Author: admin

The “hostel takeover” saga for Starwood Hotels took another unexpected turn this morning, when the company’s stock price soared following news that the hotel chain had received an unsolicited $76/share non-binding proposal (8% premium to the Friday close) from an investor group led by China’s Anbang Insurance Group, in a deal that seeks to scuttle its planned combination with Marriott International.  The proposed deal values Starwood, one of the world’s largest hotel companies which includes such brands as Westin, Sheraton, The Luxury Collection, W Hotels, St. Regis, Le Meridien and many others, at $12.8 billion.

Early on Monday Marriott issued a press release announcing it was still committed to the proposed tie-up with Starwood, said the consortium was led by Anbang, which in October of 2014 struck a deal to buy Hilton Worldwide Holdings Inc.’s flagship hotel, the historic Waldorf Astoria in Manhattan, for $1.95 billion. To wit:

On March 11, 2016 Starwood notified Marriott that it had received an unsolicited indication of interest in purchasing Starwood from a consortium of potential investors, led by Anbang Insurance Group.  Marriott notes that this unsolicited indication of interest is highly conditional and non-binding.  Marriott granted Starwood a waiver to expedite its evaluation of the letter from the interested consortium.

Starwood’s deal with Marriott includes a period during which it can consider other offers; that time frame expires at 11:59 p.m. Eastern Time on March 17. The press releases also aded the following:

Marriott will monitor this development as it and Starwood continue to work toward the closing of its transaction and the successful integration of the two companies in anticipation of votes by each company’s stockholders on March 28, 2016.

 

Starwood stated today that its Board of Directors has not changed its recommendation in support of Starwood’s merger with Marriott.  Starwood has said that its Board, in consultation with its legal and financial advisors, will carefully consider the outcome of its discussions with the consortium in order to determine the course of action that it determines is in the best interest of Starwood and its stockholders.

Starwood does not plan to comment further on discussions before the expiration of the waiver period on Thursday night.

As a reminder, Marriott agreed to acquire Starwood in November. The combination would create the No. 1 hotel company globally-with more than a million rooms-and bring together 30 brands across all lodging segments, from Starwood’s higher-end W Hotels, St. Regis and Westin brands to Marriott’s limited-service offerings like Courtyard by Marriott and its extended-stay chain Residence Inn.

Stepping back from the deal itself, what this last minute proposal by a Chinese insurance group represents is nothing more than another “innovative” attempt to park capital outside of the country.

Recall that over the weekend, the PBOC cracked down on various schemes enabling capital outflows outside of China. So what better way to transfer funds from China abroad, than to move away from one-off purchases of Vancouver real estate at ridiculous prices than to engage in wholesale M&A in the US, only this time at ridiculous valuations?

We expect a bidding war, even more acquisitions by Chinese insurance companies of US businesses, and ultimately, the involvement of Congress which will surely chime in on this Chinese attempt to acquire core US businesses in what is nothing more than more “streamlined” capital flows outside of China.

via Zero Hedge http://ift.tt/1ppksvC Tyler Durden

• Fed to sit tight on rates at March meet, hint at hikes to come (Reuters)
• Election setback a ‘wake-up call’ for Merkel, media and politicians say (Reuters)
• Germany’s Merkel under renewed attack after populists’ poll success (FT)
• Temperatures Rise on Eve of Next GOP Contests (WSJ)
• Carl Icahn setting up son to take his place: sources (Post)
• Turkey Vows Swift Retaliation After Bomb Kills 37 in Capital (BBG)
• One of Ankara bombers was female PKK member: Turkish security sources (Reuters)
• ECB’s Cheap Loans Highlight Rift Among Europe’s Banks (WSJ)
• Pimco May Have to Face Gross’s Suit After Stormy Exit (BBG)
• Trump’s Long Trail of Litigation (WSJ)
• Putin’s $50 Billion Oil Cache Gives Russia Luxury to Ignore ECB (BBG)
• Obama’s prisoner clemency plan faltering as cases pile up (Reuters)
• Inflation Target Draws Fire From All Sides
• Russia ready to cooperate with U.S.-led coalition in fight for Syria’s Raqqa (Reuters)
• Goldman revamps electronic stock trading to catch rival (Reuters)
• Maryland police officer slain in ambush, two suspects arrested (Reuters)
• Apollo Global Management to Acquire Fresh Market (WSJ)

 

Overnight Media Digest

WSJ

– Venture capital firm Sequoia Capital said it parted ways with long-time partner Michael Goguen in the wake of allegations he sexually abused a woman and failed to follow through on a $40 million settlement. (http://on.wsj.com/24Zeqlj)

– Hewlett Packard Enterprise Co, having backed away from a key portion of the cloud computing-on-demand market, is expanding into cloud services to help companies analyze data such as photos, audio clips and comments on social media. (http://on.wsj.com/1M1n7p1)

– A television reporter and cameraman with the Australian Broadcasting Corp were briefly detained in Malaysia after attempting to interview Prime Minister Najib Razak while he campaigned ahead of a coming state election in the Borneo state of Sarawak. (http://on.wsj.com/24ZccTa)

– Blackstone Group LP is selling a portfolio of U.S. luxury hotels to the Chinese owner of New York’s Waldorf Astoria, just months after buying it for $4 billion. (http://on.wsj.com/24Zcauv)

– Chinese smartphone maker Xiaomi Corp is betting on an e-commerce boom in India to help offset slowing sales at home. (http://on.wsj.com/24ZcdGL)

– A powerful car bomb hit a bustling business district in central Ankara Sunday night, killing at least 34 people and wounding 125 others, and showing the threats Turkey faces in its fight with Kurdish separatists and Islamic State militants based in neighboring Syria. (http://on.wsj.com/24ZdQEg)

– Bristol-Myers Squibb Co has sprinted to an early lead in the race to sell a class of cancer treatment by bucking the trend toward precision medicine and sticking to the mass-marketing approach in selling its drug, Opdivo. (http://on.wsj.com/1M1ounv)

 

FT

* China’s Anbang Insurance Group has agreed to acquire Strategic Hotels and Resorts Inc for around $6.5 billion, a few months after private equity firm Blackstone Group LP took the company private.

