Author: admin

After CBO’s much-anticipated estimate of the GOP’s Obamacare replacement proposal showed that the legislation could result in as many as 24 million Americans losing coverage by 2026, we wondered just how much of an additional bottleneck this report would present to the already conflicted passage of the controversial “Trumpcare.” We got the answer overnight, when Goldman’s government economists Alec Phillips said that the CBO scoring would likely slow the passage of the Obamacare repeal process. Specifically, he said that “CBO’s estimates of the Obamacare replacement legislation’s effects on coverage were somewhat worse than expectations and suggest changes are likely to be necessary before the bill can pass the Senate. We continue to expect enactment of ACA replacement this year but probably not by the early April deadline that Republican leaders have highlighted.” And since the Obamacare process timeline is closely tied to Trump’s tax reform, a delay in the former, will mean yet another delay in the latter, leading to further market disappointments, which however so far have yet to materialize as the “market” seems oblivious of the practical realities of Trump’s economic policies.

Here are the main points from Goldman:

CBO Estimates Could Slow Passage of Obamacare Replacement Bill

 

BOTTOM LINE: CBO’s estimates of the Obamacare replacement legislation’s effects on coverage were somewhat worse than expectations and suggest changes are likely to be necessary before the bill can pass the Senate. We continue to expect enactment of ACA replacement this year but probably not by the early April deadline that Republican leaders have highlighted.

 

MAIN POINTS:

 

1. The Congressional Budget Office (CBO) released its estimate of the effect of the American Health Care Act (AHCA). It estimates that the bill, which replaces the Affordable Care Act (ACA, or Obamacare) would reduce the federal deficit by $337bn over the next ten years and would reduce coverage by 24 million by 2026.
2. The estimates of coverage loss are at the more negative end of expectations. CBO had previously estimated that repeal of the individual mandate would reduce coverage by 15 million by 2026; combined with other changes in the bill, CBO’s new estimate is that 24 million fewer individuals would have insurance coverage than under current law by 2026, or nearly all of the coverage expansion CBO attributed to the ACA. This reduction would occur over several years; in 2018, the coverage decline is estimated at 14 million, due mainly to the proposed elimination of the individual insurance mandate; the subsequent decline would be due mainly to the phase-out of the ACA’s Medicaid expansion.
3. The fiscal estimates contained few major surprises. The bill as a whole is estimated to reduce the budget deficit by $337bn over ten years (through 2026). Phasing out the Medicaid expansion would reduce spending by $880bn over ten years. Another $673bn in savings is attributed to the elimination of the subsidies in the individual insurance market, but this would be nearly offset by new tax credits, grants to states, and the revenue loss associated with repeal of the individual and employer mandates. The repeal and/or delay of the taxes established by the ACA would increase the deficit by $592bn/10yrs, resulting in net budgetary savings of $337bn.
4. Individual market premiums are projected to rise and then fall. In the short-run (prior to 2020), the estimate suggests that premiums are expected to rise by 10-15% more than without the legislation. This is a notable finding, since Republican leaders had already raised concerns about high premiums under the program. However, in the longer run (in 2020 and beyond) CBO estimates the bill would lower the average premium by 10% relative to current law, as higher premiums and reduced enrollment for older people would be offset by lower premiums and greater enrollment among younger people. Funding for states to limit the costs to insurers of high-cost patients and the loosening of benefit rules also contribute to the lower estimated premiums.
5. The details of the CBO report make passage somewhat more difficult, in our view. While few aspects of the CBO estimate are surprising many Republican lawmakers who were already willing to support the bill are likely to continue to support it, the new estimate could lead some uncommitted Republicans to oppose the bill unless additional changes are made. Additional changes to the bill are likely, in our view, before it reaches the House floor the week of March 20. The greater obstacle remains the Senate, where the bill is unlikely to come up for a vote until the week of March 27, at earliest. While it is possible that ACA replacement legislation could reach the President’s desk in April, as Republican leaders have predicted, a delay until May or later continues to look more likely, particularly in light of today’s CBO estimate.

Meanwhile, as the Hill reports this morning, leading House Republicans are “fighting to defend their ObamaCare replacement bill in the face of a Congressional Budget Office (CBO) report that found the measure would result in millions of people becoming uninsured.” As expected, Democrats are on the attack, hoping the findings — and the eye-popping estimate that 24 million additional people will be without coverage by 2026 — will stop ObamaCare repeal in its tracks.

“Numbers are quite eloquent things; they speak very clearly,” said House Democratic Leader Nancy Pelosi (D-Calif.) Monday evening after the CBO’s report was released.  “I would hope that they would pull the bill,” she added. “It’s really the only decent thing they could do.”

 

Republicans had long expected that the CBO score would produce uncomfortable headlines that could sap support. The task ahead, for Speaker Paul Ryan (R-Wis.) and his lieutenants, is to weather the storm.  Ryan went on Fox News soon after the report was released and said he was “encouraged” by the findings. He pointed to items like the deficit reduction and decrease in premiums that the report found, while seeking to downplay the coverage losses.

 

Much of the change in the uninsured rate, Ryan said, would simply be due to people choosing not to buy coverage once the mandate for having coverage is repealed. “What I’m encouraged [by] is, once our reforms kick in, what the CBO is telling us is, it’s going to lower premiums — it will lower premiums 10 percent. It stabilizes the market. It’s a $1.2 trillion spending cut, an $883 billion tax cut, and $337 billion in deficit reduction,” Ryan said. “So of course the CBO is going to say if you’re not going to force people to buy something they don’t want to buy, they won’t buy it.“

Confirming the Goldman take, many Senate Republicans were already voicing skepticism of the House bill before the CBO score was released. They are urging their colleagues to slow down on the legislation. Sen. Bill Cassidy (R-La.) called the score “awful.” 

