Category: zerohedge

Submitted by Alice Salles via TheAntiMedia.org,

A report released recently by the Substance Abuse and Mental Health Services Administration (SAMHSA) shows one in every 20 Americans misused prescription painkillers last year. This discovery is particularly relevant because the drug war, combined with changes to U.S. health care law, may have helped exacerbate the so-called opioid epidemic.

In 2015, an estimated 119 million Americans older than 12 used prescription psychotherapeutic drugs — a term used in the SAMHSA report to refer to “pain relievers, tranquilizers, stimulants, and sedatives,” though pain relievers were the most commonly used.

Researchers used that estimate, along with the data gathered from 68,000 surveys to produce the report. According to the report, “[a]ll estimates (e.g., percentages and numbers) presented in the report are derived from NSDUH [National Survey on Drug Use and Health] survey data.”

SAMHSA found the use of prescription psychotherapeutic drugs “in the past year was fairly common in the United States,” with about 44.5 percent of the population claiming to use prescription psychotherapeutic drugs in 2015.

The report also found one in every “14 Americans older than 11 misused or abused the drugs” and that about 2.7 million people, or at least 1 percent of the adult U.S. population, “have a prescription drug use disorder.”

While the report seems to confirm the increase in opioid use among Americans in recent years, it also unveils another seldom discussed point.

According to SAMHSA, “[a]mong people aged 12 or older, an estimated 18.9 million misused prescription psychotherapeutic drugs in the past year, representing 7.1 percent of the population.”

SAMHSA classifies “misuse” as any “use of prescription drugs that were not prescribed for an individual or were taken only for the experience or feeling that the drugs caused.”

The vast majority of those who misused the drugs claimed to have obtained them from a friend or family member, as shown in the graph below.

But the second most common way pain relievers were reportedly obtained raises more questions than answers.

Among those who sought access to opioids without actually needing them, 36.4 percent reached out to a doctor or stole the prescription from a health care provider.

According to Time, changes to U.S. health care law may have helped give patients addicted to opioids an easy way to go back to the hospital for more.

“As part of an Obama­care initiative meant to reward quality care,” Time’s Sean Gregory writes, “the Centers for Medicare and Medicaid Services (CMS) is allocating some $1.5 billion in Medicare payments to hospitals based on criteria that include patient-­satisfaction surveys.” Some of the questions found in these surveys include: “During this hospital stay, how often did the hospital staff do everything they could to help you with your pain?” and “How often was your pain well controlled?”

To physicians who handle Medicare and Medicaid patients and refuse to fill in prescriptions when they ask for a particular painkiller by name, a defiant stand may lead to less funding or a loss of earnings.

“The government is telling us we need to make sure a patient’s pain is under control,” Dr. Nick Sawyer, a health-­policy fellow at the UC Davis Department of Emergency Medicine, told Gregory. “It’s hard to make them happy without a narcotic. This policy is leading to ongoing opioid abuse.”

What started as an effort to help officials better gauge the quality of health care services, Dr. Sawyer appears to contend, may have led to a greater problem among patients who have become addicted to painkillers.

Since 1999, Time reports, “fatal prescription-­opioid overdoses in the U.S. have quadrupled.” In 2014, opioids were involved in 60 percent of 47,000 drug overdose deaths. And while official reports on deadly incidents involving opioids in 2015 are yet to be released, SAMHSA reports that 12.8 percent of people aged 12 or older who used pain relievers in the past year — about 12 million people— “misused” the drugs.

According to a 2012 study published in the Archives of Internal Medicine, patients who often agree they are “satisfied” with they care they receive from hospitals and physicians are the ones who are more likely to spend more on prescription drugs. They also have higher mortality rates than those who claim to be dissatisfied with medical service.

From the study:

“In addition, patients often request discretionary services that are of little or no medical benefit, and physicians frequently accede to these requests, which is associated with higher patient satisfaction. Physicians whose compensation is more strongly linked with patient satisfaction are more likely to deliver discretionary services.”

If this remains true in 2016, and patients continue to ask for prescription painkillers by name — which is the case detailed in the Time article, “How Obamacare Is Fueling America’s Opioid Epidemic” — it might not be a stretch to consider many who obtained prescriptions without the need for opioids may have simply asked a doctor for help. This is an estimation SAMHSA’s own report seems to back.

But until a detailed study is carried out on this subject, it’s hard to pinpoint one single factor that has helped boost opioid use and abuse in the United States.

What we know for a fact is that officials continue to wage a war on drugs.

According to a Drug Enforcement Administration (DEA) report released last year, most new heroin addicts have a history of prescription drug use, leading many to conclude that “[t]he turn to heroin is partially exacerbated by the government’s own attempts to curb the painkiller addiction it helped create.”

As lawmakers pass more legislation while also combating the opioid addiction crisis, those who are addicted to opioids and other drugs who do not have access to health care are forced to go to the streets for their fix. As the crisis becomes much more widespread and a greater number of former patients go after painkillers in the black market, dealers who are not concerned with product quality put the lives of these users in grave danger.

Are intricate, complex laws to blame for this vicious cycle? Or it all just a huge coincidence?

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Goldman Sachs' estimate of September rate-hike odds continue to collapse faster than Hillary Clinton as the absence of a clear signal from a series of speeches by Fed officials (concluding with Lael Brainard's headfake). Goldman have reduced their subjective odds for a hike next week to 25% from 40% previously (still above market expectations of 13%) but remains hopeful for December. However, as Fed-whisperer WSJ's Jon Hilsenrath warns, Yellen faces record levels of dissent as she "confronts a divided group of policy-makers."

As Goldman's Jan Hatzius explains, over the last several days many Fed officials have expressed their views on the outlook for policy, concluding with Governor Brainard yesterday. Policymakers expressed a wide range of views, but a common element was the lack of a clear signal that the FOMC is prepared to raise rates as soon as next week’s meeting. If action were likely, we would normally see an effort to raise market expectations, such that a rate increase did not startle markets. Thus, the lack of a signal is meaningful, and lowers the probability of an increase. We are further reducing our subjective odds for a hike next week to 25% from 40% previously, and nudging up the odds that the next increase comes at the December meeting to 40% from 30%. Together these changes lower our cumulative odds of at least one increase this year to 65% from 70%.

Although it would be very unusual for the committee to raise rates in the face of low market-implied odds, we are reluctant to cut our subjective probabilities further given uncertainty about the committee’s basic framework. Based on the June dot plot and what they have said in recent months, we estimate that there are eight Fed officials who would prefer to raise rates this month (including four voters), and four who would prefer to wait (including two voters). The views of the remaining five officials (four voters) are unclear, but we had thought Chair Yellen was leaning toward a September increase, based on her comments at the Jackson Hole Symposium, as well as the two-hike baseline in the June Summary of Economic Projections (SEP). The lack of a coordinated signal from Fed leadership in recent days suggests this is no longer the case—or was never the case to begin with—and that Chair Yellen herself favors standing pat.

Both sides of the FOMC’s internal debate have outlined the rationale for either hiking or not hiking in recent weeks. Presidents Rosengren and Williams have spelled out the case for further tightening. Their view, excerpted in Exhibit 1, is that allowing the economy to overheat—by which they mean allowing the unemployment rate to fall too far below its structural rate consistent with stable inflation—could lead to excessive inflation or other imbalances in the future. It is better for the Fed to tighten gradually in advance, they argue, than to be forced to slow the economy down to a sustainable pace later.

