Month: March 2018

Authored by Aaron Wood via CoinTelegraph.com,

The exchange operator of CBOE Global Markets wrote a letter to the US Securities and Exchange Commission (SEC), recommending they not interfere in the development of a Bitcoin exchange-traded-fund (ETF) because they are similar to other commodity-based ETFs, March 23.

image courtesy of CoinTelegraph

ETFs are a type of exchange-traded-product (ETP). An ETF is a marketable security that tracks an index, a commodity, bonds, or a basket of assets like an index fund. ETFs trade like common stock on a stock exchange and typically have higher daily liquidity and lower fees than shares of mutual funds.

CBOE President Chris Concannon’s letter was in written response to a letter issued by the SEC in January 2018 in which, among other concerns, the SEC expressed disquiet over sufficient liquidityin cryptocurrency markets, as well as potential risks for manipulation.

Concannon stated that, “As the volumes continue to grow, especially on regulated US markets, the overall spot Bitcoin market looks more and more like a traditional commodity market and CBOE continues to believe that the spot market is sufficiently liquid to support a Bitcoin ETP.”

Concannon added that, “…CBOE believes that the arbitrage mechanism would function identically to other commodity-related ETPs… thereby keeping the price of the ETP in line with the price of Bitcoin and limiting the risk of manipulation shares of the ETP.”

Concannon echoed sentiments from a Congressional hearing earlier this month, in which experts suggested that existing legislation is sufficient to regulate certain aspects of cryptocurrencies.

“While CBOE shares many of the concerns raised in the Staff Letter, we believe that the vast majority of these concerns can be addressed within the existing framework for commodity-related funds related to valuation, liquidity, custody, arbitrage, and manipulation,” Concannon wrote in his letter to Dalia Blass, a Director of the Division of Investment Management.

The SEC has been stepping up measures against crypto-related companies this year. On March 15 the SEC confirmed dozens of probes into cryptocurrency companies, issuing subpoenas to firms it suspects of flouting securities laws during initial coin offerings (ICO). Earlier this week, a source speaking to WSJ said that the SEC will increase its scrutiny in launching examinations into up to 100 hedge funds.

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According to Christopher Wylie, the whistleblower behind the Facebook and Cambridge Analytica scandal, we have President Trump to thank for the exposure of Facebook as a data-hording, privacy-busting super-surveillance ‘state’.

Wylie, appearing in front of U.K. lawmakers in London this morning, said that the election of Donald Trump as U.S. president in 2016 made him speak out about the practices being employed by the political data firm.

“I wouldn’t say it was just because of Donald Trump, but Donald Trump makes it click in your head that this actually has a much wider impact. I don’t think that military-style information operations is conducive for any democratic process,” he told the committee of lawmakers.

As CNBC notes, Wylie was the man who revealed to the New York Times and the U.K.’s Observer newspaper the practices of Cambridge Analytica and the data harvesting that took place. He is speaking to members of parliament on the Digital, Culture, Media and Sport (DCMS) Committee, chaired by lawmaker Damian Collins.

Lawmakers questioned Wylie on the links between Cambridge Analytica, its parent company SCL, and work on various political campaigns including Brexit.

*  *  *

In other words, if Hillary had won, the general public would remain oblivious to Facebook’s (and other social media giants) massive data-gathering efforts.. and Mark Zuckerberg would still be the 4th richest person in the world (instead of 8th!).

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The last time we reported on Dennis Gartman’s “retirement portfolio” positioning, we noted that on March 14 he had not only staked his reputation, but apparently his remaining AUM on a “Watershed” career call, namely that “equity markets have hit a multi-year top”, and while he appeared to be accurate until last Friday, yesterday’s events have clearly thrown the world-renowned commodity guru for a loop in the past 24 hours, and while he admits his confidence is shaken, his P&L appears to be willing to take some additional pain on the short side.

STOCK PRICES HAVE LEAPED DRAMATICALLY HIGHER and although we had said in our commentary yesterday that we had expected to see some rather material rebound from the weakness of late last week we certainly did not expect to see shares as measured by our International Index rise by a stunning 1.4%. A rally of perhaps 0.75-1.25% would have been the more likely target. As we said here yesterday,

We [shall not be] at all surprised to see the Dow rally perhaps 250-300 points from the lows made Friday, nor should we be even slightly surprised to see the S&P rallying 25-30 “points” from its lows. Indeed, we’d be rather surprised were that not happening, especially given the seriousness and nearly over-extendedness of the markets sell-of into Friday’s close.

We note then that the CNN Fear & Greed Index has fallen back to ‘single digits” and  that is as good a measure as we can find to show how enormously over-sold the market had become. But even still, weakness is not to be bought and strength is still to be sold into. Again, we trust we are clear.

Just as clearly, however, we were wrong; the seriousness of the market’s over-sold condition and the change in psychology as the trade protection/tariff talks moderated over the weekend and into yesterday morning with Mr. Mnuchin’s comments to that effect was such that a massive “relief” rally was unleased [sic].

All of that said, markets do correct and they seem so often to correct back into “The Box” marking the 50-62% retracement levels of the move that had preceded. In the case of the nearby Dow futures, given that the break  began from 25,500 and finished on Friday at 23,500, “The Box” stands between 24,500 on the low side and 24,735 on the high. The Dow futures are 24,300 as we write; not yet to the lower limit of The Box, and drawing close!

