Month: April 2016

When we last checked in on everyone’s favorite Latin American socialist paradise, Venezuela, President Nicolas Maduro’s opponents “had gone crazy.” Or at least that’s how Maduro described the situation in a “thundering” speech to supporters at what he called an “anti-imperialist” rally in Caracas in mid-March.

Meanwhile, thousands of demonstrators had been holding counter-rallies calling for the President’s ouster. Maduro angered the opposition – which dealt Hugo Chavez’s leftist movement its worst defeat at the ballot box in history in December – the previous month when he used a stacked Supreme Court to give himself emergency powers he says will help him deal with the country’s worsening economic crisis.

“Now that the economic emergency decree has validity, in the next few days I will activate a series of measures I had been working on,” he said, following Congress’s declaration of a “food emergency.”

The “emergency measures” in effect, amounted to a shutdown of the country. “Venezuela is shutting down for a week as the government struggles with a deepening electricity crisis,” Bloomberg wrote. “President Nicolas Maduro gave everyone an extra three days off work next week, extending the two-day Easter holiday, according to a statement in the Official Gazette published late Tuesday.”

The reason for the electrical rationing was the water content of Venezuela’s Guri Dam, which supplies more than two-thirds of the country’s electricity. As The Latin American Herald Tribune writes, the dam “is less than four meters from reaching the level where power generation will be impossible. Water levels at the hydroelectric dam are 3.56 meters from the start of a ‘collapse’ of the national electric system. Guri water levels are at their lowest levels since 2003, when the a nationwide strike against Hugo Chavez reduced the need for power, masking the problem.”

(arrow shows where the water shoud be if the dam were operating at capacity)

 

As a result, Maduro blamed El-Nino for implementing what was a three-day weekend.

“The emergency decision we took is due to El Nino,” he said. “We will save more than 40% from these measures.”

For now, however, the weather has refused to comply and as Bloomberg reports this morning, Maduro has expanded his mid-March decree, and designated every Friday in the months of April and May as a non-working holiday in his ongoing bid to save electricity as a prolonged drought pushes water levels to a critical threshold at hydro-generation plants.

The country will unveil details of a 60-day plan to conserve energy Thursday, Maduro said, adding that measures would include asking large users such as shopping malls and hotels to generate their own electricity for nine hours a day. Heavy industries operating in the country will be asked to cut consumption by 20 percent, he said.

“This plan for 60 days, for two months, will allow the country to get through the most difficult period with the most risk,” Maduro said on state television late Wednesday. “I call on families, on the youth, to join this plan with discipline, with conscience and extreme collaboration to confront this extreme situation” of the drought blamed on the El Nino weather system.

As noted above, the announcement comes after Maduro shut down the country for a week over the Easter holiday last month, giving workers an extra three days off. Those efforts saved almost 22 centimeters of water at Guri Dam in the southern state of Bolivar, which supplies as much as 75 percent of the electricity consumed in the capital Caracas.

If water levels at the dam fall below 240 meters above sea level, the government may have to shut down the plant to avoid damaging turbines – a move that would inevitably lead to increased rationing. The level is currently around 243 meters, Maduro said.

It wasn’t immediately clear if the new four-day work week would be extended only to public sector workers or if the measure would include the private sector.

It also wasn’t clear if, in case the water level drops below 240 meters, and Venezuela is essentially without power, if the 3 days weekend would be expanded to comprise every day of the week.

Then again, considering the economic state of Venezuela, this may not be bad news for the long-suffering local population.

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

• U.S. readies bank rule on shell companies amid ‘Panama Papers’ fury (Reuters)
• Co-Founder of Mossack Fonseca Defends Law Firm at Center of ‘Panama Papers’ (WSJ)
• Fed’s Cautious Approach on April Rate Hike Raises Stakes for June (BBG)
• Dollar sinks again after Fed remains cautious (Reuters)
• New Tax Rules on Inversion Deals Are Met With Protest (WSJ)
• Fed Chairs Since 1979 Offer Peek Into Central-Bank Philosophy (BBG)
• Election stirs debate about Fed’s handling of political pressure (Reuters)
• Yen Strengthens Toward 108 as Traders Deaf to Japan’s Jawboning (BBG)
• While Draghi and Yellen Jawbone, Swiss Central Bankers Play It Old School (WSJ)
• Clinton, Sanders turn spiky ahead of New York primary (Reuters)
• Panama Papers Tie More of China’s Elite to Secret Accounts (NYT)
• Unbound States Prove Precious in GOP Contest (WSJ)
• Mega deals morph into mega problems for Wall Street (Reuters)
• Republican Party’s Low Polls Give Obama an Edge in Court Fight (BBG)
• VW labour bosses clash with brand chief Diess over cuts (Reuters)
• There’s a $2 Trillion GDP Boost in Shrinking the U.S. Gender Gap (BBG)
• China asking for terror suspects list ahead of G20 summit (Reuters)
• The World Is Getting Fatter and No One Knows How to Stop It (BBG)

