Month: May 2016

A key turning point in German public sentiment (and subsequent anger) against the unprecedented refugee wave swarming the nation took place during a NYE celebration in Cologne, when multiple reports suggested that as many as 1,000 men “of Arab or North African origin” participated in “monstrous” coordinated attacks on German women in Cologne. “About 90 women have reported being robbed, threatened or sexually molested at New Year celebrations outside [the city’s] cathedral,” Reuters wrote, adding that the men were “between 18 and 35” and appeared to be “mostly drunk” as well as of foreign origin.

This led to an outpouring of anger across Germany, and even Cologne mayor Henriette Reker chimed in calling the incident “unbelievable and intolerable” while Justice Minister Heiko Maas described the attacks as “a new scale of organized crime.”

It also resulted in a prompt reversal in Angela Merkel’s notoriously liberal immigration policy, the result of which was a dramatic slowdown in refugee flows using the “land corridor” entering central Europe, and leading to the infamous deal with Turkey which promised Erdogan billions if he manages to contain the millions of Syrian refugees within his borders.

Now, according to local press reports, it turns out there was more. Germany’s The Local reports that a high-ranking police officer has alleged that his seniors tried to strike the word rape from an internal police report after the mass sexual assaults in Cologne over New Year.

The local media outlet reports that a chief superintendent in the Cologne police told the investigative committee established in the wake of the attacks that the interior ministry in North Rhine-Westphalia had sought to influence the investigations.

According to the officer, the government attempt to intervene in the narrative took place when an official from the ministry had called about a rape charge mentioned in an internal police report. “That isn’t rape. Get rid of it. Delete the report,” the ministry official said, according to the chief superintendent.

The rape report was made by a young woman who alleges she was surrounded by a group of around 50 men, some of whom pushed their fingers inside of her.  When he complained about the caller’s angry and abrupt tone, the official replied “these are the orders from the ministry. I’m simply passing them on.“

While the 52-year-old chief inspector said that he had never in his career experienced an intervention of this nature from the ministry, he was quick to add that he did not believe it was part of a cover-up, even though that is precisely what it appears to have been.

“They didn’t understand what is meant by rape,” he suggested.

The government was unsuccessful in its cover up attempt, however, when hundreds of women filed similar complaints in the days and weeks after the attacks with police, alleging that they had been sexually assaulted or robbed by groups of men around Cologne’s central train station.

The superintendent’s report corroborates unconfirmed rumors made in the days after the attacks, when allegations were made that the police had sought to cover up the crimes, due to the fact that they appeared to have been committed by men with a migrant background.

The Local also notes that in March police conceded that they had almost half the number of officers on duty during the assaults as they had originally claimed. A police report published the day after the attacks claimed 140 officers were present at the scene, when in fact at most only 80 were present. The sexual assaults on New Year’s Eve have brought stronger calls for reforms to Germany’s law on rape. Proponents for change say the law doesn’t sufficiently protect victims because it does not mention consent and courts often place too much emphasis on whether a victim physically resisted.

Whether Merkel’s cabinet had intended on toning down the nature of the Cologne attack in order to maintain the illusion that her refugee adoption ideal was without fault remains to be seen, however as a result of these allegations one wonders if Merkel’s standing with the public will be further adversely impacted, and providing another boost to the suddenly ascendant AfD which as we reported yesterday has been increasingly targeted by the local media in attempts to discredit its “conservative” agenda and its anti-Muslim rhetoric, an onslaught which we speculated may only boost the AfD’s popularity and will certain lead to even more vote for the political organization if the Cologne coverup scandal grips Germany’s national attention.

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As a major leg of many carry trades, the collapse of the Aussie Dollar in the last week has sent ripples through many risk-on positions. Following last week’s plunge in inflation to record lows, one would have assumed that expectations for a ‘stimulating’ rate-cut were baked in to some extent (as AUD plunged then), but this morning’s surprise RBA move has sparked another leg down in the commodity currency, breaking below a crucial uptrend off the January lows as the commodity currency decouples from exuberance in Chinese metals…

Just last week this happened… record low inflation

Which triggered this…

• *RBA MAY RATE CUT ODDS RISE TO 40% FROM 14% YDAY, FUTURES SHOW

“A pre-emptive May cut is surely now a real possibility,” said Gareth
Berry, a foreign-exchange and rates strategist in Singapore at
Macquarie Bank Ltd. “At the latest, an August cut is now
inevitable. That spells the end of this three-month old Australian
dollar rebound, and the downtrend can now resume in earnest.”

But apparently that was not priced in…

Breaking AUD below a key uptrend…

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Submitted by Pater Tenebrarum via Acting-Man.com,

Odd Couple

While checking on the US primaries a few days ago, we came across a piece of news informing us that pretend candle-swallower Ted Cruz had picked Carly Fiorina as his “vice-presidential running mate”. Our first thought upon hearing this was “WTF”?

The match made in heaven… two loooosers find each other.

It’s not so much that he’s picking another “loooooser” as The Donald would put it…the real absurdity of it is that even if Cruz were to win every single one of the remaining delegates (which isn’t going to happen in a million years), he could still no longer gain the number of delegates required to ensure his nomination. This has become a mathematical impossibility.

Prior to his bid for the nomination, we knew fairly little about Mr. Cruz (we still don’t know much – he’s not that interesting). We were aware though that he was considered a non-establishment “tea party” guy, a notion people should be thoroughly disabused of in the meantime.

Just to get this out of the way: We are actually on board with what might be described as “bourgeois” values (i.e., values many so-called conservatives are at least giving lip service to) – we are pro free market, against big government (in fact, if it were up to us, there would be no government at all – in our opinion this anachronistic institution is surplus to requirements), we believe in personal responsibility, we respect the body of Christian values and ethics (in spite of not being particularly religious ourselves), and so on. We actually like Western civilization and capitalism and think they have vastly improved the world.

But above all, we stand for the non-aggression principle (NAP). If there is one slogan we would fully support, it is “live and let live”.  We have for instance no problem whatsoever with other people pursuing lifestyles we personally reject. The notion that the State should prescribe and enforce such things is completely alien to us. We also strenuously oppose war (unless it is joined for what are clearly self-defense purposes).

The foreign policy views formulated by Mr. Cruz can only be described as unbridled belligerence and are in no way different from the usual neo-con pablum that evidently informs establishment politicians of both parties (Ms. Clinton’s FP views are essentially indistinguishable from those of Mr. Cruz). This unanimous support for policies that have demonstrably inflicted vast misery and huge losses in terms of lives and treasure means that these politicians are either A) dumber than fence posts, or B) part of a giant racket.

We actually think it’s a mixture of both and Mr. Cruz should be firmly rejected on these grounds alone.  As we have repeatedly stressed, whatever one thinks about The Donald and his undoubtedly quite numerous faults, his non-interventionist foreign policy views are extremely refreshing and are the one thing that truly makes him stand out from all other contenders for the presidency. When was the last time a front-runner for the nomination dared to defy the military-industrial complex?

This brings us back to Mr. Cruz and his strange appointment of Ms. Fiorina. What does this absurd gimmick tell us about him, given that he cannot possibly win the required number of delegates any longer? A sign of mental illness perhaps?