As for the S&P, the break began two and one-half weeks ago when the futures traded to 2,810. Last week’s low on Friday was 2,590; thus “The Box” exits between 2,700 and 2,725. The S&P futures are 2,670 as we write and are thus quite some distance from even the bottom of “The Box.”

Further we note that although the volumes traded yesterday were large, they were still well below the volumes that had been transacted last Wednesday, Thursday and Friday as prices collapsed. Note then the chart of the S&P futures this page with the volume “trends” highlighted. The volume is still following the trend; that is, volume rises as prices fall and falls as prices rise.

To that end, we are remaining short of the equity market here in the US with stops on our positions drawn down materially to make certain that our once material profits are not turned into losses, but we are otherwise holding to our thesis that stocks have entered into a global bear market; that the high made by our International Index on January 29th shall not be violated and that the proper course of action by those who are long of equities is certainly to avail themselves of this opportunity to reduce the exposure one more time before that opportunity is lost.

Nothing has changed fundamentally that caused us to become bearish of equities, for the P/e multiples remain egregiously over-extended, as do P/book value multiples. However, most importantly of all, the monetary authorities, whose aggressive additions of reserves to the world’s banking system created the bull market initially, are changing their course of action. Rather than adding reserves to the systems they are now in the process of withdrawing them at a time when the demand for capital on the part of plant/equipment and labor is high and is rising. That was our thesis when we issued our WATERSHED report on the 14th of this month and that remains our thesis this morning. But clearly our confidence in our thesis has been shaken.

And while Gartman is actually not wrong, what does the above mean for markets? As a reminder, here is his latest trade recommendation, and his trigger points:

Short of Three Units of the S&P futures; Thursday, March 15th, given the “reversals” noted at length in our
commentary earlier this week, and further given the multiple failures and the fact that the “volume” for weeks has been waning on market strength and rising on market weakness, we sold the S&P future short at or near to 2759 and we sold another Monday, March 19th, at or near $2750 for an average of $2754.

Yesterday… Monday, March 26th… as recommended (although we really did not expect to have this trade “elected” quite as quickly as it was) we added a third unit at $2660, giving us a new average of $2722.50.

The futures closed last evening at $2660. We shall hold our stop at $2710 on a closing basis here in North America… hopefully protecting a once material profit from becoming a loss.

In short, so to speak, there is little to stop the S&P from rising another 40 points from the current level of 2,672.

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Submitted by Bill Blain of Mint Partners

Mint – Blain’s Morning Porridge – 27th March 2018

“You don’t need a weather man to know which way the wind blows…”

The headlines are all about yesterday’s “extraordinary” bear-rally in stocks – upside buoyed by expectations the US/China trade discussions will de-escalate trade war tensions. I’m unconvinced by the narrative: the volume was tiny and a look at the charts suggests global stocks have still got problems ahead.

And, the trade talks are not a done deal – I’m not so sure Trump’s poker game versus the Chinese will playout as positively as he expects. What happens if the Chinese say No and stop buying Treasuries? Yesterday’s US 2-yr auction gave us a near 2.31% yield – the highest level since the Global Financial Crisis (and this US funding round is the largest ever!), and primary dealers were left very long. 10-yr is still bouncing around 2.85% – but the US has $1 trillion to raise this year and the Fed is tightening, while the dollar is looking tarnished. Credit spreads continue to look soft. It all feels a little like a pre-quarter end holiday market – which it is!

Interesting argument with a client yesterday about economic data – he was complaining we don’t spend enough time looking at what the data is really telling us. That’s a very fair comment – I used to write in detail on the composition of CPI, employment and Growth estimates, and today I hardly do. Why? Good question – I’m spoiled by access to top Macro analysts like Martin Malone who do that hard thinking for me. (If you want to take a look at Martin’s Alphabook Macro product – get in touch!)

Martin’s been deep diving past the news flow on China and looking at the facts – positive trade deals are getting done in terms of NAFTA upgrades set to deliver hug upside to the USA. A new South Korea agreement is also in the works. He reckons a plus 50% probability of successful China negotiations and new Trans Pacific TPP agreement is on the cards. Nothing to worry about then – stick to risk assets!

The dollar’s weakness – and the fact the Trump administration thinks that’s just peachy – is a major factor in current markets. Everyone is trying to understand why the dollar weakness, and looking under every rock and behind each bush for the reasons. It’s hidden in plain sight – there is no reason to think the dollar will turn round imminently: a strong greenback would be kiss of death for Trump’s appeal to his voter base. Why would he reign it back?

One of the big issues is the corollary to dollar weakness – Euro strength. Just how solid is the basis for Euro strength? European growth is better than it’s been – but its still sub-optimal. To the south of the Paris-Berlin axis its unbalanced and leaving a long term festering youth unemployment issue. The end is in sight for Negative European Interest rates and the ECB’s QE programmes – yesterday Bundesbank hawk Weidemann was commenting about higher rates next year and need to get on with it, noting; “the current upswing won’t last forever.” Rising European rates may be a Euro positive, but they will only escalate the tensions across Europe in terms of populism, politics and economies wanting to spend their way out of crisis. 

So…. it was interesting we had IMF head Christine Lagarde commenting on European Union yesterday. She pretty much followed the Macron Line – delivering the outline French plan for Europe – a unified financial market, even saying capital markets and banking union could be enacted quite quickly. Her inclusion of a rainy day fund is “interesting” and challenging.