 

Overnight Media Digest

WSJ

– The new Treasury Department rules – the third such attempt to rein in a spate of so-called tax-inversion deals – drew swift condemnation from Allergan Chief Executive Brent Saunders, who criticized them as “un-American” and “capricious.” (http://on.wsj.com/1RFrGG0)

– A fight among labor unions over who would control a proposed $50 million super PAC has slowed the creation of a unified effort to boost the chances of labor-friendly Democrats winning the White House and control of Congress in the November election. (http://on.wsj.com/1SdU26l)

– Federal Reserve officials signaled an interest-rate increase in April is unlikely, minutes of their March policy meeting showed, confirming markets’ growing conviction that the central bank will move cautiously until the global economy picks up steam. (http://on.wsj.com/1SRxhs5)

– A federal judge sentenced former Massey Energy CEO Don Blankenship to 12 months in prison, closing another chapter on the deadliest U.S. coal mining accident in more than four decades. (http://on.wsj.com/1SRxnzP)

– The Justice Department on Wednesday filed an antitrust lawsuit challenging Halliburton Co’s planned acquisition of rival Baker Hughes Inc, alleging that the deal would threaten higher prices and reduce innovation in the oil field services industry. (http://on.wsj.com/1S3UxpC)

 

FT

David Cameron intervened in 2013 to weaken an EU drive to reveal the beneficiaries of trusts, creating a possible loophole that other European countries warned could be exploited. (http://on.ft.com/1UXsZTD)

High consumer confidence and the availability of cheap finance has pushed British car sales to the highest level this century. (http://on.ft.com/1UXtflJ)

HSBC is launching a new investment advice service for customers to bridge Britain’s huge advice gap. (http://on.ft.com/1UXtXiX)

 

NYT

– Donald Blankenship, whose leadership of the Massey Energy Company catapulted him from a working-class West Virginia childhood into a life as one of the wealthiest and most influential men in Appalachia, was sentenced on Wednesday to a year in prison for conspiring to violate federal mine safety standards. (http://nyti.ms/1RFepNQ)

– Governor Alejandro Padilla of Puerto Rico signed a bill that would allow him to declare a state of emergency and give him authority to halt payments on the island’s crushing $72 billion debt. (http://nyti.ms/1SRvWl3)

– As Yahoo Inc asks potential bidders to submit first-round offers for its core business next week, it is also warning them about a troubling decline in revenue and profit, while obscuring the costs and cash flow of various business units. (http://nyti.ms/1TCU1OM)

– Reddit has in recent months started to address online abuse, and on Wednesday it took one of its bigger steps toward helping individuals gain some control over tormentors. The company said it would give people a blocking feature to shield themselves against harassment on the site. (http://nyti.ms/1N8XhL3)

– An owner of three Volkswagen AG dealerships filed a lawsuit against the carmaker over its rigged diesel vehicles, seeking compensation for lost sales suffered by more than 600 dealers in the United States. (http://nyti.ms/1oDP0bM)

 

Canada

THE GLOBE AND MAIL

** Bombardier Inc confirmed it has not received the first of two $500 million payments from Quebec for its C Series airliner program as the two sides work to finalize an investment deal announced last October and wait on word from Ottawa as to whether it will join them as a partner. (http://bit.ly/1RZnhwL)

** TransCanada Corp said on Wednesday it would take longer than originally thought to get the Keystone pipeline – which delivers crude from Alberta to Oklahoma, and to Illinois – running again after it was shut down over the weekend due to what the company described as a small leak in South Dakota. (http://bit.ly/1SS8zaV)

** The Liberal government’s first budget is less transparent than Conservative budgets under Stephen Harper and overestimates the number of jobs that will be created, Ottawa’s non-partisan fiscal watchdog says. (http://bit.ly/1VzHL1z)

NATIONAL POST

** The Canada Pension Plan Investment Board is laying out $2.5 billion for a 40 per cent stake in Glencore Plc’s unit, Glencore Agricultural Products, a move intended to accelerate the fund’s four-year-old strategy of making long-term investments in the agriculture business. (http://bit.ly/1RZo5Sk)

 

Britain

The Times

Britain’s landlords were protected from the worst of the recession by escalating rents that have left tenants increasingly impoverished, analysis by the Office for National Statistics shows. (http://bit.ly/23cMbRP)

A director of the oil company Petrofac ordered “confidential payments” worth $2 million to help to secure an oil contract in Kuwait, according to documents seen by The Times. (http://bit.ly/1TCRjsx)

The Guardian

The UK has recorded its biggest monthly car sales in almost 20 years, with more than 500,000 new vehicles registered in March. (http://bit.ly/1RNXqWe)

