ADP Employment Growth Tumbles From Miraculous December Bounce

Following December's miraculous surge in employment (to the biggest improvement in a year), ADP Employment tumbled back a more "normal" 205k in January (stilll beating expectations of 195k). Services dominated (192k vs 13k for goods). Once again manufacturing disappoints with no change in employment as large business hiring slows notably.

ADP employment cyhange dropped notably but still beat expectations…

 

As ADP catches down to reality comiong from initial claims…

 

Change in Nonfarm Private Employment

 

Change in Total Nonfarm Private Employment

 

Change By Company Size

 

Change By Selected Industry

 

The "recovery" continues to be all Services, little Goods:

  • Goods-producing employment rose by 13,000 jobs in January, well off from December’s upwardly revised 30,000. The construction industry added 21,000 jobs, which was roughly in line with the average monthly jobs gained during 2015. Meanwhile, manufacturing neither added nor lost jobs.
  • Service-providing employment rose by 192,000 jobs in January, down from an upwardly revised 237,000 in December. The ADP National Employment Report indicates that professional/business services contributed 44,000 jobs, down from 69,000 in December. Trade/transportation/utilities grew by 35,000, up slightly from a downwardly revised 33,000 the previous month. The 19,000 new jobs added in financial activities were the most in that sector since March 2006.

 

The commentary from ADP: "One of the main reasons for lower overall employment gains in January was the drop off in jobs added at the largest companies compared to December. These businesses are more sensitive to current economic conditions than small and mid-sized companies,” said Ahu Yildirmaz, VP and head of the ADP Research Institute. “Over the past year, businesses with less than 500 employees have created nearly 80 percent of new jobs.”

Mark Zandi, chief economist of Moody’s Analytics, said,

“Job growth remains strong despite the turmoil in the global economy and financial markets. Manufacturers and energy companies are reducing payrolls, but job gains across all other industries remain robust. The U.S. economy remains on track to return to full employment by mid-year.”

Full breakdown:

<br /> ADP National Employment Report: Private Sector Employment Increased by 205,000 Jobs in January<br /> ” border=”0″ height=”1598″ src=”<a href=http://ift.tt/1Qcdxvc…” width=”598″ />


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Phoenix Open Billboard Says Buds Are Safer Than Bud (or Coors)

The organization backing a marijuana legalization initiative that is expected to appear on Arizona’s ballot in November is taking advantage of this week’s Phoenix Open to promote their cause with a billboard that compares cannabis and alcohol. The golf tournament, which is cosponsored by Coors and held at the TPC of Scottsdale complex, is known as “the greatest party on grass.” Hence this billboard at the corner of 7th Street and Lincoln in Phoenix:

“We’re glad that Arizona residents have the opportunity to attend the Open, consume alcoholic beverages, and enjoy the ‘greatest party on grass,'” says J.P. Holyoak, chairman of the Campaign to Regulate Marijuana Like Alcohol, which is backed by the Marijuana Policy Project. “We also think it’s important to acknowledge that alcohol is a much more harmful substance than marijuana. Alcohol is more toxic, more addictive, and more likely to contribute to rowdy or violent behavior. If spectators can enjoy a beer or cocktail at the TPC, adults should not be arrested for enjoying a little marijuana at a backyard picnic. It is, quite literally, a safer party on grass.” The website listed on the billboard, Marijuana-vs-Alcohol.org, elaborates on the comparison.

In case the grass joke did not sate your appetite for golf-related word play, Holyoak has more. “Our state took a shot at marijuana prohibition and landed in a hazard,” he says. “We are giving Arizona a mulligan on its marijuana policy and letting voters take another swing at it this fall. For our part, we will continue to educate Arizonans about the relative harms of marijuana and alcohol as we tee up this initiative for November.” Oy.

Arizonans approved medical marijuana by a razor-thin margin in 2010, and it’s not clear they’re ready to go further. Last October a survey by the Morrison Institute for Public Policy at Arizona State University found that just 49 percent of voters thought marijuana should be legalized for recreational use.

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JPM: “The Backdrop Remains The Same: Sell Rallies Toward 1950”

Yesterday we reported that following a spike in calls by the sellside to “sell the rally”, hedge funds did just that and according to BofA client data, hedge funds dumped the most shares in the past week in two years.  Today, JPM’s Adam Crisafulli repeats the firm’s now default call for 2016, noting that “the bigger picture backdrop for the market remains the same.”

Here are the three key backdrops:

  1. 16x and $120 create a firm ceiling at ~1950 and thus moves toward that level should be faded;
  2. the macro environment isn’t nearly as horrible as the mid-Jan narrative suggested but there are still plenty of headwinds;
  3. the biggest risks for the tape right now are misplaced hopes around crude (a “grand bargain” production deal isn’t imminent) and central banks (incremental easing actions going forward won’t be nearly as positive for stocks as ones in the past and actually could be counterproductive if they weigh meaningfully on banks).

