Month: March 2017

• Stocks Jump as Investors Eye March Rate Increase, Trump Speech (WSJ)
• A softer side of Trump (Reuters)
• Trump’s Softer Tone Masks Hard Road Ahead for Agenda in Congress (BBG)
• President Asks Lawmakers to Unite Behind His Agenda (WSJ)
• Left Out of Trump’s Big Speech, Russia Wonders What It Means (BBG)
• EU to Reject Trump’s Protectionism at Summit, Draft Shows (BBG)
• France’s Fillon stays in presidential race despite deepening legal probe (Reuters)
• Oil inches up as OPEC sticks to output pledges (Reuters)
• Investors Clamor for U.S. Corporate Bonds as Issuers Back Away (BBG)
• Snap, on Cusp of IPO, Looks Set for Strong Debut (WSJ)
• A Delivery Man Just Became One of the Richest People in China (BBG)
• Foxconn Is Bidding for Toshiba’s Chip Business (WSJ)
• UK PM May faces House of Lords defeat over post-Brexit rights of EU nationals (Reuters)
• Ex-CIA spy held in Portugal over kidnap avoids extradition, will be freed (Reuters)
• In Mosul, Residents Rebuild as Iraqi Forces Fight Islamic State (WSJ)
• Euro-Area Manufacturing Picks Up as Inflation Pressures Build (BBG)
• Old School Trading Pits to Remain After High-Tech Exchange Deal (BBG)
• South Korea, U.S. begin large-scale annual drills amid North Korea tension (Reuters)
• China’s Richest Win, Mexican Billionaires Lose With Trump Effect (BBG)
• Saudi Arabia Bulks Up in Asia to Boost Appeal Before Oil IPO (BBG)
• U.S. general wants Russia to open up major exercise to observers (Reuters)
• Trump’s Golf Courses Would Benefit From His Water-Rule Rollback (BBG)
• S&P 500 Could Top 4,000 in Eight Years and It’s Not Because of Trump (BBG)
• Best Buy posts unexpected drop in same-store sales, shares slide (Reuters)

 

Overnight Media Digest

WSJ

– President Donald Trump on Tuesday turned from the ominous language that characterized his major campaign speeches as he delivered an impassioned plea for Congress to capitalize on a political uprising and unite behind major overhauls of health care and tax laws. He referred to the surge of nationalism that lifted him into the White House as a “renewal of the American spirit,” http://on.wsj.com/2lnGM67

– Google’s YouTube on Tuesday unveiled a web-TV service that will offer a package of over 40 broadcast and cable channels for $35 a month, making the tech giant the latest entrant in a race to win over millions of consumers who are shifting away from traditional TV. http://on.wsj.com/2lnN5Xa

– An outage at Amazon.com Inc.’s cloud-computing service disrupted internet traffic across the U.S. on Tuesday, showing the increasing power cloud companies have over large portions of the web. The outage, which began around 1 p.m. EST, stemmed from a failure at Amazon’s S3 cloud-storage service at its North Virginia data centers. http://on.wsj.com/2lnD3FE

– Target Corp.’s chief vowed to invest billions of dollars to lower prices and remodel hundreds of stores, an admission that the retailer’s focus on trendy merchandise wasn’t enough to attract shoppers. Chief Executive Brian Cornell defended his strategy of focusing on physical stores amid an industrywide shift to online sales. Target reported sales and profit declines for the holiday quarter, and gave an even gloomier outlook. The company said its 2017 profit would fall as much as 25 percent below what Wall Street had forecast. http://on.wsj.com/2lnNsBn

– President Donald Trump on Wednesday will sign a revised executive order banning certain travelers from entering the U.S., but unlike the original version, it is likely to apply only to future visa applicants from targeted countries. http://on.wsj.com/2lnQwNF

 

FT

Billionaire British retailer Philip Green has paid 363 million pounds ($449.10 million) to pension schemes of the now-collapsed department store chain BHS which he sold for one pound to a serial bankrupt with no retail experience.

“Vodafone-Liberty Global is still an attractive combination, especially if the EU wants the creation of a real Pan-European player,” Vodafone Group Plc Chief Executive Vittorio Colao told reporters in Barcelona on Tuesday.

The Bank of England’s newest deputy governor, Charlotte Hogg, said that Brexit poses the “most significant challenge” to monetary policymakers, and warned that UK consumer spending could fall much more sharply than the BoE currently expects.

Prime Minster Theresa May’s flagship industrial strategy lacks “clear actions and milestones”, the head of the Confederation of British Industry will say on Wednesday, challenging ministers to set out what exactly they plan to do

 

NYT

– Penguin Random House will publish coming books by former President Barack Obama and the former first lady Michelle Obama, the publishing company announced Tuesday night, concluding a heated auction among multiple publishers. http://nyti.ms/2mIQ5yK

– Snap Inc, the company which is preparing to go public this week, is trying to bolster its camera ambitions and is said to have worked on a drone. http://nyti.ms/2mJ1gHr

– Lee Jae-yong, the head of Samsung, was indicted on bribery and embezzlement charges on Tuesday, becoming one of the most prominent business tycoons ever to face trial in South Korea. http://nyti.ms/2mISZnc

– Time Inc, the publisher of Time, People and Sports Illustrated magazines, has requested formal bids from potential acquirers by next week. http://nyti.ms/2mIPOeU

– YouTube said it plans to introduce a new subscription service called YouTube TV in the next “few months”, offering more than 40 channels including all four major networks, Disney Channel, FX and ESPN, for $35 a month. http://nyti.ms/2mJ4kDv

 

Canada

THE GLOBE AND MAIL

** U.S. President Donald Trump is calling for sweeping immigration reform with a “merit-based” method for allowing people into the U.S., citing Canada’s points system as a model. https://tgam.ca/2mJT7mr

** Amaya Inc founder David Baazov will face trial this November as lawyers from Quebec’s securities regulator prepare to lay out their case in the largest insider trading investigation in Canadian history. https://tgam.ca/2mcPh8G

** The Trump condo-hotel tower in Vancouver has opened to praise from Donald Trump’s family and scorn from protesters opposed to the U.S. President, while the Malaysian developers look to capitalize on a tourism boom. https://tgam.ca/2m7jsh5

NATIONAL POST

** TransCanada Corp has suspended a lawsuit against the U.S. government over its contentious Keystone XL pipeline after the proposal was revived last month. http://bit.ly/2mJUam2

** Canada Mortgage and Housing Corp has a new how-to guidebook on buying a home and one of the more intriguing bits of advice is not to take on as large a loan as you might qualify for from your financial institution. http://bit.ly/2mIcgVO

 

Britain

The Times

– Philip Hammond held an emergency meeting with the heads of Britain’s biggest insurers yesterday in an attempt to stop what they described as a “crazy” decision to raise personal injury payouts. http://bit.ly/2m4ZB1O

– Regulatory filings suggest that the Belgian billionaire Albert Frère and the former chief executive of Groupe Bruxelles Lambert , along with the Desmarais Family Residuary Trust, of Canada, now hold a 3 per cent stake in the Burberry Group Plc. http://bit.ly/2m55gFr

The Guardian

– Rupert Murdoch’s 21st Century Fox is expected to formally notify the European competition regulator of its 11.7 billion pounds ($14.48 billion) takeover offer for Sky Plc later this week, after which the UK culture secretary will have to decide whether to launch an investigation into the extent of Murdoch’s control of UK media. http://bit.ly/2m55zjf

