Month: January 2017

In what may be both good and bad news for the ECB,  German inflation jumped more than expected in December, hitting the highest level in more than three years, according to preliminary data. German consumer prices, harmonized with other European countries (HICP), rose by 1.7% on the year, more than double the November increase of 0.7%, the German Federal Statistics Office said.

This was the highest annual inflation rate since July 2013 and stronger than the consensus forecast of 1.5%. 

On a non-harmonized basis, German annual inflation picked up to 1.7 percent after 0.8 percent in November; prices rose 0.7% on the month, also higher than the 0.6% expected by consensus.

Rising energy prices and higher food costs were the strongest drivers behind the overall increase, a breakdown of the non-harmonized data showed. The surge in energy prices will only lead to more inflationary pressure now that the lowest prices of 2016 have been “anniversaried,”

A strong recovery in German inflation would give conservatives like Bundesbank’s President and ECB rate-setter Jens Weidmann more scope to argue for winding down the ECB’s bond-buying program more quickly, Reuters notes. For Mario Draghi it will be good news in the he can claim victory over deflation; on the other hand it will mean an even faster arrival of more tapering and potentially rate hikes, a process which would likely lead to the next deflationary slide following a spike in bond yields which price out ECB bond market intervention.

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Sir Ivan Rogers, Britain’s ambassador to the EU has unexpectedly quit, just a few months before the UK is expected to start formal Brexit negotiations, leaving officials in shock over the loss of one of Britain’s most experienced EU negotiators.

As The FT reports, Rogers did not explain the reasons for the move, according to people who have seen his note to diplomatic staff. Sir Ivan played down the decision, saying he was leaving a few months earlier than his original departure date of November.

Since his appointment in late 2013, Sir Ivan was one of the leading advisers in former prime minister David Cameron’s pre-referendum renegotiation of EU membership terms and in his successor Theresa May’s preparations for Brexit.

 

While he had a longstanding relationship with Mrs May and was consulted by her on the government’s Brexit strategy, Sir Ivan’s relations with some of the prime minister’s team began to deteriorate in recent months.

 

This culminated in December with a leak to the BBC of Sir Ivan’s advice to the prime minister suggesting it could take until the early mid-2020s for the EU to agree and ratify a comprehensive trade deal with Britain.

 

Although the advice was months old and reflected Sir Ivan’s conversations with senior EU officials, the leak prompted a series of negative articles in the pro-Brexit newspapers. The Daily Mail reported that “knives were out” for Britain’s ambassador to the EU because of his “gloomy pessimism”.

Cable is lower this morning, and while Rogers was highly regarded by other EU ambassadors, who expected Sir Ivan to see through the Brexit negotiations, it does not appear to have legged lower on this news.

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Having previously spooked shareholders of Boeing and Lockheed, moments ago Trump started off his week by taking aim at none other than the company bailed out by Barack Obama in one of the most controversial bankruptcies in recent history, General Motors.

In a tweet, the President-elect said “General Motors is sending Mexican made model of Chevy Cruze to U.S. car dealers-tax free across border. Make in U.S.A.or pay big border tax!”, a warning which could be read as an effective ultimatum to move production back to the US or risk tariffs on foreign-made products.

General Motors is sending Mexican made model of Chevy Cruze to U.S. car dealers-tax free across border. Make in U.S.A.or pay big border tax!

— Donald J. Trump (@realDonaldTrump) January 3, 2017

Another potential problem for GM, as shown in the chart below, is that while GM has posted a substantial recovery since its bankruptcy following the financial crisis, the firm’s number of jobs has barely budged, even as its biggest “Detroit” competitor has been on a hiring spree.

What makes Trump’s criticism surprising, however, is that one month ago, Trump appointed GM CEO Mary Barro to his Strategic and Policy Forum, which as a reminder “is composed of some of America’s most highly respected and successful business leaders, will be called upon to meet with the President frequently to share their specific experience and knowledge as the President implements his plan to bring back jobs and Make America Great Again.”

The obligatory Trump criticism following his tweet promptly emerged from the usual sources:

President-elect disputing the idea that what’s good for GM is good for the country https://t.co/d3NGVr3K2W

— John Harwood (@JohnJHarwood) January 3, 2017

If Trump’s tweet is sincere, Barra may be the first CEO who is “fired” from this particular advisory group.

For now, the market is skeptical about the long-term impact of Trump’s tweet, and has pushed the stock lower by only 24 cent, about 0.7% down in premarket trading.

