yields. ‘Cheapness could be relatively short-lived,’ Citi’s Rai says
• Exxon’s $12 Billion Bond Deal Doesn’t Make 2016 Any Sweeter: Signs that demand for U.S. corporate bonds is waning. Total issuance down about 3% from first 2 months of 2015

Looking at regional markets, we start in Asia where stocks initially traded mixed with choppy price action seen overnight as the region digested the surprise PBoC measures coupled with further weak Chinese data. Nikkei 225 (+0.4%) initially underperformed on JPY strength with declines to company profits and capital spending figures adding to the dampened tone. However, the index then recovered alongside a mild reversal in the currency. ASX 200 (+0.9%) was underpinned by commodity sector strength, while the Shanghai Comp (+1.7%) fluctuated between gains and losses as the PBoC 50bps RRR cut was counterbalanced by weak data in which Official and Caixin manufacturing PM’s missed expectations to post a 7th month and 5th month in contraction territory respectively. 10yr JGBs traded flat despite weakness in Japanese equity markets and a weak 10yr JGB auction. As noted previously, Chinese Official Manufacturing PMI (Feb) M/M 49.0 vs. Exp. 49.4 (Prey. 49.4); 7th month of contraction & lowest since 2011.

Top Asian News

• China’s PMI Reports Show Slowdown Deepening as Services Slip: Factory gauge hasn’t been at a weaker level for 7 yrs; services index slips to lowest since Dec. 2008
• Japan Gets Paid to Borrow for 10 Years as Auction Yield Negative: ‘Ten-year yields have overheated,’ Barclays strategists say
• Macau Casino Revenue Downturn Eases on Festive Fillip: Feb. decline smallest on record amid 21-month slump as operators turn more to mass market to offset VIPs
• Templeton’s Man in China Predicts 20% Stock Rally as Panic Fades: Xu says worst is over after panicked investors caused the world’s deepest selloff
• Sharp Faces Cash Squeeze as Foxconn Takeover Talks Drag On: Sharp has 510b yen ($4.5b) in credit lines and loans that are set to expire on March 31

European equities saw a move higher shortly after the open to see Euro Stoxx reside firmly in the green (+1.1%), with much of the strength coming in the wake of stock specific news. LSE (+7.5%) is among the best performers after news that ICE (ICE) are to rival Deutsche Boerse’s bid, while BMW (+3.9%) are also among the best performers after some upbeat comments from the Co. at the Geneva motor show, which have helped support the DAX as the index future outperforms after breaking above the resistance level at 9600. Elsewhere, UK large cap Barclays (-11.0%) is among the worst performers after their pre-market earnings, with financials the softest sector in Europe.

In tandem with the upside in equities, fixed income has come under pressure so far today with Bunds back below 166.50, trading lower by around 50 ticks by the North American crossover. The downside in Bunds shortly after the European equity cash open was attributed by some desks to high volume, in the form of 5000 lots being traded in under a 1 minute period. However more generally, the pressure on the German benchmark also comes as a result of sovereign hedging amid deals from Finland and Belgium, combined with a reversal from yesterday’s month end-inspired moves.

Top European News

• Barclays to Reduce Africa Stake, Cut Dividend in Revamp Plan: Will sell down its 62% stake in Barclays Africa over the next 2 to 3 years to a level that allows it to deconsolidate the business; FY adj. pretax, including restructuring costs, fell 56% to GBP247m, missed GBP519m est.; cut its dividend to 3p/shr for 2016 and 2017, from 6.5p last year
• Glencore Posts Biggest Profit Drop Since IPO on Metals Slump: 2015 net income ex- some items down 69% to $1.34b as prices for metals and oil collapsed, to sell as much as $5b in assets
• Gameloft, Ubisoft Shares Jump on Vivendi’s Renewed Deal Push: Vivendi plans a tender offer for Gameloft shares at EU7.20 each, vs original EU6; also raised its stake in Ubisoft above 15%, said plans to keep buying shares, seek board representation
• Euro-Area Unemployment Drops to 4-Year Low Amid Stimulus Debate: Region’s Jan. jobless rate declined to 10.3%, lowest since Aug. 2011, beat median forecast of 10.4%
• U.K. Manufacturing Has Its Worst Month in Almost Three Years: Markit Economics said its factory index dropped to 50.8 from 52.9, marking the weakest reading since April 2013
• Handelsbanken Falls After Regulator Raises Capital Requirements: Swedish regulator ordered lenders in the country to increase corporate risk weights by “at least a few percentage points”
• Fiat Makes Biggest Europe Push in Decade to Rescue 2018 Strategy: Showing 10 new models at Geneva Motor Show this week