* UK’s Justice Secretary Michael Gove and Labour MP Gisela Stuart have been tasked to head the Vote Leave campaign, a campaign to take Britain out of the European Union.

* British finance minister George Osborne will announce further cuts to publ

 

NYT

– Democrats in the Senate said they would introduce two bills on Monday to give Puerto Rico broad powers to shed some of its $72 billion of bonds while also giving its public workers’ pensions priority over the bonds. (http://nyti.ms/22ex8De)

– U.S. Federal Reserve officials will gather in Washington on Tuesday and Wednesday to debate whether a bumpy start to the year is now in the past, clearing the way for higher interest rates. (http://nyti.ms/1M1oJPx)

– Blackstone Group LP has agreed to sell Strategic Hotels and Resorts to Anbang Insurance Group, in a deal valued at $6.5 billion, according to a person with knowledge of the deal who was not authorized to comment. (http://nyti.ms/1M1oTGN)

– CBS’s decision to expand the announcement of the N.C.A.A. men’s basketball tournament field to a two-hour program backfired on Sunday when the full field was leaked and circulated online early in the show. (http://nyti.ms/1M1pSqu)

 

Canada

THE GLOBE AND MAIL

** More than two years after U.S. authorities began investigating Kinross Gold Corp for alleged corruption in Africa, the case remains unresolved, but details of the company’s financial activities are starting to leak out.(http://bit.ly/1ppaxGs)

** Brazil’s political crisis deepened on Sunday when opposition parties seized the occasion of nationwide anti-corruption demonstrations to push for a change in power. An estimated 1.8 million people took to the streets in peaceful protests across the country, demanding the resignation of President Dilma Rousseff.(http://bit.ly/1poNcEK)

** The federal government is fond of boasting about how its controls on weapons exports are among the strongest in the world, but Canadians are left largely in the dark over precisely what military and security equipment is being shipped to foreign customers – including those with poor human-rights records.(http://bit.ly/1ppaUkn)

NATIONAL POST

** The sudden resignation of longtime Royal Bank of Canada director Joao Pedro Reinhard, who faces a drug-related charge, should mitigate “reputational contagion” at Canada’s largest bank, corporate governance experts say.(http://bit.ly/1RgIll1)

** As the Bank of Canada hunts down a candidate to become the first Canadian woman on a banknote, numismatists are pointing out that there’s already been one. Princess Patricia, who died in 1974, was the wildly popular daughter of a Canadian Governor General whose portrait was chosen to grace a patriotic $1 note issued in the midst of the First World War. (http://bit.ly/1P7TDAz)

 

Britain

The Times

* The chief executive of Tesco, Dave Lewis, has warned that the retail sector could come under intolerable pressure unless George Osborne pledges to reform business rates. (http://thetim.es/1Ur9m4p)

* French President Francois Hollande has demanded that EDF press ahead with an 18 billion pound ($25.88 billion) reactor in Britain despite growing misgivings at home over the project.(http://thetim.es/1Ur9II6)

The Guardian

* British retail tycoon Philip Green could be asked to give up 280 mln pounds to save 13,000 British Home Stores staff from having their pensions cut. (http://bit.ly/1Ur7LM0)

* Advertising company WPP will reveal this week that its chief executive, Sir Martin Sorrell, has been handed shares worth 60 million pounds. (http://bit.ly/1Ur7VTp)

The Telegraph

* Be Heard, the new advertising group founded by former Aegis chief executive Peter Scott, is close to announcing the 20 million-pound takeover of the website and apps design agency MMT Digital. (http://bit.ly/1Ur86hK)

* Lombok, the upmarket furniture chain known for its Eastern-inspired dark teak beds and tables, is being put up for sale by the private equity buyer which rescued the retailer from near-collapse seven years ago. (http://bit.ly/1Ur8f4O)

Sky News

* Broadcasters and actors who use a loophole to avoid paying their fair share of income tax are to be targeted in next week’s Budget. (http://bit.ly/1Ur8TPM)

* EDF ‘s chairman Jean-Bernard Levy has said he is “confident” that the 18 billion-pound Hinkley Point C nuclear power station will go ahead and it has the support of both the French and British governments. (http://bit.ly/1Ur965s)

The Independent

* The regulator of the Office for National Statistics needs its own IMF-style agency to police the quality of the ONS’s output, according to a government-commissioned report by Sir Charles Bean. (http://ind.pn/1Ur8wog)

* British finance minister George Osborne is being pressed to exempt more small businesses from paying business rates before Wednesday’s Budget. (http://ind.pn/1Ur8MDP)

via Zero Hedge http://ift.tt/22fjrnv Tyler Durden

The biggest macro development over the weekend was China’s latest “gloomy” economic update, in which industrial production, retail sales and lending figures all missed estimates, however now that we are back to central bank bailout mode, bad news is once again good news, and the Shanghai Comp soared +1.7% among the best performers in Asia on calls for further central bank stimulus while the new CSRC chief also vowed to intervene in stock markets if necessary. In other words, the worse the data in China, the better.