– An overhaul of the EU’s flagship trading scheme for cutting carbon emissions by European industries has been approved by the member states. http://bit.ly/2m583OM

The Telegraph

– UK Independent Party’s sole MP Douglas Carswell has held secret talks about rejoining the Conservatives to fight the 2020 general election. http://bit.ly/2m52O1v

Sky News

– Philip Green has paid 363 million pounds to settle the pension schemes of collapsed retailer BHS Ltd, eight months after he pledged to “sort” the issue. http://bit.ly/2m58Z5M

– Boris Johnson has admitted a free trade deal with the EU could take longer than two years, urging businesses: “Let’s just wait and see.” http://bit.ly/2m564tT

The Independent

– Dyson has announced that it is massively increasing its UK workforce and opening a new site, shrugging off fears cited by some that a hard Brexit might hamper companies’ ability to trade, generate profit and hire. http://ind.pn/2m4Yhw5

– Nissan said it may “adjust” its business in the UK, depending on how Brexit turns out, potentially jeopardising 7,000 jobs at its Sunderland plant. http://ind.pn/2m53OCC

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

With the S&P 500 rapidly running away from the 2,300 bogey, which has been the year-end price target for most sellside strategists, analysts on Wall Street had two choices: either urge their clients to sell, or raise their target. Overnight, Bank of America’s Savita Subramanyan became the first in recent weeks to throw in the cautionary towel, and raised the bank’s year-end S&P price target from 2,300 to 2,450 to “reflect an increasing likelihood that we are entering the typical later stages of a bull market, during which fundamentals typically take a back seat to sentiment and technicals.”

Nonetheless, she does attempt to and adds that “typically, in the later stages of a bull market, corporate earnings are cyclically elevated and the multiple that the market assigns to those earnings is often elevated as well. As a result, market prices can become significantly overvalued relative to their intrinsic fair value, and this divergence can last for years. Thus, we would highlight the distinction between our year-end target of 2450 (driven largely by sentiment and technicals) and our estimated intrinsic fair value of 2230.”

In any event, it is clear that to avoid a client rebellion, BofA had no choice but to go with the number that is driven by “sentiment and technicals” and not with what makes fundamental sense.

Here is Subramanyan’s justification for giving up on her existing outlook, and joining the “animal spirits” parade:

Raising 2017 S&P 500 year-end target to 2450

We are raising our 2017 year-end S&P 500 target to 2450 (from 2300), driven by two changes: (1) we lower our end-of-year equity risk premium (ERP) assumption to 400bp (from 450bp), and (2) within our five-factor framework, we adjust our fair value model weight lower in favor of our sentiment model. These changes reflect an increasing likelihood that we are entering the typical later stages of a bull market, during which fundamentals typically take a back seat to sentiment and technicals. We think the market still has the potential to move higher as investors capitulate into equities; note that the “Great Rotation” out of fixed income into equities has yet to happen. But as we noted in our Year Ahead, we see a wide range for 2017, and investors are likely better served focusing on the internals of the market rather than on a year-end number. And for longer-term investors, elevated valuations and high leverage today shift the risk-reward balance for the market to more risks than were evident a few years ago.

The stock market has always seen outsized returns leading up to its eventual crash, and we think this time will be no exception. In addition to lowering our end-ofyear equity risk premium (ERP) assumption to 400bp (from 450bp), we are adjusting our fair value model weight lower in favor of our key sentiment model. As a result, we are raising our 2017 year-end S&P 500 target to 2450 (from 2300), which implies a better than 75% probability weighting of our 2700 bull case scenario and less than a 25% probability weighting of our 1600 bear case scenario.

Focus on the risk-reward balance instead of the target

But there is a wide and binary range of outcomes, and we think investors are better served thinking about the risk-reward of stocks rather than an absolute target. Elevated valuations and high leverage today shift the risk-reward balance for the market to less, rather than more, attractive for investors with medium- or longer-term time horizons.

We expect the market to overshoot its fair value

Typically, in the later stages of a bull market, corporate earnings are cyclically elevated and the multiple that the market assigns to those earnings is often elevated as well. As a result, market prices can become significantly overvalued relative to their intrinsic fair value, and this divergence can last for years. Thus, we would highlight the distinction between our year-end target of 2450 (driven largely by sentiment and technicals) and our estimated intrinsic fair value of 2230. For investors with long time horizons, our long-term (year 2025) target of 3500, which is based solely on valuation, indicates a solid but below-average annual price return of 4-5% (or total return of 6-7%).

Equity risk premium has moved quickly, likely to undershoot

The combination of improving investor sentiment, accelerating global growth and hopes for stimulus (i.e. the “Trump Put”) is driving the market to new highs and compressing the ERP faster than we had assumed. The normalized ERP has fallen to post-crisis lows and is less than 100bp from the 30-year average (excluding the Tech Bubble), and seems to be in the process of undershooting as it typically does at the end of bull markets. Our fair value model currently assumes that any further ERP compression will be offset by rising normalized interest rates, and thus, no further expansion of the normalized PE.

Watch out for volatility when the “Trump put” expires

We would expect the rally in lower quality stocks to fade as we get more clarity / details of potential stimulus and tax reform, where expectations today are quite optimistic relative to the likelihood of delays, friction and more negative offsets than the market is currently pricing in. Meanwhile, economic surprises are close to a five-year high and we expect S&P 500 earnings growth to decelerate in the second quarter. While we see further room for market sentiment to improve, the market may take some time to digest the recent surge in optimism before heading higher. So while we expect stocks to end the year higher than where they are today, the road could get bumpy as we head into spring and summer months. As such, we see an elevated probability that the market falls below our 2230 fair value estimate before the end of the year.

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As previously noted, while some traders on Wall Street were disappointed by the lack of specifics in Trump’s speech, many others – and certainly Trump’s group of core, faithful supporters – praised his “milder”, more conciliatory tone, in a speech that was among his most “presidential” public addresses to date.

Below, courtesy of The Hill, are five of the key takeaways political pundits were left from Trump’s address to Congress.

Trump’s speech was conventional, a relief to the GOP

The president won election while flouting every established rule of politics — a pattern that has persisted in the White House, giving heartburn even to Republican allies. By contrast, Trump on Tuesday was at his most restrained. There were no attacks on the media; no especially flamboyant claims or personal jabs; and few significant digressions from the prepared text of his speech. The night recalled the announcement of Trump’s nomination of Neil Gorsuch to the Supreme Court — another occasion when he stayed within the orthodox parameters.

Trump is an unconventional president, but his speech felt remarkable at times for being so normal. All of that will be just fine with GOP lawmakers. They have been desperately wanting Trump to curb what they see as self-defeating impulses which distract from an effective underlying message. They are looking for leadership from Trump, and while the president provided few policy details on Tuesday night, he set out clear objectives in a way that could boost his party’s rank-and-file.

Trump’s tribute to Carryn Owens, the widow of a Navy SEAL killed last month in a raid in Yemen, was handled expertly by Trump. It provided the kind of emotional highpoint presidents often aim for in speeches like this. It also drew tributes from across the aisle, with CNN commentator Van Jones warning liberals that Trump will be in the White House for eight years if he can create other, similar moments.

Out with the grim ‘carnage,’ in with the sunny ‘new chapter’

In his Jan. 20 inaugural address, Trump talked about “American carnage” and saw a land where “rusted out factories [are] scattered like tombstones across the landscape of our nation.” Tuesday’s address was sunny by comparison. In its early stages, the president insisted that “a new chapter of American greatness is now beginning.” As it neared its conclusion, he encouraged his audience to “think of the marvels we can achieve if we simply set free the dreams of our people.” 