Probably not. We think it is telling us that he is desperately trying to ingratiate himself with the Republican establishment – which is firmly anti-Trump for the simple reason that Trump is a genuine threat to its cozy cronyism. The only purpose of Mr. Cruz’ continued participation in the primaries is an attempt to deny The Donald the majority of delegates in order to bring about a brokered convention.

Obviously, the idea that Mr. Cruz is some kind of “anti establishment Tea Party guy” is a load of cow manure.

Fall Girl

As to Ms. Fiorina, here is a brief assessment of her reign at Hewlett-Packard (HPQ), which ended rather ignominiously with her forced resignation (via Wikipedia):

“Following her forced resignation from HP, several commentators ranked Fiorina as one of the worst American (or tech) CEOs of all time. In 2008, InfoWorld grouped her with a list of products and ideas that flopped, declaring that her tenure as CEO of HP was the sixth worst tech flop of all time, and characterizing her as the “anti-Steve Jobs” for reversing the goodwill of “geeks” and alienating existing customers.

 

During Fiorina’s tenure as CEO, HP leased or purchased five planes, including two Gulfstream IVs, to replace four aging aircraft, only one of which had the range to fly overseas. One Gulfstream IV, acquired at a cost of US$30 million and available for Fiorina’s “exclusive” use, became a rallying point among HP employees who complained of Fiorina’s expensive self-promotion and top-down managerial style during a time of company layoffs. Jeffrey Sonnenfeld of Yale School of Management said in August 2015 that problems with Fiorina’s leadership style were what caused HP to lose half its value during her tenure.”

(emphasis added)

So yes, superficially, she seems to be a “looooser”, and as such it seems a fitting appointment. Well, not so fast. The losers in her reign at HPQ were actually only the company’s employees and shareholders. Ms. Fiorina herself actually turned out to be an incredibly successful crony:

Fiorina received a larger signing offer than any of her predecessors, including: US$65 million in restricted stock to compensate her for the Lucent stock and options she left behind, a US$3 million signing bonus, a US$1 million annual salary (plus a US$1.25–US$3.75 million annual bonus), US$36,000 in mortgage assistance, a relocation allowance, and permission (and encouragement) to use company planes for personal affairs.

 

[…]

 

Under the company’s agreement with Fiorina, which was characterized as a golden parachute by Time magazine, and Yahoo Finance, Fiorina received a severance package valued at US$21 million, which consisted of 2.5 times her annual salary plus bonus and the balance from accelerated vesting of stock options. According to Fortune magazine, Fiorina collected over US$100 million in compensation during her short tenure at HP.”

(emphasis added)

HPQ’s stock during the reign of Ms. Fiorina. It was a complete disaster for everyone – except for herself – click to enlarge.

So in a way, both Mr. Cruz and Ms. Fiorina can be associated with terms like “fall” or “decline”. In Ms. Fiorina’s case it was the share price of HPQ, in the case of Mr. Cruz it’s the polls. They are indeed well matched…and probably deserve each other.

The following scene is therefore also quite fitting – gravity yet again delivers a stern message:

Spontaneous disappearance

What makes this video truly hilarious isn’t the fact that she is falling down (we’re not that childish), although it does have a certain slapstick quality. Rather, it’s the utter bizarreness of the scene in its entirety…it is almost like a broadcast from a parallel universe.

For one thing, there is Ms. Fiorina’s comical announcement of Ted Cruz as “the next president of the United States”, completely undeterred by the fact that he cannot possibly win enough delegates anymore. For another thing, there is Cruz, steadfastly refusing to deviate from his entrance script.

He isn’t flinching for one micro-second when she goes down, not even making the slightest attempt to help Ms. Running Mate up. Instead he decides to continue to shake hands…he’s not even pretending he cares! This is definitely comedy gold.

Addendum: A Boehner Hate Wave

We generally don’t put much stock into the opinions of former house speaker John Boehner, but he really seems to hate Ted Cruz… he recently vented on his former colleague as follows:

Former Speaker John Boehner (R-Ohio) panned Ted Cruz as “Lucifer in the flesh” during comments at an event Wednesday night at Stanford University. “I have Democrat friends and Republican friends. I get along with almost everyone,” Boehner said, according to The Stanford Daily. “But I have never worked with a more miserable son of a bitch in my life.”

Conclusion

The moment Mr. Trump entered the contest and started to become successful, we knew this year’s election circus would provide great entertainment. It continues to deliver. More absurdities undoubtedly await.. stay tuned!

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Is Craig Wright The Creator Of Bitcoin? Frisby and Matonis On ‘Satoshi Nakamoto’

Craig Wright, an Australian computer scientist, self-declared cyber security expert and entrepreneur, has claimed to be the creator of Bitcoin, the elusive ‘Satoshi Nakamoto’.

Yesterday, he published a blog post offering what was claimed to be cryptographic proof, backed up by other information, to make his case. Along with the BBC and GQ, The Economist had access to Mr Wright before the publication of his post. The BBC are definitively saying that Wright is Nakamoto. The Economist is being more cautious and their conclusion is that he could well be Mr Nakamoto,“but that nagging questions remain.”

“In fact, it may never be possible to prove beyond reasonable doubt who really created bitcoin. Whether people, particularly bitcoin cognoscenti, actually believe Mr Wright will depend greatly on what he does next, after going public.”

Wright penned his own blog post claiming to be Nakamoto but also of importance is the fact that Bitcoin Foundation chief scientist Gavin Andresen — a man that used to be the bitcoin project lead and one of the most respected experts in the bitcoin community — wrote that he, too, believed Wright was the elusive bitcoin creator.

There are other very well informed people who believe that Wright is in fact the creator of bitcoin. These include Jon Matonis, Founding Director at Bitcoin Foundation, who blogged about it yesterday here.  Matonis had a “private proof session” in March and said that  he “had the opportunity to review the relevant data along three distinct lines: cryptographic, social, and technical. Based on what I witnessed, it is my firm belief that Craig Steven Wright satisfies all three categories.” 

Our friend Dominic Frisby, the author of  Bitcoin: The Future of Money? also thinks that Wright, with others, may be Satoshi and shared his thoughts with us this morning:

“Anybody who had ever had any interest in bitcoin, has been intrigued by the mystery of Satoshi Nakamoto. 

It has spawned a plethora of online sleuths – your truly included –  but Craig Wright’s name had never really been thrown into the mix. But when the Wired story came out last December – broken by Andy Greenberg – who has his finger on the pulse of the cyber punks more than any journalist and Gwern who I worked with on my own book and know the be extremely thorough, you have to sit up and take notice.

Satoshi Nakamoto appears to have been the work of Wright but also of internet forensics expert, Dave Kleiman who sadly died in 2013.

From what I can deduce, Kleiman did the writing and Wright did the coding. Wrights appears to have been the ideas man and Kleiman the “heavy lifter”. If you read Wrights ‘s prose it is not as error free as Satoshi’s was which confirms my believe that Satoshi was a partnership.