The same of course as true in Europe, where just as Draghi admitted that the 2016 inflation forecast plunged (as we warned in December) and the ECB would not hit its 2.0% inflation target by 2019….

 

… the ECB also unleashed a massive bond buying rally after Draghi said for the first time ever the ECB would monetize corporate bonds, in a move that has infuriated Germany, and confirms Europe’s economy is weaker than ever before as otherwise it wouldn’t need this unprecedented support by its central bank.

As a result, the MSCI Asia Pacific Index and the Stoxx Europe 600 Index were headed for their highest closes in two months.

 

As Bloomberg summarizes the global “deja vu all over again” situation, Central banks are being relied on to revive the global economy after a worsening growth outlook wiped almost $9 trillion off the value of equities worldwide this year through mid-February. The bulk of the stock-market losses have been clawed back, helped by monetary easing in China and last week’s announcement of unprecedented stimulus by the European Central Bank. The Bank of Japan, which adopted a negative interest rate in January, will conclude a policy review on Tuesday and a Federal Reserve meeting ends Wednesday.

“Central banks are going to be dominating market sentiment,” Matthew Sherwood, head of investment strategy at Perpetual Ltd. in Sydney, which manages about $21 billion, told Bloomberg Radio. “That could be enough for the risk rally to continue, but I think it is starting to run out of steam. The Fed is going to be front and center.”

And while Asia was up on China’s bad data, and Europe was higher again this morning to catch up for the Friday afternoon US surge, US equity futures may have finally topped off and are now looking at this week’s critical data, namely the BOJ’s decision tomorrow (where Kuroda is expected to do nothing), and the Fed’s decision on Wednesday where a far more “hawkish announcement” than currently priced in by the market, as Goldman warned last night, is likely, in what would put an end to the momentum and “weak balance sheet” rally. Earlier today, Deutsche Bank doubled down on that call as well.

Elsehwere, WTI started the week lower after Iran said over the weekend it plans to boost output to 4MM b/d before joining other suppliers in seeking ways to balance marke, while Saudi crude output was little changed at 10.22mln bpd in Feb vs. 10.23mln in Jan. Not even the ongoing “imminent OPEC meeting” headline farce, where according to flashing read headlines the OPEC producer meeting is now “expected” to take place in April instead of March as repeatedly reported previously, has been enough to push oil higher today.

Market Wrap

• S&P 500 futures down 0.1% to 2008
• Stoxx 600 up 0.8% to 345
• FTSE 100 up 0.5% to 6173
• DAX up 1.6% to 9990
• German 10Yr yield down 3bps to 0.25%
• Italian 10Yr yield down 3bps to 1.3%
• Spanish 10Yr yield down 2bps to 1.46%
• MSCI Asia Pacific up 1% to 128
• Nikkei 225 up 1.7% to 17234
• Hang Seng up 1.2% to 20435
• Shanghai Composite up 1.8% to 2859
• S&P/ASX 200 up 0.4% to 5185
• US 10-yr yield down 2bps to 1.96%
• Dollar Index up 0.17% to 96.33
• WTI Crude futures down 2.1% to $37.68
• Brent Futures down 1.7% to $39.72
• Gold spot up 0.4% to $1,256
• Silver spot up 1.1% to $15.66

Top Global News via BBG

• Anbang Expands U.S. Hotel Foray With Record $6.5 Billion Deal: Anbang Insurance’s $6.5b agreement to buy 16 U.S. luxury resorts and hotels from Blackstone marks a record transaction for Chinese buyers of American real estate
• Brent Swings Near $40 as Falling U.S. Rigs Counter Iran Output: U.S. rig count drops 12th week to lowest since Dec. 2009
• Danaher, Duke Energy, NextEra Energy to Join S&P 100: S&P 500 constituents DHR, DUK, NEE to replace Devon Energy, Anadarko Petroleum, Norfolk Southern in S&P 100 index after close of trading March 18
• LSE, Deutsche Boerse Deal Could Be Announced Monday, Times Says
• Morgan Stanley Says Bonds Set to Surge in 2016 Year of the Bull: U.S. 10-yr yield may fall to 1.45% by Sept. 30 report says
• Airbnb to Let Neighbors Give Feedback on Hosts, ‘Party Houses’: A new tool will let neighbors weigh in with feedback on Airbnb properties nearby, Yasuyuki Tanabe, the head of Airbnb in Japan, said at a government panel in Tokyo on Monday
• Disney Says ‘Zootopia’ Tops Weekend Box Office on Sales of $50m
• Trump Switches Florida Rally to Ohio as Protests Shadow Events
• Hillary Clinton Accuses Donald Trump of Stoking Violence to Win Votes
• Carl Icahn Said in Talks With Son Brett to Succeed Him: NYP
• Apollo Global Said to Near Deal to Buy Fresh Market: Reuters: Nearing a deal to acquire Fresh Market for more than $1.3b, Reuters reports, citing unidentified people familiar
• Energy Transfer Equity Held Talks on Sunoco Sale: Reuters