Trump doesn’t trade in unalloyed optimism. There were other less cheery passages, as he spoke about crime rates and what he sees as the dangers of lax enforcement of immigration laws.  But the broader message — “everything that is broken in our country can be fixed. Every problem can be solved. And every hurting family can find healing, and hope” — was more harmonious than we are used to hearing from Trump. An uplifting tone on one night won’t suddenly change the minds of the millions of Americans who are vehemently opposed to the president and his agenda. But it could at least make him a more palatable figure to centrists and independent-minded voters.

Trump as an American nationalist, for better or worse

Most recent presidents, Republican or Democrat, have depicted themselves as inherently global figures — the leaders of the free world. Trump might claim that title too, but he speaks a different lexicon.  “My job is not to represent the world,” he said at one point. “My job is to represent the United States of America.” The influence of Trump’s controversial chief strategist Steve Bannon can be heard most clearly at such moments. Bannon is a fierce believer in the importance of the nation-state, in part as a bulwark against dark forces of corporatism and globalism. Trump, in an apparent reference to institutions such as NATO and the UN, said on Tuesday, “We will respect historic institutions but we will also respect the sovereign rights of nations.” When it came to the battle against the Islamic State in Iraq and Syria (ISIS), Trump conspicuously promised to work with “our friends and allies in the Muslim world.”

But he did not back away from the basic idea behind his deeply contentious executive order on immigration and refugees. “My administration has been working on improved vetting procedures, and we will shortly take new steps to keep our nation safe — and to keep out those who would do us harm,” he said.

Trump’s critics contend that he has inflamed racial and religious divisions, and Hillary Clinton criticized him on Twitter on Monday for failing to speak out forcefully enough against bigotry. But he made a clear attempt to rebut those criticisms in his opening remarks, condemning anti-Semitic threats as well as a suspected hate crime in Kansas City in which one Indian man was killed and another wounded.

A desire for a US healthcare utopia

Trump reiterated his desire to see the Affordable Care Act repealed and replaced — in the process earnings some thumbs-down gestures from Democratic lawmakers. But Republicans will be wondering how they craft legislation that comes close to realizing what Trump promised.  He insisted it ought to be possible to get new laws that “expand choice, increase access, lower costs and, at the same time, provide better health care.”  He added that ObamaCare’s famous “mandate” was “never the right solution for America” but that people with pre-existing conditions should still have access to coverage and that no-one should be “left out” of Medicaid — the program for lower-income Americans that Obama’s legislation greatly expanded.

Most experts simply don’t believe such a “best of all worlds” solution is possible — and it seems especially unlikely in a deeply divided Congress.

He got a better fact-checker

One of the Trumpian traits that most frustrates his critics is a tendency to play fast and loose with the facts. At times, that has created public embarrassment. Less than two weeks ago, at a White House press conference, the president was challenged by Peter Alexander of NBC News on his untrue assertion that he had won the biggest electoral victory since President Reagan. “I was given that information,” Trump said with a shrug. “Actually, I’ve seen that information around.”

There was little sign of such a cavalier approach on Tuesday. Comments Trump made on the 2015 murder rate and on violent crime in Chicago were accurate, in contrast to previous remarks on those same subjects.  In his litany of complaints about the Affordable Care Act, he noted that premiums in Arizona have increased 116 percent, a finding backed up by a Department of Health and Human Services report. Critics will argue with his broader interpretations of other topics, such as the economic impact of immigration or his implied assertion that he deserved credit for various job announcements. But, at first look, Trump appeared to have avoided the kind of misstep that would give his detractors a cudgel to beat him with.

* * *

Meanwhile, there was nothing but praise for Trump among his core faithful supporters. As Reuters notes, about two dozen fans of the 45th president gathered at the bar and restaurant in Clearwater, Florida, still committed to Trump despite the tumult of his first 40 days in office. They praised the Republican president’s first address to a joint session of Congress, both for its familiar content and his newly deferential tone.

“He nailed it. He knocked it out of the park,” said Dean Mears, 58, of Clearwater, who watched with about two dozen others under large-screen TVs that were tuned to Fox News, the president’s favored cable news channel. Like Trump supporters in other parts of the country, they praised the president’s more inclusive and less bombastic language as he also promised that “America must put its own citizens first,” crack down on illegal immigration and build up the military.

Ann Marie Wheeler applauds as President Donald Trump speaks in Clearwater, Florida

The milder Trump contrasted markedly with the candidate who insulted his rivals during the 2016 campaign, recently branded the news media the “enemy of the people” and was caught making vulgar remarks about grabbing women on a decade-old video.

In Boone County, Kentucky, the vice chairwoman of the local Republican Party, Phyllis Sparks, said she liked that Trump “spoke not only to his base but to all Americans.” Kirt Jacobs, a Louisville entrepreneur, said Trump “was all about we and very little, if any, about me.”

In the Denver suburbs, a voter who supported Marco Rubio in last year’s Republican nominating contest, said Trump validated her vote for him in November. “He had a much softer tone – more presidential – but stayed true to his principles,” said Kathleen Johnson. “He wasn’t blaming people and sounded more comforting.”

A CNN/ORC national poll found that 78 percent of respondents who watched the speech had a positive reaction. With 3 million tweets, Trump’s speech was the most tweeted- about presidential address to Congress, surpassing the previous record of 2.6 million for Obama’s 2015 State of the Union speech, a Twitter spokesman said.

At the Quaker Steak and Lube, the praise began beforehand, with a rally on the sidewalk outside where supporters waved signs reading: “America First” and “Florida for Trump.” They were mostly greeted by honking horns of approval, but also a few passing drivers who shouted expletives.

Speaking just before the address, Ron Sanders, 65, a Baptist pastor living in nearby Seminole, Florida, wanted to hear Trump tackle illegal immigration, which the president did. He also hoped Trump’s speech would help to bring in line moderate Republican senators who have been critical of some of his early efforts, which is not yet certain.

“He’s sticking to what he said. It’s not discouraging Trump at all,” said Sanders, wearing a cowboy hat colored like an American flag. “He’s going full guns ahead.”

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In yet another impromptu press conference delivered moments ago, French presidential contender Francois Fillon addressed the nation, and contrary to expectations the embattled candidate, fighting an escalating corruption probe, would announce he would drop out of the race, Fillon vowed to fight on, even as he revealed that judges planned to charge him with misuse of public funds.

Fillon confirmed that he was summoned to court on March 15 after earlier on Wednesday being questioned by magistrates investigating a ‘fake work’ scandal involving his wife. The summons prompted Fillon to cancell a campaign appearance at Paris’s farm show, triggering speculation he was preparing to pull out of the race. But at a press conference later in the morning, Fillon angrily denounced the investigation into the jobs affair, saying the probe was a challenge to the democratic process.

Fillon blasted the ongoing judicial inquiry as an attempt of “political assassination” directed at him. Having pleaded not guilty in the case of employment of his family members, Fillon will now have to prove it in court.

“I won’t give in, I won’t surrender, I won’t withdraw, I’ll fight to the end,” Fillon said ending his speech

Earlier, French media reported that Fillon’s presidential campaign director Patrick Stefanini had offered his resignation. There has been no confirmation yet.