Their position echoes the argument made by the Fed leadership in late 2015. In a speech last November, President Dudley argued that “overheating is a risk” because it could force the FOMC “to tighten monetary policy more aggressively.” In that case, he argued, “the risk of a recession would probably climb significantly” due to the difficulty that the Fed has historically faced in engineering a soft landing. Chair Yellen made much the same argument in a speech last December, noting that “Were the FOMC to delay the start of policy normalization for too long, we would likely end up having to tighten policy relatively abruptly,” which “would risk disrupting financial markets and perhaps even inadvertently push the economy into recession.”

 

Governor Brainard spelled out the case against further tightening in a speech Monday afternoon, excerpted in Exhibit 2. She argues that the Fed officials should wait for further tangible evidence of a pick-up in inflation, especially given uncertainly about both how much slack remains and the strength of the Phillips curve relationship. Moreover, she notes that tightening would likely lead to dollar appreciation that could depress inflation further. Finally, she argues, given the likelihood that the neutral rate is lower today and that the risks associated with hiking too soon exceed the risks associated with hiking too late, policy should be “tilted somewhat in favor of guarding against downside risks relative to preemptively raising rates to guard against upside risks.” Governor Tarullo made similar arguments in a TV interview on Friday.

 

The arguments on both sides of the current debate largely mirror those made in the run-up to liftoff. But while the FOMC ultimately decided at the December meeting that four hikes would be appropriate this year if the economy evolved in line with its forecast, as it largely has, it now appears likely to conclude its September meeting without hiking even once. While we are not ready to conclude that there has been a regime shift on the center of the committee – after all, the basic argument for tightening has not changed much since last year – our uncertainty about the committee’s framework has increased.

But as The Wall Street Journal's Jon Hilsenrath notes, Fed Chairwoman Janet Yellen will spend the week before the central bank’s Sept. 20-21 policy meeting conferring behind the scenes with 16 officials to listen to their views and plot out a plan for the meeting. She confronts a divided group of policy makers and the potential for more internal dissent than has been common during her tenure running the Fed since 2014.

With the jobless rate at 4.9%, some regional Fed bank presidents believe that the labor market has largely recovered from the financial crisis of 2007-2009, and that short-term interest rates just above zero are no longer warranted. This group notes that risks to the U.S. economy from overseas have dissipated in recent weeks, strengthening the case for a move now.

 

For others, the watchword is patience. This group largely expects to raise rates this year but doesn’t see a need to act now. These officials note the jobless rate hasn’t moved much this year. Slack in the labor market is thus diminishing at a slower pace than before. That has reduced the urgency to raise the cost of credit to prevent the economy from overheating.

 

Moreover, because the economy is growing so slowly, this group doesn’t believe rates need to move very high in the months and years ahead, thus the Fed can take its time.

 

I don’t feel that we are incurring the costs of patience,” Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, told reporters after a speech on Monday.

 

Fed governor Lael Brainard—who has been an outspoken voice in the camp of those who want to wait—called for “prudence” in raising rates in a speech in Chicago on Monday.

 

“I would like to find a way for us to remove some amount of accommodation, but you can’t force it,” said Robert Kaplan, president of the Federal Reserve Bank of Dallas, in an interview. “You have to remind yourself it makes sense to be patient, because I don’t think the economy is overheating.”

 

The Fed might sound like it is waffling, but Mr. Kaplan said it is simply reacting to a mixed economic backdrop. “For the public hearing this, it sounds like, ‘Boy, this is on-the-one-hand, on-the-other-hand,’ ” he said. “That’s true. It is not that the Fed is being so agonizingly judicious. It is that the economy is expanding at a very moderate pace, and inflation has been very slow to get to our target, and we’re reacting to that, and that’s what people are seeing.”

But, a decision to delay would bring its own risks for Ms. Yellen. The Fed could be criticized for confusing market participants with mixed messages. Ms. Yellen herself argued in Jackson Hole, Wyo., last month that the case for a rate increase had strengthened. It was taken by some market participants as a sign that she was ready to move.

Officials also meet Nov. 1-2, but a move seems unlikely then, just a week before Election Day.
 

via http://ift.tt/2ct4ayd Tyler Durden

Submitted by Lance Roberts via RealInvestmentAdvice.com,

In this past weekend’s newsletter, I discussed the return of volatility to the market:

“While it seemed for a while that volatility had been completely eliminated from the market by an ever present Fed, I warned this was a dangerous assumption to make.

 

On Friday, volatility returned with a vengeance.”

(I closed out my VXX long on Monday which served its purpose of protecting declines in portfolios this past Friday.)

“Analysts, the media, and Wall Street talking heads rushed to grab every excuse available to explain the sudden sell-off on Friday from the Fed, ECB, and Japan to interest rates and the dollar. However, the reality is I have been warning about a pending correction over the last month as market extensions had reached extremes.”

Of course, discussing the potential of a market correction is almost always perceived as being “bearish” and by extension must mean that I am either out of the market completely or short the market and have “missed out” on previous advances. This is particularly the case when you have a “round trip” market advance like we did yesterday which leaves investors sitting “flat footed” and unsure about what to do next. 

This reminds me of something famed Morgan Stanley strategist Gerard Minack said once:

“The funny thing is there is a disconnect between what investors are saying and what they are doing. No one thinks all the problems the global financial crisis revealed have been healed. But when you have an equity rally like you’ve seen for the past four or five years, then everybody has had to participate to some extent.

 

What you’ve had are fully invested bears.”

While the mainstream media continues to misalign individuals expectations by chastising them for “not beating the market,” which is actually impossible to do, the job of a portfolio manager is to participate in the markets with a predilection toward capital preservation. It is the destruction of capital during market declines that have the greatest impact on long-term portfolio performance.

It is from that view, as a portfolio manager, the idea of “fully invested bears” defines the reality of the markets that we live with today. Despite the understanding that the markets are overly bullish, extended and valued, portfolio managers must stay invested or suffer potential “career risk” for underperformance. What the Federal Reserve’s ongoing interventions have done is push portfolio managers to chase performance despite concerns of potential capital loss. We have all become “fully invested bears” as we are all quite aware that this will end badly, but no one is willing to take the risk of being grossly underexposed to Central Bank interventions.

Therefore, as portfolio managers and investors, we must watch the markets carefully for signs that the “worm has turned” and then react accordingly. This is something I cover explicitly each week in the Real Investment Report (click here for free weekly e-delivery) but wanted to share five charts that I am watching very closely. These charts are all sending an important message, but it is only when the market begins to listen that they will truly matter. But when it happens, the message will matter, and it will matter a lot.

 

Valuations

One of the consistent drivers behind the bull market over the last few years has been the idea of the “Fed Put.” As long as the Federal Reserve was there to “bail out” the markets in the event that something went wrong, there was no reason not to be invested in equities. In turn, this has pushed investors to not only “chase yield,” due to artificially suppressed interest rates but to push valuations on stocks back to levels only seen prior to the turn of the century.

According to a recent note from Goldman Sachs:

“Stock valuations remain extended. The S&P 500 trades at the 84th percentile of historical valuation, while the median stock is at the 98th percentile.”

Of course, these valuation extensions are occurring against a backdrop of deteriorating economic growth. The combination of which, as shown in the chart above, has not worked out well for investors in the past.

 

Junk Bonds

With the Fed standing behind the markets at every turn, and with interest rates plumbing historic lows, investors were emboldened to “chase yield” in the credit markets. While the financial product marketers (pronounced Wall Street) delivered a smorgasbord of “high yield” investments for consumption, many retail investors had very little clue that “high yield” actually meant “junk bonds.”

With little concern for the additional risk being plowed into portfolios in expectation of greater return, the yields on “junk credits” were pushed to historic lows. However, those yields have begun to rise as of late and historically this has been a sign that the “love affair” with excess risk may be coming to an end. As shown above, the recent deviation between junk bond yields and the S&P 500 has been a warning sign in the past that should be paid attention to.