In currencies, the yen dropped against 31 major peers, falling from strongest level in almost three years against the euro. It declined 0.5 percent to 113.22 per dollar and slipped 0.4 percent to 122.96 per euro.

Russia’s ruble rose 2 percent versus the dollar and Malaysia’s ringgit strengthened 0.7 percent as the rebound in crude prices brightened prospects for the oil-exporting nations. South Africa’s rand jumped 1 percent as data showed foreign investors on Monday pumped the most money into the nation’s stock market since 2009.  A Bloomberg gauge of 20 developing-nation currencies rose 0.5 percent, extending Monday’s advance. The measure increased 0.3 percent in February after falling 5.1 percent over the previous three months

In commodities, oil climbed from the highest close in more than seven weeks following the first monthly decline in production from the Organization of Petroleum Exporting Countries since November. West Texas Intermediate rose as much as 1.7 percent to $34.32 a barrel. Iraq’s production dropped by 125,000 barrels a day to 4.385 million after the pipeline exporting crude from the northern part of the country was halted, according to a Bloomberg survey of oil companies, producers and analysts. Saudi Arabian output was unchanged at 10.2 million barrels a day.

U.S. natural gas futures fell 0.3 percent to $1.706 per million British thermal units, extending the biggest monthly drop since 2014 on mild weather and record inventories of the heating fuel.

Nickel led gains in industrial metals, rising 0.9 percent to $8,600 a metric ton. Aluminum added 0.6 percent while copper climbed 0.4 percent.

In today’s US calendar, all eyes will be on the US ISM manufacturing data while vehicle sales (expected: 17.70m), construction spending (expected: 0.3%), IBD/TIPP economic optimism data (expected: 47.9) and the manufacturing PMI (expected 51.2) are also due.

Bulletin Headline Summary from RanSquawk and Bloomberg

• European equities followed on from their Asian counterparts to trade in positive territory, despite underperformance in financials
• JPY and GBP have been among the more notable FX movers this morning, with risk off sentiment sending USD/JPY higher, with GBP also heading upwards this morning towards 1.4000
• Today’s highlights include US ISM manufacturing, manufacturing PMI and construction spending, Canadian GDP, API Inventories, Fonterra GDT Auction and comments from ECB’s Lautenschlaeger
• Treasuries lower in overnight trading as global equity markets and commodities rally, spurred by China’s announced cut to banks’ required reserves; today’s economic data includes ISM and vehicle sales.
• China’s benchmark money-market rate declined the most in more than three weeks after the central bank reduced the amount of deposits that lenders must set aside in reserve; will inject about 685 billion yuan ($105 billion) into the financial system
• China’s factory gauge extended its stretch of deteriorating conditions to a record seven months while a measure of services fell to the weakest in seven years
• The Japanese government got paid to borrow money for a decade for the first time, selling ¥2.2 trillion ($19.5 billion) of the debt at an average yield of negative 0.024% on Tuesday
• Euro-area unemployment decreased to lowest in more than four years in January, giving European Central Bank policy makers some positive news a week before their monetary policy meeting
• Euro-area factories cut prices at the fastest pace in almost three years in February as Markit Economics said the price gauge of its manufacturing Purchasing Managers Index fell further below the key 50 level, to the lowest since June 2013
• Barclays Plc fell the most in more than three years in London trading amid investor concern that the bank’s profit outlook is weakening as the firm slashed its dividend
• U.K. manufacturing grew the least in almost three years in February and new orders barely rose, highlighting the fragility of the economy as it heads into an uncertain year
• Greece’s creditors hit a roadblock over the conditions for disbursing the next portion of emergency loans to Europe’s most indebted state, as PM Tsipras pointed the finger at the IMF for yet another delay in the review of the country’s bailout
• Donald Trump and Hillary Clinton hope to use a pair of dominant Super Tuesday performances to all but cement a White House match-up this fall, as roughly a quarter of the nation votes in the biggest day so far in the 2016 campaign
• $17.4b IG corporates priced yesterday, MTD volume $124.9b, YTD $294.25b
• BofAML Corporate Master Index OAS 6bp lower yesterday at +205, +3bp MTD, +32bp YTD; T1Y range 221/129
• BofAML High Yield Master II OAS 5bp lower yesterday at +775, -2bp MTD, +80bp YTD; T1Y range 887/438
• Sovereign 10Y bond yields mostly steady; European, Asian markets rise; U.S. equity- index futures higher. Crude oil rallies, copper, gold higher