Swedish hardware chain Clas Ohlson, which began trading in the UK eight years ago, is to close more than half its UK stores, putting dozens of jobs at risk. (http://bit.ly/208jtfD)

The Telegraph

Hutchison, the owner of mobile operator Three, has signed deals worth 3 billion pound to guarantee space on its expanded mobile network as it makes its final appeal to officials in Brussels to allow its controversial takeover of O2. (http://bit.ly/23iAy8t)

The Federal Reserve is preparing to raise U.S. interest rates yet again, despite the financial turmoil that gripped global markets after the central bank increased its rates last December.(http://bit.ly/1SBfwKX)

Sky News

Pfizer and Botox-maker Allergan have halted their record $160 billion merger citing new U.S. Treasury rules to make controversial so-called “tax inversions” less lucrative. (http://bit.ly/1MSPmqq)

BP faces a bruising rebellion led by top City investors next week over a near 14 million pound pay deal handed to its chief executive in a year when the company saw its profits wiped out by the slump in oil prices. (http://bit.ly/22d4UXJ)

The Independent

Barclays has become the first big UK bank to back social payment app Circle, a US digital payment company which uses bitcoin to transfer central bank currencies across popular messaging platforms and other media, as it launched in the UK on Wednesday.(http://ind.pn/1UVExXA)

Half a million British workers could lose out on hundreds of pounds a year under a “stealth tax” coming in on Wednesday which was not announced in George Osborne’s Budget. (http://ind.pn/1REnh6g)

via Zero Hedge http://ift.tt/1Sf4r1I Tyler Durden

Watching the European collapse over the past 6 years has been mostly an exercise in futility, during which unelected bureaucrats throw everything at an unsolvable problem just to maintain the “dream” a little longer, punctuated with moments of sheer, delightful absurdity. This was one of those moments.

After yesterday’s shocking Dutch referendum outcome, in which a vast majority of local voters rejected a Ukraine-European Union treaty on closer political and economic ties, seen by many as an indication of “Euroskepticism”, moments ago European Commission President Jean-Claude Juncker explained how that made him feel. According to Reuters, “he was saddened by the outcome.”

“The president is sad,” European Commission spokesman Margaritis Schinas told a regular news briefing.

This is the same president who was caught lying repeatedly during the many years of the Greek crisis, and chalked it off to “when it gets serious, you have to lie.”

And, just to confirm that European rules are made to be broken, he said the referendum would not affect the wider EU deal on closer ties with Ukraine and it was up to the Dutch government to analyze the outcome of Wednesday’s vote.

“The Commission remains strongly committed to the development of its relations with Ukraine,” he said.

Asked whether the Commission still intended to propose liberalization of visa requirements for Ukrainians this month, he noted that Juncker had previously proposed this.

Meanwhile, we wonder just how “sad” Junkcer will be as the Euroskeptic wave leads to a new government in the Netherlands, followed by all the other states swept up by the recent refugee crisis, and ultimately culminating with the victory of nationalist presidents in the upcoming European presidential elections.

via Zero Hedge http://ift.tt/1qv9XaB Tyler Durden

Authored by Steve H. Hanke of the Johns Hopkins University. Follow him on Twitter @Steve_Hanke.

Reportage in The Wall Street Journal on April 4th states that “A fund owned by China’s foreign-exchange regulator has been taking stakes in some of the country’s biggest banks, raising speculation that it may be a new member of the so-called ‘national team’ of investors the Chinese government unleashes to support its stock market.”

Statists and interventionists around the world (read: `those who embrace State Capitalism) think “Big Players,” as the academic literature has dubbed them, will protect us from economic storms. While there is a budding and serious academic literature on Big Players – aka Market Disrupters – the financial press virtually ignores the Disrupters’ potential to bury us. Indeed, instead of stabilizing markets, the Big Players disrupt them. They are the purveyors of instability. For those who wish to grapple with the technical literature, I recommend: Roger Koppl. Big Players and the Economic Theory of Expectations. New York: Palgrave Macmillan, 2002.

Big Players have three defining characteristics. Firstly, they are big — big enough to influence markets. Secondly, they are largely insensitive to the discipline of profits and losses, insulating them from competitive pressures. Thirdly, their freedom from a prescribed set of rules affords them a high degree of discretion.

With these characteristics, Big Players are hard to predict. In consequence, they can disrupt. They divert entrepreneurial attention away from the assessment of strictly economic market fundamentals, such as the present value of prospective cash flows. Instead, the focus shifts toward attempting to predict the actions of Big Players, which are inherently political and unpredictable.  This reduces the reliability of expectations, replacing skill with luck.

The Big Players’ discretionary interventions render unreliable most market signals about fundamentals. They foster environments that are ripe for herding and bandwagon effects, as well as noise trading, which is subject to fads and fashions. This partially explains why investment groups are spending big bucks to create a thinking, learning, and trading computer — a search for a master algorithm. Never mind. Big Players heighten volatility and create bubbles. They are the disrupters of the universe.