As for imminent catalysts, this is what JPM sees:

Catalyst bottom line – the big ones to watch: 1) US jobs for Jan Fri 2/5; 2) Yellen testimony before the House on Feb 10 and Senate Feb 11; 3) EU Leaders Summit 2/18-19 (deal on retaining the UK in the EU is expected at this event); 4) G20 fin min/central bank meeting (2/26-27 Shanghai).

JPM is not the only one: moments ago famed technician Louise Yamada doubled down on the call, saying the primary trend for stocks is now lower as bear market unfolds; monthly momentum indicator still giving sell signal and declining; “rally may fade as fast as it appeared,” Bloomberg cites Louise Yamada’s monthly note.

She adds:

  • Bear market rallies “can last long enough to lull investors into a false sense of complacency”
  • Avg. bear market lasts 17 months, suggesting this one will last until ~Oct. 2016 given market top was May 2015
  • Measured move target would suggest S&P 500 eventually dropping to ~1,600, DJIA to ~14,000

There is always one caveat… the biggest one: the Fed could adopt more stimulus such as negative interest rates, in which case “2016 will prove a challenging year and defensive positions are still warranted.”

In other words, enjoy trading the “fundamentals” such as which a central banker had for breakfast.


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Of Porn Stars and Presidents: What the Adult-Entertainment Industry Thinks of the 2016 Candidates

In Salt Lake City recently, a Republican state senator filed a bill to declare pornography a “public health hazard” and an “epidemic that is harming the citizens of Utah and the nation.” Five hours away in Las Vegas, America’s porn industry was gathering en masse to celebrate the year’s adult-film achievements and hawk sex toys, tech, and fantasies. When the subject of politics came up—and it did, in various capacities, throughout the four days of the 2016 AVN Adult Entertainment Expo, the industry’s biggest trade show and fan gathering—one of the most pervasive themes was fear and loathing for the Republican Party. So Sen. Weiler’s anti-porn bill is right on beat with adult-industry expectations.

But are industry expectations stuck in another era? Would Democrats really be better for smut? The Obama administration has been using the specter of “sex trafficking” to go after online speech and web businesses and encourage hotel-staff to report suspicious condom usage to the Department of Homeland Security (DHS). It’s not much of a leap from cracking down on prostitution to condemning the porn industry as complicit. 

As recently as 2005, Hillary Clinton railed against both “violent video games” and pornography as part of a bill to ban certain games for minors. That was the same year Democrats in the Senate wanted to enact a 25 percent federal excise tax on porn websites. And under the Bill Clinton administration, Congress passed the Child Online Protection Act of 1998, which imposed criminal liability on porn sites if children viewed “harmful” material there.

While Democrats have historically been less keen on obscenity prosecutions and less vocal about values and “decency,” they’ve also proven themselves plenty willing to censor and tax adult-oriented business in the name of pubic health and safety. With the old Moral Majority reframing its message as one against sexual exploitation—literally, the values group changed its name to the National Center on Sexual Exploitation in 2014—the right may have more luck picking up feminists and other social-justice types for the cause. 

PORN STARS FOR SANDERS

Yet understandably, the adult-film business still leans left. At the AVN Expo, younger performers with an opinion on the 2016 presidential race almost exclusively advocated for Bernie Sanders.

“I really like Bernie,” says adult star Alison Tyler, 26, a Los Angeles native whose pre-porn jobs included Green Peace activist and working for a company that made gears for Lockheed and Boeing. More recently, Tyler played Wonder Woman in Batman v. Superman XXX: An Axel Braun Parody. “I find it real interesting because you don’t really see… I don’t want to put this wrong, but you don’t really see older white men that are as cool as [Sanders] is.” 

“I think Bernie Sanders is probably on top for the industry,” Tyler adds. “I know a lot of women started out following Hillary, but I think that was just on the basis that she was a woman, and then when people started listening to her they’re like, uhhh, maybe not.”

Performer Jojo Kiss, 20, also favors Sanders, finding the prospect of a Donald Trump presidancy “so terrifying it just makes me want to cry and get in the fetal position.” Asked if she thinks a Republican president would be bad for the porn industry, Kiss—who spent several years at a Christian school and is dressed like a slutty nun—interrupts me to stress that “there’s nothing wrong with a Republican. It’s just the very, very conservative, religious Republicans, where most of their beliefs are based on the bible.”

Adult star Natasha Nice, 27, reached out to me on Twitter because she’d been talking “about liberty and porn” with someone who recommended she check out my work. I dropped by Nice’s booth at the AVN Expo and she explained that she’s been reading John Stuart Mill’s On Liberty and thinking about how it applies to pornography. (Swoon.) But having not paid close attention to the 2016 race so far, Nice says “off the top of my head I would probably say Sanders” is her favorite candidate. 