* * *

Looking at regional markets, we start in Asia where equities tracked Friday’s Wall St. gains where stock markets rose to the highest level since early January as they digested the ECB’s aggressive measures. Nikkei 225 (+1.7%) advanced with index-giant Fast Retailing gaining nearly 5% as JPY weakness bolstered exporter names, while the largest increase in machine orders for 13 years further added to the optimism. ASX 200 (+0.4%) was led by telecoms and energy after crude posted a 4th consecutive weekly gain. Chinese markets outperformed despite weak China data in which industrial production, retail sales and lending figures all missed estimates, with the Shanghai Comp (+1.8%) among the best performers as the data supports calls for further measures, while the new CSRC chief also vowed to intervene in stock markets if necessary. 10yr JGBs traded higher with prices back above the 151.00 level amid relatively thin trade as the BoJ kicked off its 2-day policy meeting, in which they are expected to keep policy on hold.

Top Asian News

• China Overseas Buys Citic’s Property Assets for $4.8 Billion: To buy the Chinese residential property assets held by Citic for about 31b yuan ($4.8b); China Overseas will sell 1.1b shares at HK$27.13 each to the Citic cos. as part of deal
• China Burns Hedge Funds as $562 Million Yuan Bet Turns Worthless: Options on weaker yuan fail to pay out as PBOC intervenes
• Offshore Yuan Drops as Zhou Says No Need for Major Economy Steps: Investors were expecting more support for growth, analyst says
• Thailand Passes Korea as Top Nation for Mainland Visitors: Thailand and Japan are attracting more Chinese tourists as South Korea draws fewer
• India Said to Need an Extra $3.7 Billion in Risk to Deficit Goal: Modi administration to ask parliament for more cash
• Alibaba Said to Set Fees for Banks on Loan of Up to $4 Billion: Co. is offering 60 bps to lenders committing $200m and above to facility

In Europe, Monday has kicked off where Friday ended, with markets still feeling the full force of Draghi’s actions last week as European equities and fixed income markets all reside in the green. Euro Stoxx (+1.2%) continue to gain today, with the ever-turbulent Italian banking sector among the best performers today, while divergence has been seen in commodities, with materials outperforming while energy remains one of the session’s laggards. Bunds remain at elevated levels this morning, trading above the 162.00 level and amid no supply today, while this week is set to see supply fall to around EUR 16bIn from the EUR 18.2bIn that hit the market last week.

Top European News

• German Divisions on Merkel Refugee Policy Laid Bare in Votes: Anti-immigration AfD party surges to record in three elections
• Safran Shares Fall Most Since Feb. 8 After Margin Forecast: Sees flat adjusted recurring oper. margin 2016-20
• Aryzta Shares Retreat on Forecast for ‘Erratic’ Revenue Growth: Said revenue missed its own forecasts and growth will be erratic over the next 18 months.
• Turkey Vows Swift Retaliation After Bomb Kills 34; Lira Weakens: Turkish warplanes struck Kurdish militants in northern Iraq hours after a suicide car bomb killed at least 37 people in the capital, Ankara
• Swiss Seen Holding Fire as Franc Resists ECB for a Second Time: Durvey shows most economists see SNB leaving rates unchanged

In currencies, it has been a very quiet start to the week, with range bound trade seen in the majors so far. We saw some early selling of AUD/USD and Cable, while EUR/USD drifted lower again, but this flow has been turned on its head as the USD index gives up on what has been a modest recovery. USD/JPY had tested 114.00 in the Asia session, but any hopes of retesting this will perhaps have been dashed in the wake of comments from Japan PM advisor Hamada who sees further BoJ easing unlikely near term with the JPY ‘not too strong’ at current levels. USD/CAD has been edging higher as Oil has taken a dip, but the upside has been contained well ahead of 1.3300 higher up.

Australia’s dollar fell 0.5 percent, pacing declines among the currencies of resource-exporting nations, after Chinese industrial output and retail sales data over the weekend added to signs of a slowdown in the world’s second-biggest economy. Malaysia’s ringgit lost 0.4 percent as a falling oil price dimmed prospects for Asia’s only major net exporter of crude. The yuan fell 0.16 percent in Hong Kong’s offshore market and was little changed in Shanghai.

Turkey’s lira weakened 0.5 percent after a suicide car bomb in Ankara killed at least 34 people, the capital’s third attack in five months. The rand slid 0.7 percent, leading losses among major currencies. South Africa’s Directorate for Priority Crime Investigation wants information from Finance Minister Gordhan on what he knew about a so-called rogue unit in the tax agency that investigated political leaders, the Sunday Independent newspaper reported, citing a letter sent by the police unit’s head to the minister’s lawyers.

The Egyptian central bank devalued its pound by almost 13 percent at an “exceptional” sale of dollars on Monday. The central bank said it sold $198.1 million to local lenders at 8.85 pounds per dollar. That compares with a previous exchange rate of 7.73 pounds.

In commodities, Brent and WTI started the session fairly flat and then fell roughly 1.7%. This comes as Saudi crude output was little changed at 10.22mln bpd in Feb vs. 10.23mln in Jan, and also after Iran said it plans to boost output to 4 million barrels a day before it will consider joining other suppliers in seeking ways to rebalance the global crude market.

Gold and other precious metals on the other hand have risen slightly, with gold still rising toward 1260.00/oz with the next notable resistance level at 1260.50.