Sen. Susan Collins (R-Maine) said it  “should prompt the House to slow down and reconsider certain provisions of the bill.” Added Sen. Lindsey Graham (R-S.C.): “If half of the CBO is true I think we should slow down.”

Trump himself has expressed doubts about the political wisdom of pressing ahead, repeating his frequent musing again Monday that it would be easier to just let ObamaCare fall under its own weight.  “The best thing you could do politically is wait a year, cause it’s going to blow itself off the map,” Trump said. “But that’s the wrong thing to do for our country. It’s the wrong thing to do for our citizens.”

But House Republican leaders are pressing ahead. The House Budget Committee is set to hold a final markup of the legislation on Thursday, setting the stage for a floor vote next week that could turn into a cliffhanger. “This week, a third House committee will debate the American Health Care Act as part of an open, transparent process,” Ryan said in a statement.

“We have set out a clear goal — to give every American access to quality, affordable care — and a clear plan to achieve it. Now we must keep our promise and deliver.”

The only question is when, and after how many changes.

via http://ift.tt/2n4QFuf Tyler Durden

One day after South Korea press reported that US special forces, including a Delta Force team and the infamous SEAL Team 6 are participating in local drills, practicing the removal of Kim Jong-un as well as the infiltration and destruction of North Korea’s weapons of mass destruction, North Korea threatened the US with “merciless” attacks if an aircraft carrier strike group led by the USS Carl Vinson, which is currently taking part in joint South Korean drills “infringes on its sovereignty or dignity”, Reuters reported on Tuesday.

North Korea said the arrival of the U.S. strike group was part of a “reckless scheme” to attack it.

“If they infringe on the DPRK’s sovereignty and dignity even a bit, its army will launch merciless ultra-precision strikes from ground, air, sea and underwater,” the North’s state news agency KCNA adding that “on March 11 alone, many enemy carrier-based aircraft flew along a course near territorial air and waters of the DPRK to stage drills of dropping bombs and making surprise attacks on the ground targets of its army.”

Meanwhile, a US Navy spokesman told Reuters the Carl Vinson was on a regular, scheduled deployment to the region during which it would take part in exercises with the forces of ally South Korea. Last week, North Korea fired four ballistic missiles into the sea off Japan in response to annual U.S.-South Korea military drills, which the North sees as preparation for war.

North Korea’s warning comes as Secretary of State Rex Tillerson is due to make his first visit to South Korea on Friday. Last week, the U.S. ambassador to the United Nations said President Donald Trump’s administration was re-evaluating its North Korea strategy and “all options are on the table.”

As reported last night, and adding regional tension, China has been vehemently opposed to the deployment in South Korea of an advanced U.S. anti-missile system. According to the SCMP, a retired PLA general, Wang Hongguang, said that China is set to deploy anti-radar countermeasures which will neutralize the South Korean THAAD.

“We will complete our deployment before THAAD begins operations. There is no need to wait for two months [before the election of the next South Korean president],” he said on the sidelines of the political sessions in Beijing. “We already have such equipment in place. We just have to move it to the right spot.”

The United States and South Korea say the Terminal High Altitude Area Defense anti-missile system is for defense against North Korea, but China fears its powerful radar can probe deep into its territory and compromise its security. The United States began to deploy the system a week ago, a day after North Korea launched its latest four missile tests.

As a reminder, South Korean and U.S. troops began the large-scale joint drills, which are billed as defensive in nature, on March 1. The exercise last year involved about 17,000 American troops and more than 300,000 South Koreans. South Korea has said this year’s exercise would be of a similar scale.

Additionally, the United States has also started to deploy “Gray Eagle” attack drones to South Korea, a U.S. military spokesman said on Monday. China says the exercises do nothing to ease tension. Last week, it called on North Korea to stop its weapons tests and for South Korea and the United States to stop their drills.

A state-run Chinese newspaper said the USS Carl Vinson was taking part in a simulation of a preemptive strike against North Korea’s nuclear and missile facilities. The drills sent the North “an explicit radical threat”, to which it could not be expected to remain indifferent, the influential Global Times said. North and South Korea were “equally hysterical”, it said. “The U.S. and South Korea often accuse China of being uncooperative, but the reality is they are uncooperative over China’s mediation,” it said, referring to complaints that China does not do enough to rein in old ally North Korea.

Finally, the latest breakdown of US naval forces around the globe is shown below, courtesy of Stratfor.

via http://ift.tt/2nj4CFC Tyler Durden

“It was the best of times, it was the worst of times, it was the age of wisdom,

it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity,…”

Charles Dickens

A Tale of Two Cities

I’m back — Chris

This week’s meeting of the Federal Open Market Committee is being set up in the financial media as a contest between the anti-inflation tendency led by Fed Chair Janet Yellen and the pro-growth forces led by President Donald Trump.  Would that it were so.  

Chair Yellen, lest we forget, is perhaps the most left-wing Fed chief to ever hold the position.  She has overseen eight years of radical monetary policy that has done little to encourage job creation or growth, but has created asset bubbles in sectors ranging from commodities to real estate to common stocks.  Soaring prices for US equities and high yield debt are the big achievements of the Yellen FOMC.

This unprecedented experiment in social engineering by the FOMC has been conducted in the name of achieving the Fed’s primary mandate, namely full employment, but has failed in achieving this end.  There is no demand-pull response from the economy even after eight years of quantitative easing totaling trillions of dollars and near-zero interest rates.  Instead we see price inflation in various asset classes that is an order of magnitude higher than the statistical indications of inflation that so vex Chair Yellen.