In my book, I outlined how Nick Szabo was likely Satoshi but the story has moved on. Bitcoin and the blockchain are both landmark inventions and enormous credit should go to all those that made it happen. Bitcoin was and is a collaborative effort.”

Bitcoins are now accepted as payment for a vast variety of goods and services – everything from international money transfers to ransoms for data encrypted by computer viruses. There are currently about 15.5 million bitcoins in circulation. Each one is worth about $449.

Satoshi Nakamoto is believed to have amassed about one million Bitcoins which would give him a net worth, if all were converted to cash, of about $450 million.

Jon Matonis sums up the importance of bitcoin and the blockchain on his blog thus:

I believe that the massive tidal wave of decentralisation and future Bitcoin advancements will start to occur more rapidly now, setting the stage for society to realize the plethora of currently imagined innovations. However, at the center of all of this incredible progress will be the unwavering and critical value of the humble digital bearer token known as bitcoin.

Week’s Market Updates
Gold “Chart of The Decade” – Maths Suggest $10,000 Per Ounce Says Rickards

Property Bubble In Ireland Developing Again

Silver Bullion “Momentum Building” As “Supply Trouble Brewing”

Cyber Fraud At SWIFT – $81 Million Stolen From Central Bank

Gold In London Vaults Beneath Bank of England Worth $248 Billion – BBC

Silver Prices Up 6% This Week and 25% YTD; Gold Up 1% This Week

Gold News and Commentary
Gold Passes $1,300 as Investors See Rates Remaining Low Longer (Bloomberg)
Gold Futures Rally Above $1,300 an Ounce (Video) (Bloomberg)
Gold tops $1,300, hits 15-month high (CNN)
Gold eyes $1,300 again as weaker dollar, fund inflows support (Reuters)
Gold prices gain in Asia as Caixin manufacturing PMI drops (Investing.com)

Gold Keeps Shining as Funds Miss Out on Best Rally in Two Months (Bloomberg)
Gold’s surge is making it feel a lot like late 2007 (CNBC)
Even the Australian Financial Review warns about paper gold (AFR)
Without Price Suppression Gold Would be $5,000 to $10,000 – Holter (Youtube)
Gold Crosses $1,300 Threshold as Rates Outlook Undermines Dollar (Bloomberg)
Read More Here

Gold Prices (LBMA)
03 May: USD 1,296.50, EUR 1,118.15 and GBP 881.32 per ounce
29 April: USD 1,274.50, EUR 1,119.45 and GBP 873.80 per ounce
28 April: USD 1,256.60, EUR 1,106.45 and GBP 861.43 per ounce
27 April: USD 1,244.75, EUR 1,100.79 and GBP 853.58 per ounce
26 April: USD 1,234.50, EUR 1,093.46 and GBP 847.28 per ounce

Silver Prices (LBMA)
03 May: USD 17.85, EUR 15.29 and GBP 11.92 per ounce  (To be updated)
29 April: USD 17.85, EUR 15.29 and GBP 11.92 per ounce
28 April: USD 17.35, EUR 15.29 and GBP 11.92 per ounce
27 April: USD 17.34, EUR 15.34 and GBP 11.87 per ounce
26 April: USD 16.95, EUR 15.02 and GBP 11.64 per ounce

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When yesterday Bank of America presented “Another Sign That Wall Street Doesn’t Believe The Rally” noting that its “Sell Side Indicator, a measure of Wall Street’s bullishness on stocks, fell by 1ppt to 51.9, its lowest level in over a year” it tried to spin this “pervasive bearishness as a ‘reliable contrarian indicator’.” Alas, for now it is merely an indicator of precisely what it is: that the smart money still refuses to believe the rally, and following a record 13 weeks of smart money selling, overnight BofA reported what is now becoming painfully farcical:

“Last week, during which the S&P 500 fell 1.3% in its biggest weekly decline since early Feb., BofAML clients were net sellers of US equities for the 14th consecutive week, in the amount of $2.8bn. As we noted last week, this has been the longest uninterrupted selling streak in our data history (since ‘08)—previously the longest streak was 12 weeks (in late ‘10).”

Helpfully, BofA’s Jill Carey Hall writes that “persistent sales suggest clients have continued to doubt the rally’s sustainability.” She is correct, and with the market finally starting to roll over once again as central banks now demonstrate their powerlessness on an almost daily basis, perhaps this time the smart money will finally be right.

BofA breaks down the selling as follows: “net sales continue to be led by institutional clients, while hedge funds and private clients were also sellers. Buybacks by our corporate clients—which are seasonally light in April— decelerated last week, and are cumulatively tracking below levels we saw last April. Net sales last week were in large and mid-caps, while small caps saw net buying.”

Breaking down the rolling 4-week data by client type:

• Hedge funds have been net sellers on a 4-week average basis since early Feb.
• Institutional clients have been net sellers on a 4-week average basis since early Feb.
• Private clients have been net sellers of US stocks on a 4-week average basis since early January.
• The four-week average trend for buybacks by corporate clients suggests a pick-up in S&P 500 buybacks in 4Q15, but more recently, a seasonal slow-down.

Looking at the four-week average trends by sector, BofA finds that there has been zero net buying, and notes:

• Net selling: Tech since late Jan.; Staples since early Feb.; Industrials since mid-Feb.; Energy and Financials since late Feb; Materials and Health Care since mid-March; Consumer Discretionary since late March, Utilities since early April.
• Notable changes in trends: ETFs saw a reversal to net selling after net buying since early April; Telecom saw a reversal to net buying after net sales since mid- March.

Maybe next week, which would mark a historic 15 weeks of consecutive smart money outflows, is when the tide finally turns, assuming the market slides here. Or perhaps, due to accelerating redemptions, it won’t, and the ongoing selling deluge will continue indefinitely. Find out one week from now.

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• Global stocks slide as yen, euro gains question policy potency (Reuters)
• U.S. Index Futures Signal Stock Losses as AIG Drops on Earnings (BBG)
• EU Sees Weaker Growth in Eurozone and Wider EU as China Slowdown Weighs (WSJ)
• Euro Set for Longest Run of Gains Since 2013 as Fed Focus Fades (BBG)
• German Bonds Advance as EU Cuts Euro-Area Inflation Outlook (BBG)
• Trump hopes to land decisive blow in Indiana showdown with Cruz (Reuters)
• Hedge Funds Under Attack as Cohen Says Skilled People Are Scarce (BBG)
• China’s banking regulator moves to contain off-balance sheet risk (Reuters)
• Two Sigma Co-Founder `Very Worried’ Machines Will Take Jobs (BBG)
• Aeropostale Preparing to File for Bankruptcy This Week (WSJ)
• Fairway Group Holdings files for Chapter 11 bankruptcy (Reuters)
• Pfizer Beats Estimates as Vaccine, Cancer Drug Sales Surge (BBG)
• UBS Drops as Profit Misses Estimates on Wealth, Trading Income (BBG)
• Commerzbank Plunges as Low Interest Rates Hit Sales, Trading (BBG)
• Halliburton adjusted profit beats estimate, helped by cost cuts (Reuters)
• The Super Rich Were the First to Bail During the Financial Crisis (BBG)
• Islamic State breaches peshmerga defenses north of Mosul (Reuters)
• Iraq Cleric’s Moves Test Political Order (WSJ)
• Australia Budget Highlights Low-Growth Challenge: Moody’s (BBG)
• Drought-hit Zimbabwe sells off wild animals (Reuters)