Fillon, who was initially one of the pollsters’ favorites, saw his ratings drop after the scandal broke out in late January around his wife allegedly having been paid for jobs without exercising her duties. French media also questioned Fillon’s children’s employment as his parliamentary assistants between 2005 and 2007.

The French financial prosecutor’s office launched an official investigation on February, 24 into an allegedly fake employment of Fillon’s wife. The investigation is devoted to assignment of state funds, complicity, concealment of offenses and trading in influence.

French presidential elections are due to take place in two rounds on April 23 and May 7.

So far, French assets have reacted mutedly, with the French-German 2Y spread pushing modestly wider.

via http://ift.tt/2lSXtK3 Tyler Durden

While many Wall Street traders expecting Trump to unveil details of his economic plan went to bed empty handed last night, that was not enough to halt the market rally with the narrative shifting to Trump’s “measured”, “presidential” tone in which he offered an olive branch to both Democrats and Republicans in Congress while promising to make concessions. Trump urged Americans to abandon conflict and help him remake the fabric of the country, a moment he hopes will turn the page on his administration’s chaotic beginning and bring clarity to his policy agenda. He offered few new proposals and made no suggestions on how he would pay for his plans, including a replacement of Obamacare, a tax overhaul including cuts for the middle class, $1 trillion in infrastructure investment and a large increase in defense spending.

“The market has been looking for reassurance that Trump intends to follow through on his campaign promises for fiscal spending, tax cuts and deregulation,” said James Woods, global investment analyst at Rivkin in Sydney. “He mentioned these policies but did not provide any actual details or time lines, which is what investors are looking for.”

For markets, the speech – either positive or negative – was overshadowed by comments from a handful of Federal Reserve policymakers, who suggested a March rate hike is live, contrary to market expectations. As a result,  have tumbled, and global stocks surged following yesterday’s barrage of hawkish Fed speakers, especially Bill Dudley, who in the span of an hour managed to reprice March rate hike odds from just over 50% to 80%, meaning a March rate hike is now in play.

For those who missed it, here is a summary of Tuesday’s Fed talking heads, and what they said:

• Fed’s Dudley (Voter, Dove) said the case for rate hikes is more compelling.
• Fed’s Kaplan (Voter, Neutral) said the rate path is more important than timing of the next hike.
• Fed’s Williams (Non-Voter, Hawk) sees a March hike getting serious consideration. Williams also added he still is comfortable with 3 hikes this year and does not see need to delay rate hike.
• Fed’s Bullard (Non-Voter, Dove) stated that the Fed has essentially reached its dual mandate and should allow the balance sheet to normalize naturally. Bullard also added that the policy rate can stay relatively low over the horizon and that he still expects 2% growth, thus no reason to be aggressive on rate hikes

The most hawkish comments were out of both Dudley and Williams. In an interview with CNN, the usually dovish NY Fed President Dudley said that the case for tightening has become “a lot more compelling in recent months” and that “risks to the outlook are now starting to tilt to the upside”. Dudley was also quoted as saying that “animal spirits have been unleashed a bit post the election” and that “there’s no question sentiment has improved quite markedly”. He also said that 3-4% GDP growth in the medium term is possible should we see further improvement in productivity. Shortly before that San Francisco Fed President Williams said that a March hike is getting “serious consideration” given that the Fed is “very close” to achieving its dual mandate goals. 

As expected, March hikes odds soared, rising as much as 80% after the barrage of hawks:

With March odds soaring to approximately 80% percent, they pushed the dollar higher and sent Treasuries lower.

Additionally, strong data out of China, where most PMIs came in better than expected, has eased concerns about China’s economy. The rundown:

• China’s Official Manufacturing PMI (Feb) 51.6 vs. Exp. 51.2 (Prey. 51.3).
• Chinese Non-Manufacturing PMI (Feb) 54.2 (Prey. 54.6);4-monthlow.
• Chinese Caixin Manufacturing PMI (Feb) 51.7 vs. Exp. 50.8 (Prey. 51.0).

Back to Trump: in a nutshell the long awaited Trump address had a familiar ‘America first’ theme throughout and plenty of echoes of his inaugural address. However the disappointment market wise has been the lack of detail. But there did seem to be a big effort to sound presidential. In terms of what we did get, the President returned again to the subject of rebuilding infrastructure, highlighting that he will be asking Congress to approve legislation that produces a $1tn investment financed through both public and private capital and guided by the principals of “hire American and buy American”. Trump also reconfirmed that he intends to repeal and replace Obamacare, increase defence spending, enforce immigration laws and also overhaul tax including cuts for the middle class. The tax subject was only really lightly touched. Trump said that his economic team is developing a “historic tax reform that will reduce the tax rate on our companies so that they can compete and thrive anywhere and with anyone” and also “at the same time provide massive tax relief for the middle class”. There was no specific mention whatsoever of the much anticipated border-adjusted tax. Another subject of much debate, bank regulation, was also avoided.

Overall, a speech that while disappointing on one hand (lack of specifics) was greeted as perhaps a return to Trump’s conciliatory, “presidential-sounding” roots. So as investors moved on from President Donald Trump’s address to Congress, shifting their focus to the timing of a U.S. rate increase as the dollar strengthened, stocks surged and bonds tumbled.

The Bloomberg Dollar Spot Index climbed the most in three weeks, the yield on 10-year Treasuries rose and European banking stocks gained after odds jumped for a Federal Reserve rate increase this month. Shares of commodity producers found support from a report indicating improving health for Chinese manufacturing which also helped prices for raw material exports.

“Fed speakers trump Trump,” Richard McGuire, the head of rates strategy at Rabobank International in London, wrote in a note. Trump’s speech lacked “fresh content for the market to trade off, with big tax cuts, deregulation and an infrastructure plan being mentioned but not supported by any details. Given this, all focus instead turned to the slew of hawkish rhetoric from Fed speakers.”

The dollar index climbed as much as 0.7 percent to its highest levels in seven weeks, having also been helped by data showing robust U.S. consumer spending.

“After dominating the markets since November, President Trump could now fade into the background as the focus shifts to the Fed and the prospect of rate increases,” said Kathleen Brooks, Research Director at City Index in London. “Fed members don’t just let words slip out when they speak to the press – this was a message for the markets, and the markets have duly reacted.”

European shares gained, with basic resources the top-performers on Trump’s promise of $1 trillion of infrastructure spending. The STOXX 600 index rose over 1 percent, with Germany’s DAX and France’s CAC 40 outperforming peers to climb 1.3 percent and 1.4 percent respectively, helped by strong company earnings reports. European stocks climbed the most since Feb. 1 as all industry sectors advanced. A gauge of banks gained 2 percent, leading the advance, while basic resources shares rose 1.9 percent.

Japan’s Topix index increased 1.2 percent, propelled by a weaker yen towards the the biggest rally in more than two weeks.  The Shanghai Composite Index added 0.2 percent after data on the producer price rebound, giving top officials gathering in Beijing a solid economic backdrop as they seek to rein in financial risks. 

The global MSCI ACWI index, which has risen more than 10 percent since Trump’s election in November, was flat, with gains in Europe offsetting earlier falls on Asian and U.S. bourses. The MSCI’s broadest index of Asia-Pacific shares outside Japan dipped 0.2 percent.

Futures on the S&P 500 Index added 0.5 percent, after the Dow Jones Industrial Average snapped a 12-day winning streak to close down 0.1 percent in the prior session. The S&P500 finished February with its best monthly gain since March, climbing 3.7
percent.