Copper rose 0.3 percent in London, rebounding from earlier losses. Gold gained 0.5 percent, after retreating 1.8 percent on Friday. The precious metal is far from being out of favor, with money managers holding the biggest net-long position in related futures and options in more than a year, according to Commodity Futures Trading Commission data.

There is no tier 1 economic data in the US today.

Overnight Bulletin Summary from RanSquawk and Bloomberg

• European equities start the week on the front foot as financial names lead the way higher in the wake of last week’s ECB policy announcements
• A very quiet start to the week, with range bound trade seen in the majors so far with the USD giving up on its initial modest recovery
• Treasuries higher overnight, global equity markets rally; crude drops, China’s new securities regulator said it was too early for state rescue funds to leave market and vowed to step in “decisively” if needed to curb panic; this week brings FOMC rate decision on Wednesday, no hike expected.
• Even though the short-term rates market is priced for unchanged rates at this week’s FOMC meeting, it’s still expected to react as it adjusts to the central bank’s updated Summary of Economic Projections (SEP), known as the “dots”
• Another sign of how crucial buybacks are in propping up the bull market as it enters its eighth year — S&P’s 500 Index constituents are poised to repurchase as much as $165 billion of stock this quarter, approaching a record reached in 2007
• Oil fell from a three-month high as Iran plans to boost output by about a third to 4 million barrels a day before joining talks to freeze production. Futures dropped as much as 2.5% in New York
• Dilma Rousseff’s future as president of Brazil was cast into further doubt as millions of protesters, wearied by scandal and recession, demonstrated peacefully for her ouster in some of the largest rallies in the country’s modern history
• Chancellor Merkel faces an increasingly splintered political landscape after voters punished her party and lifted the anti-immigration Alternative for Germany to its best showing yet in three state elections dominated by the refugee crisis
• Industrial production in the euro area jumped 2.1% in January from December, its strongest monthly performance in more than six years, boosted by energy and capital goods
• Since hitting a 3 1/2-year low just a month ago, European banks have rebounded 28%, with Greece’s Eurobank Ergasias SA, Italy’s UniCredit SpA and Deutsche Bank AG among the top performers
• Foreign buyers boosted their holdings of Turkey’s sovereign debt by the most in 19 months in February, finding it hard to resist the highest yields in emerging Europe, encouraged by a slowdown in inflation and the ECB stimulus outlook
• No IG corporates priced Friday; weekly volume $44.595b, March $86.42b, YTD $380.67b; $800m HY priced Friday, $3.225b last week, $14.025b MTD

US Event Calendar

• No events

Central Banks

• TBA: Bank of Japan policy rate, est. -0.1% (prior -0.1%)
• 3:00pm: Reserve Bank of New Zealand speaks in Auckland
• 8:30pm: Reserve Bank of Australia meeting minutes

Jim Reid concludes the overnight wrap

2016 for European credit investors so far reminds me of Season 9 of Dallas which was completely wiped from existence and turned into Pam Ewing’s bad dream in a plot devise to allow Bobby Ewing to return from the dead having been run down by a car at the end of Season 8. I remember crying at his death as a 10 year old just as I cried a few years earlier at JR Ewing being shot as my nickname at school was JR given my initials. I therefore felt his pain pretty hard. Anyway Draghi has put on his ten gallon hat and has helped write off a nightmare start to 2016 as a bad dream which investors have now awakened from.

To give some context to this turnaround, in the CDS world iTraxx Europe tightened -17bps on Friday (-7bps Thursday) and 58bps off the 2016 wides to now be 10bps tighter on the year. Crossover was 50bps tighter Friday (-18bps Thursday), 178bps off the 2016 wides and 6bps tighter YTD. Even iTraxx Fin Senior has edged just tighter on the year after Friday’s 17bps rally. Sub Fins are back to ‘only’ 15bps wider in 2016 after 34bps of tightening on Friday. In the more important cash market, EU iBoxx non-financial IG corporates (closest to the universe the ECB will potentially pick from) were 11bps tighter on Friday which was the best day since 2011 and in the top 10 of best days of the near 4300 business days since the Euro started in 1999. This index is now 5bps tighter on the year and 34bps off the wides in mid-February. This index is still historically quite wide and we’d still expect notable tightening as we discussed in our note published Friday morning (see the link at the bottom or in your mail boxes at around 5.30am Friday).

One of the things we discussed in our 2016 outlook was that although central banks have limited ability to influence economies in what is a near liquidity trap, we still thought they could move markets this year in spite of concerns they were running out of bullets. The rationale was that with inflation so low they had plenty of room to be aggressive. The ECB last week delivered on this and this week it’s over to the BoJ (tomorrow) and the Fed (Wednesday). While the BoJ will likely take pause for breath after the controversial decision to move into negative rate territory last meeting, Kuroda’s press conference will be widely anticipated. As will Yellen’s after the FOMC will almost certainly stay put. Financial conditions have eased since the last meeting so we would expect the Fed to retain optionality to hike in June whilst acknowledging the fragilities around. Data dependency will likely be the key theme. Overall we still think 2017 will be more of a challenge for the economy and central bankers than in 2016 where inflation is still low enough for the plates to be spun a little more.