Meanwhile the Trump Administration has spent the past six months posturing about how it wants to create jobs by lowering taxes and increasing spending in areas such as defense.  In order to pay for this expansion of defense spending, doubtless to support an expansion of the perpetual State of War, President Trump proposes to cut health care entitlements to millions of elderly Americans and slash discretionary spending on other government services.  

Of course, the fiscal implication of Trump’s schizophrenic program of Keynesian spending and supply side tax cuts has caused yields on government bonds to rise rather precipitously. This phenomenon, in turn, has put the kibosh on the US housing sector, where lenders are literally drowning in loan applications but have few homes to sell.  Layoffs are mounting in the housing finance sector as lenders prepare for a 1/3 decline in lending in 2017 vs last year, mostly due to lower refinancing volumes.

The Dodd-Frank regulations, which Mr. Trump also promises to fix, have caused a dearth of new lending for construction and development of single family homes.  The Basel III bank regulations championed by the Fed are another negative factor in the lending equation, although construction lending has finally started to rise.  But the low interest rate environment implemented by Chair Yellen has caused a boom in lending in other sectors, particularly autos, commercial real estate and multifamily.  

While the performance of prime and below prime auto ABS securities remains excellent, the “Big Three” US auto makers are looking to get shellacked over the next few years as loan defaults rise and residual values for autos fall.  The curse of sales incentives, as I discuss in my new book “Ford Men: From Inspiration to Enterprise,” is killing industry bottom feeders like GM and Chrysler.  And all of the impending carnage in the auto sector is attributable to the bold action by the FOMC, who incredibly pretend that a “wealth effect” via inflated asset prices and credit volumes can somehow make up for flat income and productivity levels.  The sad fact is that, unlike the 1970s and 1980s, today dropping interest rates does nothing to boost income levels or consumption.  See my review of Dave Smick’s new book, “The Great Equalizer,” in American Conservative.

Meanwhile in Washington, the seeds of the next crisis in single family homes are being planted as a confederation of realtors and affordable housing advocates push for the adoption of “enhanced” FICO scores as the basis for extending mortgage loans to low-income borrowers.  The logic goes that if Betty or Billy can manage to make their utility or car loan payments every month, why not give them a 30-year FHA mortgage?  

Of course, the data suggests that the car loan and utilities rank senior in the credit waterfall of most consumers, but no matter.  A full court press is underway to get the GSEs and FHA to accept loans underwritten with enhanced FICO scores in MBS deals.  One intriguing possibility is that banks will be given “qualified mortgage” status for mortgages held in portfolio or sold into MBS in return for accepting enhanced FICO scores as part of the underwriting process.

So while on the one hand the Fed frets about inflation, on the other hand its radical cocktail of monetary policy experiments has distorted asset prices and lending patterns. Remembering the golden rule of “yield to commission,” the Street will always sell credit to somebody in some form.  When Dodd-Frank and Basel III demonized single family mortgages, the Street swung towards commercial real estate and auto ABS.    

The final piece in the policy kaleidoscope are the US markets, with stocks and high yield debt soaring but Treasury prices falling due to market fears regarding the impact of the Trump policy agenda.   The Street remains chronically short duration, partly due to the fact that the FOMC has accumulated $4.2 trillion in Treasury debt and MBS.   

The goal of the FOMC should not be to increase short-term interest rates per se, but to decrease the duration of its investment portfolio and, most importantly, get the private markets to support that duration without assistance from the central bank. Otherwise, as the Fed pushes up short-term rates, the yield curve will flatten, and banks and other leveraged investors of all descriptions will suffer even further. 

As I noted in a note for Kroll Bond Ratings last month:

“At present, the $4.2 trillion in securities on the Fed’s balance sheet is muting the markets response to Fed policy moves as well as delightful externalities emanating from Washington. When the duration of the Fed’s portfolio is back down near two years on average, regardless of the nominal size, then the FOMC can declare victory in terms of ending the extraordinary support following the 2008 crisis. Again, the challenge for the FOMC is to think less as economists and more as bond investors since, after all, the Fed is now among the biggest bond investors in the world.”

www.rcwhalen.com

via http://ift.tt/2mmZpbQ rcwhalen

European stocks declined for first session in five ahead of Wednesday’s Dutch elections, debt ceiling expiration and the conclusion of the Fed’s 2-day meeting where it is expected to raise rates by 25 bps. Tightening concerns emerged, also dragging down Asian shares and S&P futures, while the dollar continued its rise for a second day. Crude oil has ended its six-day drop. The pound tumbled 0.8% to the lowest since mid-January in a delayed reaction after Theresa May won permission to trigger the country’s departure from the EU. On today’s US calendar, we get the Producer Price Index although most NYC-based traders are likely taking a snow day off or trading from home.

A quick reminder of the key events this week:

• The Fed’s 26 bps increase is expected on Wednesday.
• The Bank of England, Swiss National Bank, Bank of Japan and Bank Indonesia are expected to keep monetary policies unchanged on Thursday.
• The Dutch go to the polls on March 15.
• G-20 finance ministers will gather in Germany for a series of meetings.
• Trump is expected to unveil his budget

In a relatively quiet session, the standout move was the plunge sterling which dropped on Tuesday after Britain’s parliament paved the way for Prime Minister Theresa May to launch divorce talks with the European Union. Curiously, on Monday, sterling had jumped 0.4 percent after Scotland’s First Minister Nicola Sturgeon demanded a new independent referendum in late 2018 or early 2019, once the terms of the UK’s exit from the EU are clearer with the delayed selloff coming largely on priced-in news.

Europe’s Stoxx 600 Index was headed for its first decline in five days with every industry except healthcare in the red in early trading. India’s NSE Nifty 50 Index surged to a record and the rupee climbed to an 11-month high after Prime Minister Narendra Modi’s victory in state elections. The yield on 10-year Treasuries remained near the highest level of the year and oil fluctuated after declining for six straight days.