Overnight Media Digest

WSJ

– Aeropostale Inc is preparing to file for bankruptcy protection this week and close more than 100 stores, according to people familiar with the matter, as the teen-apparel retailer contends with mounting losses and falling sales. (http://ift.tt/1SIbhBt)

– The Colorado Supreme Court ruled Monday that municipalities can’t bar hydraulic fracturing, a long awaited decision in a legal battle that has rippled across this energy rich state. (http://ift.tt/1Tsq27J)

– Donald Trump, with a big lead in the polls in Indiana and the Republican presidential nomination within his reach, kept attacking his GOP rivals on the eve of the state’s primary, while democratic front-runner Hillary Clinton ignored her opponent and looked ahead to the general election. (http://ift.tt/1SIbhRH)

– Microsoft Corp updated its Bing search app for iOS on Monday with a new feature that lets you search for images by taking a photo with your iPhone or uploading an image from your camera roll. (http://ift.tt/1Tsq27L)

FT

* France’s competition authority ordered Engie to raise its natural gas prices for companies, saying that in some cases the energy company utility was engaging in “predatory pricing” and harming competitors.

* Philippe Hebert, chief risk officer of Barclays France, has alleged money laundering and mis-selling failures at the bank in a letter written to Tony Blanco, chief executive of Barclays France, which was seen by the Financial Times.

* Eurozone economies would benefit at the cost of Britain if it decided to leave the European Union, a prominent French economist has predicted, with a relocation of financial activity out of London causing sterling to plummet.

* The stock market in Milan said it could not allow regional lender Popolare di Vicenza to list after it failed to find sufficient buyers for its 1.7 billion euros ($1.96 billion)capital raising.

NYT

– WhatsApp, a messaging service owned by Facebook, was shut down in Brazil on Monday after a court order from a judge who is seeking user data from the service for a criminal investigation. (http://ift.tt/1SJRxKa)

– Puerto Rico’s default on most of a $422-million debt payment on Monday puts the spotlight back on Washington to enact a rescue package for the island, and congressional aides said a revised bill would be introduced next week. (http://ift.tt/1W3wbNu)

– The Dutch chapter of the environmental activist group Greenpeace on Monday disclosed a trove of documents from the talks over a proposed trade deal between the European Union and the United States. (http://ift.tt/1SJRxKc)

– Hulu, until now primarily a rerun service for episodes of broadcast television shows, is working to create a more robust offering that would stream entire broadcast and cable channels to consumers for a monthly fee. (http://ift.tt/1W3wb02)

Britain

The Times

– Range, a discount furniture retailer, and NewDay, one of the country’s largest providers of store cards, have begun talks with investors about flotations that could value the companies at more than 1 billion pounds ($1.47 billion) each. (http://bit.ly/1Z4UU23)

– David Cameron is to put curbing Islamist extremism at the heart of the Queen’s Speech this month as he seeks to fend off claims that he is becoming a lame-duck prime minister. (http://bit.ly/1Z4W4L9)

The Guardian

– Britain’s most senior civil servant, Jeremy Heywood, is reviewing HS2 as fears grow that the high-speed railway cannot be built within its 55 billion pound budget in its current form. (http://bit.ly/1Z4XPrw)

– Worries about the EU referendum in June, rising labour costs and China’s slowdown have knocked UK business confidence to a four-year low, according to a report by ICAEW. (http://bit.ly/1Z4XVzt)

The Telegraph

– A Brexit will cost up to 100,000 jobs while the NHS and other public services will face significant cuts, Cabinet Minister Greg Hands has warned. (http://bit.ly/1Z4Ybyw)

Sky News

– Restaurants and bars could also be stopped from adding service charges to bills to remind customers they do not have to tip if they don’t want to. Tips left by customers should go to workers in full and not their employers, the government has said in a report. (http://bit.ly/1Z4YJnR)

The Independent

– The chairman of Business Select Committee examining the collapse of BHS has said the retailer’s former owner, Philip Green, has “enormous questions” to answer surrounding the sale of the 88-year-old high street chain, accusing him of “crashing” it into a cliff. (http://ind.pn/1Z4ZBZF)

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We just posted a comment on the situation in the EU, where financial repression is still increasing.  Big concern from my perspective is that negative rates and central bank market intervention seem to be frightening investors and convincing savers to abandon the financial system.  Look at the earnings reports from UBS and the other large EU banks.  Banks are 80% of the EU balance sheet and virtually all are shrinking.  It is hard to envision how this situation does not end in tears for the nations of Europe given the policy mix.

The economic policy debate seems comprised of a binary choice. On the one hand, we are offered radical action by global central banks including the forced transfer of value from savers to debtors, and on the other, increased fiscal spending funded via either more debt or higher taxes. We believe that there is a third choice, namely to make public policy pro-growth as well as pro-consumer, with a balanced approach that is constructive rather than punitive.  Good luck getting the current cast of characters in the global central banking community to start talking about growth. But if we don’t see a change in policy by the ECB, there could be a German-led political crisis in Europe before end of the year. 

Chris

Achieving Stability & Growth in Europe

Kroll Bond Rating Agency

May 2, 2016

Since the 2008 financial crisis, the fastest growing economic indicator in many industrial nations has been public sector debt. The Group of Twenty nations have seen a double digit increase in total indebtedness by a number of member nations. Japan and the European Union have driven short-term interest rates negative so as to lighten the fiscal load on cash-strapped governments. As Kroll Bond Rating Agency (KBRA) previously noted, faced with the reality of public and private debts that cannot be repaid, a number of nations have embraced negative rates, an explicit transfer from savers to debtors. In setting zero or even negative interest rates, the Federal Reserve, the European Central Bank (ECB), and Bank of Japan (BOJ) have created a fourth phase of the historical progression of public indebtedness which is widely known as “financial repression.”  Negative interest rates are essentially a tax on investors and have profoundly negative implications for economic and fiscal planning, personal saving, capital investments, banking, insurance, pensions and health care schemes. 

As government debt has grown, the nations of Europe have very deliberately avoided dealing with an equally pressing problem, namely the state of Europe’s banks. The total assets of the EU banking sector declined from €33 trillion in 2008 to about €28 trillion in 2014. The ECB reports that the total number of credit institutions in the euro area fell to 5,614 at the end of 2014 (down 17% from 6,774 in 2008). The largest reductions in the value of total bank assets since 2008 were recorded in Ireland, Estonia and Cyprus, amounting to drops of 69%, 40.7%, and 39.8% respectively. Yet many EU nations still have banking sectors that are larger than their economies.

The European community’s banks still report over €1 trillion in bad assets, as noted in KBRA’s research report on the ECB referenced above. KBRA believes that the actual number of problem loans held by EU banks is significantly higher and is masked by the relatively liberal International Financial Reporting System rules on the recognition of bad assets. The key message is that the capacity of EU banks to originate and support new credit creation is falling, part of the reason why KBRA believes job creation and economic growth in the EU remain muted. That said, in Q1 2016 the EU reported a growth rate higher than the U.S. or the UK, begging the question as to why the ECB feels the need to embrace negative rates, open market asset purchases and other radical expedients at this time.