While Merkel has been forced to buy into Macron’s vision of a new post Brexit Europea to garner SPD support for her own rickety coalition, Germans aren’t historically keen on anything that sounds like a hand-out to weaker states. And Dutch and Scandinavian support for the in-depth but potentially costly Macron plan, with the much closer integration that would be required under Brussels is not a given. While I’m sure the Macron European blueprint is thorough, is the rest of Europe ready for the new Sun-King’s vision? Not convinced.

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The United States and its European allies are expelling dozens of Russian diplomats in a co-ordinated response to the poisoning of former Russian spy Sergei Skripal and his daughter in the UK (although there is no solid evidence on who is really behind the attack).

It is said to be the largest collective expulsion of Russian intelligence officers in history. However, as KeepTalkingGreece reports, some countries refuse to join this remarkable show of solidarity.

Greece, Austria, Portugal and New Zealand are among the countries with no intention to expel Russian diplomats.

More than 20 countries have aligned with the UK, expelling more than 100 diplomats.

Russia vowed to retaliate to the “provocative gesture”.

Russia denies any role in the attack on Sergei Skripal and his daughter, Yulia, in Salisbury, southern England. The pair remain in a critical but stable condition in hospital.

EU leaders agreed last week it was highly likely Russia was behind the nerve-agent poisoning.

Mrs May said:

“President Putin’s regime is carrying out acts of aggression against our shared values and interests within our continent and beyond. And as a sovereign European democracy, the United Kingdom will stand shoulder to shoulder with the EU and with Nato to face down these threats together.”

The Russian foreign ministry said the moves demonstrated a continuation of a “confrontational path”.

“It goes without saying that this unfriendly act by this group of countries will not go without notice and we will react to it,” its statement said.

Countries announced they were making the same move in solidarity on Monday. These are:

• US: 60 diplomats
• EU countries: France (4); Germany (4); Poland (4); Czech Republic (3); Lithuania (3); Denmark (2); Netherlands (2); Italy (2); Spain (2); Estonia (1); Croatia (1); Finland (1); Hungary (1); Latvia (1); Romania (1); Sweden (1)
• Ukraine: 13
• Canada: 4, plus the rejection of 3 further applications from Russia
• Albania: 2
• Australia: 2
• Norway: 1
• FYROM: 1

Late Monday, Ireland said to expel a number of Russian diplomats in line with other EU countries.

EU countries that have said they have no intention of expelling diplomats include Austria, Greece and Portugal, although all have said they support the UK and condemn the poisoning.

On its part, New Zealand said…

New Zealand says it can’t find Russian spies to expel
https://t.co/UR81HmclG9 pic.twitter.com/y3FB38luK7

— AFP news agency (@AFP) March 27, 2018

Source: KeepTalkingGreece.com

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With Deutsche Bank shares heading back toward their 2016 postcrisis lows and yields on DB default swaps moving sharply higher, the Times of London reported Tuesday that Germany’s largest lender is planning to part ways with CEO John Cryan after the CEO fell out of favor with Supervisory Board Chairman Paul Achleitner.

Though the Times didn’t specify where it got the information, it said the bank approached Richard Gnodde, the head of Goldman Sachs Group Inc.’s international operations, but he’s believed to have spurned the overture. Deutsche Bank also considered UniCredit SpA CEO Jean Pierre Mustier and Standard Chartered Plc CEO Bill Winters, according to the report.

“Cryan may be a good person, but he’s not the right guy on top of Deutsche Bank,” Stefan Mueller, CEO of the German Institute for Asset and Equity Allocation and Valuation, said in an interview with Bloomberg TV. Still, “I think the main problem at Deutsche Bank is Paul Achleitner, he implemented all these CEOs in the last years.”

The Times’ anonymous source praised Cryan, but said he struggled to get along with Achleitner.

The source said: “It is quite clear the relationship is broken between the chief executive and the chairman.” The source added that Cryan was “outstanding” but was fighting a battle with Achleitner over cuts to the investment bank, leading to a stalemate. Cryan’s contract runs until 2020.

Disagreements between Cryan, 57, and Achleitner, 61, have emerged over bank strategy, with the CEO and Chief Financial Officer James von Moltke pushing for a more radical restructuring of businesses, including the investment bank. Cryan also angered Achleitner last year by avoiding a meeting with one of the company’s top shareholders, HNA Group Co. The Chinese government has since pushed the indebted conglomerate to unwind an acquisition binge to pay down some of its massive debt load, sending DB shares spiraling lower as investors pull their money in a liquidation panic.

Since saying it wouldn’t sell its DB stake, HNA has sold off a chunk of stock equivalent to 1.1% of the company’s float.

DB shares are down 60% since Cryan took over as co-CEO in 2015. Shares have shed 10% of their value in the past week following a profit warning from the bank.

 

DB has struggled to raise cash to shore up its troubled balance sheet. The lender has undertaken three fundraisings in the past eight years, raising nearly €27 billion. Last week, the bank spun out its asset management business via a stock market flotation, raising about €1.4 billion.

One person close to the bank said that it needed to look outside its existing ranks for a replacement as internally there was “no one as good as John.” However, one former insider said Marcus Schenck, co-head of corporate and investment banking, was viewed internally as a strong candidate.

Bloomberg reported that the bank approached Richard Gnodde, the head of Goldman Sachs Group Inc.’s international operations, but he’s thought to have spurned the overture, the newspaper said. Deutsche Bank also considered UniCredit SpA CEO Jean Pierre Mustier and Standard Chartered Plc CEO Bill Winters.