US Event Calendar

• 9:45am: Markit US Manufacturing PMI, Feb F, est. 51.2 (prior 51)
• 10:00am: IBD/TIPP Economic Optimism, March, est. 47.9 (prior 47.8)
• 10:00am: ISM Manufacturing, Feb., est. 48.5 (prior 48.2)
  • ISM Prices Paid, Feb., est. 35 (prior 33.5)
  • ISM New Orders, Feb. (prior 51.5)
• 10:00am: Construction Spending m/m, Jan., est. 0.3% (prior 0.1%)
• TBA: Wards Domestic Vehicle Sales, Feb., est. 13.83m (prior 13.79m)
• Wards Total Vehicle Sales, Feb., est. 17.7m (prior 17.46m)

DB’s Jim Reid concludes the overnight wrap

We’ll dive straight into the Asian numbers starting with a disappointing PMI report from China overnight. The Manufacturing PMI series came in at 49.0 in February which is sequentially weaker than the 49.4 we saw in January and at 7 year lows. The market consensus was for an unchanged print of 49.4 in February. In terms of the details, new orders and the employment sub-series also slipped. There was some chatter that the Chinese New Year holidays helped keep the number weak but on the flip side this should have helped services. On this non-manufacturing PMI also came in sequentially weaker in February at 52.7 vs 53.5 (lowest since 2008) but at least it remains in expansionary territory even if new orders, selling prices, employment, backlog and inventories were worryingly below 50. The Caixin China PMI Manufacturing series also came out slightly below consensus overnight at 48.0 (est 48.4). Turning to Japan we saw the final Nikkei Japan PMI Manufacturing come in at 50.1 which is also a drop from January’s 52.3 reading.

Markets in Asia are mixed after the numbers. The Shanghai Comp is -0.68% as we go to print but many other EM equities are higher. The Hang Seng is broadly flat with the Nikkei -0.26%. One unprecedented move overnight has been that Japan has priced a 10yr government debt auction at a negative average yield for the first time. It drew an average yield of minus 0.024%. Also overnight FRB of NY President Dudley (whilst in China) has said his confidence in the Fed hitting its 2% inflation target over time has slipped and that he has edged down his growth expectations.

Back to the PMIs, the key release today will be the US manufacturing ISM. Although it’s expected to edge up from 48.2 to 48.5, this will still mark the 5th successive sub-50 print. Whilst manufacturing makes up only around 10% of the US economy, Joe LaVorgna points out that it is highly cyclical and is normally predictive of wider economic trends. The correlation between this number and annual real US GDP is 0.7 since 1948. At the moment none of us truly know whether there can be decoupling. With low energy prices, if there was ever a time where there could be some decoupling then this would be it. Thursday’s services ISM will give us a fuller picture though so it’s an important week before we even get to Friday’s payrolls.

Related to the PMIs, US data wasn’t great yesterday after a good recent run. The ISM Milwaukee survey was the only bright spot, as it rose to 55.2 in February (vs. 50 expected; 50.36 prior). However, many of the more closely watched indicators definitely threw up some red flags. The recently very volatile Chicago Area PMI fell more than expected to 47.6 (vs. 52.5 expected; 55.6 prior), one again raising concerns regarding the US manufacturing sector. Adding to these concerns, the Dallas Fed Texas Manufacturing outlook also disappointed (-31.8 vs. -30.0 expected; -34.6 prior) despite showcasing some improvement. Pending Home sales data was also a major red flag, as the index fell by -2.5% mom (vs. +0.5% expected; +0.1% prior) in January. This was the biggest drop since December 2013, with sales dropping in 3 out of 4 regions included in the index.