The retreat of EU banks manifested by the shrinkage in total assets has caused an increase in non-bank financial intermediation, albeit far smaller than the decline in the traditional banking system. Regulators and pundits fret about the “risks” of the so-called shadow banking sector, suggesting that somehow regulated commercial banks are superior business models (and less risky from a public, systemic perspective) than are private sector companies. It is useful to recall that commercial banks are, by definition, government sponsored enterprises that enjoy a variety of public subsidies, explicit and hidden. Non-banks, on the other hand, represent the private sector and generally have little impact on markets or cost to taxpayers when they fail. In fact, KBRA argues that the non-bank appendages of the largest universal banks actually did the greatest damage during the 2008 market collapse. 

Public Anxiety Over Negative Rates

Credit conditions in the U.S. are relatively strong, banks in KBRA’s rated universe are more than adequately capitalized and the financial system has largely dealt with all significant asset quality problems. Yet both in the U.S. and the EU, the public at large remains profoundly unhappy with the economic situation and continues to focus critical attention on the banking sector. Former Federal Reserve Governor Kevin Warsh noted last month at a conference sponsored by Grant’s Interest Rate Observer that negative interest rates only impact financial assets and markets. There is no trickle-down effect that is helpful to consumers, thus three quarters of people in the U.S. believe that the economy is on the wrong path. Yet, Governor Warsh notes, in Washington most observers believe that things are fine and that the economy is at full employment.

In Europe, however, the issue of negative interest rates is causing political contention. Senior members of the German government are openly blaming the policies followed by the European Central Bank for the rise of political populism in Europe. Whereas in the past central bankers had to endure scolding from politicians when they increased interest rates to protect their nations from inflation, today central bankers like Mario Draghi are castigated for easy money policies that are increasingly viewed as counter-productive, even reckless by some observers. The independence of agencies like the Federal Reserve and ECB are less threatened by the criticism of politicians than by a stunning lack of public support. 

A large part of the public antipathy for central banks is due to the impact of zero interest rates on savers. Bavarian finance minister Markus Soder told Der Spiegel: “The zero interest [rate] policy is an attack on the assets of millions of Germans who have placed their money in savings accounts and life insurance policies.”

At its most recent meeting, the ECB opted to leave its benchmark rate unchanged at zero, maintain the deposit rate at -0.4%, and leave unchanged the current size of its bond-buying program (~$90 billion a month). Significantly, the ECB remains willing to “do more” for an “extended” period of time even though there is growing public unease at the ECB’s policy mix of negative interest rates and debt purchases.

Both the Fed and ECB have tried to compensate for a lack of action by elected officials to deal with structural issues such as debt and unemployment, but in so doing have only weakened their political position. In Europe in particular, the Weimar-era German social imperative of a balanced budget has come into a direct collision with the accommodative polices of the ECB. German Finance Minister Wolfgang Schäuble went so far as to blame the ECB’s “money-for-nothing” polices on the rise of Alternative for Germany, the right-wing, Euroskeptic, anti-immigrant party that did well in the last regional elections.  

Focusing on Growth

Now, eight years since the financial crisis, the ECB has embarked upon a radical policy of debt purchases and outright subsidies for banks. ECB Governor Mario Draghi seeks to do via monetary policy what Angela Merkel and other elected officials in the EU cannot or will not do, namely deal directly with the asset quality problems festering inside the EU banking system by writing down bad debts and converting debt to equity. The latest ECB policy move is effectively a work-around for a political system that has not been able to deal effectively with the uncollectible debts on the books of EU banks as well as the public and private debts of a number of EU member states.

KBRA notes that today’s economic policy debate seems comprised of a binary choice. On the one hand, we are offered radical action by global central banks including the forced transfer of value from savers to debtors, and on the other, increased fiscal spending funded via either more debt or higher taxes. So far, political leaders have not been inclined to accelerate borrowing or spending. Indeed, combined with increased regulation on financial institutions and markets, through inaction our political leaders have done their best to kill the economies of Europe and the U.S. – and thankfully they have failed, to paraphrase Governor Warsh. 

There is a third choice to help provide an answer to the common problems of employment and growth. We believe policy makers need to make policy pro-growth as well as pro-consumer, with a balanced approach that is constructive rather than punitive. Those observers who say that Europe and the U.S. cannot grow at more than 2% per year without greater fiscal action give too little credit to the qualities which make these societies great. Democracy and the rule of law, an educated and highly skilled workforce and world-leading infrastructure are the basis for stable, sustainable growth that can be achieved in the proper political environment. KBRA believes that policy makers ought to stop demonizing private businesses and banks, and instead find a more reasonable path to achieve common goals of growth and jobs. 

Rather than tolerate further the use of mechanisms such as negative interest rates and overt debt monetization by central banks, we submit that our political leaders should direct Mr. Draghi and his counterparts on the U.S. Federal Open Market Committee to return to more conventional policies. The quid pro quo, however, is that the political leaders of Europe and the U.S. must be willing to engage on some difficult issues, including debt reduction and recapitalization of banks in Europe, as well as other policy changes to stimulate private sector credit creation and thus growth and jobs. Simply increasing public spending, KBRA submits, is insufficient to really address the challenge of stimulating growth. 

As the EU tackles the twin tasks of reducing debt and recapitalizing the banks, it should modify some of the more draconian regulations put in place after the 2008 crisis, restrictions which are causing many banks in Europe and U.S. banks to stop taking risk altogether. Institutions across the EU are migrating to a “capital light” business model that emphasizes asset management over consumer lending, private placements instead of trading and capital markets. 

Because of the importance of banks as providers of liquidity in the EU, the strictures placed upon lenders and securities firms has a direct connection to reduced business activity and job creation. The decrease in the effective leverage on bank capital on both sides of the Atlantic, we believe, is one of the key reasons for sub-standard job and income growth. Only by adjusting public policy to encourage credit creation and private sector investment, can the nations of Europe achieve sustainable financial stability and acceptable levels of economic growth. 

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US “boots on the ground” on Iraq have just suffered their first casualty.

Moments ago US Defense Secretary Ash Carter announced that the Islamic State killed the first U.S. serviceman in Iraq who was aiding Kurdish fighters near the northern Iraqi city of Mosul, RT reports. A statement from the US-led forces in Iraq added the fatality was “a result of enemy fire.” “It is a combat death, of course. And a very sad loss,” Carter told reporters at a press conference in Germany.

On May 3, 2016, a Coalition service member was killed in northern Iraq as a result of enemy fire. https://t.co/m0eUpcuVu7

— Inherent Resolve (@CJTFOIR) May 3, 2016

According to Carter, the serviceman was killed “in the neighborhood” of Irbil, northern Iraq. Irbil is the capital of semi-autonomous Kurdistan region.  No further official details were given apart from the US-led Operation Inherent Resolve stating that a coalition “service member was killed in northern Iraq as a result of enemy fire.”  The serviceman was hit by direct enemy fire about 32 kilometers from the city of Mosul, said Colonel Steve Warren, spokesman for Operation Inherent Resolve.