Just who are the Disrupters? Most central banks possess all the characteristics of Big Players in spades. Since the advent and implementation of quantitative easing (QE), they have become bigger players, with the state money they produce making up a much greater portion of broad money (state, plus bank money) than before 2009. Not only have their balance sheets exploded, but the composition of some of their balance sheets has changed in surprising ways. Not so long ago, central bank assets were largely comprised of domestic and foreign government bonds. Well, now you can find corporate bonds on some central bank balance sheets. And that’s not all. Central banks use their discretion to purchase equities, too. Just take a look at the Swiss National Bank (SNB), one of the alleged paragons of conservative central banking. By late last year (Q3), the total value of stocks held by the SNB had risen to $38.95 billion. That’s the size of some of the largest hedge funds in the world, and amounts to over 5 percent of Switzerland’s GDP.

The Bank of Japan (BoJ) is also openly a big buyer of stocks — namely, Japanese ETFs. The BoJ is authorized to purchase roughly $25 billion of ETFs per year, and the government leans on the BoJ to use its fire power — especially when the Japanese stock markets are “weak.”

The rogues’ gallery of Big Players also includes: sovereign wealth funds, state-owned enterprises, and many other friends who do the State’s bidding. 

We are becoming grossly over-reliant on Big Players. In consequence, fundamental-based investing has been forced to take a back seat and the markets have become less safe. 

via Zero Hedge http://ift.tt/1q8C2DV Steve H. Hanke

Two days after stocks slid in a coordinated risk-off session, and one day after a DOE estimate of US oil inventories sent US stocks surging while the failed Allergan-Pfizer deal unleashed torrential hopes of a biotech M&A spree leading to the single best day for the sector in 5 years, sentiment has again shifted, this time due to a violent surge in the Yen as the market keeps testing the resolve of the Japanese central bank to keep its currency weak, and so far finding it to be nonexistent.

As a result, as we reported previously, the USDJPY plunged nearly 200 pips overnight, undoing all its gains since the expansion of Japan’s QQE on October 31 2014, and while equities did their best to ignore this move for as long as possible, ultimately they too succumbed.

The yen gained even after a government official said authorities would take necessary action on foreign exchange if needed. Futures, after urgently trying to ignore the Yen move, finally noticed it overnight, pushing the E-mini to session lows, and undoing almost all of the DOE gains.

 

As noted earlier, and as Bloomberg also reports, “the yen is being driven higher by risk aversion and by market participants testing the Bank of Japan’s tolerance toward a stronger currency,” said Thu Lan Nguyen, a foreign exchange strategist at Commerzbank AG in Frankfurt.

Also according to Bloomberg, JPMorgan’s Tohru Sasaki predicted the world-beating surge that carried the yen to a 17-month high. Now the former Bank of Japan official says the government will be reluctant to intervene to stem the currency’s advance – especially as such a move would probably be futile.

Exporters bringing cash home are the main driver of the yen’s 11 percent rally against the dollar this year, not speculators, so selling the currency to weaken it would be ineffective, said Sasaki, head of Japan markets research at JPMorgan in Tokyo. He forecasts a gain to 103 yen per dollar by year-end. He also sees attempts by officials to talk the currency lower as counterproductive.

“If you only shoot blanks, it just makes a sound — at first everyone is surprised, but once they get used to it, it’s just noise,” said Sasaki, who’s been the most accurate forecaster of the yen this year. More jawboning will encourage speculators to buy the yen on dips against the dollar, he said.

It’s not just the Yen. “There is a lot of fear in the market,” Herbert Perus, head of equities at Raiffeisen Capital Management in Vienna, told Bloomberg. “A lot of large investors do not believe in rising stock prices and were positioning themselves for a downturn.”

In other key overnight news, the Fed meeting minutes reaffirmed U.S. policy makers aren’t rushing to raise interest rates. Elsewhere, EMC said planning to sell Documentum business amid Dell deal. In China, the PBOC announced that after 4 months of declines, its foreign reserves posted a $32 billion rebound in the month of March.