In commodity markets, crude oil prices lost more ground, with rising U.S. oil output adding pressure on the market, although OPEC production cuts continued to offer support. The stronger dollar weighed on gold, which dropped 0.3 percent to 1,244.36 an ounce, extending Tuesday’s decline.

 2Y Treasury yields jumped to 1.304%, the highest since December, to match their highest levels since 2009. The gap between them and their German equivalents increased to its widest since 2000. Yields on 10-year Treasuries rose three basis points to 2.42 percent, climbing for a third straight day. Yields on benchmark German bonds climbed four basis points to 0.25 percent after a report showed unemployment continued to decline. Yields on French benchmarks and gilts both rose three basis points.

Market Snapshot

• S&P 500 futures up 0.5% to 2,375.50
• STOXX Europe 600 up 1% to 373.75
• MXAP down 0.3% to 144.70
• MXAPJ down 0.3% to 464.87
• Nikkei up 1.4% to 19,393.54
• Topix up 1.2% to 1,553.09
• Hang Seng Index up 0.2% to 23,776.49
• Shanghai Composite up 0.2% to 3,246.93
• Sensex up 0.9% to 28,990.65
• Australia S&P/ASX 200 down 0.1% to 5,704.80
• Kospi up 0.3% to 2,091.64
• Brent Futures up 0.5% to $56.81/bbl
• Gold spot down 0.3% to $1,244.68
• U.S. Dollar Index up 0.6% to 101.68
• US 10Y Yield
• German 10Y yield rose 4.1 bps to 0.249%
• Euro down 0.3% to 1.0540 per US$
• Brent Futures up 0.5% to $56.81/bbl
• Italian 10Y yield fell 4.8 bps to 2.086%
• Spanish 10Y yield rose 3.1 bps to 1.686%

Top Overnight News via BBG

• Trump’s Softer Tone Masks Hard Road Ahead for Agenda in Congress; Trump’s Scant Specifics Leave Questions on His Border-Tax Plans
• Comcast Targets Asia With Harry Potter-Featured Theme Park Deal
• Ahold Delhaize Profit Beats Analyst Estimates on Cost Cuts
• AMC Cinemas Beefs Up Marketing With Dine-In, Bottomless Popcorn
• Snap’s Investors Could Pile On Then Disappear After the IPO
• Hamilton Lane Prices 11.9m-Share IPO at $16: IPO Boutique
• Time Inc. Said to Ask Suitors to Submit Offers by Next Week
• TD Ameritrade Cuts Pricing Fee to $6.95 for Online Equity Trades
• World’s Second-Largest Copper Mine to Resume Some Operations
• Iberiabank Sees Sabadell United Deal 6% Accretive to 2018 EPS
• Apollo Commercial Got Justice Department Information Request
• Orexo Commences Patent Infringement Litigation Against Actavis
• Avianca Says It Hasn’t Been Notified of Lawsuit by Kingsland
• Femsa Sees Capex of About $1.3b in 2017
• Volkswagen Closes $256 Million Acquisition of Navistar Stake
• Euro-Area Manufacturing Picks Up as Inflation Pressures Build
• Toshiba Said to Seek Bids for Chip Unit at $13 Billion Value

Asia equity markets traded higher as the region digested a deluge of data including better than expected Chinese PMIs figures. Despite this, ASX 200 (-0.1%) was dampened by the negative lead from Wall St where the DJIA snapped a 12-day win streak, while better than expected Australian GDP also failed to inspire as the strong data also reduces prospects of future RBA action. Nikkei 225 (+1.4%) was underpinned by a weaker JPY, while Shanghai Comp (+0.3%) and Hang Seng (+0.2%) gained after the latest PMI figures in which the Official Manufacturing PMI and Caixin Manufacturing PMI surpassed estimates, although upside was capped on a weak PBoC liquidity operation and after Non-Manufacturing PMI fell to a 4-month low. 10yr JGBs saw spill-over selling from T-notes which were weakened following hawkish Fed comments that suggested a March hike was firmly on the table, while the BoJ’s Rinban announcement also added to the pressure as the central bank reduced its purchases in 1yr-3yr and 3yr-5yr government debt.

Top Asian News

• China Plans to Cut 500,000 Jobs This Year in Smokestack Sectors
• China’s Factory Gauge Strengthens as Producer Prices Rebound
• China’s Policy Balancing Act Faces Bumps as Bond Pain Swells
• Hedge Fund Oasis’s Wosner Named Director of Premier Foods
• Hong Kong Stocks Eke Out Gains as Galaxy Reports Higher Earnings
• Foxconn’s Gou Says Very Serious About Bid for Toshiba Chip Unit
• Being a Woman Means 43% Less Pay Than Men on Singapore Boards
• Stock Investors Have Seven Reasons to Be Cheerful: Markets Live
• Bouncing Back From Cash Ban, India Chasing V-Shaped Recovery

European bourses were also propelled higher, with the Stoxx 600 index rising more than 1%, after a barrage of hawkish comments from FOMC members yesterday has supported EU bourses in tandem with US equity futures with notable outperformance in financial names as the futures market raised the probability of a March hike (pricing stands at 80%). While markets were somewhat unresponsive to President Trumps speech in congress who failed to provide any significant surprises. Elsewhere, despite the build in API’s overnight, WTI and Brent crude futures are at elevated levels amid increased optimism over the prospects of the US economy. In fixed income markets, the overnight weakness in treasuries saw bunds opened lower, while the gains in equities have also weighed on prices. While the German curve has seen some notable bear steepening this morning, elsewhere the GE-FR spread is a touch tighter with reports that Presidential candidate Fillon called to speak to judges over probes in fake jobs. Additionally, he will give a speech at 1100GMT.

Top European News

• Euro-Area Manufacturing Picks Up as Inflation Pressures Build
• U.K. Manufacturing Growth Weakens as Price Pressures Slip
• German Unemployment Declines as Confidence in Economy Improves
• BP Targets $40 Break-Even Oil Price to Reassure Investors
• FCA to Overhaul IPO Information Flow Over Conflict Concerns
• CRH Capacity for Buys EU2b-EU3b in Next 18 Months, CEO Says
• London Home Price Cuts Spread and Deepen as Market Stagnates
• French Candidate Fillon Called in to Speak to Judges, JDD Says
• OATs Dip After Fillon Said to Continue Presidential Race
• European Miners Rebound as China Economic Data Spur Optimism
• Fillon Wife in Custody, Search Ongoing: Mediapart
• U.K. Consumer Borrowing Remains Below Average as Confidence Ebbs

In currencies, the Bloomberg Dollar Spot Index jumped 0.4 percent as of 9:53 a.m. in London, climbing for a fourth straight day and heading for the biggest advance since Feb. 7. The yen slumped 0.7 percent to 113.52 per dollar, for a third day of losses. The euro fell 0.3 percent to $1.0545 and the British pound was little changed at $1.2383 after slipping 0.5 percent Tuesday.FX markets have followed the lead set by Fed members Williams and Dudley yesterday, setting the USD free on the upside as has been threatening given the US rate profile. Along with hesitancy over president Trump’s general conduct and communication, the market has been split between the prospect of 2 or 3 rate hikes this year, but with March now firmly on the table, the short end of the Treasury yield curve has rallied, putting the 2yr back to the highs just shy of 1.30%. Gains in the belly look a little more reluctant, and the modest 5-6bp rise in the 10yr sees USD/JPY back in the mid 113.00’s, but struggling ahead of 114.00. EUR/USD has been pulled back into mid-low 1.0500’s, but sizeable expiries in the 1.0500-50 area look to be containing for now. German regional inflation rates are all higher, but within expectation levels, while unemployment was also largely as expected.