“I think it’s a big millennial thing,” says Alexa Grace, 21, of Sanders’ popularity. 

THE RARE REPUBLICANS OF PORN

Indeed, only one millennial porn performer I talked with—24-year-old Jay Taylor—identified as a Donald Trump fan. “My view is very unpopular,” Taylor tells me. “I’m one of the very very very few” Trump supporters in the industry.

Taylor points me to another of these rare creatures, 46-year-old adult star Dick Chibbles. A native New Yorker who played the Donald in last year’s Donald Tramp—The XXX Parody, Chibbles calls the candidate “the voice of Americans” because “he doesn’t candy coat shit like 99 percent of all these other candidates, which is what America needs.”

In Washington, “you’ve got your one side, you’ve got your other side, it’s two wings of the bird but it’s the same bird,” Chibbles complains. “They all answer to the same corporate entity. Whereas you got Trump, he doesn’t need money, he doesn’t need contributions, he actually genuinely cares—I mean, he’s feeding his ego, too, but he cares.” 

Neither Taylor nor Chibbles think Trump would be bad for porn. Chibbles notes that “right after I played Trump for WoodRocket TV, I tweeted the pictures of myself as Trump to RealDonaldTrump on Twitter, and you know, he liked it.”

“He’s a businessman,” says Taylor, adding that her goal is “to be as rich as Donald, and I can’t get that by voting for Bernie.” 

Former MTV Teen Mom Farrah Abraham, who now runs a webcam site called Farrah’s Friends, also pointed to Trump’s business record as a perk. Though Abraham declined to say who she would be voting for, she did say it would be “someone very business focused.” 

FEAR OF OBSCENITY PROSECUTIONS LINGER 

But off the expo floor, both Trump and Sanders received much less favorable reviews from adult-biz veterans. “How does socialism fit into the porn agenda?” asked retired porn star Evan Stone at a January 20 panel on porn and politics. He thinks Clinton will be indicted and then “Trump will take this election”—though it’s not a scenario that Stone, a libertarian, is happy about.

“I am really afraid that there are enough stupid people that Trump can win,” said fellow panelist Dee Severe, an adult filmmaker and dominatrix. Personally, Severe’s loyalties lie with Clinton.

“Trump really has this efficient system of demonizing people,” she said, and “what is more easy to demonize than porn? That would be a really easy thing for him to do to show, ‘look, I really am conservative,’ you know, nevermind the three wives and Miss Universe and all that.”

California attorney Clyde Dewitt also thinks Trump would go after porn to appease the Republicans’ evangelical base. Dewitt noted that Ronald Reagan didn’t target obscenity in his first term, but “obscenity prosecutions started big-time in 1984 when Reagan realized he owed the evangelicals something. And what he couldn’t give them was to overturn Roe v. Wade,” so instead he got tough on obscenity. 

“In 2020—if Trump’s elected in 2016—he’s going to say, ‘I need the evangelicals,'” Dewitt cautioned. Asked if there’s a candidate that “sends shivers” down their spines, Dewitt and Severe agreed on Texas Republican Sen. Ted Cruz.

IS PORN PERSECUTION PAST?  

Former porn actor and Evil Angel studios founder John Stagliano said he plans to vote for “whoever the libertarian party runs” because it’s the only party that rejects “warmongering.” (Disclosure: Stagliano is a donor to the Reason Foundation, the nonprofit that publishes Reason magazine.) Stagliano noted that he did like Rand Paul, but no longer believes the candidate has a chance. A “best case scenario” at this point would be Bernie Sanders and a Republican Congress, Stagliano added, because Sanders would be good at diplomacy and foreign policy but Congress would keep him from passing any of his “socialist agenda.”

But Stagliano—himself the target of a George W. Bush-era obscenity arrest over Evil Angel titles such as Milk Nymphosdid not share some panelists’ fears that Trump, Cruz, or any Republican president would target porn. The era of support for that is over, he suggested, as people in general are becoming more tolerant of one another’s sexual activities and identities. “I don’t hear any [of the 2016 presidential candidates] talking about pornography at all,” said Stagliano. “I don’t hear the evangelicals feeling like they’re powerful, like they were with George Bush, like they could get the president to create an anti-obscenity task force.”

Under Bush, the Department of Justice had launched an Obscenity Prosecution Task Force in 2005 with a mission to “protect citizens from unlawful exposure to obscene materials.” And as recently as the 2012 election season, GOP candidates including Mitt Romney, Rick Santorum, and Newt Gingrich all promised strict enforcement of federal obscenity laws.

But now, “it seems you can put the anti-obscenity idea in the same context as gay marriage,” Stagliano said, meaning political opposition to both porn and same-sex marriage has fallen out of vogue.

Stone seemed less sure, however. Marriage equality won “by showing attractive gay men holding hands, and everyone was like ‘awww. They’re like kittens!'” he said. They won “by not showing the sex stuff. But we show that!”