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• Stocks Gain With Commodities Amid China Optimism (BBG); Dollar, global stocks firm as 2017 trading starts in earnest (Reuters)
• Oil hits 18-month highs as markets eye output cuts (Reuters)
• Earnings Recovery Set to Propel Stocks Higher in 2017 (WSJ)
• Republican-led Congress lays groundwork for Trump (Reuters)
• Battles Await Ambitious GOP Agenda, Including Repeal of ACA (WSJ)
• 2017 Will Be the Riskiest Year for Geopolitics Since WWII, Eurasia Group Says (BBG)
• Trump team seeks agency records on border barriers, surveillance (Reuters)
• Paris Wants to Lure 20,000 Bankers From London (BBG)
• Champions of 401(k) Lament the Revolution They Started (WSJ)
• Oil business seen in strong position as Trump tackles tax reform (Reuters)
• Shipping Alliances Shore Up Industry, Worry Customers (WSJ)
• China navy confirms carrier conducted drills in South China Sea (Reuters)
• China Gets Strict on Forex Transactions to Stop Money Exiting Abroad (BBG)
• Trump aware of ‘urgency’ of North Korea nuclear threat: South Korea (Reuters)
• Trump Taps China Critic Lighthizer for U.S. Trade Representative (BBG)
• Gunman in Istanbul nightclub attack may have trained in Syria (Reuters)
• What We Could Learn From the Fed Minutes (BBG)
• Solar Could Beat Coal to Become the Cheapest Power on Earth (BBG)
• Luxury Apartment Boom Looks Set to Fizzle in 2017 (WSJ)
• The Fallout From Madoff’s Fraud Includes an Ironic Twist for Investors (BBG)

 

Overnight Media Digest

WSJ

– Elon Musk’s Space Exploration Technologies Corp said it plans to resume rocket launches on Jan. 8, using revised operational practices developed in response to a fiery accident that occurred during routine ground preparations last fall. http://on.wsj.com/2hLP5Mb

– Hyundai Motor Co and affiliate Kia Motors Corp are bracing for another challenging year after missing their sales targets for a second straight year on lackluster performances in China, the U.S. and other key markets. http://on.wsj.com/2hM344u

– Twitter Inc’s controversial China chief has departed after only eight months, the latest executive to leave amid a global reorganization. http://on.wsj.com/2hLW9bL

– Landlords of upscale properties across the U.S. are bracing for rough conditions in 2017 that will likely force them to slash rents and offer deep concessions as a glut of supply brings a seven-year luxury-apartment boom to an end. http://on.wsj.com/2hLXCPb

– The Obama administration is finalizing a study that could lead to restrictions on Chinese investment in the U.S. semiconductor sector. http://on.wsj.com/2hM1Sye

– The “Star Wars” spinoff “Rogue One” led the box office for the third straight week, taking in an estimated $64.3 million during the New Year’s weekend, according to studio estimates. http://on.wsj.com/2hLYp2C

 

FT

Financial services company Cantor Fitzgerald LP has appointed Anshu Jain, the former co-chief executive of Deutsche Bank AG, as its president, the company said in a statement on Monday.

Britain’s opposition Labour Party is on track to win fewer than 200 seats at the next general election for the first time since 1935, according to research by the Fabian Society.

British private equity firm 3i Group Plc is considering selling lingerie retailer Agent Provocateur and has attracted the interest of sovereign wealth funds and high net-worth individuals, a person familiar with the potential sale has said.

 

NYT

– Anshu Jain, who was forced to step down from the top job at Deutsche Bank after a series of regulatory mishaps, will join the private trading firm Cantor Fitzgerald this month as group president. nyti.ms/2ixkuis

– After the explosion in September of one of its rockets, SpaceX is now ready to get back into the business of sending payloads to space, the company announced on Monday, with its next rocket headed to orbit as soon as Sunday. In a statement, SpaceX said that an investigation had determined the likely cause: an unexpected interplay of supercold helium and oxygen with carbon fibers and aluminum. nyti.ms/2iske6h

– F. Ross Johnson, who as chief executive of RJR Nabisco instigated an era-defining takeover struggle that was chronicled in film and a best-selling book and made him a symbol of corporate greed, died on Thursday at his home in Jupiter, Florida. He was 85. nyti.ms/2iCQrsh

 

Canada

THE GLOBE AND MAIL

** The new independent Senate won’t be afraid to make changes to Liberal legislation but that doesn’t mean it will derail Prime Minister Justin Trudeau’s agenda, according to the government’s point man in the Red Chamber. https://tgam.ca/2hKRzFv

** As part of the local overdose response, the Mobile Medical Unit is offering treatment options to anyone who needs it, free of charge. https://tgam.ca/2hKTNot

** A Toronto-area mother of two, Alaa Al-Muhandis, has been identified as one of the 39 people killed in the early morning terrorist attack in Istanbul on New Year’s Day. https://tgam.ca/2hKKNQ5

NATIONAL POST

** Rose Wolfe, a former chancellor of the University of Toronto and a lifelong champion of humanitarian and Jewish causes, died Friday. She was 100 years old. http://bit.ly/2hKXkTO

** The iconic Canadian ball hockey rink at Kandahar Airfield, its boards adorned with faded Maple Leaf flags, has been dismantled. A dozen Canadian embassy staff, including Ambassador Ken Neufeld and a few soldiers, played a final game of shinny last week on the concrete slab in the infield of the airfield’s boardwalk before U.S. army engineers helped take down the boards. http://bit.ly/2hKZlPU

 

Britain

The Times

Shopper numbers plunged dramatically at the weekend in a sign that experts said augured badly for the new year. Visits to shopping centres were down by a half on New Year’s Day compared with the same day in 2016, according to Springboard retail intelligence. http://bit.ly/2iwJgiK

KPMG has emerged as the government’s favourite accountant, earning more than half the money spent on accounting advisers from the Big Four firms in the past year. http://bit.ly/2hLwSws