In commodities, gold dropped for a third day, falling 0.3 percent to $1,244.66 an ounce after completing a 3.1 percent gain in February. West Texas Intermediate Crude rose 0.5 percent to $54.26. Oil ended last month 2.3 percent higher. Copper added 1.7 percent, advancing for a fourth straight session. Oil prices have edged higher despite the impact of a stronger USD, but near term price action is all base on production cuts, with strong compliance to the agreement from OPEC members edging towards 95%. Non OPEC members are lagging according to the latest figures, but sources suggest the current path will lead to WTI rising to USD60.00. In light of this, hesitant gains through USD55.00 may be taking this into account, but price stability will clearly be welcomed all round. Precious metals have softened inversely with the USD, with Gold now trading just under USD1245.00, with Silver dipping to USD18.24/5 before finding support. Base metals find support from the latest China manufacturing stats — Copper rising close to 2% on the day, but Zinc outperforming 2.5% up on the day. Zinc prices still set to rise higher on mine closures, but the latest appointment of the environment minister has/is running into some opposition.

In terms of the day ahead, while the bulk of the attention will be on Trump’s speech there is still a reasonable amount of data to get through. Much of the focus will be on the January personal spending and income reports, alongside the core and deflator PCE readings. Also due out is the ISM manufacturing print for February as well as the final manufacturing PMI revision, while construction spending and vehicle sales round out the releases. If that wasn’t enough already, the Fed’s Beige Book is also due out this evening while Kaplan (6pm GMT) and Brainard (11pm GMT) are both due to speak.

US Event Calendar

• Wards Total Vehicle Sales, est. 17.7m, prior 17.5m; Wards Domestic Vehicle Sales, est. 13.7m, prior 13.6m
• 7am: MBA Mortgage Applications, prior -2.0%
• 8:30am: Personal Income, est. 0.3%, prior 0.3%;  Personal Spending, est. 0.3%, prior 0.5%
• 8:30am: Real Personal Spending, est. -0.1%, prior 0.3%; PCE Deflator MoM, est. 0.5%, prior 0.2%; PCE Deflator YoY, est. 2.0%, prior 1.6%; PCE Core MoM, est. 0.3%, prior 0.1%; PCE Core YoY, est. 1.7%, prior 1.7%
• 9:45am: Markit US Manufacturing PMI, est. 54.5, prior 54.3
• 10am: ISM Manufacturing, est. 56.2, prior 56; ISM Prices Paid, est. 68, prior 69; ISM New Orders, prior 60.4; ISM Employment, prior 56.1
• 10am: Construction Spending MoM, est. 0.6%, prior -0.2%
• 1pm: Fed’s Kaplan Speaks in Dallas
• 2pm: U.S. Federal Reserve Releases Beige Book
• 2pm: U.S. Federal Reserve Releases Beige Book
• 6pm: Fed’s Brainard Speaks at Harvard

DB’s Jim Reid concludes the overnight wrap

Welcome to a new month and in reality only one place to start this morning and that is President Trump’s prime time address to Congress that started at 9pm EST last night. Before we delve into the details a reminder that as it’s the first of the month we’ll be doing our usual performance review at the end with all the tables and charts in the PDF. It’s our second performance review in a row as yesterday we looked back on 10 years of the EMR and looked at how assets have performed over what is essentially the period since the start of the financial crisis in February 2007. So if you missed it, see yesterday’s EMR at your leisure.

So in a nutshell the long awaited Trump address had a familiar ‘America first’ theme throughout and plenty of echoes of his inaugural address. However the disappointment market wise has been the lack of detail. But there did seem to be a big effort to sound presidential. In terms of what we did get, the President returned again to the subject of rebuilding infrastructure, highlighting that he will be asking Congress to approve legislation that produces a $1tn investment financed through both public and private capital and guided by the principals of “hire American and buy American”. Trump also reconfirmed that he intends to repeal and replace Obamacare, increase defence spending, enforce immigration laws and also overhaul tax including cuts for the middle class. The tax subject was only really lightly touched. Trump said that his economic team is developing a “historic tax reform that will reduce the tax rate on our companies so that they can compete and thrive anywhere and with anyone” and also “at the same time provide massive tax relief for the middle class”. There was no specific mention whatsoever of the much anticipated border-adjusted tax. Another subject of much debate, bank regulation, was also avoided.

Markets in Asia are mostly higher following Trump’s speech. The Nikkei (+1.03%), Hang Seng (+0.17%) and Shanghai Comp (+0.38%) are all up although the ASX (-0.13%) has struggled slightly. US equity index futures are also up +0.20% although they are little changed relative to the minutes prior to Trump speaking. Rates have crept higher however that may in part be to do with the Fedspeak late last night which we’ll touch on shortly. 2y yields are up +3.6bps and 10y yields up +2.9bps. The Dollar index is +0.45%, Gold (-0.42%) is weaker and other commodities little changed. We may have to wait for the European session to really kick in though for markets to digest the speech.

It would be fairly easy to wrap up here and move on to today’s calendar given that for the most part yesterday’s session was a fairly dull one and essentially just preparing the stage for Trump. However, there was some last minute month end excitement as after the US close we got some pretty hawkish comments out of both the Fed’s Dudley and Williams. In an interview with CNN, the usually dovish NY Fed President Dudley said that the case for tightening has become “a lot more compelling in recent months” and that “risks to the outlook are now starting to tilt to the upside”. Dudley was also quoted as saying that “animal spirits have been unleashed a bit post the election” and that “there’s no question sentiment has improved quite markedly”. He also said that 3-4% GDP growth in the medium term is possible should we see further improvement in productivity. Shortly before that San Francisco Fed President Williams said that a March hike is getting “serious consideration” given that the Fed is “very close” to achieving its dual mandate goals.

After trading fairly flat for much of the session short-end Treasury yields spiked in the last 30 minutes or so (and have continued to rise this morning as highlighted above). 2y yields closed 6.6bps higher at 1.260% and 5y yields finished 6.4bps higher at 1.929%. 10y yields also ended 2.5bps higher at 2.390%. Unsurprisingly Fed Funds contracts were also on the move with the March contract now at 0.750% (+3.5bps). It’s worth noting that one of the more dovish Fed officials, Lael Brainard, is due to speak this evening, while Fed Chair Yellen then speaks on Friday. The imperfect Bloomberg calculator (which overstates the chances but offers a good history of pricing) has also seen the March hike probability jump to 80% this morning from 52% yesterday and just 40% at the end of last week. Prior to that excitement, equity markets had largely limped through much of the session. The Dow (-0.12%) finally brought to an end a streak of 12 consecutive record highs while the S&P 500 (-0.26%) also finished in the red not helped by Senate Finance Chairman Orrin Hatch telling CNBC that he has real reservations about the border adjustment tax. In Europe the Stoxx 600 (+0.19%) recovered from a slow start. Commodities were generally a non-event for much of the session.