Dewitt countered that culture and public opinion aren’t the point. “Assuming the next president serves 8 years,” he said, Supreme Court Justice “Ginsberg’s gonna be 91 by the time the next president is done, Robert’s gonna be 86, and Scalia and Kennedy are going to be 88. The next president will probably have four appointments on the Supreme Court.”

The future appointment of Supreme Court Justices was also a big topic for experts on an AVN Expo panel about legal issues. Overall, the adult industry “will suffer greatly if a Republican is in the White House,” said J. Michael Murray, a partner with Cleveland appellate law firm Berkman, Gordon, Murray & DeVan who represents the adult-film trade group Free Speech Coalition. Murray and fellow panelists Paul Cambria, Allan Gelbard, and Karen Tynan all agreed that the GOP would be bad news for adult business.

Cambria, a constitutional lawyer who has worked on many major media cases, thinks that “if a Republican becomes president we’ll see all the [obscenity-related] laws that we haven’t enforced in a long, long time enforced.”

During his session, Dewitt noted that since the 1980s, “no Democratic administration has prosecuted obscenity cases except two leftover from Republicans,” yet “every Republican administration has.”

JAILED FOR SELLING PORN

During an otherwise-lighthearted AVN Awards ceremony January 23, AVN founder Paul Fishbein—accepting the evening’s “Visionary Award”—said that he had “friends get put on trial and go to jail just for selling an adult film” a few decades ago. 

In many, many respects, the politics surrounding porn have come a long way since then, Fishbein noted. But having “watched for 34 years as the adult industry has taken bullet after bullet,” he’s not one to be complacent, no matter which political party is in office. Mentioning Homeland Security’s summer ’15 takedown of escort site Rentboy and recent anti-porn regulations in California, Fishbein warned the industry that “somebody, somewhere, is always trying to find a way to censor speech and prevent you from doing what you’re doing.”  

Some of the feds’ recent actions have been wake up calls for those in the adult business who thought Democrats knew better. “For the adult business, it’s always been Democrat,” says Kim Airs, owner of online boutique GrandOpening.com, who has been selling adult novelties for decades. Homeland Security’s raid on Rentboy “caught everyone off guard. It was like, wait a minute, this is supposed to be a sex-friendly administration,” Airs says.

Perhaps the point is the adult-entertainment industry should trust no one, or at least no one from the main two political parties. I’m left feeling that the wisest words about the 2016 election came from the youngest porn performer I interviewed, 19-year-old Joseline Kelly. “At this point, I don’t really want to vote for anyone because they’re all kind of scary right now,” says Kelly. “You can’t really trust any of them, they’re all doing weird shit, you know? If I vote I’m just going to feel guilty … so I’d just rather not.” 

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Are You a Fan of Making a Murderer? Check Out These Exoneration Figures for 2015

Fly! Be free!The Netflix series Making a Murderer has gotten huge media and public attention for its portrayal of the story of Steve Avery, who served 18 years in prison for sexual assault and attempted murder, only to be later exonerated and then arrested again and convicted in 2007 for murder.

The National Registry of Exonerations at the University of Michigan is pivoting off the fame of the documentary series to highlight its annual figures showing how many other prisoners are found innocent, Their numbers for 2015 were released today and they show a new high in numbers. In 2015, 149 people (that the registry has documented) were exonerated of their crimes. This is an increase of 10 over 2014’s numbers, which were themselves a record (note that when I blogged 2014’s numbers, we registry had them initially at 125. These may increase as more information makes it to the registry. It’s possible then that more than 149 people were exonerated last year.)

Here’s some important statistics from the registry’s report:

  • 2015 exonerationsThose exonerated in 2015 had served an average among them of more than 14 years in prison.
  • The flat numbers are small, but we’ve seen a doubling in the number of exonerations since 2011.
  • 58 of those exonerated had been convicted of homicide. Five had been sentenced to death.
  • 47 of those exonerated had been convicted of drug possession.
  • 27 of the exonerations were from convictions connected to false confessions, primarily in homicide cases. Often the defendants were minors or had mental illnesses and/or intellectual disabilities.
  • 44 of the homicide exonerations involved discoveries of misconduct by officials
  • 44 percent of the exonerations were of people who actually pleaded guilty to their crimes, a record high.
  • A record 75 exoneration cases were in situations where it turned out no crime actually even occurred. In the most egregious example, three men were convicted of setting a fire in Brooklyn that killed a mother and her five children. It turned out the witness who testified that she saw them leaving the building at the time of the blaze later admitted lying and the evidence did not prove that the fire was actually intentionally set.

As with last year’s numbers, the registry gives a lot of credit for the exonerations to Conviction Integrity Units (CIU), which work with prosecutors’ offices to fix false convictions. CIUs were involved in 58 of the exonerations. As with last year, special mention is made of CIUs in Harris County, Texas, (where a huge chunk of the drug-possession exonerations came from) and Brooklyn, where they saw they above-mentioned homicide exonerations. Texas and New York dominated the other states in the total number of exonerations last year. It’s not necessarily because these two states have the most false convictions, the registry is quick to explain, but because those CIUs are so actively involved in fixing them.