Speaking of challenges, China data is proving difficult for analysts to get their head round following a mixed set of releases over the weekend. The negative side of things saw both retail sales (down five-tenths to 10.2% yoy; vs. 11.0% expected) and industrial production (down seven-tenths to 5.4% yoy; vs. 5.6% expected) fall in February relative to the prior month, while growth of funds available for fixed asset investment was also noted as slowing. On the flip side the big surprise was a rebound in fixed asset investment, driven by the rise of property investment. Investment grew 10.2% yoy last month (vs. 9.3% expected) which was up two-tenths from January. DB’s Zhiwei Zhang also highlighted that other indicators in the property sector rebounded as well including the value of property sales, land sales and new housing starts – all of which is suggesting that the momentum in property investment may continue at least in the next few months.

Taking a look at our screens this morning it’s been a strong start for much of Asia this morning with bourses following the lead from those gains in Europe and Wall Street on Friday. It’s China which is leading the way however with the Shanghai Comp (+2.58%) and Shenzhen (+4.04%) both rallying into the midday break. Elsewhere, there’s gains also for the Nikkei (+1.79%), Hang Seng (+1.32%) and ASX (+0.34%). There’s been a big rally for credit markets also. ITraxx Aus and Asia indices are currently 10bps and 5bps tighter respectively. US equity index futures are flat currently, along with Oil. Asian currencies are generally outperforming while the Turkish Lira is a touch weaker following those disturbing reports yesterday of a blast in the Turkish capital of Ankara.

Also of note from the weekend were the German regional elections, where the big news is that of some signs of diminishing support for German Chancellor Merkel’s CDU party. Instead, it’s the rightwing populist forces which appear to have come out on top, with the anti-immigration Alternative for Germany (AfD) party in particular gaining notable support. As per the FT, Merkel’s CDU party has failed in its attempt to claw back the majority in the Baden-Wurttemberg and Rhineland-Palatinate while projections are also suggesting that the party will fail to garner enough votes to create a viable coalition in Saxony-Anhalt. With the refugee crisis in full debate and clearly a major factor in the results, it’s the AfD party which has made the most headway and is projected to win 24% of the vote in Saxony-Anhalt as well as exceeding expectations in Baden-Wurttemberg (15%) and Rhineland-Palatinate (12%). The party is currently projected to be presented in eight of Germany’s 16 regional assemblies. Given similar results in other parts of Europe (most recently in France with the National Front), political risks in Europe are still very much a factor to keep an eye on.

A quick recap of the rest of Friday’s news and price action. One market worth keeping an eye in the wake of the ECB is the new issue corporate market in Europe and, while quiet from an overall volume perspective on Friday, a small deal (€600m) from French auto component manufacturer Valeo caught the eye with the order book said to have closed above €7bn. Evidence then perhaps of what the presence of a new large potential IG bond buyer (in the ECB) can do for demand in the primary market now then.

So while credit markets caught the eye with those huge moves tighter, equity markets bounced back in style with big moves of their own, in stark contrast to the price action which concluded on Thursday. With financials driving the moves, the Stoxx 600 finished with a +2.62% gain to close at its highest level since late-January, while peripheral markets were the big outperformers with the IBEX and FTSE MIB up +3.69% and +4.80% respectively. Those gains also helped the S&P 500 finish up +1.64% with the month of March proving to be a fruitful one so far for the US equities (index has now closed higher on 8 of the 9 trading days). A recovery for Oil also (WTI +1.74%) did little to dampen the mood with the IEA even going as far as saying on Friday that prices may have ‘bottomed out’ and that ‘there may be light at the end of what has been a long, dark tunnel’.

Base metals had a good day too (Copper +1.64%, Zinc +2.07%, Nickel +0.86%) while unsurprisingly it was emerging market and commodity-sensitive currencies which led the way in the FX space. European sovereign bond markets staged an impressive rally also. 10y Bunds ended the session down over 3bps in yield at 0.269% (although are still higher than where they were pre-ECB) while in the periphery we saw a massive rally for similar maturity bonds in Italy (-13.3bps), Spain (-9.9bps) and Portugal (-21.3bps). Moves in the US Treasury market were more reflective of traditional risk-on mode with the benchmark 10y finishing up over 5bps higher in yield at 1.985% and the highest now since the 27th January. Fed fund futures crept up as a result too with the probability of a hike by the end of the year now at 77% (from 74%) – a notable swing from the lowly 11% priced in during the February lows.

There was little data to conclude the week and certainly not enough to impact the price action. In the US the import price index reading for February was a tad less deflationary than expected (-0.3% mom vs. -0.7% expected). Prior to this we learned that there was no change to the final February CPI reading for Germany at +0.4% mom and so confirming a leg lower in the YoY rate to 0.0% (from +0.5% in January). Elsewhere in Italy the January industrial production reading was a lot more robust that expected at +1.9% mom (vs. +0.7% expected), which lends some support to today’s wider Euro area figure.

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In 2014, I co-authored an updated version of a book originally written by Fred Fredfeldkamp entitled “Financial Stability: Fraud, Confidence & the Wealth of Nations.”  The book starts with a discussion of why, in financial and economic terms, Jesus of Nazareth tossed the money changers out of the Temple in Jerusalem.

The Old Testament forbade the use of “two measures,” effectively requiring that currency transactions occur at the mid-point of the market. Temple priests maintained an excessive bid-offer spread, an early example of financial fraud and political folly that eventually led to the cruxifiction of Christ. They also were tax collectors for the Roman army of occupation, who eventually destroyed Jerusalem in 70 AD in response to the rebellion which followed the death of Jesus.