The Guardian

The liquidators of BHS are conducting a detailed investigation into property transactions that took place during the regimes of Philip Green and Dominic Chappell, including whether the directors of the retailer breached their duties. FRP Advisory is undertaking a “massive exercise in data collation”, according to one source close to the winding up of BHS. http://bit.ly/2iwKEBS

Harrods has been accused of shortchanging its restaurant staff in the latest row over how service charges added to diners’ bills are shared among workers. The union representing Harrods waiters and kitchen staff believes the Qatari owner of the upmarket London department store retains up to 75 percent of the service charge. http://bit.ly/2iwNqas

The Telegraph

Scottish islanders are exploring ways of loosening ties with Scotland and the U.K. following the Brexit vote including full independence, it has emerged. More than half of Orkney’s councillors have forced through a motion demanding an investigation into “greater autonomy or self-determination” amid the vote to leave the European Union and a possible second independence referendum. http://bit.ly/2hLFdR2

Thousands of new homes to help first-time buyers on to the property ladder will be built on brownfield land, Prime Minister Theresa May will announce on Tuesday, her second big housing pledge in as many days. http://bit.ly/2hLz876

Sky News

Len McCluskey has insisted he still backs Jeremy Corbyn, despite appearing to distance himself from the Labour leader in a newspaper interview. The Unite leader suggested in a Daily Mirror interview that if opinion polls are “still awful” by 2019 Corbyn and Shadow Chancellor John McDonnell may quit. http://bit.ly/2hLwA95

The Independent

Theresa May’s New Year’s message pledging to be mindful of both Leave and Remain voters during Brexit negotiations has been dismissed as “utterly meaningless” by leader of the Liberal Democrats, Tim Farron. http://ind.pn/2hLHAU1

Labour is on course to retain as few as 150 MPs at the next general election as it sheds voters to all other parties, a stark new report warns. Support for Jeremy Corbyn’s party could plunge as low as 20 percent at the election in 2020 based on its current poll ratings, the Fabian Society has calculated. http://ind.pn/2hLFW4x

 

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The Trump transition team announced that President-elect Donald Trump has named Robert Lighthizer as his U.S. Trade Representative. Lighthizer served as the deputy USTR under former President Ronald Reagan, playing a major role in developing trade policy and negotiating two dozen bilateral international agreements on topics from steel to grain, the transition team said in its statement.

“He has extensive experience striking agreements that protect some of the most important sectors of our economy, and has repeatedly fought in the private sector to prevent bad deals from hurting Americans,” Trump said in an e-mailed statement. “He will do an amazing job helping turn around the failed trade policies which have robbed so many Americans of prosperity.”

The appointment is a further sign the incoming administration will take a tougher line on China, according to Bloomberg.

Lighthizer has previously accused China of unfair trade practices, in line with views held by Peter Navarro, a China critic who Trump last month named to head a newly formed White House National Trade Council. In a 2011 article published in the Washington Times, Lighthizer said that using tariffs to promote American industry was a Republican tenet harking back to pro-business politicians who established the party.

“The icon of modern conservatism, Ronald Reagan, imposed quotas on imported steel, protected Harley-Davidson from Japanese competition, restrained import of semiconductors and automobiles, and took myriad similar steps to keep American industry strong,” Lighthizer wrote. “How does allowing China to constantly rig trade in its favor advance the core conservative goal of making markets more efficient? Markets do not run better when manufacturing shifts to China largely because of the actions of its government.”

Lighthizer, Reagan’s deputy trade rep, would replace Michael Froman, the Obama administration’s representative who led negotiations on the now largely defunct Pacific trade pact that would have covered nearly 40 percent of the global economy and was seen as a counterpoint to China’s rising clout.

Trump has argued for fewer global trade arrangement, and claims that deals such as the North American Free Trade Agreement and the Trans-Pacific Partnership kill American jobs. He has vowed to make smarter deals and slap punitive tariffs on countries that violate trade rules, particularly China. a frequent target of his attacks.

Some more background on Lighthizer courtesy of BBG:

As a partner at the Washington offices of law firm Skadden, Arps, Slate, Meagher & Flom LLP, Lighthizer has focused on traditional trade litigation, policy advice and legislative initiatives for a roster of large U.S. corporations and coalitions, according to the firm’s website.

 

Trump chose Lighthizer after considering several others, including Jovita Carranza, a former executive with United Parcel Service Inc. who served as deputy administrator for the U.S. Small Business Administration under President George W. Bush. Dan DiMicco, former head of steel-maker Nucor Corp., was also considered.

 

Lighthizer met Trump at his Mar-a-Lago club in Florida on Dec. 19. The president-elect is closing in on a full selection of cabinet nominees. Now that he has settled on his trade representative, top posts yet to be filled are agriculture secretary, veterans affairs secretary, and chairman of the Council of Economic Advisers.

The choice of Lighthizer would make sense because Trump’s economic plan is “Reagan-esque,” said He Weiwen, deputy director of the Beijing-based Center for China and Globalization and a former business attache in Chinese consulates in New York and San Francisco.  “In the second term of Reagan’s administration, his trade team put a lot of pressure on Japan in bilateral negotiations,” He said. “If Lighthizer is picked, a hardline approach towards China can be expected.”

Trump has also linked geopolitical matters to America’s trade ties, suggesting his administration will consider the behavior of countries on defense and security in the framework of its economic relationships.