Ultimately that means these releases, while increasing in number, may represent just the tip of the iceberg. The registry concludes in its 2015 report that there’s still an epidemic that remains mostly hidden:

In 2014 and 2015 there were 16 exonerations of defendants who were convicted of murder in Brooklyn from 1988 through 1994; other such cases are pending. This concentration of bad murder convictions from the years of the crack epidemic cannot be unique to Brooklyn. We have no doubt that similar numbers of cases would be found in other cities around the country if the prosecutors in charge devoted as many resources to finding them as the Brooklyn District Attorney’s Office. 

In 2014 and 2015, 73 innocent defendants who pled guilty to low level drug crimes in Harris County, Texas, were exonerated by lab drug tests—and more to come. But how many innocent defendants have pled guilty in Harris County in cases for which no lab tests are available? And how many thousands more in the thousands of other counties across the country?

Read the full report, Exonerations in 2015, here.

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Germany Unveils “Cash Controls” Push: Ban Transactions Over €5,000, €500 Euro Note

It was just two days ago that Bloomberg implored officials to “bring on a cashless future” in an Op-Ed that calls notes and coins “dirty, dangerous, unwieldy, and expensive.”

You probably never thought of your cash that way, but increasingly, authorities and the powers that be seem determined to lay the groundwork for the abolition of what Bloomberg calls “antiquated” physical money.

We’ve documented the cash ban calls on a number of occasions including, most recently, those that emanated from DNB, Norway’s largest bank where executive Trond Bentestuen said that although “there is approximately 50 billion kroner in circulation, the Norges Bank can only account for 40 percent of its use.”

That, Bentestuen figures, “means that 60 percent of money usage is outside of any control.” “We believe,” he continues, “that is due to under-the-table money and laundering.”

DNB goes on to say that after identifying “many dangers and disadvantages” associated with cash, the bank has “concluded that it should be phased out.”

On Tuesday we got the latest evidence that officials across the globe are preparing to institute a cashless “utopia” when Handelsblatt reported (in a piece called “The Death of Cash) that the Social Democrats – the junior partner in Angela Merkel’s coalition government – have proposed a €5,000 limit on cash transactions and the elimination of the €500 note. 


Berlin is using a familiar scapegoat to justify the plan: the need to fight “terrorists” and “foreign criminals.”

“Limits on cash transactions would discourage foreign criminals from coming here to launder money,” says a paper penned by the Social Democrats. “If sums over €5,000 have to pass through traceable bank transactions, laundering would be severely hampered, it adds.”

On Wednesday, we got confirmation of the plan from Deputy Finance Minister Michael Meister who told reporters that Germany is proposing a euroarea ban on cash transactions over €5,000 to combat terrorism financing and money laundering.

“Since money laundering and terrorism financing are cross-border threats,” it makes sense to adopt a bloc-wide “solution”, but “if a European solution isn’t possible, Germany will move ahead on its own,” he added.

This comes at a rather convenient time for policy makers in Europe. Rates are already sitting at -0.30% and are likely to be cut by an additional 10bps in March. But that’s not likely to do anything to curb the disinflationary impulse. Mario Draghi isn’t anywhere close to his inflation target and it says a lot about how ineffective the ECB has been when everyone is relieved to see annual inflation running at the “brisk” pace of 0.4%.

As a reminder, the gradual phasing out of cash strips the public of its economic autonomy. Central bankers can only control interest rates down to a certain “lower bound.” Once negative rates are passed on to depositors – and trust us, that’s coming – people will simply start pulling their money out of the bank. The more negative rates go, the faster those withdrawals will be.

When you ban cash you eliminate this problem. In a cashless society with a government-managed digital currency there is no effective lower bound. If the economy isn’t doing what a bunch of bureaucrats want it to do, they can simply make interest rates deeply negative, forcing would-be savers to become consumers by making them choose between spending or watching as the bank simply confiscates their money in the name of NIRP.

Obviously, banning transactions above €5,000 is a long way from a wholesale ban on cash and several other countries have similar limits on cash transactions. Still, there’s no reason why the same rationale (i.e. fighting terror financing) can’t be applied to smaller sums – or all cash transactions. After all, it’s not as though “foreign criminals” only transact in amounts over €5,000 and since “follow the money” is usually the best way to get to the bottom of a perceived “problem,” having a ledger of everything someone or some group does financially would likely be an effective way to crack down on illicit activity.

We would argue that the cost to society of creating an economy wherein people’s economic decisions are completely dictated by small groups of economists far outweighs any benefits that would accrue from using a centrally planned digital currency to deter crime.