The chart below shows the ratio between high yield credits and government treasuries. When this ratio is rising, and overbought (blue dashed lined) it has generally been near corrective peaks. 

 

Margin Debt

No risk in the markets? Why not double down by leveraging up? Margin debt has recently hit historic highs in the market on a variety of different measures. Importantly, rising margin debt is NOT the problem. The problem comes when the excess leverage is forced to unwind due to rapidly falling asset prices. Margin debt, like gasoline on a fire, amplifies the downturn in stocks as falling prices trigger margin calls which forces more selling. That vicious cycle is what leads to extremely rapid market declines that leave investors watching, paralyzed with fear, as their capital vanishes.

The explosion in margin debt, which has led to historically large credit balances, was seen at both previous market peaks. Could it be different this time? Sure, but if it isn’t, there is plenty of “fuel for the fire” when the next market reversion begins.

 

Deviation

I have written many times in the past that the financial markets are not immune to the laws of physics. What goes up, must and will eventually come down. The example I use most often is the resemblance to “stretching a rubber-band.” Stock prices are tied to their long-term trend which acts as a gravitational pull. When prices deviate too far from the long-term trend they will eventually and inevitably “revert to the mean.”

See Bob Farrell’s Rule #1

Currently, that deviation from the long-term mean is at the highest level since the previous two bull-market peaks. Does this mean that the current bull market is over? No. However, it does suggest that the “risk” to investors is currently to the downside and some caution with respect to direct market exposure should be considered.

 

Sentiment

Lastly, is investor sentiment. When sentiment is heavily skewed toward those willing to “buy,” prices can rise rapidly and seemingly “climb a wall of worry.” However, the problem comes when that sentiment begins to change and those willing to “buy” disappear. It is this “vacuum” of buyers that leads to rapid reductions in prices as sellers are forced to lower their price to complete a transaction. This problem becomes rapidly accelerated as “forced liquidation” due to “margin calls” occur giving what few buyers that remain almost absolute control at what price they will participate. Currently, there is a scarcity of “bears.”

See Bob Farrell’s Rule #6

With sentiment currently at very high levels, combined with low volatility and excess margin debt, all the ingredients necessary for a sharp market reversion are currently present. Am I sounding an “alarm bell” and calling for the end of the known world? Should you be buying ammo and food? Of course, not.

However, I am suggesting that remaining fully invested in the financial markets without a thorough understanding of your “risk exposure” will likely not have the desirable end result you have been promised. All of the charts above have linkages to each other, and when one goes, they will all go. So pay attention to the details.

As I stated above, my job is to participate in the markets while keeping a measured approach to capital preservation. Since it is considered “bearish” to point out the potential “risks” that could lead to rapid capital destruction; then I guess you can call me a “bear.” However, just make sure you understand that I am an “almost fully invested bear” for now. But that can, and will, rapidly as the indicators I follow dictate.

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A YTD chart of the FANG stocks shows one name sticking out like a sore thumb: Netflix, which at $99, is well below where it was trading at the start of the year, and substantially underperforming its FAG peers. Unfortunately for shareholders of the video streaming company, there is more pain in stock today because overnight Macquarie released a report titled “Crouching Tiger, Hidden Challenges“, in which it downgraded the stock to an Underperform with a $85 price target.

Here is the justification:

Event

 

We are downgrading NFLX shares from Neutral to Underperform. We believe Netflix will succeed over time in its global expansion but the near-term may not be easy, with high content costs, increasing competition from  Amazon in the US, and competitive markets in many countries that Netflix has launched into this year. Our views are shaped by contributions from Macquarie global TMT analysts that contributed to our accompanying report out today, “Global SVOD – Netflix, Amazon & the rise of the locals”.

 

Impact

 

International expansion isn’t easy. Many countries Netflix is expanding into have been growing pay TV markets with incumbent operators that have invested in VOD/SVOD offerings, often as add-ons to existing subscriptions. In addition, numerous SVOD services have gotten off the ground, often at cheaper prices and offering more local content. Many of Macquarie’s global TMT analysts are sceptical of Netflix’s initial launch efforts, citing price and lack of compelling content as risks. We have factored these views into our international subscriber model, where we estimate below-consensus 73m subs by 2019. We believe success will require partnering with local content providers and/or investing in more local content, or in content that will travel. This will be expensive – indeed, Netflix’s total content obligations have ballooned to $16-18bn including  “unknown” off-balance sheet commitments, and could well rise further. We have developed a model that we’ve accurately employed before to forecast Netflix’s 3-year P&L content costs, which we work into our assumptions, leading us to cut EPS estimates in 2017, 2018 and 2019.

 

US growth could also be tougher in the near term, with more competition from Amazon, which is doubling its content spending this year, and a plethora of OTT options coming to market, from HBO Now to skinny bundles to virtual MVPDs like Hulu Plus. These will all compete for producers’ content and consumers’ time. 

 

Longer term however we think SVOD is rising inexorably and there’s little doubt Netflix will do well, with deep pockets, top-notch data to inform on viewership, and a pricing lever, having now raised ASP and delivered good revenue improvement – up 28% in Q2.

 

Earnings and target price revision

 

We are reducing 2017E EPS from $0.85 to $0.74.

 

Price catalyst

 

12-month price target: US$85.00 based on a DCF methodology.

Catalyst: Programming or subscriber updates, Q3 results in Oct.

 

Action and recommendation

 

Downgrade to Underperform. We expect investors will remain focused on raw sub numbers, which could disappoint near-term from both international sub adds  and price elasticity on demand in the US. These effects could  increasingly stand out in light of the high content costs.

Full report

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As a result of the righteous outrage following news that Wells Fargo rewarded Carrie Tolstedt, the head of the group that was recently exposed as creating some 2 million fake credit card and bank accounts so it could churn late fees, and was in charge of what the bank’s employees called “sandbagging”, was leaving the bank with a $125 million package, this morning a panicked Wells Fargo, Warren Buffett’s favorite bank and the largest U.S. bank by market capitalization, said that it would eliminate all product sales goals in retail banking, starting next year.

Wells Fargo said it had fired 5,300 employees involved in the sales practices described by the settlement; what Wells did not say is provide any explanation over the hushed departure of Tolstdet and her $125 million golden parachute.

The move comes days after the Consumer Financial Protection Bureau (CFPB) and two other regulators fined the bank $185 million over abusive sales practices. As Reuters reminds us, the bank paid another $5 million to customers for creating more than two million fake accounts for products like credit and debit cards to meet aggressive sales targets.

In an amusing statement, Chief Executive John Stumpf said that “customers should know that Wells Fargo retail bankers are always focused on their best interests.” Well, except when the bank is caught not only engaging in massive fraud against its customers, but also rewarding the person directly responsible for it with a $125 million pay day.

On Monday, five lawmakers wrote a letter to U.S. Senate Banking Committee Chairman Richard Shelby calling for an investigation.

That may not be the end of it. As the FT reported overnight, the country’s biggest mortgage lender was also facing calls to claw back bonuses paid to senior executives, including the outgoing head of its community banking division, as the fallout over its sham account scandal intensifies. Two top institutional shareholders in the world’s most valuable bank by market capitalisation have demanded answers over payments to Carrie Tolstedt, who headed the division where the episode took place.

One large investor told the Financial Times that Wells should reclaim bonuses from the Wells executive, who has received at least $45m in total pay since 2011.

“There’s no point having a clawback if it doesn’t claw in circumstances like this,” the shareholder said. “What has happened at Wells is an affront to the integrity of the institution.”