Meanwhile, overnight Trump continued his attacks on China, when he warned on Monday that nuclear aggression from North Korea won’t be tolerated, and castigated China for not taking a stronger stance. China is the major trading partner of Kim Jong Un’s reclusive regime and a key source of its energy shipments. As such it has been seen in the past as holding some sway over Pyongyang’s behavior.

“North Korea just stated that it is in the final stages of developing a nuclear weapon capable of reaching parts of the U.S. It won’t happen!” Trump tweeted. And later: “China has been taking out massive amounts of money & wealth from the U.S. in totally one-sided trade, but won’t help with North Korea. Nice!”

Perhaps responding to this, also overnight China Daily reported that the Chinese economy has already passed the stage in its development that would make it vulnerable to trade war, noting that trade is no longer the main contributor to the nation’s GDP growth. The report also said that the nation is preparing for a rise in protectionism: “Protectionism will continue to rise and trade frictions will become more violent,” Li Guanghui, vice-president of the Chinese Academy of International Trade and Economic Cooperation affiliated with Ministry of Commerce, is cited as saying.

Whether or not China is invulnerable to trade war remains to be seen, but for now stocks are taking the very real possibility of one as quite bullish.

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House Republicans abruptly voted on Monday night to eliminate the independence of the Office of Congressional Ethics, the chamber’s nonpartisan ethics board which investigates lawmakers’ alleged misconduct, largely stripping it of its power, leading to pushback from Democrats and government watchdog groups. House Republicans, meeting as a group Monday night, approved an
amendment from House Judiciary Committee Chairman Bob Goodlatte that would place the office under the oversight of the lawmaker-run
House Ethics Committee.

Bob Goodlatte (R., Va.) pushed the ethics change, which would put the nonpartisan
Office of Government Ethics under the control of the House Ethics Committee

According to the WSJ, the Office of Congressional Ethics is an independent entity that serves as the chamber’s independent ethics watchdog by reviewing allegations against House members and staff. It is currently governed by an eight-person board of private citizens who don’t work for the government. Goodlatte’s measure is now part of the package of new House rules set to come up for a vote on the House floor Tuesday, when the new session of Congress convenes.

Why the unexpected move to curb insight into alleged congressional ethics violations? After all, insider trading for members of congress is still largely permitted: according to Goodlatte his proposal would ensure due process rights for lawmakers – the proposal bars the ethics office from considering anonymous tips about potential ethics violations and prevents disclosures about investigations. Lawmakers who found themselves under review by the Office of Congressional Ethics criticized the office for being too aggressive. Those who were cleared said it was unfair that the existence of investigations became public and that reputations could be tarnished even when suspicions were unfounded.

Under Goodlatte’s measure, the Ethics Committee would be able to direct the office to stop any of its investigations into possible lawmaker misconduct. The measure would reduce how much information could be made public about investigations. The office, to be renamed the Office of Congressional Complaint Review, wouldn’t be able to publicly release any of its findings unless authorized by the Ethics Committee, and it wouldn’t be allowed to employ a press spokesman. The office also wouldn’t be able to consider anonymous allegations against lawmakers, the WSJ adds.

Speaker Paul Ryan argued against the amendment during Monday’s conference meeting, according to a source in the room the Hill reports.

Democrats created the Office of Congressional Ethics in March 2008, after they took control of Congress in 2007, saying they wanted to help clean up Congress and make the ethics process more transparent. If the office believes it has found violations, its job is to recommend a formal investigation by the traditional House Ethics Committee. 

The vote prompted protests from government watchdog groups, including those who had pushed for creation of the OCE in 2008. Those groups had said at the time that the Ethics Committee wasn’t diligent enough in policing and punishing member wrongdoing on its own.

“Republicans claim they want to ‘drain the swamp,’ but the night before the new Congress gets sworn in, the House GOP has eliminated the only independent ethics oversight of their actions,” House Minority Leader Nancy Pelosi (D., Calif.) said in a statement Monday night. “Evidently, ethics are the first casualty of the new Republican Congress.”

“It should be clear by now that Donald Trump – already the most corrupt and conflicted President-elect in history – is betraying his promise to drain the swamp. Now Republicans in the House are following his example, attempting to cripple the independent entity that deals with ethics in Congress,” DNC spokesman Eric Walker said in a statement.

Goodlatte defended his decision in a statement, saying that the office “has a serious and important role in the House, and this amendment does nothing to impede their work.”

He said his amendment “builds upon and strengthens the existing Office of Congressional Ethics by maintaining its primary area of focus of accepting and reviewing complaints from the public and referring them, if appropriate, to the Committee on Ethics. It also improves upon due-process rights for individuals under investigation, as well as witnesses called to testify.”

But government watchdog groups said the change would diminish the office’s effectiveness in holding lawmakers accountable. Before the OCE was created, the House Ethics Committee was a “black box of inaction,” Lisa Gilbert, director of Public Citizen’s Congress Watch, said in a statement.

“Following an election in which disdain for corruption in Washington was a defining issue—for the Republican presidential candidate, no less—it is an outrage that House Republicans are planning to undermine one of the modestly effective moves in recent years to reduce corruption,” she said.

Some worried the change would make it easier for lawmakers to skirt ethics rules, which of course, is the whole point.