As for how a cash ban would go over in Germany, we seriously doubt the public would take it laying down given that only 18.7% of transactions in the country involve plastic cards.


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Frontrunning: February 3

  • Oil lifts stocks off lows, yen and low-risk debt in favor (Reuters)
  • Yes, this agaim: Oil gains after Russia says open to talking with OPEC (Reuters)
  • More forecasts: Oil Prices Could Jump 50% by the End of 2016 (BBG)
  • New Risks for Trump After Iowa Loss (WSJ)
  • Yuan Gap Widens Again as Depreciation Bets Swamp PBOC Fightback (BBG)
  • Germany Struggles to Assess Security Threats Ahead of Carnival Season (WSJ)
  • Marco Rubio becomes early hope for mainstream U.S. Republicans (Reuters)
  • Dollar Bears Awaken Before Jobs Report as BOJ-Stoked Rally Fades (BBG)
  • Yahoo to Cut 15% of Workforce, Explore Strategic Options (WSJ)
  • Merck’s Top-Selling Diabetes Drugs Fall Short of Sales Estimates (BBG)
  • Euro-Area Price Cuts Intensify Pressure on Draghi to Act (BBG)
  • Syngenta Agrees to $43 Billion ChemChina Takeover (WSJ)
  • China seeks food security with $43 billion bid for Syngenta (Reuters)
  • Starboard Takes 6.7% Stake in Marvell Technology (WSJ)
  • Australian asylum ruling paves way for deportation of infants (Reuters)
  • Perks Keep Getting Nicer—for Some Workers (BBG)
  • Greek military to oversee response to refugee crisis (Kath)
  • Putin Prepares to Court Foreign Investors Wary of Past Stumbles (BBG)

 

Overnight Media Digest

WSJ

– Exxon Mobil Corp posted its weakest annual results in more than a decade and BP PLC suffered a loss as big as that booked in the aftermath of the worst offshore oil spill in its history, showing the extent of the damage that the 20-month crude-price slump can inflict on even the biggest and most secure oil companies. (on.wsj.com/20FwfmA)

– The global retreat from risk intensified Tuesday, sending the Dow industrials to a 295.64-point decline and pushing U.S. crude futures to their deepest two-day drop since the financial crisis. (on.wsj.com/20FzeLM)

– Beaten in Iowa but unbowed, Republican Donald Trump returned Tuesday to the state that has served as his campaign home base facing a new set of challenges in what is likely to be a must-win primary. (on.wsj.com/1VK6CgM)
 
– Yahoo Inc has effectively hung a for-sale sign on its Web properties, signaling the possible end of a 20-year run by an Internet icon. The company on Tuesday said it would explore “strategic alternatives” as part of a restructuring that will eliminate roughly 15 percent of its workforce. (on.wsj.com/1JWbNd5)

 

FT

* Microsoft Corp is paying about $250 million to buy Swiftkey, maker of a predictive keyboard powered by artificial intelligence that is installed on hundreds of millions of smartphones.

* Luxembourg is going to launch an official initiative to promote the mining of asteroids for minerals. Collaborating with U.S. and European commercial partners, it aims to help create a new space industry to exploit asteroids for metals and other materials that are scarce on Earth.

* The United States and European Union have agreed a new deal for transferring data across the Atlantic. A top U.S. director of national intelligence will sign a pledge that the U.S. government will avoid “indiscriminate mass surveillance” of EU citizens when their information is sent from Europe to the United States.

* One of Britain’s biggest supermarket chains J Sainsbury Plc agreed on Tuesday to pay 1.3 billion pounds ($1.87 billion) to acquire Home Retail Group Plc, while analysts at Sanford Bernstein say is “a carefully crafted deal”.

 

NYT

– State-owned China National Chemical Corporation is nearing a deal to acquire Syngenta AG of Switzerland, one of the world’s biggest manufacturers of agriculture chemicals and seeds, people with knowledge of the discussions said on Tuesday. (http://nyti.ms/20oMHe5)

– Facing investor demands for action, Yahoo! Inc said it would lay off workers and explore possibilities that include sale of some assets. (http://nyti.ms/1o4MThi)

– Experts on financial distress told lawmakers in Washington that Puerto Rico’s financial troubles are so complex that bankruptcy alone would not solve them, and might make them worse. (http://nyti.ms/1SEM5uV)

– After a bitter face-off for more than a decade between Argentina and a group of disgruntled New York hedge funds, both sides have come to the negotiating table with fresh hopes of a resolution. (http://nyti.ms/1PyGjtJ)

 

Canada

THE GLOBE AND MAIL

** Canadian pension plans took a major hit in January from the turmoil in global markets, suffering a drop in their funding solvency as bond yields fell and their investment portfolios posted losses, according to pension consulting firm Aon Hewitt. (http://bit.ly/1SFqRNm)

** China has reduced the sentence for Huseyin Celil, the Canadian man imprisoned for life on militant-related charges and for endangering state security. (http://bit.ly/1X2GgYU)