Another investor said: “If this person presided over this, why no accountability? We have share-based pay so that it can be clawed back when people have been earning bonuses under false pretences, and if fraudulently opening client accounts isn’t false pretences, then I don’t know what is.”

Cited by the FT, Bernie Sanders, the US senator who ran unsuccessfully for president this year, also weighed in, calling the pay for Ms Tolstedt a “disgrace”.

Moody’s on Monday described the regulators’ disclosures as “highly disturbing” in what has been an “embarrassing episode” . The rating agency said the developments were a “credit negative” for the bank.

We expect that after some congressional hearings and several carefully phrased press releases, some or all of Toldstedt bonus will be clawed back, at which point CEO Stumpf will once again repeat that customers should know that Wells Fargo retail bankers are always focused on their best interests.” Sadly, just like in the case of Goldman and every other bank, customers are merely the muppets to be abused and since nobody ever goes to prison, the abuse is certain to continue indefinitely until something finally changes.

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• IEA Changes View on Oil Glut, Sees Surplus Enduring in 2017 (BBG)
• Futures dip with oil as investors assess rate hike chances (Reuters)
• Hilsenrath – Divided Federal Reserve Is Inclined to Stand Pat (WSJ)
• ‘I didn’t think it was a big deal,’ Clinton says of pneumonia bout (Reuters)
• Clinton’s Lead Narrows Among Independents, Voters Nationally (NBC)
• Libor’s Reaching Point of Pain for Companies With Big Debt Loads (BBG)
• Trump luxury hotel opens just blocks from the White House (Reuters)
• Soaring Student Debt Prompts Calls for Relief (WSJ)
• U.S. bombers fly over South Korea in show of force after nuclear test (Reuters)
• Iran threatened to shoot down US Navy spy planes in the Persian Gulf (Fox)
• S.Korea’s biggest earthquake triggers nuclear safety concerns (Reuters)
• Libor’s Reaching Point of Pain for Companies With Big Debt Loads (BBG)
• Record new U.S. military aid deal for Israel to be signed in days (Reuters)
• Pimco Bond Fund Cuts Bet as Dimon to Gundlach Warn on Rates Path (BBG)
• Chinese Debt Soars Into Space (WSJ)
• High Frequency Traders Elbow Their Way Into the Currency Markets (BBG)
• Oprah to Help Weight Watchers Find New Leader After CEO Resigns (NYT)
• Some of the Biggest Hedge Funds Are Bleeding Cash (BBG)

 

Overnight Media Digest

WSJ

– Federal Reserve officials, lacking a strong consensus for action a week before their next policy meeting, are leaning toward waiting until late in the year before raising short-term interest rates. http://on.wsj.com/2cmvUmq

– Thousands of convicted criminals have hepatitis C, an infectious disease that is one of the country’s biggest killers, but only the sickest qualify for medicines because they are so expensive. http://on.wsj.com/2cHWWEm

– Wells Fargo & Co has told some employees to stop cross-selling products to customers, while the Senate Banking Committee’s Republican majority said late Monday it plans a hearing into the bank’s sales practices. http://on.wsj.com/2crHr2u

– A cease-fire took formal effect across Syria after sundown on Monday amid continued fighting, as the U.S. and Russia sought seven straight days of relative calm to trigger a broader peace initiative and military cooperation. http://on.wsj.com/2cRfhmY

– Thursday night’s matchup between the New York Jets and Buffalo Bills has more at stake than two old foes’ bragging rights. The football game is a crucial test for Twitter Inc , which is streaming the broadcast as part of an urgent revival effort by Chief Executive Jack Dorsey to regain support from advertisers. http://on.wsj.com/2c4C6O0

– Democratic presidential nominee Hillary Clinton said she was feeling much better after a pneumonia diagnosis and promised to release additional medical records this week, moving to contain concerns about her well-being and forthrightness after she stumbled exiting a 9/11 ceremony. http://on.wsj.com/2cRjneH

Canadian fertilizer giants Agrium Inc and Potash Corp of Saskatchewan Inc confirmed plans to merge on Monday, in a deal that would create a crop-nutrient giant valued at about $27 billion. http://on.wsj.com/2cSRUbk

– Weight Watchers International Inc said its chief executive had resigned and the company’s most-famous director, Oprah Winfrey, will help select his successor. http://on.wsj.com/2crysS8

– An Iranian military officer said it was “untrue” that Iranian vessels had veered dangerously close to American warships in and around the Persian Gulf and said the claims stemmed from Washington’s fear of Iranian power. http://on.wsj.com/2cjINi3

– Amazon.com Inc Chairman Jeff Bezos, renowned for keeping quiet about strategic goals for his fledgling space company Blue Origin LLC, on Monday reversed course by disclosing plans for a giant, reusable rocket – named after iconic 1960s astronaut John Glenn – and powerful enough to blast people as well as satellites into high-Earth orbit. http://on.wsj.com/2cmx81f

– HP Inc agreed to buy Samsung Electronics Co’s printer business for $1.05 billion, a deal designed to bolster the Silicon Valley company’s offerings in the market for high-volume devices that handle printing and copying for office work groups. http://on.wsj.com/2clpZPs

 

FT

Minouche Shafik resigned as deputy governor of the Bank of England two years into a five year term to become director of the London School of Economics.

British retailer Marks & Spencer’s director Laura Wade-Gery has left the company after a year of maternity leave.

Canadian fertilizer producers Potash Corp of Saskatchewan Inc and Agrium Inc agreed to merge in a deal that will create a new company with a market capitalisation of almost $30 billion.

HP Inc said it would buy Samsung Electronics Co Ltd’s printer business for $1.05 billion.

 

NYT

– The Saudi national oil company, Saudi Aramco, aims to strengthen its position on the Gulf of Mexico coast by buying a large oil refinery in the Houston Ship Channel that LyondellBasell is putting up for sale. http://nyti.ms/2chbS0Y

– Lael Brainard, a Federal Reserve governor and a leading proponent of the Fed’s efforts to stimulate the economy, said in a speech on Monday that she still favored “prudence” in raising interest rates despite recent signs of economic progress. http://nyti.ms/2chaZWd

– Apple plans to release a free coding education app on Tuesday that it developed with middle-school students in mind, in the latest salvo among technology companies to gain share in the education market and to nurture early product loyalty among children. http://nyti.ms/2chcnYT

– Two of the world’s largest crop fertilizer makers have agreed to combine in the latest farming industry deal. Agrium and the Potash Corporation of Saskatchewan announced their all-stock merger on Monday after weeks of speculation. http://nyti.ms/2chbIqe

– The hedge fund that helped prod Yahoo into selling its core business has found a new target for its brand of shareholder activism: the drug maker Perrigo, Starboard Value, has taken a 4.6 percent stake in the pharmaceutical company and has urged it to take steps to bolster its sagging stock price, according to a letter sent to Perrigo’s board. http://nyti.ms/2chblw1

– Oprah Winfrey will help Weight Watchers International Inc pick a new leader, the diet company said on Monday, about a year after the media mogul announced she had bought a 10 percent stake in the company. http://nyti.ms/2chbHCz

 

Britain

The Times

Shares in the owner of Primark fell by nearly 11 percent on Monday after it warned that it would take a hit on the fall in sterling rather than push up prices at the discount fashion chain. http://bit.ly/2cnardY

David Cameron stood down as a member of parliament after two months spent watching Prime Minister Theresa May purge his allies and tear up key policies. http://bit.ly/2cnbwT0

The Guardian

J D Wetherspoon Plc, the pub chain, has become the latest British company to offer staff on zero-hours contracts the opportunity to move to permanent hours. http://bit.ly/2cncrTE