“If the 115th Congress begins with rules amendments undermining OCE, it is setting itself up to be dogged by scandals and ethics issues for years,” Norman Eisen and Richard Painter, chairman and vice chairman respectively of Citizens for Responsibility and Ethics in Washington, a nonprofit legal watchdog group, said in a statement.

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Oil prices hit 18-month highs on the first full trading day of 2017, following reports by Al-Ansa newspaper that OPEC member Kuwait has cut output by 130,000 barrels a day to about 2.75 million a day, according to Kuwait Oil Co. Chief Executive Officer Jamal Jaafer. Meanwhile, Oman was sait to cut 45,000 barrels a day from 1.01 million, the Oil Ministry’s Director of Marketing Ali Al-Riyami said on Oman TV.

And so, the surge which made oil the best performing asset class of 2016, driven by expectations of an OPEC production cut, continued following reports that this production cut was being implemented, if only for the time being by nations close to Saudi Arabia, and this unlikely to challenge the Vienna deal: the real question is whether the more “rogue” OPEC members will comply with their part of the bargain and certainly how the non-OPEC members will react.

“The new year sees the start of the output cuts that were agreed between OPEC and some non-OPEC producers,” Hamza Khan, head of commodities strategy at ING Bank NV in Amsterdam, told Bloomberg.

As a result of the favorable production cut news, West Texas Intermediate gained as much as $1.52 to $55.24 a barrel on the New York Mercantile Exchange and was at $55.05 as of 9:37 a.m. London time. Total volume traded Tuesday was 7% above the 100-day average.

Brent for March settlement climbed $1.33 to $58.15 on the London-based ICE Futures Europe exchange, trading at a $2.22 premium to WTI for the same month. The global benchmark contract rose 52 percent last year, the most since 2009.

“First signals suggest the OPEC and non-OPEC production cuts are raising hopes that the global oil oversupply will diminish,” said Hans van Cleef, senior energy economist at ABN AMRO Bank N.V. in Amsterdam. Ric Spooner, chief market analyst at CMC Markets, agreed: “Markets will be looking for anecdotal evidence for production cuts,” he said. “The most likely scenario is OPEC and non-OPEC member countries will be committed to the deal, especially in early stages.”

On the other hand, should oil prices continue to rise much higher, it will likely mean even greater shale production: last Friday, Baker Hughest announced that drillers in the U.S. increased the rig count by two to 525 last week, the highest level in one year, while in December Russia pumped 11.2 million barrels a day just shy of the post-Soviet record and near a 30 year high. Russia has agreed to cut output by 300,000 in 2017. It remains to be seen if it will comply. 

OPEC output in December was largely unchanged from November, and also remains near record high levels.

Meanwhile, assuming the Kuwait and Oman news are accurate, production among other OPEC members continued to rise, and Libya, one of two OPEC countries exempt from the output cuts, has increased its production to 685,000 bpd, from around 600,000 bpd in December, an official at the National Oil Corporation said on Sunday.

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Rumors of the Trumpflation rally’s death have been greatly exagerated, and not only is the Dow 20,000 back on the radar, following a 124 point surge in Dow futures, bringing the “key psychological level” back within 100 points, but European stocks rose for a third day and entered a bull market, rising 20% from theor lows set last February, following strong Chinese manufacturing and services PMI data, both of which ended 2016 on robust notes well inside expansion territory.

While much of Europe had been open on Monday, it was the first day back for its biggest stock market, Britain’s FTSE 100 and it wasted no time in hitting a new record high of 7,196 points with a 0.7% gain. Germany’s DAX and France’s CAC 40 climbed too and among individual stock movers, Italian banks were back amongst the top risers, with newly-merged Banco BPM up 4.6 percent on its second day of trading.  Overall, the Stoxx Europe 600 Index advanced 0.8% at 8:33 a.m. in London, with 18 of 19 industry segments climbing. The benchmark index, up 20 percent since a low last February, will confirm a bull market should the day’s gains hold into the close. The U.K.’s FTSE 100 Index, trading for the first time in 2017, is up 0.7 percent and heading for a record close.

US equity futures on the S&P 500 Index rose 0.7 percent, back over 2,251, while the Dow Jones was set to open back over 19,900.

In a reversal from the first trading days of 2016, when a selloff in Chinese equities roiled markets globally, the world’s second-largest economy has been a source of strength at the start of 2017. Weekend reports showed China’s official factory gauge steadied while services remained robust, capping a year of improvement in both indicators. A private manufacturing measure released Tuesday came in better than anticipated.

“A year ago, the Chinese markets kept everyone on their toes,” said Jingyi Pan, a market strategist at IG Asia Pte. “A year later, the outlook certainly appears to be more optimistic, though we may have to bring back the catchphrase of ‘cautious optimism’ going into the new year as we search for clarity.” “I don’t think that we will see a repeat given that the global economy has a better foothold compared to a year ago,” Pan said.

Overnight in Asia, MSCI’s broadest index of Asia-Pacific shares rose 0.6 percent as most regional markets reopened after the New Year holiday although Japan’s Nikkei was still closed. Australian shares were the best performers in the region, closing up 1.2 percent. Hong Kong’s Hang Seng .HSI rose 0.7 percent while in China, both the CSI 300 index and the Shanghai Composite .climbed 1 percent.  China was Asia’s worst performing major stock market in 2016 with a 11.3 percent loss in its worst year in five.