The rest of yesterday’s session was largely focused on the data. In the US the main release was the second estimate of Q4 GDP which came in at an unrevised +1.9% qoq annualized. The consensus had been for an upward revision to +2.1%. In the details growth in final sales was unrevised at +0.9% while personal consumption was revised up five-tenths to +3.0%. This was offset by a 1.1pt downward revision for  business investment to +1.3% while the core PCE was also revised down one-tenth to +1.2%. Away from that there was some good news in the latest consumer confidence reading for February which was revealed as rising 3.2pts to 114.8 (vs. 111.0 expected) and the highest since July 2001. The Chicago PMI also surprised to the upside with the index up 7.1pts to 57.4 (vs. 53.5 expected) in February and the highest since January 2015. The Richmond Fed manufacturing index reading also rose 5pts to +17. Finally the advance goods trade balance reading in January revealed a wider than expected deficit ($69.2bn vs. $66.0bn expected). Over in Europe the only notable data came from France where headline CPI was revealed as rising a fairly benign +0.1% mom in February (vs. +0.4% expected). Q4 GDP did however come in as expected at +0.4% qoq.

Quickly coming back to Asia, this morning we also had some data out of China which very much played second fiddle to Trump. The official manufacturing PMI was confirmed as rising 0.3pts to 51.6 in February (vs. 51.2 expected) while the non-manufacturing PMI declined 0.4pts to 54.2. The Caixin manufacturing PMI also came in at 51.7 and up 0.7pts from January.

In terms of the day ahead, while the bulk of the attention will be on Trump’s speech there is still a reasonable amount of data to get through. The European session will also see a continuation of the February PMI releases with the final manufacturing prints to be confirmed alongside a first look at the data for the periphery and UK. We’ll also get the February CPI report in Germany as well money and credit aggregates data in the UK. It’s set to be another busy afternoon for data releases in the US again too. Much of the focus will be on the January personal spending and income reports, alongside the core and deflator PCE readings. Also due out is the ISM manufacturing print for February as well as the final manufacturing PMI revision, while construction spending and vehicle sales round out the releases. If that wasn’t enough already, the Fed’s Beige Book is also due out this evening while Kaplan (6pm GMT) and Brainard (11pm GMT) are both due to speak.

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In his much anticipated address to Congress that was widely described as “presidential” avoiding attacks on the media and Democrat opponents, even if once again thin on detail, President Donald Trump reaffirmed his pledge on infrastructure, defense spending and tax overhaul, in broad brush strokes, and judging by the surging futures and US Dollar this morning, investors are giving him the benefit of the doubt for now. 

Among the more notable economic highlight, Trump flagged plans for $1 trillion in infrastructure investment, and repeated earlier comments on trade and corporate tax reform without giving details. After the speech, the dollar extended gains as investors refocus on comments by Fed officials, which have spurred market expectations for a possible interest rate increase as soon as this month with March rate hike odds soaring yesterday.

Before we breakdown Wall Street’s take of Trump’s speech, here is a list of the 12 key things that mattered in Trump’s speech courtesy of Axios:

A rundown of what to note from Trump’s first address to a joint session of Congress.

1. Tone: The speech was, by some distance, his most “presidential” since running for the office. He was totally on message, controlled, uncaffeinated, un-Trumpian.
2. Breaking the ice: Trump began his speech with riffs on Black History, civil rights, and a condemnation of anti-Semitic violence. He received standing ovations.
3. Head fake on immigration: As we reported, there was no way Trump was going to have a conversion to Jeb Bush-style immigration reform. He spent much of the speech highlighting the crimes committed by immigrants in the country illegally, and he gave no concessions on immigration
4. Declined to endorse the border adjustment tax: “We must create a level playing field for American companies and workers. Currently, when we ship products out of America, many other countries make us pay very high tariffs and taxes — but when foreign companies ship their products into America, we charge them almost nothing.”
5. More detail on healthcare: Trump gave Speaker Paul Ryan a big win by listing some components of the House GOP plan — and, as we forecast, the big one was tax credits. See David Nather’s analysis.
6. Says his budget will increase funding for veterans. A well-received line: “Our veterans have delivered for this Nation –- and now we must deliver for them.”
7. Crucial language on infrastructure: “To launch our national rebuilding, I will be asking the Congress to approve legislation that produces a $1 trillion investment in the infrastructure of the United States — financed through both public and private capital –- creating millions of new jobs.” The key phrase — “that produces” — coupled with the mention of private capital — means the Bernie Sanders dream of $1 trillion in new government spending remains a fantasy.
   Sought to tie the African-American experience to nationalism: “We’ve financed and built one global project after another, but ignored the fates of our children in the inner cities of Chicago, Baltimore, Detroit — and so many other places throughout our land.”
8. Promises: Listed pledges made and kept. He gave plenty of applause lines for (at least some) Democrats, including withdrawal from the Trans-Pacific Partnership trade deal and his request that “new American pipelines be made with American steel.”
9. “Radical Islamic Terrorism”: Trump is still using the phrase, despite the reported disapproval of his new national security advisor.
10. NATO: Trump made a happy man of Defense Secretary Mattis and the rest of the foreign policy establishment, which has worried about his previous comments that NATO is “obsolete.” Tonight, Trump said: “We strongly support NATO, an alliance forged through the bonds of two World Wars that dethroned fascism, and a Cold War that defeated communism. But our partners must meet their financial obligations.”
11. A emotional moment — and the longest applause of the night: “We are blessed to be joined tonight by Carryn Owens, the widow of a U.S. Navy Special Operator, Senior Chief William “Ryan” Owens. Ryan died as he lived: a warrior, and a hero –- battling against terrorism and securing our Nation.”

And here are select excerpts from Wall Street analysts giving their first impressions of the Trump address:

TD Securities (Priya Misra)

• Speech was risk positive and reiterated pro-growth policy
• Market has given administration benefit of doubt and could continue for a little longer
• Equities may look “vulnerable” if markets don’t get details and progress on tax reform

Matsui Securities (Tomoichiro Kubota)

• Drug prices comment negative, though not particularly surprising
• Investors may switch even more to equities from bonds if Trump’s policies are put into practice

BDO Unibank (Jonathan Ravelas)

• Speech “very general, disappointing investors looking for specifics”
• Uncertainty continues as potential reforms are still work in progress
• U.S. and global markets are in limbo and will stay in consolidation in short term, given lack of reform details
• Next focus will be Fed

Rivkin Securities (William O’Loughlin)

• Trump’s speech was “enough to keep the optimism alive”
• Investors are now “just expecting that sometime in the near future he will give specifics”

Societe Generale (Kyosuke Suzuki, head of FX & money-market sales)

• Positions largely squared ahead of this event and in absence of any negative comments from Trump, USD is underpinned for now by expectations for a Fed rate hike this month
• With timeline for tax and budget already known, and markets having little expectations for any details to come out of Trump’s speech, focus is turning to a slew of monetary, budget and currency events in mid-March

Scotiabank (Qi Gao, FX strategist )

• “Dollar retreated somewhat during Trump’s speech, partly due to profit-taking. His speech hasn’t spurred another wave of Trumpflation trade. He repeated what he said before. We are awaiting Yellen’s speech due at 2am HKT on Saturday.”