The president of the European commission, Jean-Claude Juncker, has launched an investigation into whether his predecessor ,José Manuel Barroso, broke EU rules by taking a job at Goldman Sachs Group Inc. http://bit.ly/2cncleP

The Telegraph

Industrial and commodities group Liberty House is in pole position to buy Tata Steel’s speciality and pipe businesses in a deal that could save close to 2,000 jobs. http://bit.ly/2cmSAE0

The Financial Conduct Authority has raised the amount of money Aberdeen Asset Management must hold as a capital buffer, in the latest sign of heightened scrutiny of the City’s money managers. http://bit.ly/2cnd0N9

Sky News

Blackstone Group LP, Carlyle Group LP and Clayton Dubilier & Rice (CD&R) are examining takeover bids for Doncasters, which makes components used across industries such as aerospace and oil and gas. http://bit.ly/2cneh6V

The Independent

The United States has threatened to place new unilateral sanctions on North Korea, following the east Asian country’s fifth and largest nuclear test on Friday. http://ind.pn/2cnfxHa

The Government will keep key details about Brexit negotiations secret from Parliament, Secretary of State for Exiting the European Union David Davis has warned. http://ind.pn/2cne6Zk

 

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

After this weekend, Hillary’s health has become not only a mainstream issue, it has suddenly become a topic of global concern as the following front page of a Dutch newspaper reveals:

“Is Hillary Clinton healthy?” #Amsterdam http://pic.twitter.com/I1Vbjr57as

— Cate Long (@cate_long) September 13, 2016

But the biggest surprise resulting from Hillary’s “Medical event”, is that overnight, even democrats admitted what was formerly unthinkable: the preparation of a “contingency plan” in case Hillary’s health forces her out of the race. As Politico reports, former Democratic National Committee chairman, Don Fowler, who helmed the DNC from 1995 to 1997, during Bill Clinton’s presidency, and has backed Hillary Clinton since her 2008 presidential bid, said that Obama and the Democratic party’s congressional leaders should immediately come up with a process to identify a potential successor candidate for Hillary Clinton “for the off-chance a health emergency forces her out of the race.”

Voicing a concern that has been repeatedly uttered by the “conspiracy theorists” among the fringe media, Fowler said that “now is the time for all good political leaders to come to the aid of their party,” said Don Fowler, who helmed the DNC from 1995 to 1997, during Bill Clinton’s presidency, and has backed Hillary Clinton since her 2008 presidential bid. “I think the plan should be developed by 6 o’clock this afternoon.”

While Fowler said that he expects Clinton to fully recover from her bout with pneumonia, which forced her to leave a Sept. 11 memorial event early and cancel an early-week fundraising swing, he said the Democratic Party would be mistaken to proceed without a contingency plan. The party’s existing rules empower the DNC to name a replacement candidate but include few guidelines or parameters.

Fowler has experience with replacing candidates: at one of his first-ever DNC meetings, in 1972, he supported a decision to nominate Sargent Shriver, a member of the Kennedy clan, to replace Thomas Eagleton as George McGovern’s vice presidential nominee, the only time either major party has replaced one of its two national nominees. Though that transition was relatively seamless, he said, replacing Clinton would be much more acrimonious and could lead to intense lobbying by loyalists to Joe Biden and Bernie Sanders. That’s why, he argued, the party should be prepared.

“This is a different time, with a lot more people who like to express themselves and perhaps wrest control,” he said. “I’m sure some of the Sanders people would want to get into play and some of the Biden people. I think you’re likely to have at least discussions and perhaps controversy.”

“It’s something you would be a fool not to prepare for,” he said in an interview on Monday. He added a note of caution, should Clinton attempt an expeditious return to the campaign trail. “She better get well before she gets back out there because if she gets back out there too soon, it might happen again,” he said.

Mainstream democrats were much more careful in proposing such an alternative: interim DNC Chairwoman Donna Brazile said Sunday that she’s glad Clinton appeared to be feeling better and looks forward to “seeing her back out on the campaign trail and continuing on the path to victory.”

Former Pennsylvania Gov. Ed Rendell, who served as general chairman of the DNC during the 2000 election, agreed that the party’s vacancy rules should be modernized, but he said that discussion should wait until after the election. “There is absolutely no chance Hillary Clinton will withdraw from running for the presidency,” he said in a phone interview. Rendell, a Clinton surrogate, said he’d battled through three bouts of walking pneumonia in his gubernatorial campaigns and called it a common ailment during grueling bids for office. He added that Clinton is likely to put to rest any concerns about her health when she appears alongside Trump at the debates.

“When Hillary Clinton participates in three debates, stands on her feet for 90 minutes in all of those debates … it will dispel any remaining doubts that any Americans have about her physical fitness to serve,” he said. Unless, of course, she faints again at which point it may be indeed to late to being a replacement process, unless a back up plan is already in the works.

As Politico adds, there are still plenty of unknowns about Clinton’s bout with pneumonia, following her near-collapse after leaving Sunday’s Sept. 11 memorial service in New York City. But if her ailment were to persist and prevent Clinton from continuing as a candidate, it would trigger an obscure Democratic Party mechanism that would plunge the presidential race into turmoil.

It’s an extremely unlikely scenario, Politico caveats: ” Clinton’s team says she’ll continue her march toward Election Day later this week. In addition, the campaign plans to make more detailed medical records available soon, a spokesman announced Monday morning.”

But… there is a but: just as Trump’s late-summer swoon had Republicans wondering about his ability to continue his campaign, Clinton’s sudden health care scare has skittish Democrats contemplating contingencies as well. 

Politico lays out the details of what the current process looks like:

If Clinton could not physically continue her candidacy, she would have to voluntarily cede her nomination, creating a vacancy at the top of the national ticket. If she did, party procedures give the chair of the DNC authority to call a “special meeting” to vote on a replacement nominee. In this case, because chairwoman Debbie Wasserman Schultz resigned in July, her successor, Brazile, has that authority. 

 

“The locus of activity for all of those political questions would then move to the 447 members of the Democratic National Committee,” said Elaine Kamarck, a two-decade veteran of the DNC Rules Committee. “And it’s wide open, and all of the political concern would work out in the context of discussions among the members of the DNC.”

 

Though typically DNC rules permit members to appoint proxies to vote for them if they can’t appear in person, it’s prohibited when voting “to fill a vacancy on the National ticket,” per the party’s bylaws. Similarly, though only 40 percent of DNC members are typically required to be present at meetings — with another 10 percent voting by proxy — a vote to replace a national nominee requires a majority of the full committee present.

 

Another challenge: Most states have passed the deadline to change the names of candidates on their ballots, meaning Clinton’s name would likely be required to appear, short of court-ordered solutions or changes in state laws. Kamarck argues that this issue will be moot because it’s up to members of the Electoral College — typically loyal partisans — to cast formal ballots for president. If a replacement for Clinton were offered, those electors in states won by Democrats would almost certainly cast ballots for the party’s preferred nominee. Still, Clinton’s campaign is going to great lengths to quash any talk that she won’t fully bounce back.

As a result, former DNC chair Fowler has argued that the party would be wise to immediately set up an even more detailed process for those who might seek to be Clinton’s successor — from a signature-gathering requirement to a process for receiving nominations during the DNC meeting. All of which, he said, would help ensure confidence in the process and lead toward a broad coalescing around a successor candidate.

“There should be a concerted, unified effort on behalf of the president and the Democratic leaders in the House and the Senate and from the officials of the DNC as well — I think unanimity would be absolutely critical,” he said. “The quicker that unanimity develops, the easier and better the process.”