Commodity-linked stocks jumped 1.3 percent as oil and metals prices cheered the China data that had showed output from the country’s giant manufacturing sector reaching a near six-year high. It bolstered the ‘reflation’ theme that dominated the latter stages of 2016 and helped get currency and bond markets back in their pre-break rhythm after a mixed recent run. The U.S. dollar racked up its biggest rise in almost three weeks against a basket of the world’s other major currencies to leave it just 1 percent off December’s 14-year high. As shown in the chart below, the Dollar Index (DXY) jumped as US yields moved sharply higher, w/ 10y yields rising from 2.4350% to over 2.51%.

In commodities, oil prices jumped over 2% in Europe as the China data fed into a market that is being buoyed by hopes a deal including OPEC and non-OPEC producer countries will drain the recent global supply glut. Oil was the world’s best-performing major asset class in 2016, with a gain of around 50 percent and global benchmark Brent was up 2.7% at $58.31 by 0945 GMT as U.S. crude topped $55 a barrel.

“Markets will be looking for anecdotal evidence for production cuts,” Ric Spooner, chief market analyst at CMC Markets said. “The most likely scenario is OPEC and non-OPEC member countries will be committed to the deal, especially in early stages.”

The positive Chinese news lifted the Australian dollar, which added 0.6 percent to $0.7230, while gold sagged, with the precious metal dropping 0.3 percent to $1,148 an ounce. Back in Europe, the pick ups in Germany and French inflation came on the heels of data on Monday showing manufacturers ramped up activity at the fastest pace in more than five years in December.

In China, Starting on Jan. 1, the number of currencies in the CFETS basket increased to 24 from 13, with new entrants including the Korean won, the South African rand and the Mexican peso. The country’s foreign exchange regulator also said it would step up scrutiny of individuals’ foreign currency purchases and strengthen punishment for illegal outflows, although the $50,000 annual individual quota will remain unchanged. The renminbi posted its biggest annual loss since 1994 last year, with the dollar up almost 7 percent versus the Chinese currency.

Long-term inflation expectations in the euro zone, measured by the five-year, five-year forward rate are near their highest levels in more than a year and close to the ECB’s near 2 percent target, as the central bank prepares to pare back the pace of its money-printing scheme. “Until just a few weeks ago, the general consensus was that upside inflation risks were very limited however… the inflation rate scheduled to be published today is likely to reveal a significant uplift,” DZ Bank strategist Birgit Figge told Reuters.

So with stocks rising on hopes of a return in inflation, it would mean that rates should dip, and indeed Treasuries dropped, with 10-year yields rising 7 bps basis points to 2.514%. U.S. cash bonds opened in London this morning having been closed since Dec. 30. German bonds fell as regional data showed inflation is accelerating. The yield on the nation’s 10-year securities dropped to the lowest level since November on Monday. French bonds were among the biggest decliners in Europe after the nation was said to mandate banks for the sale of a new Green bond in the 15- to 30-year area. France is due to sell 10-, 20-, 30- and 50-year bonds on Jan. 5.

* * *

Market Snapshot

• S&P 500 futures up 0.7% to 2251
• Stoxx 600 up 0.7% to 366
• FTSE 100 up 0.7% to 7194
• DAX up less than 0.1% to 11603
• German 10Yr yield up 2bps to 0.21%
• Italian 10Yr yield up less than 1bp to 1.75%
• Spanish 10Yr yield up 2bps to 1.36%
• S&P GSCI Index up 0.7% to 400.9
• MSCI Asia Pacific down 0.2% to 135
• Nikkei 225 closed
• Hang Seng up 0.7% to 22150
• Shanghai Composite up 1% to 3136
• S&P/ASX 200 up 1.2% to 5733
• US 10-yr yield up 4bps to 2.48%
• Dollar Index up 0.38% to 103.17
• WTI Crude futures up 1.4% to $54.46
• Brent Futures up 1.6% to $57.71
• Gold spot down less than 0.1% to $1,151
• Silver spot up 0.4% to $16.00

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• China’s Sogou Targets IPO at $5 Billion Valuation to Chase Baidu: Listing of about 10% of shares in U.S. may happen this year
• LSE Agrees to Sell Clearing Unit to Euronext for $533 Million: Deal may be completed by the end of the second quarter
•     China’s Factories, Services Cap Year of Gains as Prices Rise: Private manufacturing PMI by Caixin and Markit confirmed the strength in official data
• SpaceX Plans Return to Flight With Jan. 8 Launch After Explosion: Liftoff from Vandenberg Air Force Base first since Sept. 1
• BlackRock ETFs Attract Record $140 Billion on Bonds, Smart Beta: Investors added $27 billion to U.S. Core ETF after price cut
• Fiat Chrysler Pauses From Gas-Guzzlers to Show Electric Minivan: Automaker unveils self-driving Chrysler Portal concept at CES
• ‘Rogue One’ Takes in $64.3 Million for Disney Over Weekend: Movie industry sets record with $11.4 billion in annual sales
• Pence, House Republicans to Talk Obamacare Repeal Wednesday
• Comcast, 21st Century Fox Reach Agreement on Fox News: WSJ

Asian equity markets began the first session of 2017 on the front-foot despite last Friday’s negative close on Wall St where all 3 major indices finished lower and the DJIA retreated further away from 20,000. ASX 200 (+1.1%) led the Asia-Pac region and posted a fresh 16-month high amid broad based gains, with only the gold sector trading in the red. Shanghai Comp. (+1.0%) and Hang Seng (+0.6%) conformed to the upbeat tone following better than expected Chinese Caixin Manufacturing PMI data which rose to a near 4-year high and printed a 6th consecutive month in expansion territory, although gains across the region have been somewhat reserved amid rising money market rates in China and several market closures including Japan.