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Just as Trump sent stocks into a tailspin last week with his bellicose trade overtures against China, so the near record (point) rebound in the Dow on Monday is being attributed to a much more diplomatic tone out of the Trump administration, when first Mnuchin, then Peter Navarro played down the threat of a trade war and instead said that the Trump administration is “actively” involved in talks with China to resolve the recent trade tensions between the two nations. Various unconfirmed media reports then also suggested that trade war with China may never materialize (of course, as Mark Cudmore explained this morning, it very well still may). It culminated with a “happy” tweet from Trump himself on Monday night, in which the stock-picking president, hours after confirming his delight with the spike in the market, tweeted “trade talks going on with numerous countries that, for many years, have not treated the United States fairly. In the end, all will be happy!“

Trade talks going on with numerous countries that, for many years, have not treated the United States fairly. In the end, all will be happy!

— Donald J. Trump (@realDonaldTrump) March 27, 2018

And so, just like yesterday morning, this morning global markets and US equity futures are a sea of green, which once again is being attributed to fading chances of an “all-out global trade war.”

The fresh surge in risk appetite emerged as the Trump administration was said to be urging China to lower tariffs on cars and open its market to U.S. financial services as part of talks to resolve trade tensions. Treasury Secretary Steven Mnuchin and his Chinese counterpart have been discussing the trade deficit between the two countries and were committed to finding a mutually agreeable way to reduce the gap and help China avoid tariffs on $50 billion of exports to the U.S. Ironically, after yesterday’s upside rout, US and global stocks are almost unchanged since March 1, with the bulk of assets since March 1 now positive.

Only, unlike yesterday when the dollar was tumbling, serving as a key component of the risk-on narrative, today the USD has rebounded and erased almost all of yesterday’s losses. At the same time, the euro weakened as economic confidence in the region continued to slide in March.

“Our base case is that there won’t be an all-out trade war,” Aberdeen Standard Investments’ global head of fixed income, Craig MacDonald, , told Bloomberg. “It’s a way of applying pressure to get some wins by Trump.” Still, it will lead to more volatility, MacDonald added. “Our sense is that they will get some wins rather than all out war, but it’s not something you can just dismiss. The tail risk is higher.”

Meanwhile in the aftermath of yesterday’s massive US rally, the euphoria was everywhere, as European shares headed for their first gain in five sessions, with the Stoxx 600 Index jumping the most in six weeks, up 1.4% and joining the global relief rally seen between US and Asia overnight as, what else, “trade tensions ease.”  19 out of 19 Stoxx 600 sectors rise; technology sector has the biggest volume at 111% of its 30-day average; 584 Stoxx 600 members gain, 7 decline. In terms of sector specifics, materials (+2.0%) are the outperformers, enjoying a strong rebound from yesterday’s losses. Looking at individual movers, Casino (+3.4%) spiked at the open after its Monoprix chain has agreed to sell products on Amazon, GSK (+6.0%) is a top performer in the FTSE 100 after it announced to purchase a 36.5% stake in Novartis’ healthcare unit for USD 13bln.

Earlier in Asia shares were green across the board, with Japan’s Topix Index jumping the most since November 2016. South Korea’s won was the best performer among major currencies as Kim Jong Un was said to be making an unannounced visit to Beijing, his first known trip outside North Korea since taking power in 2011. The ASX 200 (+0.7%) and Nikkei 225 (+2.7%) were higher with mining names and financials leading Australia, while the Japanese benchmark outperformed as the index coat-tailed on gains in USD/JPY and following the testimony by former tax office chief Sagawa who declared there were no instructions made by PM Abe or his close circle to alter the documents related to the land sale scandal.

Specifically, Japan’s former tax agency chief Sagawa said there was no report to the PM’s office of documents being altered and added that there were no instructions from PM Abe, his wife, Finance Minister Aso or their aides to doctor the documents. In related news, there were also comments from Finance Minister Aso that PM Abe’s office was not involved with document alterations in the controversial land sale.

Mainland China and Hong Kong shares advance along with other equity markets on hopes that talks with the U.S. will resolve trade tensions. Hang Seng Index rises 0.8%; Hang Seng China Enterprises Index adds 0.9%; Shanghai Composite Index closed up 1.1% after weathering some downward pressure in the last hour of trade; it was its first gain in five sessions.

As noted above, in FX, the dollar reversed earlier losses, with demand picking up amid month-end flows as the London session gets under way. EUR/USD rallied briefly in early London trading to a five-week high of 1.2476 on dollar supply and euro demand against crosses, before reversing the move; in the Asian session, the pair had traded in a very narrow range. Sterling led losses in G-10, partly driven by strong demand in euro-pound, and weighed by EUR/GBP bids amid month-end flows supportive of the greenback. The yen slid as much as 0.3% against the dollar after heavy buying in the U.S. currency across the Tokyo fix took the pair to session high of 105.75 as trade tensions between the U.S. and China eased. The Aussie fell with local bond yields as capital flows are redirected back into emerging markets; the South Korean won rallied as much as 1.2% and the onshore Chinese yuan briefly touched the strongest level since the 2015 devaluation before gains were erased Elsewhere, China’s currency touched the highest level in almost three years.

In geopolitical developments, the Russian Deputy Foreign Minister warned of ‘harsh’ response to expulsion of diplomats from the US, but still open to cooperation.