Col. Steve Warren, spokesman for Operation Inherent Resolve, the U.S.-led coalition fighting Islamic State added that the soldier was hit by direct enemy fire about 20 miles from Mosul, the extremist group’s de facto capital in Iraq, 

The serviceman’s name and rank weren’t immediately disclosed in accordance with military protocol. He was on a so-called train-and-assist mission, advising Kurdish fighters known as the Peshmerga, U.S. allies in the anti-Islamic State campaign. He is the third American soldier to have been killed in Iraq since U.S. troops withdrew from the country in 2011 following a nearly decadelong occupation.

“The enemy penetrated the Kurdish lines,” Col. Warren of the morning attack. “They went about five kilometers past the forward line of troops with some truck bombs.”

The WSJ adds that earlier on Tuesday US and coalition aircraft were said to be supporting forces battling Islamic State militants north of Mosul. Mosul is some 80 km (50 miles) west of Irbil.

Operation Inherent Resolve was launched by Washington against Islamic State in 2014. In December of that year, a US Air Force pilot was killed when his F-16 Fighting Falcon crashed due to maintenance problems.

Obama had previously stated on numerous occasions that no US “boots on the ground” would be deployed to Iraq before changing his strategy and sending hundreds of troops to the region.

An Iraqi soldier is trained on an armed U.S. military vehicle as they take part in a live-fire exercise under the surveillance of U.S.-led coalition forces at Basmaya base, southeast of the Iraqi capital Baghdad on January 27, 2016.

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Three months ago, when Australia unexpectedly revealed that its recent “stellar” job numbers had in fact been cooked we asked, rhetorically, why the sudden admission it was all a lie? Simple: weakness in commodity prices “is far greater than people had been expecting,” the nation’s top economist said. Australia is now “swimming against the tide” because of uncertainties in the global economy, he added. Which we translated as follows: “we need more easing, and to do that, the economy has to go from strong to crap.” And with the Australian economy suddenly desperate for lower rates from the RBA, one can ignore the propaganda lies, and focus once again on the far uglier truth.

Overnight this was finally confirmed when in a surprise move, Australia’s central bank cut its benchmark interest rate for the first time in a year to a record low and left the door open for further easing to counter a wave of disinflation that’s swept over the developed world. The move sent the local currency tumbling and local stocks climbing.

Reserve Bank of Australia Governor Glenn Stevens and his board lowered the cash rate by 25 basis points to 1.75 percent Tuesday, a move predicted by just 12 of 27 economists surveyed by Bloomberg. The rest had seen no change. Data last week showed quarterly deflation in the consumer price index and the weakest annual pace on record for core inflation, which the RBA aims to keep between 2 percent and 3 percent on average.

“Inflation has been quite low for some time and recent data were unexpectedly low,” Stevens said in a statement. “These results, together with ongoing very subdued growth in labor costs and very low cost pressures elsewhere in the world, point to a lower outlook for inflation than previously forecast.”

As Bloomberg reminds us, Australia’s central bank acted after two regional neighbors stood pat last week – New Zealand and Japan. Illustrating the impact of central bank decisions on exchange rates, the Aussie has the weakest performance among the G-10 since last Wednesday, a day before the Bank of Japan and Reserve Bank of New Zealand meetings. The announcement sent the AUDUSD plunging.

In some way’s Australia rate cut had been telegraphed earlier in the aftermath of last night’s latest disappointing Chinese Manufacturing PMI number, which as we reported contractde for the 14th straight month, and not only missed but dropped to 49.4 after a brief March bounceback from February lows.

Perhaps more importantly, the plunge in the AUD caused havoc across other key carry trades, and following a nearly 200 pip plunge in the AUDJPY, the Yen soared once more, this time surging to the highest against the dollar since August 2014, pushing the pair as lows at 105.600, and dragging risk assets lower with it.

As a result, the dollar fell to its weakest level in almost a year and stocks declined while Treasuries rose as evidence of limp economic growth around the world permeated through global financial markets. It also meant that gold once again jumped above $1300, while oil has traded on the backfoot near $45 a barrel despite the accelerating dollar weakness, ahead of weekly U.S. government data forecast to show rising stockpiles.

“We’ve started to take a little bit of money off the table,” said Sean Darby, chief global equity strategist in Hong Kong at Jefferies. “There’s quite a bit for investors to digest now after quite a big run-up in markets, particularly after the disappointment from the Bank of Japan last week.”

It wasn’t just central banks: commercial banks were also responsible for today’s weakness. UBS Group AG fell 5.8% after reporting worse-than-forecast first-quarter net income. Commerzbank AG lost 6% after its profit more than halved. HSBC Holdings Plc erased gains to fall 0.7 percent after posting a drop in profit.

“Weak earnings and a strong euro are the main triggers for the market being down today,” said Heinz-Gerd Sonnenschein, a strategist at Deutsche Postbank in Bonn, Germany. “What markets need most right now is to see better numbers from the economic indicators in Europe and a better view from companies on their future earnings.”

So far it has not seen that, and making matters worse, the European Commission said hours ago that growth in the Eurozone and the wider European Union will be slightly weaker this year than previously forecast, as it warned that the economic slowdown in China and other emerging markets, geopolitical tensions and uncertainty ahead of the U.K. referendum on EU membership could weigh on the economy.

The EU’s economists also cautioned that the strength of factors that have been supporting growth in the region, such as low oil prices and a weaker euro, could start to fade, while fundamental problems in many of the bloc’s economies, including high levels of private debt and unemployment, continue to hold back the economic recovery. The commission now expects the rate of inflation in the eurozone to be just 0.2% this year, down from the 0.5% previously forecast. In 2017, inflation in the currency union is now seen at 1.4%, down from the 1.5% predicted earlier and still below the close-to-2% targeted by the ECB.

“We’re into the May doldrums where people are starting to reconsider portfolios and will probably not do too much,” said Sean Darby, chief global equity strategist in Hong Kong at Jefferies Group LLC. “They’ve either missed the rally from the first quarter or they’re getting a little bit too concerned about some of the weakness in the global data.”