Top Asian News

• China Gets Stricter on Forex Transactions to Limit Outflows: Citizens face extra disclosure requirements even as yearly quota of foreign currency was unchanged
• Indonesia Terminates JPMorgan Partnerships After Downgrade: Finance ministry will stop using JPM as primary dealer, underwriter of sovereign bonds
• South Korea Halts Some Nissan, BMW Sales in Emissions Probe: Total fines of $5.9 million slapped on three companies
• Infosys, Wipro Leaders Warn of Challenging Times for Indian IT: Warn that industry faces grave threat from rising political, economic conflict around the world
• China to London Freight Train Kicked Off as Xi Boosts Trade Ties: Train will cover more than 7,000 miles in about 18 days

In Europe, 2017 has kicked off as 2016 finished, with equities trading higher for much of the morning as the FTSE hits fresh all-time highs (+0.6%). Stock specific news has been relatively light so far today, however notable outperformance has been seen in the financial sector, with energy names also outperforming amid WTI crude futures printing 18-month highs. The Stoxx Europe 600 Index advanced 0.8% at 8:33 a.m. in London, with 18 of 19 industry segments climbing. The benchmark index, up 20 percent since a low last February, will confirm a bull market should the day’s gains hold into the close. The U.K.’s FTSE 100 Index, trading for the first time in 2017, is up 0.7 percent and heading for a record close. The latest data has been supportive of bond yields, with the German 10Y briefly moving above 0.24% amid the higher than previous regional CPIs, which have printed around 1.8-1.9% Y/Y so far. The latest German unemployment figures saw a fall in unemployment, further supporting yields. Elsewhere, Gilt yields have also seen strength this morning in the wake of a significant beat in UK Manufacturing PMI (56.1 vs. Exp. 53.3), seeing the highest reading since June 2014.

Top European News

• Pound Drop Boosts U.K. Manufacturing, Pushes Up Factories’ Costs: Manufacturing grew at the fastest pace in 2 1/2 years in December
• German Unemployment Extends Drop as Economic Growth Picks Up: Unemployment fell by 17,000 versus estimated 5,000 decline
• Paris Eyes Luring 20,000 Bankers From London Amid Brexit Rupture: French lobby group sees banks ‘accelerating’ their planning
• Biggest Swedish Business Group Predicts Weak Krona Won’t Last: Stronger currency could have ‘fast and unpleasant’ effect

In commodities, crude oil rose to $55.24 a barrel in New York, touching the highest level since July 6, 2015, buoyed by hopes that a deal between OPEC and non-OPEC members to cut production, which kicked in on Sunday, will drain a global supply glut. Benchmark Brent crude jumped more than 2 percent to a high of $58.37, up $1.55 a barrel and its highest since July 2015. By 0940 GMT (4:40 a.m. ET), Brent eased slightly to trade at $58.22, up $1.40. Gold added 0.1 percent to $1,148.5. Aluminum increased 0.1 percent to $1,694 per metric ton on the London Metal Exchange, while nickel jumped 1.6 percent to $10,180 a ton and copper rallied 1 percent to $5,593 an ounce.

In currencies, the Dollar Index was up 0.7 percent. The yen slid 0.5 percent to 118.14 per dollar, giving up an earlier advance. The euro erased earlier gains against to trade down 0.4 percent against the greenback. South Korea’s won rose 0.4 percent, while the Australian dollar strengthened 0.3%.

US Event Calendar

• 9:45am: Markit U.S. Manufacturing PMI, Dec. F, est. 54.2 (prior 54.2)
• 10am: ISM Manufacturing, Dec., est. 53.7 (prior 53.2)
• 10am: Construction Spending MoM, Nov., est. 0.5% (prior 0.5%)

* * *

DB’s Jim Reid concludes the overnight wrap

A very Happy New Year to all our readers this morning and a warm welcome to 2017. Today’s EMR is a bit of a bumper edition and concludes with the December, Q4 and 2016 performance review at the end. It would probably be an understatement to say that 2016 has been – more than ever – a year in which we’ve all had to put our political analyst hats on. Trump and Brexit were the obvious headline events which characterised 2016 but that’s not to say that Central Banks haven’t been busy too with the Fed, BoJ, ECB and BoE all keeping us busy and laying the platform to what we think will be a volatile year ahead for rates. Commodity markets have also more than played their part, with a number of benchmark commodities hitting record lows early in the year before staging a remarkable rebound into year end. The good news is that the vast majority of assets ended the year on a high in December with 30 of the 39 assets within our sample (excluding currencies) delivering a positive total return last month in USD hedged terms.