However China’s latest easing overshadowed the data. Last week we saw PBoC Governor Zhou Xiaochuan state that China still had ‘monetary policy space and multiple policy instruments to address possible downside risks’ and whilst some were expecting action over the weekend, yesterday we saw the PBoC demonstrate one such instrument by cutting the required reserve ratio (RRR) by 50 bp. According to our Chief China Economist Zhiwei Zhang, this is a sign of further policy easing and strengthens the case for their baseline expectations of 3 more RRR cuts (one per quarter) and 2 interest rate cuts (Q3 and Q4) in 2016. While such policy easing benefits short term investment growth and increases upside risks to our economists’ Q2 GDP forecast of 6.8% YoY, it actually raises downside growth risks in H2 and 2017 by exacerbating industrial excess capacity problems and the inflating the property bubble.

European equity markets brushed off the soft start following the inconclusive G20 meeting, China’s pre RRR cut equity sell-off and Monday’s weak economic data to end the day in the green. European equities rallied late in the day as the STOXX erased early losses and closed up +0.72%. Basic Resources equities (+3.43%) shot up as China announced more easing measures for its economy, while oil and gas stocks (+1.51%) also gained as crude prices rallied a percent or so. US equities slumped after Europe closed though with the S&P 500 declining 26 points from these highs to close -0.81% and in the process wiping out February’s hard earn recovery into positive return territory. Meanwhile Valeant (a top 5 largest US HY issuer in the index) fell 18% on the equity market as the company announced it was under investigation by the SEC. Spreads widened 75-100bps on the news.

Back to Europe, soft data and heightened expectations of ECB easing drove European government bond yields lower once again. German bond yields fell across all maturities from 1-10 years, with the 10Y yield 4bps lower at 0.106bp and close to getting back into single digits bps again. The impact of China’ easing and the building expectation of ECB easing was also seen in credit markets, with iTraxx Senior spreads tightening by 4.2bps while iTraxx Sub spreads tightening by 3.4 bps, thus continuing their rally from last week.

The renewed ECB hope was based on further gloomy European data. Following deflationary numbers out of Germany and France last week, inflation numbers for Italy (-0.2% YoY vs. +0.1% expected; +0.4% prior) and the Euro Area (-0.2% YoY vs. 0.0% expected; +0.3% prior) also turned negative in February. The cynic would certainly argue that after nearly a year of QE and an additional EU587bn on their balance sheet, inflation back below zero shows that the ECB has failed. However one must take into account that they are fairly powerless to counteract the huge price drop in oil and other commodities and also one wonders where inflation might have been if they had not printed over half a trillion Euros! A scary thought.

Below we look at the data day ahead, US politics will be in the spotlight today as Super Tuesday will see 12 states and one territory cast their votes for the Republican and Democratic nominees. It is the biggest day of the 2016 primary: roughly half of the delegates needed for a Republican candidate and one-third of the number needed for a Democratic candidate will be awarded here. Most polls (NBC News/WSJ) indicate Trump and Clinton to be the leading candidates for their respective parties across a number of participating states. Key results to watch for would be whether Texas Senator Ted Cruz can post a strong performance in Texas and level the playing field with Trump, and whether Clinton can further extend her lead over Sanders. Polls close in most states by 7 pm or 8 pm ET, though results will still be coming in tomorrow.

Taking a look at the day ahead in Europe, we have some key indicators to watch with the ECB meeting next week. We get the final February manufacturing PMI data for the Euro Area (expected 51.0) as well as regional data for Germany, France, UK, Spain and Italy. The Euro Area January unemployment rate (expected 10.4%) is also due. Over in the US, all eyes should be on the US ISM manufacturing data (as discussed above) while vehicle sales (expected: 17.70m), construction spending (expected: 0.3%), IBD/TIPP economic optimism data (expected: 47.9) and the manufacturing PMI (expected 51.2) are also due.

Today is quieter in terms of Central Bank speak: We are only scheduled to hear from Williams (President of the Federal Reserve Bank of San Francisco) and from Coeure from the ECB.

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