Euro-area bonds traded in the green, as do longer-dated Treasuries. The yield on India’s benchmark 10-year bond fell as the government surprised the market by reducing the size of its borrowing. Bitcoin edged higher, nearing the $8,000 level. And copper broke out of a three-day trading slump, climbing as much as 1.8 percent

Market Snapshot

• S&P 500 futures up 0.6% to 2,676.00
• STOXX Europe 600 up 1.2% to 367.37
• MSCI Asia Pacific up 1.4% to 175.31
• MSCI Asia Pacific ex Japan up 0.9% to 573.94
• Nikkei up 2.7% to 21,317.32
• Topix up 2.7% to 1,717.13
• Hang Seng Index up 0.8% to 30,790.83
• Shanghai Composite up 1.1% to 3,166.65
• Sensex up 0.5% to 33,224.00
• Australia S&P/ASX 200 up 0.7% to 5,832.30
• Kospi up 0.6% to 2,452.06
• German 10Y yield fell 0.8 bps to 0.516%
• Euro down 0.01% to $1.2443
• Italian 10Y yield rose 3.4 bps to 1.656%
• Spanish 10Y yield fell 2.0 bps to 1.241%
• Brent futures up 0.4% to $70.38/bbl
• Gold spot down 0.3% to $1,350.16
• U.S. Dollar Index up 0.3% to 89.25

Top Overnight News

• The Trump administration is urging China to lower tariffs on cars and open its market to U.S. financial services as part of talks to resolve a rise in trade tensions that has shaken global markets, according to a person familiar with the matter
• President Donald Trump ordered 60 Russian diplomats the U.S. considers spies to leave the country and closed Russia’s consulate in Seattle in response to the nerve-agent attack on a former Russian spy in the U.K., as European allies and Canada took similar measures.
• Federal Reserve Governor Randal Quarles says “our economy is performing well, and unemployment is low. However, many households and communities continue to face financial challenges.”
• Federal Reserve Bank of Cleveland President Loretta Mester says she doesn’t see excessive financial imbalances, but the need to avoid them building up is another argument for “gradually taking away accommodation.”
• Kim Jong Un made a surprise visit to Beijing on his first known trip outside North Korea since taking power in 2011, three people with knowledge of the visit said.
• The ECB can only have “deeper discussions” about the next policy changes when its projections are published in June, Governing Council member Vitas Vasiliauskas says in a news conference in Vilnius
• Euro-area economic confidence dropped for a third month in March as the region showed signs of entering a period of more moderate growth. Optimism slipped in the region’s five biggest economies, taking the overall index to its lowest in six months
• The ECB alerted auditors that lenders could try to take advantage of the transition to new accounting standards to spread the hit on loan losses over years instead of reflecting them in their 2017 financial results, three people familiar with the matter said
• The U.K.’s withdrawal from the European Union poses “material risks” to the availability of financial services, especially in areas where fixes must be put in place by both British and EU authorities, the Bank of England said

Central bank speakers:

• Fed’s Quarles (Voter, Neutral) said US economy is performing well and unemployment is at a low level, although he added that financial challenges remain for many households and communities.
• Fed’s Mester (Voter, Hawk) said she sees further interest rate hikes this year and next despite seeing more slack, while Mester added that tariffs and NAFTA renegotiations pose risks to economic outlook.
• Fed’s Bostic (Voter, Dovish) said he supports plans to gradually raise interest rates, but uncertainty over how the economy would respond next year to tax cuts and increased government spending could complicate monetary policy.
• ECB’s Vasiliauskas (Hawkish) expects more detailed talks on policy changes in June and agrees with market forecast for a mid-2019 rate hike. This follows ECB’s Weidmann yesterday, saying he expects a mid-2019 rate hike.
• ECB’s Liikanen (Neutral) says EZ inflation is sustainable when ECB’s objective can be met without very   accommodative monetary policy. He adds that the ECB needs patience as underlying inflation is lower than expected.
• ECB’s Nowotny (Hawkish) believes asset purchases should be gradually reduce. Adding that If things continue as they are, they will be able to reduce asset purchases significantly and must decide by summer. Furthermore, stating we must be careful not to fall behind the curve.

Asian stocks were positive across the board as the region took impetus from the gains on Wall St where stocks rebounded with a vengeance from the prior week’s worst performance in 2 years. The sharp recovery was spurred by easing trade war concerns after reports of US and China negotiating on trade and saw the largest percentage increase in all US majors since August 2015, while DJIA also gained by the most points in nearly a decade. ASX 200 (+0.7%) and Nikkei 225 (+2.7%) were higher in which mining names and financials led Australia, while the Japanese benchmark outperformed as the index coat-tailed on gains in USD/JPY and following the testimony by former tax office chief Sagawa who declared there were no instructions made by PM Abe or his close circle to alter the documents related to the land sale scandal. Hang Seng (+0.8%) and Shanghai Comp. (+1.0%) conformed to the upbeat tone as trade war concerns eased and as corporate financial results took centre stage in China, with the big 4 banks underpinned after AgBank beat estimates as it kicked off the earnings releases amongst China’s banking behemoths. Finally, 10yr JGBs were weaker amid the gains in riskier assets and with demand also shunned following a mixed 40yr auction. Japan former tax agency chief Sagawa said there was no report to the PM’s office of documents being altered and added that there were no instructions from PM Abe, his wife, Finance Minister Aso or their aides to doctor the documents. In related news, there were also comments from Finance Minister Aso that PM Abe’s office was not involved with document alterations in the controversial land sale.