As well as this, we’ve also got the usual week ahead preview at the end. Despite it being a holiday shortened week there’s little easing into the New Year with the diary fairly jam-packed with important releases. One of the highlights will be the FOMC minutes from the December meeting, due on Wednesday evening, which could be interesting given the slightly more hawkish than expected elements from the statement and of course the excitement caused by the moves in the dots. Also on the cards for this week is the US December employment report on Friday including the ever-important nonfarm payrolls print. We’ll preview that later in the week. The manufacturing and services ISM prints will also be due out while in Europe we’ll also get a number of December inflation reports due out over the next few days. Away from the data President-elect Trump should also continue to fill in the blanks of his administration ahead of his official inauguration later this month. So plenty to keep us on our toes and to talk about.

For those that took a break over the holiday season, in truth you haven’t missed too much. Markets did reopen in parts of Europe yesterday although unsurprisingly with the usual holiday impacted low volumes. That said it was a decent start for the most part to 2017. The Stoxx 600 kicked off the year by closing up +0.49% with all sectors ending a tad higher while the DAX (+1.02%) and the periphery (IBEX +0.71% and FTSE MIB +1.73%) also closed firmer. European Banks (+0.89%) also started the year stronger while in sovereign bond markets it was BTP’s which outperformed. Indeed 10y BTP yields were 7.3bps lower at 1.735% while 10y Bund yields edged down 1.8bps to 0.182%. The outperformance in Italy likely reflected the better than expected December manufacturing PMI yesterday with the print rising a full point to 53.2 and the highest reading since June. There were no surprises in the final revision for the data for the Euro area at 54.9 while France and Germany were also little changed at 53.5 and 55.6 respectively. Spain however also surprised to the upside after printing 0.8pts higher at 55.3 (vs. 54.6 expected).

Two days ago we also got the official PMI’s for China for last month with the manufacturing PMI down slightly to 51.4 (vs. 51.5 expected) from 51.7 the month prior and the non-manufacturing PMI coming in at 54.5 versus 54.7 in November. This morning we’ve also had the Caixin manufacturing PMI for China which, unlike the official data last week, surprised to the upside at 51.9 (vs. 50.9 expected) from 50.9 in November. As we look across markets this morning, bourses have started the year in a fairly upbeat mode. In China the Shanghai Comp and CSI 300 are currently +0.75% and +0.82% respectively while the Hang Seng is +0.51%. The Kospi is +0.52% and the ASX +1.17%. Markets in Japan are closed for a public holiday. Elsewhere Oil is a shade higher while Gold and other precious metals are up close to +1%. US equity index futures are also pointing to a reasonable start (up around +0.35% as we type).

Much of the remaining newsflow this morning and over the past few days revolves around other developments in China and also the tragic terrorist attack in Istanbul on New Year’s Day which follows a number of other geopolitical events in the month of December and which will do little to ease tensions. The Turkish Lira has weakened about half a percent in the last two days since that attack. With regards to the former, there are various reports out there suggesting that China is looking to tighten controls on personal FX transactions in a bid to curb money laundering. According to the FT the $50k resident quota on foreign currency buying was also reset as of January 1st. In addition to this, last week we learned that China has also expanded the currencies included in its official CFETS basket to 24 from 13. The associated statement highlighted that this change is aimed at improving the mechanism generating the RMB index and so making the basket more representative. It also means that the US Dollar’s weighting in the new basket falls to 22.4% from 26.4% and so the lower USD weight means that less USD strength translates into the basket.

Turning over to the week ahead now. This morning in Europe we’re kicking off the New Year in France where the preliminary December CPI report will be released. We’ll also get last month’s CPI report in Germany along with unemployment data while in the UK the December manufacturing PMI is due to be released. It’s a reasonably busy start to the week in the US this afternoon with the main focus likely to be on the December ISM manufacturing print, while the final manufacturing PMI and construction spending in November is also due. Wednesday starts in Japan where the final manufacturing PMI for December is due while China will also release the MNI consumer sentiment print for last month. Over in Europe all eyes will be on the final December PMI revisions (services and composite prints) along with a first look at the data for the periphery. Euro area CPI in December will also be released along with money and credit aggregates data for the UK. In the US tomorrow the lone data release is December vehicle sales before all eyes turn to the FOMC minutes later in the evening from last month’s meeting. Turning to Thursday, Japan and China get the day started again with the remaining December PMI’s (services and composite). In the UK we’ll also get the remaining services and composite PMI’s while PPI data for the Euro area will also be released. In the US we’ll also get those final PMI’s (services and composite) along with the ADP employment change print for last month, initial jobless claims and ISM non-manufacturing for December. We close out the week on Friday in Europe with retail sales and factory orders data in Germany, trade data in France and confidence indicators for the Euro area. In the US we’ll get the November trade balance along with the all important December employment report including nonfarm payrolls. Also due out will be November factory orders and the final revisions to November durable and capital goods orders.

Away from the data there’s also a bit of Fedspeak this week with both Evans and Lacker due to speak on Friday, while over at the ECB Mersch is also scheduled to speak on Friday. Also potentially interesting this week is a planned television interview in France on Thursday with Socialist Party nominee Manuel Valls.

via http://ift.tt/2hMQNNb Tyler Durden