The email below came after I sent Fred a copy of the article by my friend William Greider in The Nation, ? “How Donald Trump Could Beat Hillary Clinton.”

http://ift.tt/1QXtYN1…

Below is the email from Fred.  Best, Chris

 

Frederick L. Feldkamp <ffeldkamp@gmail.com>

<http://ift.tt/1THSZSj;

March 13, 2016

 

[Bill Greider]’s correct and a very wise man.  We can only hope for better–we cannot undo mistakes of the past.

It’s coming toward Easter, Chris, and I always think more about the “economics” of what Christ was trying to achieve at this time of year.

In fact, he was trying to cure an economic and political debacle that was sinking the fortunes and lives of everyone around him, because NOBODY in power had even the slightest idea what the heck they were doing to themselves and everyone else by their self-centered practices to build a huge Temple treasury of riches and a murderous Roman occupation army.

Leaders of Christ’s church (the Jewish leaders of the temple in Jerusalem) could not see that they had been running a rigged market that made money mainly for their leader, Annas, who hoarded so much of it as to cut off re-circulation (just as the practice of huge excess reserves in the Great Depression caused a shortage of circulating money–pushing spreads through the roof and the economy through the floor).  

That’s the same trap we all fell into in 2007-8 as fear caused everyone to stop circulating money.

Christ did what was necessary to end the combination of monopoly/hoarding/taxation by chasing money exchange out of the temple, but that meant he would bankrupt the High Priest’s family and destroy the Roman tax base (created by taxing all Jews as they left the Temple at holidays).

He then actually forgave even his murderers as he was dying, saying “they know not what they are doing.”

WOW!!  WAS THAT AN UNDERSTATEMENT!!

The same thing applies to all the people Grieder identifies as at the heart of today’s problems.  Until the nation listened to Bernanke’s understanding of how mistakes, restraints and fear raised the true cost of money and destroyed the economy in 2008, we were heading onto the same path of destruction that the Annas family and Roman rulers created for Jerusalem in the First Century.

Christ identified “how” to fix it, but nobody listened and performed what was needed.  Anger and frustration built on all sides of the First Century dispute until Rome said “enough” (then robbed the Temple treasury, killed as many Jews as remained available for killing, burned the Temple down and destroyed Jerusalem).

Christ’s backers fled and eventually founded a religion that Rome adopted.  The Jews finally acknowledged that Temple sacrifice was not a good way to go and built Rabbinical Judaism around the principles of Hillel the Elder (the head Rabbi in Jerusalem at the time Christ was a teenager who lingered at the Temple when he was 12). 

Grieder has perceived the same build-up of frustration today.  I see it in the trigger-point of the frustration of “tax hoarding” that I mentioned Friday.  BIG BUSINESSES WILL NOT INVEST THEIR HOARDS SET ASIDE IN TAX HAVENS TODAY FOR FEAR THAT THE WORLD’S GOVS WILL FIGURE OUT THE SCAM AND DEMAND PAYMENT OF BACK TAXES.

So, while nobody is talking about it, fear has gripped us yet again, just as it did in Jerusalem 2000 years ago.

The one truly constructive thing is that fear has subsided dramatically since 2/11/16.  Bank spread (Inv. Gr. – 10-yr Ts) is down 47 bps.  The banker who bought Chicago’s biggest bank used his bank’s capital to make the buy and entirely paid for it by cutting the merged banks’ funding cost by 50 bps.  So, the recovery since 2/11 is huge if only for that.

BUT, it’s much better.  The spread banks charge to growth firms (HY bonds – IG bonds) has fallen an astonishing 112 bps (total finance spread, HY minus 10 yr Ts, is down an amazing 159 bps since 2/11). 

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Submitted by Andrew Korybko via OrientalReview.org,

The Law Of Hybrid Warfare

Hybrid War is one of the most significant strategic developments that the US has ever spearheaded, and the transitioning of Color Revolutions to Unconventional Wars is expected to dominate the destabilizing trends of the coming decades. Those unaccustomed to approaching geopolitics from the Hybrid War perspective might struggle to understand where the next ones might occur, but it’s actually not that difficult to identify the regions and countries most at risk of falling victim to this new form of aggression. The key to the forecast is in accepting that Hybrid Wars are externally provoked asymmetrical conflicts predicated on sabotaging concrete geo-economic interests, and proceeding from this starting point, it’s relatively easy to pinpoint where they might strike next.

The series begins by explaining the patterns behind Hybrid War and deepening the reader’s comprehension of its strategic contours. Afterwards, we will prove how the previously elaborated framework has indeed been at play during the US’ Wars on Syria and Ukraine, its first two Hybrid War victims. Next part reviews all of the lessons that have been learned thus far and applies them in forecasting the next theaters of Hybrid War and the most vulnerable geopolitical triggers within them. Subsequent additions to the series will thenceforth focus on those regions and convey why they’re so strategically and socio-politically vulnerable to becoming the next victims of the US’ post-modern warfare.

Patterning The Hybrid War

The first thing that one needs to know about Hybrid Wars is that they’re never unleashed against an American ally or anywhere that the US has premier preexisting infrastructural interests. The chaotic processes that are unleashed during the post-modern regime change ploy are impossible to fully control and could potentially engender the same type of geopolitical blowback against the US that Washington is trying to directly or indirectly channel towards its multipolar rivals. Correspondingly, this is why the US won’t ever attempt Hybrid War anywhere that it has interests which are “too big to fail”, although such an assessment is of course contemporaneously relative and could quickly change depending on the geopolitical circumstances. Nevertheless, it remains a general rule of thumb that the US won’t ever intentionally sabotage its own interests unless there’s a scorched-earth benefit in doing so during a theater-wide retreat, in this context conceivably in Saudi Arabia if the US is ever pushed out of the Mideast.