Top Asian News

• China’s Risky Debt Heads Overseas as Deleveraging Rolls On
• Troubled Chinese Firm to Put $3.2 Billion of Properties For Sale
• Xiaomi’s CEO Disses the iPhone in Unveiling $500 Marquee Device
• PBOC Signals Yi to Run China’s Monetary Policy, Guo in ‘Support’
• China’s Yuan Jumps to Highest Since 2015 as Trade Tensions Ease

European equities have joined the global relief rally (Eurostoxx +1.4%) seen between US and Asia overnight as trade tensions ease. In terms of sector specifics, materials (+2.0%) are the outperformers, enjoying a strong rebound from yesterday’s losses. Looking at individual movers, Casino (+3.4%) spiked at the open after its Monoprix chain has agreed to sell products on Amazon, GSK (+6.0%) is a top performer in the FTSE 100 after it announced to purchase a 36.5% stake in Novartis’ healthcare unit for USD 13bln. Elsewhere, Akzo Nobel (+3.0%) received a boost after Carlyle has won the bid to acquire the chemical arm unit for approx. EUR 10bln

Top European News

• Euro-Area Economic Confidence Extends Slide Into Third Month
• Marubeni to Sell Stake in U.K. Offshore Wind Farm Near Yorkshire
• Liikanen Urges Caution Against Tightening ECB Policy Too Soon
• Japan Tobacco Said to Plan Poland Plant Amid Overseas Push
• Painful Pivot West Starts to Pay Off for Ukraine’s Exporters

In FX markets, it’s been a very choppy session with month end flows/positioning in evidence, but far from one-way or clear cut. The Eur outperformed during early trade and was a broad gainer vs G10 counterparts with the marginal exception of the Chf as that cross traded sideways within a confined 1.1760-75 range. Eur/Usd extended gains beyond near term resistance around 1.2446 to circa 1.2475, while Eur/Gbp and Eur/Jpy got close to 0.8800 and 132.00 respectively on stops and buy orders that appeared to be fix-related. However, dovish ECB comments coincided with a loss of impetus and retreat in the single currency to the benefit of the Greenback and other peers, with a French bank noting ‘strong’ Dollar demand for month end re-balancing (according to Newswires, Credit Agricole). Indeed, the DXY managed to reclaim 89.000+ status, as Cable recoiled to the 1.4125 area from 1.4240 highs, Aud/Usd pulled back from 0.7750+ to 0.7715 and Nzd/Usd topped out around 0.7300 again. Usd/Cad bounced ahead of strong chart support at 1.2803 and the psychological 1.2800 level as the Loonie lost some of its NAFTA related positive momentum (after US reports that a ‘good’ deal is in the offing), while the Jpy continues to track overall risk sentiment and suffered on a sharp global stock market recovery – falling to 105.75 vs the Usd and testing resistance in the 105.70- 75 zone (200 HMA)

In commodities, WTI crude futures are flat after failing to breach the USD 66/bbl level to the upside ahead of this week’s inventory releases and with Russia’s Energy Minister reiterating it is too early to discuss an exit from the output cut deal. Elsewhere, spot gold is trading marginally lower as it tracks fluctuations in the dollar index, while fears of trade wars recede after yesterday’s reports of talks between US and China. In base metals, copper strengthened overnight amid the recovery in risk appetite and with upside spurred on the open of Chinese metals trade.

 

US Event Calendar

• 9am: S&P Case Shiller 20-City NSA Index, MoM SA, est. 0.6%, prior 0.64%
  • Case Shiller 20-City YoY NSA, est. 6.15%, prior 6.3%
  • Case Shiller CS US HPI YoY NSA, prior 6.27%
• 10am: Richmond Fed Manufact. Index, est. 22, prior 28
• 10am: Conf. Board Consumer Confidence, est. 131, prior 130.8; Present Situation, prior 162.4; Expectations, prior 109.7

DB’s Jim Reid concludes the overnight wrap

Let’s be honest, given the events of recent weeks, when we did get a rebound in markets it was only ever going to be in style. Last night the S&P 500, Dow and Nasdaq notched up gains of +2.72%, +2.84% and +3.26%, respectively – the biggest one-day gains since August 26th 2015. For the S&P 500, that is the third consecutive session where we have seen a move of at least 2% in either direction. The last time that happened was also in late August 2015. It’s also the 19th occasion since the start of February that we’ve seen a move of at least 1%. It took 17 months to notch up that many moves of that magnitude before that.

Yesterday’s rally was helped by a much more diplomatic tone out of the White House. Indeed, on the back of Mnuchin’s comments over the weekend about being “cautiously hopeful” that China will reach a deal to avoid tariffs,  the White House trade advisor, Peter Navarro, extended the narrative by playing down the threat of a trade war and instead said that the Trump administration is “actively” involved in talks with China to resolve the recent trade tensions between the two nations.

To be fair the day wasn’t without its ups and downs as US markets did their best to nearly wipe out early gains of some +2% and the VIX swung in a 4pt range. The news (Bloomberg) that the FIC had opened a probe into Facebook’s recent privacy practices sparked a big wave of selling across the technology complex and while they eventually recovered, European markets closed at their lows. The Stoxx 600 finished -0.72% after being up as much as +0.62% and on an intraday basis it now means that the index is officially in correction territory having dropped over 10% from the January highs. Currency moves didn’t help as the Euro rallied +0.74%. Meanwhile bond moves were also a bit all over the place. Benchmark 10y Treasuries closed 3.8bps higher yesterday at 2.853% and so clocked up the 22nd day in a row that they’ve finished with a 2.8%-handle. A 2y auction passed smoothly with a 5y and 7y auction still to go in another busy week for supply.  European rates for the most part closed unchanged.