The MSCI’s broadest index of Asia-Pacific shares outside Japan was up 0.2 percent, while Japan’s Nikkei closed down 0.1 percent. Shares of Toshiba closed up 0.5 percent after plunging as much as 8.8 percent, their biggest one-day loss in almost a month. The company said it would “aggressively consider” a sale of most of Westinghouse and announced it had received approval from regulators to extend for a second time the Tuesday deadline for its official third-quarter earnings. Its statement earlier in the session that it had requested the extension to expand a probe into problems at its U.S. nuclear unit Westinghouse sent the shares tumbling, Reuters reported.

Chinese shares reversed early gains after data showed retail sales dropped more than expected in the first two months of the year, posting their first single-digit Y/Y increase since 2003.

 

Other China data on Tuesday was more upbeat and positive for the global economy, with investment and industrial output expanding more than expected, but investors feared those signs of strength may not be sustainable. China has cut this year’s economic growth target to about 6.5% to give policymakers more room to push through painful reforms to contain financial risks. The economy grew 6.7 percent in 2016, the slowest pace in 26 years. On Monday, Goldman Sachs upgraded Chinese stocks to “overweight” on better growth prospects and a bullish view on the country’s banking sector, a move interpreted by many as a top-tick indicator. 

Overnight, Wall Street was mixed, with the Dow Jones Industrial Average down 0.1 percent, while Nasdaq rose 0.24 percent and the S&.SPX was little changed. 

According to Bloomberg, putting a damper on risk sentiment today are expectations the Federal Reserve “will raise borrowing costs at a faster pace than was expected at the start of this year have surged as data globally pointed to firming growth and accelerating inflation.” The question for most traders now is how fast the Fed will move, and they hope to get the answer tomorrow in the comments accompanying Wednesday’s expected quarter-point increase for clues. “The market is waiting,” said Peter Schaffrik, global macro strategist at RBC Europe Ltd. “Moves today have been fairly muted. The Fed is clearly on everyone’s mind. The rate hike is a foregone conclusion, so it’s the press conference that’s really relevant.”

“On one hand, the market ponders a surprise hold, in which massive unwinding of positions could take place with the hike already priced in,” Jingyi Pan, market strategist at IG in Singapore, wrote in an note. “On the other hand, concerns have also been paid to an acceleration in the Fed’s path to normalization, where the likelihood of four Fed hikes has been raised, up from the current projection of three,” she said. “The immediate reaction is likely to be seen in the dollar and upsides towards December’s high on the dollar index may be eyed.”

Perhaps in anticipation of a tighter Fed, the dollar index rose another 0.2% at 101.49, extending Monday’s gains following a bout of profit taking at the end of last week. The dollar gained 0.1% to 114.92 yen JPY, but remains below the seven-week high touched on Friday on expectations of a Fed move at the end of a two-day meeting on Wednesday.

Markets are also awaiting a meeting of the Group of 20 finance ministers and central bankers in the German town of Baden Baden starting on Friday, their first meeting since Donald Trump won the U.S. presidential election. U.S. Treasury Secretary Steven Mnuchin will be “pushing hard” to advance U.S. interests in his debut G20 meeting, including reaffirming commitments to avoid competitive currency devaluations, a senior Treasury official said on Monday.

In commodities, oil prices dipped after touching a 3-1/2-month low in the previous session as concerns about rising U.S. production offset optimism about supply cuts by the Organization of Petroleum Exporting Countries. Both WTI and Brent staged a modest rebound, halting 6 days of losses, although just shy of 3 month lows.

Market Snapshot

• S&P 500 futures down 0.2% to 2,368.50
• STOXX Europe 600 down 0.2% to 373.77
• MXAP down 0.09% to 145.38
• MXAPJ up 0.3% to 468.66
• Nikkei down 0.1% to 19,609.50
• Topix down 0.2% to 1,574.90
• Hang Seng Index down 0.01% to 23,827.95
• Shanghai Composite up 0.07% to 3,239.33
• Sensex up 1.9% to 29,484.90
• Australia S&P/ASX 200 up 0.03% to 5,759.14
• Kospi up 0.8% to 2,133.78
• German 10Y yield rose 0.9 bps to 0.48%
• Euro down 0.08% to 1.0644 per US$
• Brent Futures up 0.2% to $51.47/bbl
• Italian 10Y yield fell 0.3 bps to 2.364%
• Spanish 10Y yield rose 2.3 bps to 1.929%
• Brent Futures up 0.2% to $51.47/bbl
• Gold spot down 0.09% to $1,203.19
• U.S. Dollar Index up 0.3% to 101.56

Top Overnight News

• Monsanto Loses Bid to Seal Documents Related to Ex-EPA Official
• Trump’s Border Wall Likely a Boon for Martin Marietta, Says CEO
• Synopsys to Replace Harman International in S&P 500 Index
• Spain’s Popular Said to Tap UBS to Explore Sale of U.S. Bank
• China’s Economy Holds Momentum as Output, Investment Accelerate
• Oil Holds Losses as U.S. Crude Stockpiles Seen Rising 10th Week
• BMW Being Probed by U.S. Over Car Leases to Military Members
• Trump, Xi Said to Discuss Mar-a-Lago Summit Amid Korea Tensions
• Pfizer Launches Zavicefta Antibiotic in U.K., Germany
• GE Wins Contract to Supply Its Largest Gas Turbine in China
• Physicians Realty Trust Stock Offering Priced at $18.20 Apiece

Asia equity markets traded mixed after a mixed close on Wall Street as a non-committal tone persisted ahead of key risk events. ASX 200 (Unch.) closed relatively flat with outperformance seen in commodity related sectors after copper and iron ore prices rose by around 1% and 2% respectively, while Nikkei 225 (-0.1%) was subdued by a firmer currency with USD/JPY failing to reclaim 115.00. Shanghai Comp. (+0.1%) and Hang Seng (-0.1%) were choppy after the PBoC slightly increased its liquidity injections and as participants digested mixed data in which Chinese Industrial Production beat expectations to print a 6-month high, although Retail Sales disappointed and showed the weakest start since 2002. The Nifty (+1.6%) outperformed to hit a fresh all-time high as India returned from a long weekend and reacted to state election results in which the ruling BJP party won a landslide victory in the country’s largest state of Uttar Pradesh, which highlighted political stability and confidence in PM Modi’s government. 10yr JGBs were mildly higher amid a subdued tone in riskier Japanese assets and after a mixed 20yr auction where the b/c slightly declined, but prices rose from the prior month.