Market snapshot

• S&P 500 futures down 0.7% to 2059
• Stoxx 600 down 1.3% to 337
• FTSE 100 down 0.7% to 6196
• DAX down 1.6% to 9957
• German 10Yr yield down 2bps to 0.24%
• Italian 10Yr yield down less than 1bp to 1.47%
• Spanish 10Yr yieldunchanged at 1.58%
• S&P GSCI Index down 0.7% to 352.7
• MSCI Asia Pacific up less than 0.1% to 130
• Nikkei 225 closed
• Hang Seng down 1.9% to 20677
• Shanghai Composite up 1.8% to 2993
• S&P/ASX 200 up 2.1% to 5354
• US 10-yr yield down 5bps to 1.82%
• Dollar Index down 0.54% to 92.12
• WTI Crude futures down 1% to $44.33
• Brent Futures down 1% to $45.37
• Gold spot up 0.5% to $1,298
• Silver spot up 0.4% to $17.61

Top Global News

• Australia Cuts Key Rate to Record Low, Pulling Down Currency: Australian dollar slumps as much as 1.5% following decision
• UBS Profit Misses Estimates on Lower Wealth, Trading Income: Investment-banking unit sees profit slump 67% in first quarter
• HSBC’s Quarterly Profit Beats Estimates as Costs Contained: Operating expenses fell 6.6% in quarter from year earlier
• Fairway Group Files for Bankruptcy as Competition Revs Up: Gourmet grocer lists $387m in debt, $230m assets
• J&J Faces 1,000 More Talc-Cancer Suits After Verdict Loss: Jury awards $55m to woman who blamed talc for cancer
• Einhorn’s Greenlight Buys Yelp, Takes Macro Bet on Natural Gas: Hedge fund says mobile app company can double revenue by 2019
• Mylan Sees Profit Rising About 16%, Generic Prices to Drop: CEO committed to closing Meda acquisition
• Apple CEO Says He ‘Could Not Be More Optimistic About China’: Tim Cook spoke in interview on CNBC
• Aeropostale Prepares to File for Bankruptcy This Week: WSJ
• EU Commission Doubts Trade Deal With U.S. Possible: Sueddeutsche
• U.S. Grain Cos. Plan to Reject New Monsanto GM Soybeans: WSJ
• ADM, Bunge Not Accepting Soybeans W/ Unapproved Monsanto Trait

Looking at regional markets, Asian equity markets traded mostly positive with ASX 200 (+0.8%) among the leaders, following an RBA rate cut, while poor China PMI figures increase stimulus hopes. ASX 200 was led by financials after Big-4 bank ANZ recovered from opening losses on optimism regarding the bank’s direction, while a 25bps rate cut by the RBA further boosted sentiment. Elsewhere, Chinese markets were mixed with the Shanghai Comp (-1.68%) was weighed by further poor data in which Caixin Manufacturing PMI failed to meet estimates and posted a 14th consecutive month in contraction territory, as the recent data misses increased hopes for additional easing. As a reminder Japanese markets were shut due to Constitution Day and will next re-open on Friday.   

Top Asian News

• China’s Caixin PMI Slips in April as Pockets of Weakness Remain: PMI from Caixin Media and Markit Economics fell to 49.4 vs est. 49.8
• Short Sellers Under Fire in Australia as RBA Spurs Stock Rally: Banks lead gains after interest-rate cut, ANZ results
• Yuan Gains After PBOC Sets Strongest Fixing Rate Since December: PBOC raised daily fixing by 0.04% to 6.4565/dollar
• China Swap Rate Drops Most in Year as Bond Income Escapes Tax: Policy bank bond yields, benchmark repo rates decline
• PLDT Profit Falls 34% as Losses From Rocket Internet Persist: 1Q net drops to 6.2b pesos
• ANZ Rallies as Low-Yield Business Cuts Offset Profit Drop: 1H cash profit A$2.782b vs est. A$3.577b
• DBS First-Quarter Profit Rises 6 Percent, Beats Estimates: 1Q net income S$1.2b vs est. S$1.04b

European equities have also seen significant downside so far this morning (Euro Stoxx: -1.6%), with the DAX slipping back below the 10000 level. While yesterday’s decline in energy prices have helped lead energy names lower today, focus has been some of the high profile earnings from across Europe, with the likes of BMW, UBS, Commerzbank and Lufthansa all seeing downside in the wake of their updates. Bunds have seen upside today, with prices back above 162.00, while peripheral debt markets have seen Portuguese paper lifted by the latest sovereign update from DBRS, which has abated some of fears from last week as this would mean that Portuguese bonds are still eligible for ECB QE. Meanwhile, analysts at Informa note that BTP/Bonos are lower by around 1.5bps in the wake of soft demand for the BP Vicenza IPO, whereas for Spain the EU extension for the nation and their deficit goals has offset some of the concerns following the countries inability to form a government.

Top European News

• European Commission Sees U.K. Referendum Risks as Forecasts Cut: Predicts 2016 growth will slow to 1.8%, 2017 will be 1.9%
• U.K. Manufacturing Unexpectedly Shrinks as Firms Hemorrhage Jobs: Markit PMI drops to 49.2 from 50.7 in March
• BMW First-Quarter Profit Falls 2.5% on Self-Driving Shift: BMW sticks to forecast for slight earnings growth in 2016
• Commerzbank Profit Halves as Market Turmoil Hurts Revenue: Earnings beat analysts’ estimates even as revenue declined
• BNP Paribas Profit Unexpectedly Rises on Lower Provisions: Pretax profit at corporate and institutional bank falls 55%
• Lufthansa Fares Under Pressure as It Grapples With Restructuring: Carrier says revamp is beginning to deliver cost turnaround
• Philips to List Lighting Unit After Failing to Find Buyer: Dutch manufacturer to list at least 25% stake, will seek to sell remaining shares in coming years

in FX, it has been a lively start to the European session, with the RBA rate turning AUD lower after attaining .7700+ levels vs the USD. Elsewhere though, fresh USD selling has been the early theme against the rest of the majors, led by EUR/USD through the 1.1500’s, tipping 1.1600 by some 15 ticks so far. USD/JPY took out support ahead of 106.00 to extend losses through to 105.55, but some nervousness at these levels sees us some 20 ticks or so higher since. Cable made strong gains through to 1.4770, but a weak UK manufacturing PMI number, below the 50.0 pivot (49.2) has sent GBP reeling, with the EUR/GBP rate through .7870 extending Cable losses to just below 1.4700, though tentatively so as yet. USD/CAD finally took out 1.2500 to trip stops down to 1.2460/61, but we are back above 1.2500 again as Oil takes a hit. Oil prices have already been on the wane, but clearly preceded by stock market weakness, which looks set to impact on FX today. Swedish industrial production much better than expected, knocking USD/SEK down to just under 7.9000.

In commodities, WTI and Brent have shaken off some of their recent gains after the continuation of the fallout from the Genscape report which noted a build in cushing stockpiles, Gold has still be rising after a week USD is helping boost safe haven demand. Silver has been trading sideways after reaching the USD 18.00/oz level yesterday and is currently just shy of that level. Elsewhere, copper and Dalian iron ore futures were weaker following the recent discouraging Chinese PMI releases, with the latter declining by nearly 6% intraday as increasing stockpiles also weigh.

On today’s US calendar, highlights include Redbook weekly sales, the ISM New York, US IBD/TIPP Economic Optimism, API Crude Oil Inventories and earnings from Pfizer and CVS Health.

Bulletin Headline Summary from Bloomberg and RanSquawk

• European bourses slump with sentiment dampened from soft Chinese Caixin Manufacturing PMI figures alongside a slew of weak earnings updates.
• USD-index briefly slips below 92.00, subsequently lifting EUR/USD above 1.1600, while gains in GBP are capped as Manufacturing PMI figures fall into contractionary territory.
• Highlights include US IBD/TIPP Economic Optimism, API Crude Oil Inventories and earnings from Pfizer and CVS Health.