This is where markets are currently:

• S&P 500 futures down 0.5% to 2050
• Stoxx 600 down 0.3% to 329.77
• MSCI Asia Pacific up 0.9% to 126
• US 10-yr yield down 2bps to 1.74%
• Dollar Index up 0.03% to 94.46
• WTI Crude futures up 0.2% to $37.82
• Brent Futures up 0.4% to $39.98
• Gold spot up 1.3% to $1,239
• Silver spot up 1.3% to $15.26

Global Top News:

• Dell and EMC Said to Be Talking to Buyers for EMC’s Documentum: Dell also said to seek buyer for Sonicwall, Quest for $4b; Dell and EMC are targeting deal completion by October
• U.S. Braces for Worst Earnings Season Since the Financial Crisis; 1Q earnings are seen falling 9.8% y/y
• McDonald’s Chairman McKenna Plans to Retire From Board: McKenna, 86, won’t stand for re-election at the May 26 shareholders’ meeting, will become chairman emeritus
• Sprint Plans to Sell, Lease Back Network Assets for $2.2b: tower equipment is used as collateral to raise new loans; new finance entity will be consolidated into Sprint’s books
• Valeant Said to Win Majority Lender Support to Waive Default: creditors gave their consent after Valeant revised terms Tuesday
• March U.S. Retail Sales Seen Helped by Easter, Spring Break Deals: U.S. comp. sales are expected to rise 0.1% for the 5- week retail month of March, according to Retail Metrics; Costco, Zumiez kick off March comp. sales with releases post-mkt
• Treasury Nears Rule to Force Banks to ID Shell Company Owners: Customer Due Diligence rule would close anonymity loophole; maneuver is in the spotlight after leak of law firm files
• Monsanto Says It No Longer Sees Large-Scale M&A as Strategy: future deals will be collaborations, small acquisitions
• Key Pieces of Dimon’s Annual Letter: Risks, Rates and Trading: warns Treasury rally may turn to rout as rates rise; Brexit outcomes are ‘large and potentially unknown,’ he says
• China Foreign Exchange Reserves Rise for First Time in 5 Months: China’s forex reserves unexpectedly rose in March after capital outflow pressure eased as the nation’s currency steadied
• SoftBank Said to Not Have Had Formal Talks on Yahoo Buy: Re/Code
• China’s Apex Technology Said in Talks to Buy Lexmark: Reuters
• Indonesia Demands Google, Facebook to Pay Taxes: Jakarta Post

Looking at regional markets, Asian stocks traded mixed as the region shrugged-off a firm Wall St. lead, where continued advances in crude prices and a cautious Fed initially boosted sentiment. ASX 200 (+0.4%) and Nikkei 225 (+0.2%) were both supported at the open by the energy sector after an unexpected DoE Inventory drawdown which saw oil prices break above USD 38/bbl. However, Japanese stocks then saw choppy trade as JPY strength persisted, while Shanghai Comp (-1.4%) failed to hold on to early gains amid weakness in telecoms and sentiment dampened following a reserved open-market-operation by the PBoC. 10yr JGBs saw relatively range-bound trade with prices marginally lower amid improved risk-appetite in Japan, while prices saw a mild recovery following the enhanced liquidity auction for 20y, 30yr and 40yr bonds.

Top Asia News:

• China, Hong Kong Top Market for Firm at Center of Panama Papers: Region represents almost third of Mossack Fonseca’s cos.
• Nomura Warned Against Lying After Jefferies Trader Charged: Charges against ex-Jefferies trader spurred training session
• Yen Intervention Futile at 110 for JPMorgan After Picking Rally: Sasaki says currency will rise to 103 per dollar by year-end
• OCBC to Buy Barclays’s Asia Wealth Division for $320 Million: Bank beats competing bid by DBS Group
• Samsung Beats Estimates as Early Debut of S7 Boosts Sales: Analysts upgraded S7 estimates after channel checks

European equities struggle to form any significant direction as overall fundamental newsflow remains relatively light thus far, despite the fallout from last night’s FOMC meeting minutes. As such, Eurostoxx (+0.25%) resides in modest positive territory led by pharmaceuticals amid M&A speculation circulating for the likes of AstraZeneca following the collapse of a tie-up between Pfizer and Allergan, while gains had been capped by the pullback observed in oil prices.

In terms of the fixed income, Bunds saw a slight break above 164.00 having found support from the softness in energy prices, however German paper has retreated from earlier highs despite the market digesting supply from France, Spain and the UK.
 

Top European News

• Praet Says ECB Can Recalibrate Stimulus Again If Shocks Arise: the ECB can boost the scale of its support to the euro-area economy yet further in the event that fresh risks to the outlook arise, Executive Board member Peter Praet says
• ‘Brexit’ Risks Leaving European Banks With $123 Billion to Cover: lenders may have to dump some securities if Britain leaves EU; bonds may no longer meet liquidity requirements under Basel
• Citigroup Sees ‘Brexit’ Risks Moving East as Zloty Most Exposed
• Italian Officials Said to Hold Meeting on Banks’ State Backing: Finance Minister Padoan said to have met with some bank executives on Tuesday; officials said to discuss option of EU3b fund
• Fintech Seen Risking 250,000 Jobs as Europe Insurers Cut Costs: old IT systems burden companies as savvy start ups compete; cuts among only options to boost S/T profitability
•     U.K. House Prices Surge as Halifax Flags ‘Brexit’ Uncertainty: values +11% in March vs year earlier; EU vote and weakening confidence may damp price rises: Halifax
• ING Groep CEO Targets Corporate Banking Expansion in Scandinavia: Dutch bank will target Scandinavia’s corporate lending market as fastest route to expansion in region