National Australia Bank (Julian Wee, senior market strategist)

• Speech contains little that’s new and “what might be more pertinent for EM Asian FX is the presence of an overt protectionist tone, which would be supportive of USD/Asia”
• Still, the lack of details on many of his plans and how they will be funded will dominate market sentiment
• “Chances are this delicate balance between the two factors could remain for the near future given almost no mention has been made of how all this spending will be funded, leading to the USD/Asia remaining relatively directionless”

Mizuho Bank (Vishnu Varathan, economist)

• Emphasis on immigration, with skew toward skilled immigration, suggests wage pressures will be reinforced
• “All else being equal, this should be bearish for bonds and bullish for the dollar. Yet the ‘fair trade’ stance could suggest that too much dollar strength will face criticisms so there’s a rather twitchy path for dollar bulls”
• Dollar upside will be susceptible to spurts of reversals; long dollar bets will be fraught with fears of jawboning and EM currencies could be knocked back for now
• Cost-reduction emphasis also sets up yields and the dollar for two-way swings

Oanda Corp (Jeffrey Halley)

• Speech that was high on rhetoric and low on detail has been mostly built into the USD price already and bulls may be slightly disappointed
• “I would expect a ‘no news is good news response’ in EMFX today with most regionals to stay gently bid against the USD. Key now will be Yellen’s speech Friday and if hawkish, will see the March FOMC meeting unexpectedly ‘live’ ”

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Via Peter Korzun of The Strategic Culture Foundation,

The United Arab Emirates (UAE) has signed an outline agreement to buy Russian aircraft. It also plans to implement a joint project with Russia to develop a next-generation fighter that could enter service in seven or eight years.

According to Russian Industry and Trade Minister Denis Manturov, who led the Russian delegation at the IDEX 2017 exhibition, the UAE is to purchase a batch of advanced Sukhoi Su-35 Flanker-E fighters.

«We signed an agreement of intent for the purchase of the Su-35», Sergei Chemezov, CEO of Rostec Corporation, told Russian news agency TASS. He did not provide details about the deal. A total of 24 Su-35 fighters were sold to China under the first export contract.

The significance of signing ceremony was illustrated by the fact that it was attended by Sheikh Mohamed bin Zayed Al Nahyan, Crown Prince of Abu Dhabi and Deputy Supreme Commander of the UAE Armed Forces. As reported, the agreement «provides for procurement, development and partial manufacturing of advanced air, land and naval equipment to serve the requirements of the UAE armed forces».

According to The National Interest, «More troubling for the United States, the deal is an indication that the UAE—a long-time U.S. ally—is drifting into Moscow’s orbit».

According to Mr. Chemezov, work on the fifth generation joint light fighter is to start as early as 2018. The aircraft is expected to be a variation of the MiG-29 fighter jet. The future warplane proposed by Russia would be built in the UAE »full cycle» following completion of design work and the production of test aircraft. The memorandum of understanding between Russia and the UAE to jointly develop the fighter aircraft follows a similar fighter jet collaboration deal agreed between Russia and India last year.

The Su-35 is a multifunctional 4++ generation fighter, employing fifth-generation combat avionics. The one seater two-engine high-wing aircraft features a retractable tricycle-type landing gear and nose gear strut. Equipped with AL-41F1S turbojet engines with an afterburner and a controlled thrust vector, it is capable of «pivot turning» and deceiving enemy missiles.

The plane boasts a maximum speed of 2,400 km/h. Its maximum flying range is 3,600 km without external fuel tanks and 4,500 km with external fuel tanks. The service ceiling is 20,000 meters. The specifications allow it to easily outrun every Western fighter.

The aircraft has 12 external bays for precision missiles and air bombs and two bays for electronic warfare containers.

The armament includes 30mm guns, a huge number of missiles and rockets. The combat load is 8 tons. It has 12 hardpoints for carrying external weapons and stores. The aircraft would be launching its weapons from high supersonic speeds around Mach 1.5 at altitudes greater than 45,000 feet. This means the missiles could reach with their targets faster, giving opponents less time to maneuver or respond in kind.

Military experts are especially impressed with the Su-35's sophisticated phased-array radar control system Irbis-E, which allows the plane to detect targets at distances of up to 400 kilometers. It can simultaneously track up to four ground targets or up to 30 airborne targets, as well as engage up to eight airborne targets at the same time. The radar has a friend-or-foe identification capability for aerial and maritime objects. It is capable of identifying the class and type of airborne targets and can take aerial photos of the ground. An oscillator with peak power output of 20 kW used in the passive phased array radar makes Irbis-E the most powerful radar control system on par with the best international designs, and ahead of most US and European active and passive phased array radars.

The aircraft is also equipped with «Khibiny-M» – a state-of-the-art electronic warfare equipment, which includes a radar warning system, radar jammer, co-operative radar jamming system, missile approach warner, laser warner and chaff and flare dispenser. A relatively small container in the shape of a torpedo is mounted on the wingtips of the aircraft to make the jets invulnerable to all modern means of defense and enemy fighters.

The pilot has two VHF/UHF encrypted radio communications systems and a jam-resistant military data link system between squadron aircraft and between the aircraft and ground control. The navigation system is based on a digital map display with a strapdown inertial navigation system and global positioning system.

High-strength, low-weight, composite materials have been used for non-structural items such as the radomes, nose wheel, door and leading-edge flaps. Some of the fuselage structures are of carbon fibre and aluminium lithium alloy.

The aircraft was deployed to Syria a year ago.

German magazine Stern stated that the Su-35 can be considered the world's deadliest fighter jet other than the fifth-generation US F-22.

The UAE has already purchased Russian ground weapons, such as BMP-3 infantry combat vehicles and Pantsir S1 air-defense systems. The acquisition of the military aircraft is another big step on the way of developing military cooperation with Russia.

The Emirates is not the only Russian customer in the Persian Gulf. Russian Defense Minister Sergey Shoigu and Qatar’s State Minister for Defense Khalid bin Mohammad Al Attiyah signed a military cooperation agreement in September on the sidelines of the Army-2016 international military-technical forum in Kubinka near Moscow.

Kuwait and the UAE have purchased Russian infantry fighting vehicles.

Saudi Arabia has expressed interest in Russian "Iskander-E" short-range ballistic missiles, S-400 long-range air defense systems, missile patrol boats and medium landing ships. Saudi Arabia paid for Russian arms supplies to Egypt.

The Su-35 and the fifth generation aircraft deal with the UAE reflects the fact that Russia’s geopolitical influence and soft power in the Persian Gulf has increased recently. It is not limited to military cooperation only.

A $10 billion package deal has been signed between Russia and Saudi Arabia on various projects. As part of the agreement, Russia too will invest in the Saudi Arabian market. President Putin met with King Salman in Antalya in November 2015, and with Deputy Crown Prince Mohammad bin Salman Al Saud in June 2015 in St. Petersburg, as well as in October of the same year in Sochi.

Russian energy giant Gazprom has expanded its cooperation with Qatargas on liquefied natural gas production. Trade with Oman has grown exponentially. Businessmen from the UAE have invested in the infrastructure for the 2014 winter Olympic games in Sochi. They took part in the construction of a major port near St. Petersburg and cooperated with Rosneft in pipeline construction projects. Political contacts are also intensive.

The relations with Bahrain are on the rise in all spheres. His Majesty the King Hamad has visited Russia four times during the last six years.

The Gulf Cooperation Council (GCC) member states GCC countries did not join the United States and the EU in imposing economic sanctions against Russia over Ukraine. Moscow has said many times it would welcome the formation of a broad-based Arab coalition around a political solution to the Syrian crisis.

The growing cooperation with the Arab states of the Persian Gulf are part of the broader process, with Russia’s foothold strengthened in the Middle East amid the tectonic changes taking place to change the political landscape of the region.

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It wasn’t the Russians, it was the auditors…

 

Source: Townhall.com

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