Top Asian News

• China Bond Default Woes Deepen as Steel Producer Misses Payment
• Mitsubishi Heavy Shares Jump as Damages Due to Edison Capped
• PBOC Saps Funds for 14th Straight Day as Hoarding Period Looms
• Modi’s Victory Sends Indian Stocks to Record, Rupee Advances
• Morgan Stanley Sees China Bonds in Key Indexes in Three Years
• Rupee Snaps Rally on RBI Speculation, Others Quiet: Asian NDFs

UK House of Lords passed the Brexit bill without the EU citizen rights or final vote amendments after House of Commons rejected amendments, with reports stating that Parliament also granted UK PM May permission to start Brexit. Furthermore, it is now expected that the UK will trigger Article 50 in the last week of March rather than this week, with UK Brexit Minister Davis stating Article 50 will be triggered by the end of this month as planned. The BoE accepts resignation of Charlotte Hogg in the wake of the central banker failing to disclose her brother’s position at Barclays.

Top European News

• Amundi Starts Rights Offering; Credit Agricole Stake to Drop
• Prudential Full-Year Operating Profit Rises 7% on Asia Business
• RWE Sees Profit Rising This Year on Trading, Innogy Units
• Aker Solutions Surges on Report of Halliburton Deal Talks
• May Eyes Late-March Brexit Trigger as Parliament Clears Way
• Scottish Referendum May Re-Open Pressure Points for Markets
• No Trichet Flashback for Poland as CPI Jolts Eastern Europe
• Fraport, Vinci Interested in Belgrade Airport: Blic
• Popular Seeks to Sell Private Banking Unit: Independiente

In currencies, he Bloomberg Dollar Spot Index gained 0.2 percent at 9:55 a.m. in London, up for a second day. The British pound led losses, weakening by as much as 0.9 percent before trading 0.8 percent lower. The euro slipped 0.1 percent to $1.0639, following a 0.2 percent drop Monday. Cable was the overnight standout, taking another sharp hit, as the 2 Houses of Parliament finally agree on the Brexit Bill, giving the green light to trigger Article 50. Some will point to a knee jerk response from the market, but with the House of Lords having effectively undermined the government with its amendment proposals, PM May’s negotiating powers may/will have been impaired. Cable has tested 1.2100, but has so far held, while EUR/GBP has retested the resistance ahead of 0.8800, but this also holding for now.

In commodities, oil traded near a three-month low as U.S. crude stockpiles were seen rising for a 10th week, but West Texas Intermediate managed to add 0.4 percent to $48.61 a barrel. Aluminum led a decline in industrial metals, falling 0.5 percent to $1,871.50 a metric ton as China, the largest producer, increased output to a record. Gold was little changed at $1,203.72 an ounce as investors prepared to assess the tone of the Fed’s commentary. In the run up to the FOMC meeting, the commodities market is trading a tight range, with some of the losses seen in Oil and Copper specifically having tailed off over the last 24- 36 hours or so. Oil prices are set to stay pressured however, as the market is focusing on the next OPEC meeting in Jun, and looking to further agreements on production given the impact on inventory so far. Concerns over Shale production have also heightened, keeping WTI below the USD50.00 mark. Copper is back above USD2.60, but all down to the disruptions (strikes) in key mines in Chile and Peru. Base metals all looking heavy, with Lead underperforming. Gold continues to hover above USD1200.00, and is looking a little more resilient given the fresh drop-off in Treasuries ahead of Wednesday’s key policy meeting.

Looking at the day ahead, in the US the February PPI report is due to be released as well as the latest NFIB small business optimism print, which missed expectations. Away from the data Dutch party leaders are due to hold a final debate this evening ahead of tomorrow’s election. Meanwhile a meeting which had been scheduled between President Trump and Chancellor Merkel today has now been postponed to Friday given the concerns over the storm.

US Event Calendar:

• 6am: NFIB Small Business Optimism 105.3, est. 105.6, prior 105.9
• 8:30am: PPI Final Demand MoM, est. 0.1%, prior 0.6%
  • PPI Ex Food and Energy MoM, est. 0.2%, prior 0.4%
  • PPI Ex Food, Energy, Trade MoM, est. 0.2%, prior 0.2%
  • PPI Final Demand YoY, est. 1.9%, prior 1.6%
  • PPI Ex Food and Energy YoY, est. 1.5%, prior 1.2%
  • PPI Ex Food, Energy, Trade YoY, prior 1.6%

DB’s Jim Reid concludes the overnight wrap

The calm before the storm is the probably the best way to describe how markets have kicked off this week. Ahead of much bigger events starting tomorrow and continuing into the end of the week – namely the Fed, BoJ, BoE, Dutch election, US data, G-20 meeting and Trump budget – it was a fairly quiet start to the week for the most part yesterday. The most significant news concerned the UK where Brexit headlines dominated. Late last night we got the news that Parliament has passed the legislation which allows PM May’s government to go ahead with triggering Article 50. That came after the House of Commons overturned the House of Lords amendments which had included guaranteed rights for EU citizens in the UK and also the amendment concerning giving Parliament a ‘meaningful vote’ on May’s negotiation terms with the EU. May is now expected to address the House of Commons today however it’s still unclear when exactly she will look to start the formal process of leaving the EU although the FT did cite government figures as saying that the last week of March is most likely.