Kamarck noted that the process hasn’t changed in the decades since Eagleton was replaced over mental health concerns. But Fowler said the politics surrounding the top of the ticket would be more intense — and he noted that any change would occur a few weeks later in the campaign season than the switch in 1972. It would likely take two to three weeks to convene the DNC for a special meeting, he said, and intense wrangling could be paralyzing.

Though typically DNC rules permit members to appoint proxies to vote for them if they can’t appear in person, it’s prohibited when voting “to fill a vacancy on the National ticket,” per the party’s bylaws.

For now, however, those closest to Hillary are shrouded in denial:  “I think by the middle of the week she’ll be out there campaigning as aggressively as ever,” Clinton campaign spokesman Brian Fallon said on Monday.

For Hillary’s – and their own – sake, the democrats better hope that Fallon is right.

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By Richard Breslow, a former FX trader and fund manager who writes for Bloomberg.

It seems clear in retrospect that Fed Governor Brainard’s speech yesterday was not aimed at investors. Rather, it was meant quite pointedly at her fellow voting members of the FOMC.

After all, even with Fed speakers having been consistently hammering home a hawkish message since mid-August, the market was still only pricing about a 30% chance of a September move. The odds, by definition, were against an early move. Even as markets began very catchable moves, which have largely defined the last month of trading. Not a time to kick back, despite the time of year

Interestingly, even with a dovish Brainard and September being declared DOA, yields remain marginally higher than when Fed speak began, as is pricing for a December move. And not all that far from the magical 70%. The S&P 500, ultimate leading indicator of continued easy policy, has more work to do to reclaim previous glory

It’s been busy for the big players, as well as the average trader, with any number of serious portfolio managers arguing for pre-emptive portfolio adjustment. Pimco revealed just yesterday that at the end of August it had reduced duration in its biggest fund. And going long break-evens by selling Treasuries for inflation-linked bonds. Gee, now why would someone do that?

Portfolio managers who have survived and thrived exploiting the greater fool theory and front-running the central banks have long understood something the authorities are only belatedly discovering. Monetary policy has its limits. And sovereign bond markets are backing up as a result.

The Fed continues to waffle between trusting their forecasts and needing the comfort, and cover, of seeing inflation take root before acting. Investors don’t always have that luxury. When their models stop working, they eventually go out of business. Economists can keep hoping a comatose Phillips Curve will suddenly open its eyes

So why did the shoe come off from the party line? When did she feel that we, or more importantly her colleagues, needed to be reminded that the economy, or financial conditions, had suddenly caught pneumonia? It does make one ponder: what was the balance of risk that changed the outlook?

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

After yesterday’s torrid rally, which sent stocks higher the most in 2 months on the back of Lael Brainard surprisingly dovish comments, we have seen an unexpected profit-taking session overnight – maybe the market’s concern about a September rate hike is back – with US equity futures down 0.6%, driven largely by a renewed drop in oil prices which slid after the IEA said a surplus in global markets will last longer than initially estimated, persisting well into 2017 as reported previously. As Bloomberg observes, investors remain wary of riskier assets even after dovish comments on Monday from Federal Reserve Governor Lael Brainard damped expectations for a U.S. interest-rate increase next week. The Fed and the Bank of Japan have policy decisions on Sept. 21, with the latter weighing the case for more stimulus.

The oil drop dragged  down currencies of commodity-producing nations, while a flat USDJPY meant that the Nikkei was unable to capitalize on yesterday’s US surge. In China, the Composite was unchanged after stronger than expected industrial production and retail sales data, together with the PBOC unveiling a 28-day repo, doused expectations of a near-term monetary stimulus.

“The lack of U.S. data and the start of the Fed blackout period need not stand in the way of further risk underperformance and outperformance against commodity and high-yielding currencies,” said Valentin Marinov, head of Group-of-10 currency strategy at Credit Agricole SA’s corporate and investment-banking unit in London. The dollar’s reliance after the Brainard speech “suggests that other factors may be at play that could keep the dollar supported especially against commodity and risk-correlated currencies,” he said.

Given the moves over the last few days, it’s worth taking stock of where markets are this morning relative to the closing levels last Wednesday. Most notable perhaps is the fact that the September implied probability for a rate hike is now unchanged in that time frame at 22%. December odds have crept up from 52% to 57%. In terms of US Treasuries, the 10y yield is up 11bps, while 2y yields are a much more modest 2bps higher. 30y yields are also 14bps higher so we have seen a reasonable steepening across the curve. At the other end of the risk spectrum, the S&P 500 and Dow are -1.24% and – 1.09% in the time, while CDX IG is just 2bps wider. In the commodity complex Gold is -1.20% and WTI Oil is +1.10%. So all in all, notwithstanding a reasonable steepening in the yield curve, overall moves have been relatively contained in general.

“Markets are really struggling to read the runes of Fed statements,” said Andrew Parry, London-based head of equities at Hermes Fund Managers Ltd. “Only last week they were talking about the need to have an early rate rise. They are still very nervous about the process of normalization,” he said in a Bloomberg TV interview.

European stocks were little changed as investors assessed a selloff that sent equities to their lowest level in almost three weeks. Partners Group Holding AG led financial-services shares to the biggest gains among industry groups, up 10 percent after posting a jump in first-half earnings. Energy producers fell the most, tracking declines in crude. Ocado Group Plc plunged 14 percent after the online grocer said it sees no respite from sustained margin pressure in the short term. Health-care companies, traditionally viewed as stocks with greater payouts, contributed the most to Stoxx 600 gains today. A Morgan Stanley index tracking companies with high and sustainable dividends is faring its worst versus the broader European gauge since at least January 2013 amid an uptick in bond yields and a shift into so-called cyclical shares. Graham Secker, head of European equity strategy at the bank, says the extent of the rout has made such shares attractive. A gauge of miners fell for a fourth day, the longest losing streak since June. Anglo American Plc and BHP Billiton Ltd. dropped at least 1.2 percent.

The Stoxx Europe 600 Index was largely unchanged, erasing gains of as much as 0.6 percent. The benchmark fell for the past three days as investors fretted central banks may be less willing to use monetary policy to stimulate economic growth. It’s trading near its lowest valuation in more than a month, on an estimated earnings basis.

Market Snapshot

• S&P 500 futures down 0.6% to 2139
• Stoxx 600 up less than 0.1% to 342
• FTSE 100 down less than 0.1% to 6697
• DAX up 0.3% to 10462
• German 10Yr yield down 3bps to 0.01%
• Italian 10Yr yield down 2bps to 1.26%
• Spanish 10Yr yield down 3bps to 1.06%
• S&P GSCI Index down 0.9% to 353.5
• MSCI Asia Pacific down 0.1% to 137
• Nikkei 225 up 0.3% to 16729
• Hang Seng down 0.3% to 23216
• Shanghai Composite up less than 0.1% to 3024
• S&P/ASX 200 down 0.2% to 5208
• US 10-yr yield down less than 1bp to 1.66%
• Dollar Index up 0.13% to 95.22
• WTI Crude futures down 2.2% to $45.26
• Brent Futures down 1.9% to $47.41
• Gold spot up less than 0.1% to $1,329
• Silver spot up 0.3% to $19.17