FX markets have been dominated by the relentless JPY buying, which is no doubt of great concern to Japanese officials, but outside of verbiage against these moves, have done little to respond to the rapid rise. USD/JPY is now approaching the 108.00 level, and after topping out at 113.80 a week and a half ago, we are close to 6 JPY lower in what will be seen to be a very short space of time. Cross rate losses are equally rapid, though EUR/JPY is now finding some support ahead of 123.00. GBP/JPY losses take us to levels last seen in mid-2013, while AUD/JPY has now taken out 82.00. GBP is again under pressure against the USD and EUR — the latter back above .8100 again, but Cable is finding support ahead of 1.4000 again as the USD index is pressured in the wake of the Fed minutes last night — not that this revealed anything new to prompt the latest hit on the USD.ECB meeting report later today, but EUR/USD still managed to take out the previous highs to tip 1.1350. All on the JPY though today.

In commodities, despite starting the session off on the front-foot in the wake of yesterday’s DoE report and FOMC minutes, energy prices have slipped into negative territory in recent trade alongside a modest recovery in the USD. Overall, newsflow in energy markets continues to remain light in the run up to the upcoming Doha meeting next weekend. Gold (+1.2%) saw steady gains overnight following cautious FOMC minutes and weakness in the greenback. Silver has also recovered currently priced at around USD 15.20/oz, while copper and iron ore prices saw subdued trade amid a risk-averse tone in China and a pullback in steel prices.

It’s a fairly quiet calendar over in the US this afternoon too with last week’s initial jobless claims (expected at 270k) and the February consumer credit reading the only data of note. There are a few more interesting events outside of the data to keep an eye on: the IMF release chapters of its World Economic Outlook, while the ECB’s Draghi is due to speak in Portugal. Later we will see Fed Chair Yellen partake in a discussion with former Fed Chief’s Bernanke, Greenspan and Volcker, so it’ll be interesting to see if that throws up anything of interest.

Bulletin Headline Summary:

• FX markets have been dominated by relentless JPY buying, which is no doubt of great concern to Japanese officials, but outside of verbiage against these moves, have done little to respond to the rapid rise
• European equities struggle to form any significant direction as overall fundamental newsflow
  remains relatively light thus far, despite the fallout from last night’s FOMC meeting minutes
• Looking ahead, highlights include ECB Minutes, Initial Jobless Claims, EIA Nat Gas Storage Change, comments from Fed Chair Yellen and George
• Treasuries rise in overnight trading as global equity markets mixed in Europe, higher in Asia while WTI crude oil moves lower amid global growth concerns.
• Yen climbed above 109 vs dollar for first time in 17 months as market participants shrugged off remarks by Japanese government officials aimed at curbing the currency’s gains, according to analysts
• European Central Bank officials underlined their readiness to ease monetary policy even further should fresh risks to the economic outlook arise
• If Britain decides to leave the European Union, a corner of the credit market may depart with it and European banks could be left having to replace as much as 108 billion euros ($123 billion) of securities
• Dutch voters rebelled against a treaty between the European Union and Ukraine in a referendum on Wednesday, albeit on low turnout that fell short of the stampede that anti-EU campaigners hoped for
• Italian Treasury and central bank representatives are meeting again in Rome on Thursday to discuss the creation of a state-backed fund as the country’s cooperative lenders struggle to draw private investors
• China’s foreign-exchange reserves unexpectedly rose by $10.3 billion to $3.21 trillion last month after capital outflow pressure eased as the nation’s currency steadied
• Sovereign 10Y bond yields mixed; European equity markets mixed, Asian markets rise; U.S. equity-index futures drop. WTI crude oil and copper drop, gold rallies

US Event Calendar

• 8:30am: Initial Jobless Claims, April 2, est. 270k (prior 276k)
• Continuing Claims, March 26, est. 2.170m (prior 2.173m)
• 9:45am: Bloomberg Consumer Comfort, April 3 (prior 42.8)
• 3:00pm: Consumer Credit, Feb., est. -$14.9b (prior $10.538b)

Central Banks

• 5:30pm: Fed’s Yellen in New York with Volcker, Greenspan and Bernanke
• 9:15pm: Fed’s George speaks in York, Nebraska

DB’s Jim Reid concludes the overnight wrap

With newsflow fairly light yesterday, much of the broadly better sentiment which enveloped markets was blamed on the sharp bounce in Oil prices with WTI rallying back +5.18% and towards the $38/bbl mark again (which it has subsequently broken through this morning). The latest US crude inventory numbers, which showed an unexpectedly sharp decline in stockpiles, helped the story there, although digging deeper into some of the sector level performance yesterday it was actually healthcare names which led the way despite the news of that failed merger between Pfizer and Allergan. As reported by Bloomberg it appears that the two companies may look elsewhere in the sector for other potential M&A which lent some support to pharma names generally.