Indeed it was highlighted separately that the formal process would unlikely start before the EU celebrations to mark the 60th anniversary of the EU’s founding treaty on March 25th in Rome, as well this week’s Dutch election and the Scottish National Party conference this weekend. With British Parliament on recess on March 31st that makes the days from March 27th-30th most likely. Meanwhile that news last night also comes after Scotland’s First Minister Nicola Sturgeon announced her plan to call another Scottish independence vote by spring 2019. It’s expected that Sturgeon will ask Scottish parliament to vote to authorize such next week. That wasn’t all with Sinn Fein leader Michelle O’Neil also quoted as saying that a referendum in Northern Ireland “has to happen as soon as possible”. So well worth keeping an eye on things over the coming days.

Sterling initially rallied yesterday on the Scottish independence vote headlines, touching an intraday high of $1.225 in the afternoon (about +0.69% on the day) before easing back in the evening session. It’s down a bit more this morning and back to $1.220 although still up about +0.30% versus Friday’s close. The FTSE 100 also edged up +0.33% and 10y Gilt yields were +1.6bps higher at 1.244% although the news that Parliament had passed legislation did come after markets closed.

Away from that equity markets weren’t hugely exciting elsewhere. The S&P 500 (+0.04%) seemingly started the process of battening down the hatches early for storm Stella with volumes well below the usual average. The Stoxx 600 did close up +0.38% helped by a decent session for the miners with commodities largely stabilizing or having a solid session (Gold -0.03%, Copper +1.12%, Iron Ore +1.78%, WTI Oil -0.19%). Bonds were a bit more exciting though. 10y Treasury yields reached a new two and a half year high at 2.626% (+5.1bps) with corporate issuance again enjoying another bumper day which weighed on Treasuries. In contrast 10y Bund yields were actually -1.2bps lower at 0.467% after the ECB’s Smets was quoted in the WSJ as saying that the ECB’s latest policy statement “does not in itself signal a change in the monetary policy stance”.

This morning in Asia the focus has by and large turned over to another batch of data out of China with the release of the latest activity indicators. In summary the data suggests that China has, on the whole, started the year on a firm footing. Indeed industrial production was revealed as rising +6.3% yoy (vs. +6.2% expected) in the first two months of the year from +6.0% in December while fixed asset investment climbed materially to +8.9% yoy (vs. +8.% expected) from +8.1% in the same period. Retail sales data was less upbeat however with sales softening from +10.4% to +9.5% yoy (vs. +10.6% expected) with the impact of tax changes on small engine cars seemingly having a big impact. Market wise there hasn’t been much of a reaction with bourses in China pretty much unchanged as we go to print along with the Hang Seng. Elsewhere the Nikkei (-0.13%) has edged a bit lower while the Kospi (+0.65%) is higher for a second successive day.

While we’re on China it’s worth highlighting a potential date for your diary. Over April 6th-7th President Trump is planning to host China President Xi Jinping in Florida with the escalating tension around North Korea expected to be high on the agenda. We should get confirmation of the meeting this week.

Staying on the subject, yesterday was a quiet day for data but we did get the latest ECB CSPP holdings data. As of March 10th the ECB reported total holdings of €70.43bn which implies net purchases settled last week of €2.09bn. That works out to be an average daily run rate of €417m and another strong, above average week of purchases compared to the €367m average daily run rate since the program started.

Before we wrap up, a quick mention that yesterday our House View team published their latest report called ‘Policy landscape remains in focus’. They note that potential shifts to the policy landscape remain in focus for markets, where uncertainty still reigns on most fronts. Polls for the French Presidential Election have tightened. A Le Pen victory remains unlikely but cannot be ruled out. Politics will continue to be at the fore elsewhere in Europe, with the Dutch election, the UK triggering Art. 50, turmoil in Italy and ongoing negotiations with Greece. Prospects for the key pillars of Trump’s economic agenda also remain uncertain. Markets have better clarity on other fronts: a chorus of more hawkish Fed rhetoric jolted expectations for a March hike. Counterbalancing this uncertainty is a broad-based uptick in global growth momentum, which has supported market sentiment. In the US, surveys point to robust growth, and consumer and business sentiment are showing signs of animal spirits, though hard data have been somewhat weaker. Europe has been an upside surprise, with supportive data tilting the balance of risks in a more positive direction. The growth story is also cautiously more positive in China and EM more broadly.

Looking at the day ahead, this morning in Europe the main focus should be on Germany where we will get the final revisions to the February CPI report, along with the March ZEW survey which is expected to showing a slight improvement in sentiment. Industrial production data for the Euro area is also due to be released. Over in the US this afternoon the February PPI report is due to be released as well as the latest NFIB small business optimism print. Away from the data Dutch party leaders are due to hold a final debate this evening ahead of tomorrow’s election. Meanwhile a meeting which had been scheduled between President Trump and Chancellor Merkel today has now been postponed to Friday given the concerns over the storm.

via http://ift.tt/2mHUB3c Tyler Durden

Authored by Patrick Buchanan via Buchanan.org,

Not long ago, a democratizing Turkey, with the second-largest army in NATO, appeared on track to join the European Union.

That’s not likely now, or perhaps ever.

Last week, President Recep Tayyip Erdogan compared Angela Merkel’s Germany to Hitler’s, said the Netherlands was full of “Nazi remnants” and “fascists,” and suggested the Dutch ambassador go home.