** Like oil producers around the world, Norway’s national energy company Statoil has taken the axe to almost every part of its business. But Statoil is swimming against the tide in one important respect. It is among a handful of energy companies that has so far maintained its dividend, and it may be the only one that is actually considering raising the payout. (http://bit.ly/1Ssh5jw)

NATIONAL POST

** Ontario’s largest credit union, Meridian, is trying to kick off the spring home buying season as temperatures outside make it look like April has already arrived in some parts of the country. (http://bit.ly/1NODYFE)

** Canadian auto sales soared 9.6 percent in January, with 11 different brands reporting double-digit growth. Continuing the trend of the past several months, pickup trucks and SUVs drove the sales increase, with light truck sales up 17 percent and passenger car sales down 3.8 percent, according to data from DesRosiers Automotive Consultants. (http://bit.ly/1SXAAQD)

** Wal Mart Canada is bringing its “click and collect” online grocery service to Toronto this week. In Toronto, the service will be offered initially at 12 stores. It takes orders up to 21 days in advance and carries a pickup fee of C$ 3 ($2.14). (http://bit.ly/1SshP88)

Britain

The Times

British Gas is set to cut 500 jobs as Centrica Plc, its parent company, battles to trim costs as part of a sweeping restructuring drive. (http://thetim.es/1QZD7Z8)

The executive in charge of EDF’s project to build an 18-billion-pound ($25.91-billion) nuclear power station at Hinkley Point in Somerset has quit the French state-controlled electricity company for a job in the United States. (http://thetim.es/1QZENBS)

The Guardian

Sainsbury’s has agreed terms to buy Home Retail Group Plc, the owner of Argos, in a 1.3 billion pounds ($1.87 billion) deal which will create a combined food and non-food retailer that can take on Amazon and John Lewis. (http://bit.ly/1QZIckm)

The Financial Conduct Authority has told companies selling complex financial bets to do more to protect customers from losses and guard against money laundering. (http://bit.ly/1QZIYxM)

The Telegraph

Vodafone Group Plc has resumed talks with cable TV billionaire John Malone to discuss an asset swap with Liberty Global Plc. (http://bit.ly/1QZJP1m)

The boss of easyJet Plc has moved to quash speculation she is poised to leave the low-cost airline after confirming for the first time that she spurned an approach from Marks and Spencer Group Plc to take charge of the struggling retailer. (http://bit.ly/1QZK4JT)

Sky News

The Treasury has taken a step towards what could be a record-breaking privatisation by appointing advisers to oversee a 17-billion-pound ($24.47-billion) auction of chunks of Bradford and Bingley. (http://bit.ly/1QZKujw)

The Royal Automobile Club said it expected the cost of both petrol and diesel at the pumps to start to rise soon following seven consecutive months of average falls in petrol costs as world oil prices collapsed. (http://bit.ly/1QZKNLa)

The Independent

TalkTalk Telecom Group Plc lost more than 100,000 customers following the hacking attack in October, in which four million customers were warned that their personal data was put at risk. (http://ind.pn/1QZLB2q)

 


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Hail to the Censor, Hillary Clinton: New at Reason

You would think that a leading presidential candidate rolling her eyes at “freedom of speech” while advocating content-based takedown orders for U.S. media companies might generate a news cycle or two worth of raised eyebrows.

But Hillary Clinton’s illiberal proposals were drowned out within hours by the furor over Republican frontrunner Donald Trump calling for a “total and complete shutdown of Muslims entering the United States.” (Not to be outflanked on tech-toughness, the populist mogul also proposed “closing that Internet up in some ways,” and scoffed even harder at potential critics: “Somebody will say, ‘Oh, freedom of speech, freedom of speech.’ These are foolish people.”)

But as Reason Magazine Editor Matt Welch writes, long before Donald Trump became a one-man media-distraction machine, Hillary Clinton had mastered the art of pushing maximally against free expression without being tagged as a foe of the First Amendment, unlike her friend and anti-media collaborator Tipper Gore. Clinton has crusaded against not just “gangsta” rap (the scare quotes are hers), but also the “poison” spread by movies, television, and video games. Her record includes not just Gore-like Capitol Hill condemnations of content and agitation for parental warning labels, but also unconstitutional legislation mandating federal punishment for those who sell and market controversial entertainment.

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Europe Falls, U.S. Futures Rise As Oil Halts Two-Day Plunge

While the biggest news of the night had nothing to do with either oil or China, all that mattered to US equity futures trading also was oil and China, and since WTI managed to rebound modestly from their biggest 2-day drop in years, continuing the trend of unprecedented, HFT-driven volatility which has far surpassed that of equities and is shown in the chart below…

… despite the API reporting a jump in oil inventories, rising back over $30, and with China falling only 0.4% overnight after the National Team made a rare, for 2016, appearance and pushed stocks to close at the day’s high, US E-minis were able to rebound from overnight lows in the mid-1880s, and levitate above 1900. Whether they sustain this level remains to be seen.