Overnight, Japan’s Kyodo News reported that North Korea’s Kim Jong Un may have made a surprise visit to China, marking his first offshore trip since taking power in 2011. For now, White House Deputy Press Secretary Raj Shah said about the reports “we don’t know if they’re necessarily true”. Markets in Asia have followed the positive US lead and are trading higher, with the Nikkei (+2.19%), Hang Seng (+0.92%), Shanghai Comp. (+0.97%) and Kospi (+0.56%) all up as we type. US equity index futures have also nudged a bit higher.

Moving on. A bit of an eyesore to the broader trend in markets over the past 24 hours has been the underperformance for Italian assets. The FTSE MIB closed -1.24% yesterday while a sub-index of Italian banks closed down -1.72%. It was the same for bonds where 10y BTPs sold-off 3.6bps and the spread to similar maturity Bunds was 3.9bps wider at 139bps. That’s about 9bps wider than the post-election tights. Yesterday’s move appeared to be related to the political developments over the weekend with the election of the presidents of the lower and upper house of Italy’s parliament confirming the political strengths of the Five Star Movement and Northern League. As our economists highlight, Salvini (leader of the NL) and Di Maio (leader of 5SM) made an agreement over the weekend to obtain for each party or coalition one presidency of each of the two houses of parliament. Under such an agreement, the centre-right has proposed the presidency of the lower house to a 5SM candidate, while claiming for itself as the most voted coalition, the presidency of the senate.

Importantly, our colleagues now note that the success of the agreement shows that there is a clear line of communication between the two parties and mutual acknowledgement of a valuable political interlocutor. At the margin, it would appear that the chances of a NL/5SM government have increased. The caveat is obviously that there is still a long way to go if they use this as the basis to forming a stable and long-last government and there is still a possibility that Italy may repeat elections in the near term. For now, as our colleagues rightly note, the market reaction has still on the whole been fairly muted and as long as euro membership is not questioned, the cycle remains positive, ECB’s exit remains slow and the sustainability of public finances is not at risk, sentiment is unlikely to really change. For more, please see our economists’ note here.

In other news, President Trump confirmed yesterday that 60 Russian diplomats will be ordered to leave the US following the Russian spy poisoning incident in the UK. European Council President Tusk also announced that 14 EU countries would follow suit. Russia’s MICEX closed -1.62% yesterday following the news. In response, Russia’s foreign ministry noted “this unfriendly step won’t pass without impact and we will respond”. Interestingly the official twitter account of Russia’s US embassy have asked which US consulate should be closed in response.

Away from politics, in the US, the Fed’s Mester noted that “if the economy evolves as I anticipate, I believe further gradual increases in rates will be  appropriate this year and next year”. She noted that “gradual” hikes remain appropriate as they balance getting inflation back to target versus easy financial conditions and risks that the economy could overheat. She then added that this gradual path is consistent with the Fed’s median dot plots. Elsewhere, she noted the threat of trade wars hasn’t changed her economic outlook and that “this year is shaping up to be another good year for the economy”. The Fed’s Quarles echoed similar sentiment as he noted “our economy is performing well and unemployment is low”. In Europe, the ECB’s Weidmann reiterated that QE should be scaled back “soon” as inflation picks up and the market’s expectations for QE to end in 2018 and a first rate-hike in mid-2019 was “not unrealistic”. Elsewhere, he noted the EU’s exemption from the US metals tariffs reduces risks of escalation, but “it’s not a victory for free global trade”.

Before we take a look at today’s calendar, in terms of data yesterday, in the US, the February Chicago Fed national activity index was above consensus at 0.88 (vs. 0.15 expected) while the March Dallas Fed manufacturing index was below at 21.4 (vs. 33.5 expected) and down nearly 16 points from the month prior. Elsewhere, the final reading on France’s 4Q GDP was revised 0.1ppt higher to +0.7% qoq, leading to an annual growth of +2.5% yoy. Finally, the latest ECB CSPP/PSPP ratio was 40.6% (32.0% over last 4 weeks). As a reminder, before Apr 2017 when QE was still €80bn/m the ratio was 11.5%. Between Apr-Dec 2017 (QE €60bn/m) the ratio edged up to 12.7% but since Jan 2018 (QE €30bn/m) the ratio is now 27.9%. Indeed, the strength of corporate vs. government purchases as proxied by the CSPP/PSPP ratio continues to surpass our expectations of “roughly 20%”.

Looking at the day ahead, the main focus will likely be the March confidence indicators for the Euro area. In the US we’ll also get the March consumer confidence print, as well the March Richmond Fed manufacturing PMI and January S&P/Case-Shiller house price index readings. The Fed’s Bostic and the ECB’s Liikanen will speak, while the BoE is due to publish the record of its Financial Policy Committee meeting.

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Authored by Tom Lewis via GoldTelegraph.com,

The US’s overhang of debt and looming trade war is worrisome on many levels as the value of the dollar keeps decreasing and the national debt spiraling. So, what should we make of the fact that the Central Bank of Russia has been steadily amassing vast gold reserves since 2015? By the end of 2017, its total gold reserves rose to 1,828.56 tons, usurping China’s place as the country with the fifth largest gold reserves.

Russia has been aggressively increasing its gold reserves for a reason. It has seen the US dollar dominate as a global currency and is working with China to end the US/Western currency supremacy. Their strategy appears to be working. Russia and China are in the midst of rumors of introducing gold-backed futures to circumvent the U.S dollar. 

The US dollar has had no gold-backing since 1933, nor has the US increased its gold reserves for a decade. See chart below.