Geostrategic-Economic Determinants:

Before addressing the geo-economic underpinnings of Hybrid War, it’s important to state out that the US also has geostrategic ones as well, such as entrapping Russia in a predetermined quagmire. The “Reverse Brzezinski”, as the author has taken to calling it, is simultaneously applicable to Eastern Europe through Donbass, the Caucasus through Nagorno-Karabakh, and Central Asia through the Fergana Valley, and if synchronized through timed provocations, then this triad of traps could prove lethally efficient in permanently ensnaring the Russian bear. This Machiavellian scheme will always remain a risk because it’s premised on an irrefutable geopolitical reality, and the best that Moscow can do is try to preempt the concurrent conflagration of its post-Soviet periphery, or promptly and properly respond to American-provoked crises the moment they emerge. The geostrategic elements of Hybrid War are thus somewhat inexplicable from the geo-economic ones, especially in the case of Russia, but in making the examined pattern more broadly pertinent to other targets such as China and Iran, it’s necessary to omit the “Reverse Brzezinski” stratagem as a prerequisite and instead focus more on the economic motivations that the US has in each instance.

The grand objective behind every Hybrid War is to disrupt multipolar transnational connective projects through externally provoked identity conflicts (ethnic, religious, regional, political, etc.) within a targeted transit state.

This template can clearly be seen in Syria and Ukraine and is the Law of Hybrid Warfare. The specific tactics and political technologies utilized in each destabilization may differ, but the strategic concept remains true to this basic tenet. Taking this end goal into account, it’s now possible to move from the theoretical into the practical and begin tracing the geographic routes of various projects that the US wants to target. To qualify, the multipolar transnational connective projects being referred to could be either energy-based, institutional, or economic, and the more overlap that there is among these three categories, the more likely it is that a Hybrid War scenario is being planned for a given country.

Socio-Political Structural Vulnerabilities:

Once the US has identified its target, it begins searching for the structural vulnerabilities that it will exploit in the coming Hybrid War. Contextually, these aren’t physical objects to be sabotaged such as power plants and roads (although they too are noted, albeit by different destabilization teams), but socio-political characteristics that are meant to be manipulated in order to attractively emphasize a certain demographic’s “separateness” from the existing national fabric and thus ‘legitimize’ their forthcoming foreign-managed revolt against the authorities.

 

The following are the most common socio-political structural vulnerabilities as they relate to the preparation for Hybrid War, and if each of them can be tied to a specific geographic location, then they become much more likely to be used as galvanizing magnets in the run-up to the Color Revolution and as preliminary territorial demarcations for the Unconventional Warfare aspect afterwards:

* ethnicity

* religion

* history

* administrative boundaries

* socio-economic disparity

* physical geography

The greater the overlap that can be achieved among each of these factors, the stronger the Hybrid War’s potential energy becomes, with each overlapping variable exponentially multiplying the coming campaign’s overall viability and ‘staying power’.

Preconditioning:

Hybrid Wars are always preceded by a period of societal and structural preconditioning. The first type deals with the informational and soft power aspects that maximize key demographics’ acceptance of the oncoming destabilization and guide them into believing that some type of action (or passive acceptance of others’ thereof) is required in order to change the present state of affairs. The second type concerns the various tricks that the US resorts to in order to have the target government unintentionally aggravate the various socio-political differences that have already been identified, with the goal of creating cleavages of identity resentment that are then more susceptible to societal preconditioning and subsequent NGO-directed political organizing (linked in most cases to the Soros Foundation and/or National Endowment for Democracy).

To expand on the tactics of structural preconditioning, the most commonly employed and globally recognized one is sanctions, the implicit goal of which (although not always successful) has always been to “make life more difficult” for the average citizen so that he or she becomes more amenable to the idea of regime change and is thus more easily shepherded into acting upon these externally instilled impulses. Less known, however, are the more oblique, yet presently and almost ubiquitously implemented, methods of achieving this goal, and this surrounds the power that the US has to affect certain budgetary functions of targeted states, namely the amount of revenue that they receive and what precisely they spend it on.

The global slump in energy and overall commodity prices has hit exporting states extraordinarily hard, many of which are disproportionately dependent on such selling such resources in order to satisfy their fiscal ends, and the decrease in revenue almost always leads to eventual cuts in social spending. Parallel with this, some states are facing American-manufactured security threats that they’re forced to urgently respond to, thus necessitating them to unexpectedly budget more money to their defense programs that could have otherwise been invested in social ones. On their own, each of these ‘tracks’ is designed to decrease the government’s social expenditure so as to incubate the medium-term conditions necessary for enhancing the prospects of a Color Revolution, the first stage of Hybrid Warfare. In the event that a state experiences both limited revenue intake and an unexpected need to hike its defense budget, then this would have a compound effect on cutting social services and might even push the Color Revolution timeframe forward from the medium- to short-term, depending on the severity of the resultant domestic crisis and the success that the American-influenced NGOs have in politically organizing the previously examined identity blocs against the government.

*  *  *

Andrew Korybko's book: "Hybrid Wars: The Indirect Approach To Regime Change" can be downloaded here.

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