US Event Calendar

• 8:55am: Redbook weekly sales
• 9:45am: ISM New York, April, no est. (prior 50.4)
• 10am: IBD/TIPP Economic Optimism May, est. 46.5 (prior 46.3)
• Wards Domestic Vehicle Sales, April, est. 13.4m (prior 12.97m)
• 10:30am: Fed’s Mester speaks at Amelia Island, Fla.
• 2pm: Fed’s Williams on Bloomberg Radio
• 4:30pm: API weekly oil inventories
• 7pm: Fed’s Lockhart speaks in Jacksonville, Fla.

DB’s Jim Reid concludes the overnight wrap

With newsflow relatively light over the past 24 hours, we’ll start this morning with firstly acknowledging one of the most memorable sporting upsets of all time. With odds of 5000/1 at the start of the season, Leicester City were last night crowned deserved Premier League champions after Chelsea battled back to rescue a draw against Spurs. As regular readers will know your EMR authors have to endure the emotional rollercoaster that is supporting Liverpool (me), Arsenal (Craig) and Nick on my team (Spurs) and despite all too brief moments of excitement in doing so, have also become sadly accustomed to the title falling to one of Man United, Man City or Chelsea for longer than we’d care to remember. So it’s hard for us not to enjoy this fairytale moment for Leicester fans. Our research COO is a big Leicester fan and as he pays the bills a big congratulations to him this morning. To put into context just how much of an outside bet Leicester were for readers less familiar to what has played out, there were actually shorter odds for The Queen having the Christmas Number One (1000/1) and Kim Kardashian being US President (2000/1). I suspect Elvis working down the local chip shop might have also been more likely at the bookmakers.

Over in the markets and much like how the last week of April played out, the first day of May was a poor one for the US Dollar which saw the Dollar index fall another half a percent to mark a fresh year-to-date low. In fact the index has now fallen for six consecutive sessions and is now over 7% off its January highs. The weakness in the Greenback did however help to kick start US equities on a strong footing in May with the S&P 500 returning +0.78% and so wiping out over half of last week’s loss. The Bank Holiday in the UK meant trading volumes were thin in Europe and price action relatively benign. The Stoxx 600 (-0.07%) finished with a very modest loss with peripheral markets generally being the underperformer there.

The main focus yesterday and a contributor to that weakness for the Dollar was the ISM manufacturing data. The reading printed at 50.8 in April which is down a full point from March and more than what the market had expected (consensus expectation was for 51.4). The print also matched the manufacturing PMI after there was no change in the final revision. In terms of the details, the new orders component declined 2.5pts to 55.8 although that is still well above where it printed in December at 48.8. Employment rebounded 0.9pts to 49.2 but still remains in contractionary territory, while inventories declined 1.5pts to 45.5. A positive aspect of the data was the second consecutive print above 50 for new export orders (+0.5pts to 52.5) and in turn marking the best level since November 2014, indicating some stabilisation and positive feed through from the weakness in the currency. We’ll get the ISM non-manufacturing data tomorrow but it’s worth mentioning that the spread between the two series got back to 2.7pts last month which was the least since December 2014. The current market consensus for this month’s non-manufacturing print is 54.8 which implies a spread of 4pts however. If correct, that will be the most since January.

Onto the latest in Asia this morning where bourses in Hong Kong aside it’s actually been a relatively positive start for markets in the region. Gains are being led out of China where the Shanghai Comp and CSI 300 are +1.44% and +1.62% respectively. The Kospi (+0.43%) and ASX (+1.58%) are also in positive territory, but the Hang Seng (-1.19%) has reopened on the back foot after markets were closed for a public holiday yesterday. Markets in Japan are shut for a public holiday of their own today (and will remain shut until Friday) although that hasn’t stopped the Yen from rallying further this morning. It’s close to +0.30% firmer and closing in on breaking though the 106 level.

There’s been some data released overnight too and it’s come in China where the non-official Caixin manufacturing PMI revealed a 0.3pt decline to 49.4 (vs. 49.8 expected). Meanwhile as we go to print the other main news overnight is out of the RBA have who have announced a 25bps cut in the benchmark rate to a new all time low of 1.75%. The move was only expected by 12 of 27 economists according to Bloomberg and has resulted in the Aussie Dollar falling nearly 2% from its pre-decision highs.

Yesterday also saw the release of the Fed’s Senior Loan Officer Opinion Survey. The April survey results showed that on balance, banks tightened lending standards on commercial and industrial loans during Q1, but that lending standards on loans to households were said to have eased. A modest net fraction of banks were also reported as easing standards on credit cards and consumer loans, while there was little change in standards for auto loans. With regards to the energy sector specifically, banks were reported as saying that they expect delinquency and charge-off rates on loans to firms to deteriorate over the reminder of the year and that the majority of banks have taken a variety of actions to mitigate loan losses over the past year, including tightening lending policies on new lines of credit, restructuring outstanding loans or requiring additional collateral.

There was also some Fedspeak for us to digest last night. San Francisco Fed President Williams reiterated that he expects the Fed to move interest rates ‘gradually back to a more normal level over the next couple of years’ but highlighted that the new long-term normal rate could be significantly lower than what the Fed’s dot plots imply.

Switching to the micro and in terms of the corporate earnings results yesterday, of the 12 S&P 500 companies to report 8 exceeded EPS expectations. That’s below the run rate for the year which is unchanged at 77%, while sales beats continue to hover around 57%. Weakness in Oil prices did little to dent moves for the energy sector. WTI (-2.48%) defied the move lower for the US Dollar and declined back below $45/bbl following some bearish OPEC output numbers and also rising oil stockpiles in the latest Genscape data. Elsewhere moves for rates markets were headlined by further weakness for US Treasuries, with 10y yields up another 4bps yesterday and hovering around 1.873%.

The only other remaining data in the US yesterday was the March construction spending numbers (+0.3% mom vs. +0.5% expected). In Europe the main data flow centered on the April manufacturing PMI’s. The Euro area reading was revised up a modest 0.2pts to 51.7 while on a regional basis there were actually downward revisions to both Germany (-0.1pts to 51.8) and France (-0.3pts to 48.0) while the peripherals generally exceeded expectations. Italy printed at 53.9 (vs. 53.0 expected), a rise of 0.4pts, while Spain printed at 53.5 (vs. 53.0 expected), a rise of 0.1pts.

Looking at the day ahead, the calendar is relatively sparse today. This morning in Europe we’ll get the manufacturing PMI for UK, followed closed by the March Euro area PPI data. Alongside this will be the release of the latest European Commission economic forecasts. Over in the US this afternoon there’s more regional manufacturing data with the ISM NY, while the May release for the IBD/TIPP economic optimism data is also due. Later on this evening the main focus will be on the April vehicle sales data which is expected to show a rebound. Away from the data we’ll hear from the ECB’s Couere early this morning, while this afternoon the Fed’s Mester is set to take part (at 3.30pm BST) in a panel discussion on ‘unusual monetary policy’ and the affect on market liquidity. The Fed’s Williams is also due to speak again at 7pm BST. Earnings wise we’ve got 37 S&P 500 companies set to report including Pfizer. In Europe we’ll get 21 Stoxx 600 reports including UBS, BNP Paribas and HSBC.

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