With  speculation of Russia and China working on a gold-backed currency, a shift in monetary power from the West to the East seems to be their ambitions. The situation between East and West is exacerbated by recent tensions between Russia and the UK, since the alleged Kremlin poisoning of former spy Sergei Skripal and his daughter. British Prime Minister Theresa May has ousted 23 Russian diplomats from Great Britain. Geopolitical tension is once again, high.

It seems Russian may have tossed aside Das Kapital as its economic guidebook. Not only is creating a gold-backed currency appearing more likely month over month, but Russia has also brought inflation way down over the past decade. More importantly, Russia continues to lower their national debt, while the US has been increasing its debt to a record $21 trillion.

Russia’s financial strategy is making the country less vulnerable to volatile geopolitics. Not only is it a significant player in gold, but it is also the world’s third-largest gold producer, with the Central Bank of Russia buying up its supplies. During the past decade, Russian has mined more than 2,000 tons of gold, with tonnage expected to increase by 400 tons annually by 2030.

Russia and China understand the value of real, physical gold, a lesson that the US has forgotten while reveling in worthless paper currency.

If Russia and China establish a 100 percent gold-backed currency, it inevitably changes the game in the West. The dollar will continue to devalue against gold at a rapid rate.

Ultimately, the battle will not be Eastern vs. Western dominance. The real battle long term will be between the US dollar (fiat) and gold.

But remember:

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White House attorneys are conducting an internal probe of two loans totaling over $500 million to Jared Kushner’s family business from Citigroup and Apollo Global Management LLC.

The Office of Government Ethics (OGE) revealed the internal West Wing probe into whether the loans violated criminal or ethical statutes, in a letter to Illinois Democratic Rep. Raja Krishnamoorthi, who sits on the House Oversight Committee.

The Office of Government Ethics told a Democratic lawmaker in the letter that the White House is probing whether a $184 million loan from the real-estate arm of Apollo Global Management LLC and a $325 million loan from Citigroup Inc. may have run afoul of the rules and laws governing the conduct of federal employees.

Both loans went to the Kushner Cos., the private real-estate company founded by Mr. Kushner’s father and run by members of his family. Mr. Kushner, who is President Donald Trump’s son-in-law and serves in a senior position in the White House, met with top executives of both Citi and Apollo before each loan was disbursed, the New York Times reported last month. –Wall St. Journal

“I have discussed this matter with the White House Counsel’s Office in order to ensure that they have begun the process of ascertaining the facts necessary to determine whether any law or regulation has been violated,” wrote the acting director of the Office of Government Ethics, David Apol. “During that discussion, the White House informed me that they had already begun this process.”

Rep. Krishnamoorthi requested that the OGE render an opinion over ethical questions in connection to Jared Kushner meeting with executives at a time in which both financial institutions provided backing to the Kushner family.

The transactions “raise serious ethical questions that need to be investigated,” Mr. Krishnamoorthi said in his letter to OGE, asking: “Do the above actions by Mr. Kushner constitute a breach of his ethical obligations to the American people?”

Citigroup responded to the inquiry last week – telling lawmakers that the loan was “completely appropriate,” and that Citi had been exploring the lending facility in late 2016 prior to CEO Michael Corbat and Jared Kushner’s March 3, 2017 meeting at the White House. The $325 million mortgage for a Brooklyn property owned by Kushner Co. and two partner firms closed on March 31. 

Citi noted in their letter responding to Sen. Elizabeth Warren’s request (D-MA) that “the Kushner family has been a client of Citi for decades.” 

The Kushner Co. also disclosed another $200 million Citigroup loan for a Jersey City, N.J. property called Trump Bay Street.

Apollo Global Management has yet to comment. 

Jared Kushner had been running his family’s Real Estate empire prior to the 2016 election – after which he resigned from the company, sold his personal stake in various projects and moved assets to family members and others. Kushner does, however, retain a stake in several Kushner properties – including those which received the $500 million in loans. 

Meanwhile, the White House probe comes as the company is being investigated by the Brooklyn U.S. attorney’s office and the SEC over a visa program known as EB-5. 

What is EB-5 visa exactly? Wikipedia explains that the EB-5 visa provides a method of obtaining a green card for foreign nationals who can invest from $500,000 to one million dollars in a “new commercial enterprise” in the United States. The program has been criticized as akin to “U.S. citizenship for sale,” and it has come under scrutiny after a series of fraud and scandals.

As Mike Krieger from the Liberty Blitzkrieg blog noted last May, The Kushner Companies have been taking advantage of this program for years, and continue to do so despite Donald Trump being the current U.S. President.

As reported by The Washington Post:

Over several hours of slide shows and presentations, representatives from the Kushner family business urged Chinese citizens gathered at a Ritz-Carlton hotel to consider investing hundreds of thousands of dollars in a New Jersey luxury apartment complex that would help themsecure what’s known as an investor visa.

The tagline on a brochure for the event: “Invest $500,000 and immigrate to the United States.”

And the highlight of the afternoon was Meyer, a principal for the company, who was introduced in promotional materials as Jared’s sister.

…

Bloomberg News reported in March 2016 that the program has been used to the benefit both the Trump and Kushner family businesses. Before joining the White House, as chief executive of his family’s real estate company, Jared Kushner raised $50 million from Chinese EB-5 applicants for a Trump-branded apartment building in Jersey City, according to the report.

The OGE is tasked with helping executive branch officials avoid conflicts of interest, and their investigation will be of an advisory nature, rather than enforcement. 

See the OGE’s letter below: 

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