Top Global Headlines

• Brainard’s Argument for No September Hike Likely to Sway Fed: Fed governor spells out risk-management calculus for prudence
• Bond Traders Left Doubting Rate Hike as Fed Speakers Go Silent: Traders pare bets on a Sept. rate increase after speech
• Wells Fargo’s CEO to Face Senate Panel in Cross-Selling Scandal: Senate Banking Committee to hold a hearing Sept. 20
• Oil Declines as IEA Says Surplus Will Last Longer Than Expected: Surplus to persist into late 2017 as demand slows: IEA
• Anadarko Pays Freeport $2 Billion for Deepwater Gulf Assets: Driller will generate $3 billion for U.S. drilling efforts
• DraftKings CEO Leaves the Door Open for a Possible FanDuel Merger: Combining co. could also reduce legal and lobbying costs
• Golfsmith May File for Chapter 11 Within Days: NYP: Owner OMERS decided to not invest more capital to save Golfsmith
• GIP to Acquire $4.3 Billion Stake in Spain’s Gas Natural: Repsol sees capital gain from sale of about 246 million euros
• U.S. Bombers Train With Japan, South Korea After Nuclear Test: Training in response to North Korea’s fifth test last week

Looking at regional markets, in Asia stocks traded mixed as they struggled to sustain the impetus from a firm Wall St. lead where S&P500 posted its largest gain in 2 months, after dovish comments Fed’s Brainard boosted sentiment. This supported Nikkei 225 (+0.3%) and ASX 200 (+0.2%) at the open with global markets hanging on to every word from the Fed ahead of next week’s FOMC, although stocks in Japan then swung between gains and losses alongside JPY fluctuations. Chinese markets are mixed with Hang Seng (-0.3%) positive and Shanghai Comp (+0.1%) choppy after better than expected Industrial Production and Retail Sales, as the firm data reduces urgency for measures while the PBoC also resumed the use of 28-day reverse repos, which some suggested could be an attempt to curb financial leveraging. 10yr JGBs traded higher to track gains in T-Notes while today’s 20yr bond auction was mixed with the average and lowest accepted prices higher than previous, although b/c printed its lowest in 6 months.

As noted above, China reported key economic data for the month of August, which saw both factory output, and retail sales rebound, suggesting that the July deterioration may have been a one off event. Here are the details:

• Chinese Industrial Production (Aug) Y/Y 6.3% vs. Exp. 6.2% (Prey. 6.0%)
• Chinese Retail Sales (Aug) Y/Y 10.6% vs. Exp. 10.2% (Prey. 10.2%)

Top Asian News:

• China’s Economy Strengthened as Factory Output, Retail Perk Up: Rebound suggests July weakness was a blip, not fresh downturn
• CEO’s Leveraged Bet on Himself Earns $423 Million as Sina Soars: Charles Chao’s investment has jumped 81% in 10 months
• BOJ Is Said to Mull Change or Abandonment of JGB Maturity Range: BOJ last adjusted the guidance in December
• Axiata Said to Seek Buyers for $700m of Overseas Holdings: Axiata to cut stakes in Indonesia, Sri Lanka, Cambodia units
• Rich Indonesians Snap Up Singapore Luxury Homes as Taxman Calls: Indonesians beat all foreign buyers of high-end units in 2016
• China’s Postal Savings Bank Seeks Up to $8.1b in H.K. IPO: Co. plans to offer 12.1b shares in price range of HK$4.68- HK$5.18 each
• Japan’s Renesas Agrees to Buy Intersil for $3.2 Billion: Renesas is offering $22.50 a share, 14% premium
• Hanjin Fall Is Lehman Moment for Shipping, Seaspan CEO Says: Gerry Wang concerned about systemic impact from Hanjin

European equities started off on the front foot but as the session continued energy prices dampened the mood with the energy sector underperforming to see European equities slip into negative territory (Euro Stoxx -0.1 %) with newsflow particularly light from a European perspective and markets unreactive to the latest German ZEW survey. In fixed income markets, prices have ebbed higher alongside the downtick in equities with Europe absorbing supply from the Netherlands and Italy this morning. As has been the case for equity markets, newsflow is on the light side with the next source of focus on the latest BoE buyback and 30yr Bond auction from the US.

Top European News:

• U.K. Inflation Holds at 0.6% as Import Price Pressures Build: U.K. inflation was unexpectedly unchanged in August
• German ZEW Investor Confidence Unchanged as Brexit Risks Persist: ZEW cites ‘ambiguity’ in signals for economic prospects
• Air Liquide Starts 3.3 Billion-Euro Rights Issues for Airgas: French gases supplier offers one share for every eight held
• Veolia $1.3b Deal Shows French Company Unfazed by Brexit: Waste-to-energy contract caps series of recent U.K. deals
• Porsche Said to Show First Station Wagon in 2017 to Expand Range: New car to challenge Mercedes-Benz’s CLS Shooting Brake
• ABN Amro Chief to Leave Early After Returning Bank to Market: Zalm, CEO since 2009, says lender needs longer-term leader
• Esure Shares Advance on Plan to Spin Off Gocompare.com Unit: Demerger to take place in fourth quarter, backed by board
• Ocado Shares Slump as U.K. Grocery Price War Damages Profits: Amazon encroachment in London also pressures margins: analyst
• Vedanta Wins Cairn Nod for BHP-Style Resources Conglomerate: Vedanta shareholders gets cash while Cairn’s add debt
• Italian Industry Output Exceeds Expectations, Boosting Outlook: Pharma, vehicle production lead monthly increase

In FX, it has been a mixed session in early Europe, with FX markets showing no discernible theme other than watching the broader risk sentiment reflected in the equity markets. The JPY has seen a modest bid to keep the USD rate below the 102.00 mark. USD sentiment has been mixed with last night’s comments from Fed member Brainard having taken the shine off a little, but in the case of EUR/USD, the market still has designs to a test on 1.1200, having snapped up to 1.1265 or so in NY yesterday, but returning lower just as sharply. German and EU ZEW were weaker than expected this morning, with the former down on the previous month, but there was little noticeable impact on the single unit. In terms of data, UK CPI was a potential mover, but given the sharp post Brexit losses in GBP, both the headline and core Aug reads were unchanged vs Jul, but there was no major impact on the Pound as we look to the BoE later this week as well as the key retail sales number. EUR/GBP is holding off resistance levels ahead of .8500, while Cable is flitting either side of 1.3300. The commodity currencies remain pressured after some temporary relief late yesterday, but USD/CAD shot back up to 1.3100 again on Oil prices (and S&P futures deep in the red again) — the !EA forecasting the surplus to persist into 2017 and reducing 2016 demand by 100k bpd.

In commodities, WTI and Brent crude futures reside in negative territory amid a paring of some of yesterday’s gains as well as the latest update from the IEA, in which the organization predicted the current surplus in oil markets will persist in 2017 while also reducing its oil demand forecast for 2016 by 100k bpd to 1.3mln bpd. Looking ahead, markets will await the latest after-market API data which comes in the context of last week’s significant drawdown in inventories — the largest since 1999. Elsewhere, in precious metals, price action has been relatively muted, with the likes of gold and silver in modest positive territory having traded in a tight range throughout European hours.

US Event Calendar

• 6:00am: NFIB Small Business Optimism, Aug. 94.4, Est. 94.8 (prior 94.6)
• 2:00pm: Monthly Budget Statement, Aug., est. -$101.5b (prior $64.2b)

Bulletin Headline Summary from RanSquawk and Bloomberg

• European equities enter the North American crossover relatively unchanged with early gains erased alongside a downtick in energy
• FX markets showing no discernible theme while the JPY has seen a modest bid to keep the USD rate below the 102.00 mark
• Looking ahead, highlights include German CPI, UK CPI, German ZEW, API Crude Oil Inventories and a speech from ECB’s Draghid

DB’s Jim Reid concludes the overnight wrap

The main conclusion from yesterday was that 2+2 sometimes just equals plain old 4 as the conspiracy theories around the timing of Brainard’s speech were proved unfounded. It’s rare that a Fed speaker gets so much global attention. I even forced my wife to sit through the Q&A when I got home last night. She was thrilled.