What precipitated Erdogan’s outbursts?

City officials in Germany refused to let him campaign in Turkish immigrant communities on behalf of an April 16 referendum proposal to augment his powers.

When the Netherlands denied Turkish Foreign Minister Mevlut Cavusoglu landing rights, he exploded, saying: “The Netherlands … are reminiscent of the Europe of World War II. The same racism, Islamophobia, xenophobia, anti-Semitism.”

When Turkey’s family and social policies minister, Betul Sayan Kaya, drove from Germany to Rotterdam to campaign, Dutch police blocked her from entering the Turkish consulate and escorted her back to Germany.

Liberal Europeans see Erdogan’s referendum as a power grab by an unpredictable and volatile ruler who has fired 100,000 civil servants and jailed 40,000 Turks after last summer’s attempted coup, and is converting his country into a dictatorship.

This crisis was tailor-made for Geert Wilders, the anti-EU, anti-Muslim Dutch nationalist who is on the ballot in Wednesday’s Dutch general election.

Claiming credit for the tough stance of conservative Prime Minister Mark Rutte, Wilders tweeted: “I am telling all Turks in the Netherlands that agree with Erdogan: GO to Turkey and NEVER come back!”

“Wilders is a racist, fascist Nazi,” replied Cavusoglu.

Wilders had been fading from his front-runner position, but this episode may have brought him back. While no major Dutch party would join a government led by Wilders, if he runs first in the election March 15, the shock to Europe would be tremendous.

Rutte, however, who dominated the media through the weekend confrontation with the Turks, could be the beneficiary, as a resurgent nationalism pulls all parties toward the right.

All Europe now seems to be piling on the Turks. Danes, Swedes and Swiss are taking Europe’s side against Erdogan.

Marine Le Pen, leader of the populist National Front in France, called on the socialist regime to deny Turkish leaders permission to campaign in Turkish communities. She was echoed by conservative party candidate Francois Fillon, whose once-bright hopes for the presidency all but collapsed after it was learned his wife and children had held do-nothing jobs on the government payroll.

On April 23 comes the first round of the French elections. And one outcome appears predictable. Neither of the major parties — the socialists of President Francois Hollande or the Republicans of ex-President Nicolas Sarkozy — may make it into the May 7 finals.

Le Pen, the anti-EU populist who would lift sanctions on Putin’s Russia, is running even with 39-year-old Emmanuel Macron, a socialist running as the independent leader of a new movement.

Should Le Pen run first in April, the shock to Europe would be far greater than when her father, Jean-Marie Le Pen, made the finals in 2002.

At the end of 2017, neither Wilders nor Le Pen is likely to be in power, but the forces driving their candidacies are growing stronger.

Foremost among these is the gnawing ethnonational fear across Europe that the migration from the South — Maghreb, the Middle East and the sub-Sahara — is unstoppable and will eventually swamp the countries, cultures and civilization of Europe and the West.

The ugly and brutal diplomatic confrontation with Turkey may make things worse, as the Turks, after generous payments from Germany, have kept Syrian civil war refugees from crossing its borders into Europe. Should Ankara open the gates, a new immigration crisis could engulf Europe this spring and summer.

Other ethnonational crises are brewing in a familiar place, the Balkans, among the successor states born of the 1990s breakup of Yugoslavia.

In Bosnia, secessionists seek to pull the Serb Republic away from Sarajevo toward Belgrade. The Albanian minority in Macedonia is denouncing political discrimination. The Serbs left behind after Kosovo broke loose in 1999, thanks to 78 days of U.S. bombing of Serbia, have never been reconciled to their fate.

Montenegro has charged Russia with backing an attempted coup late last year to prevent the tiny nation from joining NATO.

The Financial Times sees Vladimir Putin’s hand in what is going on in the Western Balkans, where World War I was ignited with the June 1914 assassination of the Austrian archduke in Sarajevo.

The upshot of all this:

Turkey, a powerful and reliable ally of the U.S. through the Cold War, appears to be coming unmoored from Europe and the West, and is becoming increasingly sectarian, autocratic and nationalistic.

While anti-immigrant and anti-EU parties across Europe may not take power anywhere in 2017, theirs is now a permanent and growing presence, leeching away support from centrist parties left and right.

With Russia’s deepening ties to populist and nationalist parties across Europe, from Paris to Istanbul, Vlad is back in the game.

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

The Bank of England’s new deputy governor of markets and banking, Charlotte Hogg, has resigned after less than five week in her post, after an MP report concluded she “fell short of the very high standards required” for the position as a result of failing to disclose that her brother works at Barclays, a bank which the BOE regulates.

In a report published today, the Treasury Select Committee issued a strongly worded criticism of Hogg: “The Committee considers that her professional competence falls short of the very high standards required to fulfil the additional responsibilities of Deputy Governor for Markets and Banking.” The TSC said Hogg’s failure to inform the Bank that her sibling worked at a bank she would be regulating “raises wider concerns about BoE transparency” and called for further reform of the BoE’s internal court.

Hogg voluntarily tendered her resignation, which BOE governor Mark Carney accepted saying he “deeply regretted” the  decision:

“While I fully respect her decision taken in accordance with her view of what was the best for this institution, I deeply regret that Charlotte Hogg has chosen to resign from the Bank of England.

 

Since Charlotte joined the Bank almost four years ago, she has transformed its management and operations.

 

The Bank of England today is stronger, more diverse, secure and effective in large part because of Charlotte Hogg. We will do everything we can to honour her work for the people of the United Kingdom by building on her contributions.”