This morning in Asia we had initially seen most bourses follow the lead from the US last night (S&P +1.05%) in the early stages of trading, but momentum appears to be fading as we go to print. It’s bourses in China in particular which have dipped lower with the Shanghai Comp and CSI 300 -0.76% and -0.80% respectively. That has come before the latest China foreign reserves data for March (expected to show a modest fall) which is due to be released shortly.

Elsewhere the Hang Seng is flat along with the Nikkei after both opened strongly. Much of the focus has been on further strengthening for the Yen which is currently +0.6% firmer and close to breaking below ¥109 which it hasn’t done since October 2014. Elsewhere the Kospi is -0.23%, while the ASX (+0.23%) is just about holding onto gains.

The main focus yesterday was arguably on the release of those FOMC minutes. In truth there wasn’t much new material information to come out of them, instead they reinforced that fact that the Fed is clearly looking at both domestic and global economic and financial conditions. The minutes noted that ‘several participants expressed the view that the underlying factors abroad that led to a sharp, though temporary, deterioration in global financial conditions earlier this year had not been fully resolved and thus posed downside risks’. In light of that, the minutes also noted that ‘several expressed the view that a cautious approach to raising rates would be prudent or noted their concern that raising the target range as soon as April would signal a sense of urgency they did not think appropriate’.

That being said that view clearly wasn’t shared by all with the text also suggesting that some officials indicated that a move as soon as the next committee meeting this month could be warranted should the data allow for it. Clearly futures markets are unconvinced however with the market pricing in no hope of a move later this month and a still low 20% chance of a move in June.

Staying with the Fed, yesterday we heard from the Fed’s Bullard who once again maintained his view that all meetings remain live, but highlighted that the US data since the March meeting has been somewhat mixed and that ‘growth has been somewhat tepid’ and that should sluggish growth persist unexpectedly, then ‘I’d be willing to push rate hikes further into the future’.

While we’re on the subject of Fed officials, yesterday our US economists published an update of their FOMC scorecard, looking at the relative hawkishness/dovishness of each member and the overall committee as a result. Using a 1-5 scale, with the former being the most dovish and latter being the most hawkish, they attribute scores of 1 to Brainard and Tarullo and scores of 2 to Yellen, Dudley and Rosengren. Esther George (who was the only dissenter at the March meeting) is the lone voter to score a 5 with the remaining four officials scoring a 3 or 4. That means the average ranking comes in at 2.7 or in other words fairly middle of the park in terms of the dove/hawk scale.

Moving on. It was a broadly better day for risk in Europe yesterday too and particularly in the equity space where we saw the Stoxx 600 bounce back +0.76%. A less softer than expected German IP print in February (-0.5% mom vs. -1.8% expected) was the only data of note, while in the rates space we saw 10y Bunds have a rare weaker session with the yield closing up 2bps at 0.117%. In fact, that’s just the third time in since March 15th that 10y Bund yields have closed higher. Much like the moves for Oil, it was a fairly decent day for the bulk of the commodity space although Gold was an exception to that after weakening -0.72%. That hot start to the year for the precious metal, particularly through January and February, has paused for breath somewhat with Gold now 12% below where it closed February.

Wrapping things up, performance for credit markets and particularly in Europe was a little more subdued yesterday. The iTraxx Main and Crossover indices finished 0.5bps and 2bps tighter respectively however financials were a notable underperformer (sub fins +6bps, senior fins +1bp) during the day with some attributing this to some concern of a potential weak upcoming quarterly reporting period. There’s been no stopping the primary market this week though where in Europe we saw close to €13bn price in what was the busiest day for issuance in 3 weeks. It was a similar story across the pond where we saw the third straight double digit day of issuance. Meanwhile and on a more bottom-up specific topic, after the market close yesterday the WSJ reported that Valeant is said to have secured a commitment from debt holders to amend the terms of its debt in a long running saga which had investors call into question a potential technical default not long ago. The deal looks like giving the company some breathing room for now.

Taking a look at today’s calendar, this morning in Europe the only notable data of note is out of France, where we’ll get the February trade balance reading, and the UK where the latest house price data is due. Shortly after midday we’ll then get the ECB minutes from that famous March meeting. It’s a fairly quiet calendar over in the US this afternoon too with last week’s initial jobless claims (expected at 270k) and the February consumer credit reading the only data of note. There are a few more interesting events outside of the data to keep an eye on. This afternoon we’ll see the IMF release chapters of its World Economic Outlook, while the ECB’s Draghi is due to speak in Portugal this afternoon. This evening will see Fed Chair Yellen partake in a discussion with former Fed Chief’s Bernanke, Greenspan and Volcker, so it’ll be interesting to see if that throws up anything of interest.

via Zero Hedge http://ift.tt/25MPTjW Tyler Durden

Ever since the USDJPY breached the 110 support level three days ago for the first time in 17 months, the pressure on this all important FX carry cross has been rising, and then overnight, following the latest bout of recurring and increasingly ignored jawboning by various Japanese officials, the Yen soared, with the USDJPY plunging first below 109 and then moments ago dropping as low as 108.02 before rebounding modestly, dragging US equity futures lower with it.