Indeed Brainard made her view pretty clear and stuck to her well versed dovish script. The Fed Governor said that ‘in the presence of uncertainty and the absence of accelerating inflationary pressures, it would be unwise for policy to foreclose on the possibility of making further gains in the labour market’ and so ‘to the extent that the effect on inflation of further gradual tightening in labour market conditions is likely to be moderate and gradual, the case to tighten policy pre-emptively is less compelling’. She also added that asymmetry in risk management in today’s new normal ‘counsels prudence in the removal of policy accommodation’. In the Q&A the question was asked if she would dissent at a hike in September but she sidestepped this. Overall it was pretty clear from the speech that there was little change in her uber dovish views.

Prior to this we’d also heard from a couple of the more centrist non-voters of the FOMC in the Minneapolis Fed’s Kashkari and Atlanta Fed President Lockhart. The former preached a similar cautious tone, saying that he ‘wants to see more movement in core inflation’ and that ‘he doesn’t see huge urgency to do anything’, while the latter was a little more upbeat but largely consistent with his prior view, saying that he expects the FOMC to have a ‘serious discussion’ at next week’s meeting but that he didn’t ‘feel that we are incurring the costs of patience that put a lot of urgency on the question of raising rates’.

It was Brainard’s comments that dominated the market though. Treasuries retraced a bit of Friday’s losses with the benchmark 10y yield closing 1.2bps lower at 1.664% although had been as high as 1.696% prior to the comments.

2y yields were also 1.2bps lower by the close at 0.772% although were nearly 4bps down from the pre-Brainard highs. Her comments took 6 percentage points out of the September hike odds with it closing at 22% while December is now down to 57% from 60% on Friday. Meanwhile the USD edged lower (Dollar index closing -0.23%) and risk assets rallied back. The S&P 500 closed +1.47% and sector wise it was a mirror image of what we got on Friday with high yielding dividend stocks in telecoms, consumer staples and utilities sectors leading gains, while financials lingered towards the bottom (albeit still in positive territory). There was a similar rebound for credit with CDX IG nearly 3bps tighter on the day.

Given the moves over the last few days, it’s worth taking stock of where markets are this morning relative to the closing levels last Wednesday. Most notable perhaps is the fact that the September implied probability for a rate hike is now unchanged in that time frame at 22%. December odds have crept up from 52% to 57%. In terms of US Treasuries, the 10y yield is up 11bps, while 2y yields are a much more modest 2bps higher. 30y yields are also 14bps higher so we have seen a reasonable steepening across the curve. At the other end of the risk spectrum, the S&P 500 and Dow are -1.24% and -1.09% in the time, while CDX IG is just 2bps wider. In the commodity complex Gold is -1.20% and WTI Oil is +1.10%. So all in all, notwithstanding a reasonable steepening in the yield curve, overall moves have been relatively contained in general.

Switching now to the latest in Asia where the August activity indicators in China, released this morning, have made for fairly positive reading and importantly indicated a rebound from the softer July prints. Industrial production was reported as increasing three-tenths last month to +6.3% yoy (vs. +6.2% expected) and retail sales increased four-tenths to +10.6% yoy (vs. +10.2% expected). Fixed asset investment was unchanged at +8.1% YTD yoy, but came in ahead of expectations of +7.9%. That data follows the better than expected export numbers in August, as well as the improvement in the latest manufacturing PMI and so a sign perhaps that we’ve seen some stabilization in economic activity.

We haven’t seen too much of a reaction in China’s equity markets following the data with the Shanghai Comp (-0.18%) and CSI 300 (-0.22%) modestly lower. Elsewhere though there is a better tone for much of the rest of Asia with the Nikkei (+0.19%), Hang Seng (+0.93%), Kospi (+0.45%) and ASX (+0.30%) all up. US equity index futures are a touch in the red, not helped by a near 1% decline for WTI this morning. Sovereign bond yields in Asia meanwhile are a couple of basis points lower. There’s also been some focus on the move by the PBoC to pump $9bn of liquidity into the financial system through 28-day reverse repos this morning, the first time it has done so since February and ahead of a public holiday later this week.

Back to yesterday. There wasn’t a huge amount to report during the European session with Brainard’s comments coming after the closing bell. Equity markets continued to weaken although this generally reflected some of the catch-up with the sell-off in the US session late on Friday. The Stoxx 600 finished -0.95% and has fallen for three consecutive sessions now. Sovereign bond markets also weakened further with 10y Bund yields climbing +2.7bps to 0.035% and to the highest yield since June 8th. In fact 10y Bunds are now up 15.4bps since Wednesday’s close. If you prefer more eye catching numbers then these are the last three daily moves for yields in percentage terms: +291%, +115% and +46%.

Staying in Europe the ECB’s CSPP certainly stepped back up a gear last week. The latest numbers showed that after the previous holiday shortened week, net purchases totalled €2.398bn (average €480mn/day) which is the second highest weekly run rate since buying began (average daily run rate of €352 since program started). This increase was likely helped by a pickup in primary. We won’t know updated official primary levels of purchase until next month though.

Looking at the day ahead now, this morning we’ll be kicking off in Germany where the final revisions to August CPI are due. The UK will then publish the August CPI/RPI/PPI monthly data where it’s expected that Sterling depreciation has helped to boost headline CPI +0.4% mom last month. Following that we’ll then get the September ZEW survey in Germany where the consensus is for a nearly 1.5pt fall in the current situations index. It’s fairly quiet in the US session again this afternoon. The NFIB small business optimism reading for August will be released as well as last month’s Monthly Budget Statement this evening. With the FOMC blackout now in effect there’s no Fedspeak now, while over at the ECB Lautenschlager and Nowotny are scheduled speakers.

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

By Chris at http://ift.tt/12YmHT5

The conversation I have for you today is with Todd Harrison.

Todd is an incredible character, a 20-year Wall Street veteran who’s worked multiple roles in finance, beginning at Morgan Stanley’s worldwide equity derivative desk where he built the financial services and biotech “books” into multimillion dollar profit centres. Most likely a factor leading to his being promoted to vice president at the tender age of 26, the youngest in the firm at the time.

Todd then went on to join Galleon Group as Managing Director of derivatives, where the fund grew from $500m to $6bn during the 3 years he was with Galleon.

Todd then joined the $400m hedge fund Cramer Berkowitz LLC as president and head of trading in 2000 where he managed 200 positions through the tech bubble and bust, interfaced with research analysts and had sole responsibility for an annual $90 million commission structure.

He is founder and CEO of Minyanville Media and his flagship website is Minyanville. He’s appeared on FOX, CNBC, CNN and his articles are published in The Wall Street Journal, Business Week, Fortune and Barron’s.  He’s also an Emmy Award winner for his animated business news show “Minyanville’s World in Review.”

Todd’s also the author of “The Other Side of Wall Street:  In Business It Pays to Be an Animal, In Life It Pays to Be Yourself”. During our conversation Todd and I covered:

• Why in the GFC the Fed “bought the cancer and sold the car crash”.
• The velocity of information is outstripping the velocity of money and what this means for algo driven markets which act in real time while policy makers take time.
• Todd’s trade of the decade and his current largest position. I guarantee it’ll surprise you.
• And much more.

(Click on the image to listen to the podcast)

Or – if you prefer to read rather than listen – you can read the podcast transcript below (or download it here).

Enjoy!

– Chris

“Good traders know how to make money but great traders know how to take a loss. For if there wasn’t risk in this profession, it would be called winning rather than trading.” — Todd Harrison

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