Hogg’s full resignation letter is below:

via http://ift.tt/2n4iYJs Tyler Durden

Alarm bells are starting to ring across multiple asset classes as we approach The Fed's first double-rate-hike-in-3-months since 2006. The most concerning canary in the coalmine is US credit markets…

 

After a bigly run-up from the Feb 2016 lows – on the heels of unprecedented central bank cooperation – IG bonds began to break bad shortly after Trump's election and HY bonds began to collapse as The Fed stepped up its jawboning and after Trump's address to Congress…

 

And notably, this is not an "energy-specific" issue – the entire high-yield complex is selling off…

 

Participants in this month’s BofAML Credit Investor Survey developed significantly more bearish views toward high yield valuations.

The net proportion of investors expecting wider spreads one year from now jumped to 76% from the previous 23% in our January reading. This figure represents the greatest proportion of investors that expect wider spreads since May 2006, when high yield was trading at just 288bps.

Similarly, a net 85% of investors now find spreads overvalued compared to 67% in January, the highest figure since April 2007.

This bearish sentiment has caused investors to shift toward a net underweight stance on high yield (net 12% underweight), the first time a majority of respondents have been underweight since 2008.

 

Notably US Fiscal Policy is rapidly rising as the biggest concern for credit investors…

 

HY Fund outflows are surging…

 

So "storm in a teacup" or the "canary in the coalmine" – sentiment, flows, and positioning seem to signal the latter (but for now stocks don't care).

As Bloomberg's Simon Ballard notes, given the current backdrop of political uncertainty on both sides of the Atlantic and skepticism about whether a growth rebound can last absent stimulus, risk appetite seems to be wavering. It will be further tested if efforts by central banks to quash future inflationary pressure, resulting from loose monetary and fiscal policy, end up choking economic growth.

via http://ift.tt/2n4hXkw Tyler Durden

Authored by Mike Shedlock via MishTalk.com,

French presidential candidate Francois Fillon is largely correct about things that need to be done to heal France. However, his message is lost in Penelopegate, Loangate, Suitgate, and Nosegate.

Please consider François Fillon’s Taste in Bespoke Suits Draws Criticism.

The embattled French presidential hopeful on Monday promised to deliver a “shock treatment” of austerity and deregulation if elected, sticking to a free-market economic platform that has evoked comparisons with Margaret Thatcher.

 

But Mr. Fillon’s expensive taste in suits has become the latest problem for his presidential campaign, which has been sent off-course by allegations that have cast doubt over his ethics.

 

Drawing attention to potential conflicts of interest, the Journal du Dimanche newspaper revealed on Sunday that an unnamed friend of the candidate had written a €13,000 cheque last month “at Mr. Fillon’s request” to buy him two bespoke suits from a boutique in Paris’s expensive Saint-Germain-des-Prés neighborhood.

 

On Wednesday he is expected to be placed under formal investigation — one step short of being charged — over suspicion of misusing more than €880,000 in state funds to employ his wife Penelope and children in fake jobs as aides.

 

On Monday he detailed economic measures that focused on curbing the state’s role to try and jolt the eurozone’s second-largest economy into quicker growth.

 

Largely sticking to the program he had outlined during his primary campaign, Mr. Fillon promised to cut half a million civil service jobs, save €100bn in annual public spending over five years, eliminate the 35-hour limit on the working week and grant companies €40bn in tax breaks.

 

“The French have had enough of constantly being screwed around by the state,” Mr. Fillon told Europe 1 radio, using the kind of frank language that helped him to win November’s primary.

 

But the former prime minister, with four decades in politics, is struggling to divert attention from allegations of conflicts of interest. As well as the probe into his family’s jobs, questions have emerged over the financial help provided to Mr. Fillon by Marc Ladreit de Lacharrière, a billionaire entrepreneur who lent him €50,000 and employed Ms. Fillon as a literary adviser.

 

The latest revelations followed public outrage at the publication by the Republican party of a caricature of Emmanuel Macron, the new presidential favorite, with a hooked nose and a top hat that mirrored 1930s anti-Semitic propaganda. On Sunday Mr. Fillon apologized for the drawing and promised action against those involved.

Austerity Message Cannot Be Heard

1. When you preach austerity, do you want to be seen in €13,000 suits?
2. When you preach austerity, do you want to be under fraud investigation for paying your wife and kids €880,000 out of public money, for doing nothing?
3. When you preach austerity, do you want to be under investigation for taking illegal loans?
4. When doing points 1-3 above, how does it come across when you want to fire 500,000 civil service workers?

Adding fat to the fire, Fillon’s party posted an extremely unwise  anti-Semitic picture of his opponent.

Right Message, Wrong Time, Exceptionally Poor Delivery

Fillon is of course correct about reducing the size of government and the burden on French businesses.

But his program would be a tough sell in socialistic France, even in the best of circumstances.

That is why I said Marine le Pen would have beaten Fillon.

Can le Pen beat Emmanuel Macron? I think she can, that is not to say she will.

via http://ift.tt/2mHt2Ht Tyler Durden

Today’s chart plots data from the Energy Information Administration (EIA) to show America’s changing energy mix, along with their projected mix for 2030.

Visual Capitalist's Jeff Desjardins points out that it shows the total amount of energy used each year, along with energy use per capita. It then breaks down each year’s energy supply by source, which provides another way for us to visualize the decline of coal use, the resurgence in natural gas, and the rise of renewable energy.

Energy use per capita is measured in “gallons of gasoline equivalent per day”, which we thought was easy to relate to. (For our metric friends, a U.S. gallon is just less than four litres.)

 

Interestingly, solar and wind only make up about 2% of energy today according to the EIA, and they are projected to combine for 6% by 2030.

Various organizations have criticized these numbers, suggesting that the EIA is not properly accounting for green energy in America – and that it actually supplies a much bigger part of the energy mix.

via http://ift.tt/2mHqAk0 Tyler Durden