 

Today’s latest drop has dragged the USDJPY to levels not seen since the October 2014 expansion of Japan’s QE, when Kuroda unexpectedly announced a boost to the monthly amount to be monetized.

 

Overnight, Japanese finance ministry officials told reporters that there are one-sided moves in yen market, and will take necessary action if needed, a finance ministry official tells reporters. “We monitor the markets with sense of vigilance and will take necessary action as needed,” Chief Cabinet Secretary Suga says in response to a question on FX.  The market however, completely ignored this attempt to normalize the “one sided” move, and sent the USDJPY crashing.

Some analyst thoughts:

• BOJ’s ability to influence market is waning and it’s hard for central bank to prevent yen strength by itself, says Shusuke Yamada, a currency strategist at Bank of America’s Merrill Lynch unit in Tokyo; intervention possible at 105, but more likely at 100; yen may reach 100 per dollar this year
• Even though BOJ’s rhetoric is intensifying, USD/JPY may fall further if there are no concrete actions from central bank and finance ministry, Credit Suisse macro strategist Trang Thuy Le says; market is disappointed that 110 didn’t hold
• FX intervention is unjustifiable above 105, says Yunosuke Ikeda, head of Japan foreign-exchange research at Nomura Securities; until around 105, FX intervention is difficult because of recent G-20 meeting in Shanghai; intervention requires U.S. support
• BOJ “shock and awe” stimulus is a risk at April meeting, but any USD/JPY boost may only provide speculators with a better level to sell dollars, says Peter Redward, principal at Redward Associates; BOJ may increase monetary base to JPY100t, accelerate ETF purchases and lower interest rates by 10 bps after Governor Kuroda said Japan is ready to ease without hesitation
• Negative rates reduce buffer for Japanese investors’ risk-taking and USD/JPY’s recent drop could keep Mitsubishi UFJ Kokusai Asset Management from “aggressively” making new investments, according to Hideo Shimomura, chief fund investor in Tokyo; says USD/JPY may reach about 105 this month or in May

As Bloomberg explains, expressions of concern from Japanese officials failed to convince markets that yen sales or other measures to curb the gains were imminent, and the currency rose at least 0.9 percent against all 16 of its major peers. It advanced even as a Ministry of Finance official said recent moves have been one-sided and that the authorities will take what action is necessary.

“The yen is being driven higher by risk aversion and by market participants testing the BOJ’s tolerance toward a stronger currency,” said Thu Lan Nguyen, a foreign-exchange strategist at Commerzbank AG in Frankfurt. “Japan doesn’t want to give the impression it’s planning to intervene given it’s hosting the next Group-of-Seven summit. There’s also a perception that it has very few measures left to aggressively ease monetary policy.”

Japan’s government is watching yen movements with vigilance, Chief Cabinet Secretary Yoshihide Suga said for a third day Thursday. Excessive currency moves have a negative impact on the economy, he said.

“If Japanese officials start saying ‘will take bold action if necessary,’ then it is time to be wary of the risks of market intervention,” said Joseph Capurso, a currency strategist at Commonwealth Bank of Australia in Sydney. “In any case, history shows market intervention by the MOF via the Bank of Japan does not lead to a sustained weakening of the yen.”

For now, however, the market is roundly ignoring any words coming out of Japan, and demanding action instead.

The funny thing is that “currenct intervention” is precisely what was agreed upon at the Shanghai Accord, but for now the concern for China and its currency is far greater than that for Japan, or Europe, where the Euro is likewise soaring. As such, Draghi and Kuroda will have to last it out, unless they are willing to form a strategic splinter group of central banks in what is shaping up to be a massive round of currency warfare.

Elsewhere, the ECB did try to jawbone a little, and was “undermined after European Central Bank Vice President Vitor Constancio reiterated that policy makers will do “whatever is needed” to return inflation to target, sparking speculation that another interest-rate cut is in the cards,with the EURUSD declining from 1.450 to just under 1.40.

Equity futures did their best to ignore the move as long as possible but even they ultimately had to admit that something is cracking below the surface.

Meanwhile, the only currency that does not need central banks manipulation to preserve its value under any circumstances, gold, spiked moments ago, hitting a one week high of $1240.

via Zero Hedge http://ift.tt/23kg2o6 Tyler Durden