However, as noted above, the biggest news was neither oil nor China whose rigged volatility is now watercooler humor talk across trading floors, but the BOJ’s Kuroda, who as reported previously, made many headlines overnight during a speech on NIRP such as the follolwing:

  • KURODA: POSSIBLE TO CUT NEGATIVE RATE FURTHER IF NEEDED
  • KURODA: BOJ NEEDS TO DEVISE NEW TOOLS IF MEASURES INSUFFICIENT
  • KURODA: BOJ WILL DO WHATEVER IT CAN TO REACH PRICE TARGET

What was disturbing about these is that not only was the BOJ unable to push the USDJPY, or Nikkei (which plunged 3.2%) higher, but the Japanese currency surged overnight wiping out almost all post-NIRP losses, and suggesting that central bank credibility is virtually gone. A few more “emergency actions” like the BOJ’s and not all the HFT algos igniting upward momentum will be able to offset the avalanche of selling that is “pent up” and just waiting for the central bank admission of terminal failure, before all markets around the global are concurrently halted “due to market reasons.”

But while US equity futures are enjoying today’s crude levitation, Europe’s benchmark equity gauge dropped for a third day, with Italian banks leading losses, and the Markit iTraxx Europe Index of credit-default swaps on investment-grade companies surpassed 100 basis points for the first time since October 2013. The yen strengthened for a third day. Oil recovered after its biggest two-day drop in almost seven years, buoying Russia’s ruble, and zinc climbed to the highest in almost three months.

Where we stand now:

  • S&P 500 futures up 0.3% at 1905
  • Stoxx 600 down 0.4% to 333.2
  • FTSE 100 down 0.8% to 5874
  • DAX down 1.3% to 9461
  • German 10Yr yield down less than 1bp to 0.3%
  • Italian 10Yr yield down 2bps to 1.47%
  • Spanish 10Yr yield up less than 1bp to 1.59%
  • MSCI Asia Pacific down 2.1% to 119
  • Nikkei 225 down 3.2% to 17191
  • Hang Seng down 2.3% to 18992
  • Shanghai Composite down 0.4% to 2739
  • S&P/ASX 200 down 2.3% to 4877
  • US 10-yr yield up less than 1bp to 1.85%
  • Dollar Index down 0.22% to 98.66
  • WTI Crude futures up 1.5% to $30.33
  • Brent Futures up 1.5% to $33.20
  • Gold spot up less than 0.1% to $1,130
  • Silver spot up 0.6% to $14.39

Looking at regional markets, we start in Asia where the oil slump continued to linger and weigh down on global markets with local markets tracking Wall Street losses as WTI returned to sub-USD 30/bbl levels. Nikkei 225 (-3.2%) underperformed in the region as the dampened sentiment brought forth from oil with pressure also coming from a firmer JPY. ASX 200 (-2.3%) was unable to escape the grasp of the plunge in the energy complex, with the decline in oil dragging the index into negative territory. Shanghai Comp (-0.4%) abided by the trend set between the regional bourses as the index shrugged off the better than prior Caixin PMI readings in which the services figure printed a 6-month high. JGBs were supported by the risk off sentiment in the region alongside spill over buying in USTs, with yields falling to record lows across the curve.

Asian Top News:

  • China Said to Plan Loosening of Limits on Foreign Fund Outflows: China’s central bank plans to loosen controls on when foreign investors can bring money in and out of the country through QFII quotas, according to people with direct knowledge of the matter
  • Lenovo Tumbles as Sputtering PC, Phone Demand Hammers Sales: Rev. declines for the 1st quarter in more than 6 years
  • Billionaire Ruias Said to Hold Refinery Talks With Aramco, NIOC: Exploratory talks began last month on sale of Essar Oil stake
  • Panasonic Cuts Full-Year Oper Profit Forecast as China Slows: Lowers full-yr oper. profit forecast 4.7% to 410b yen; est. 426.6b yen; sales view down 5.6% to 7.55t yen; est. 7.88t yen
  • Hong Kong Property Stock Gloom Seen Deepening in Options Market: Traders paid most in 4 yrs in Jan. to hedge against losses on Sun Hung Kai Properties
  • BOJ Will Look Into Media Report Foreshadowing Negative Rates: Report by Nikkei news service came while Governor Haruhiko Kuroda and board were in closing stages of 2-day policy meeting
  • Yuan Basket Plan Gets Momentum as Singapore-Style Fix Floated: Former central bank adviser proposes 15% band on basket
  • Banker’s Accounts Said to Be Frozen in Singapore 1MDB Probe: Banker said to have been relationship manager for 1MDB Global
  • Billionaire Ruias Said to Discuss Refinery Deal With Aramco: Exploratory talks began last month on sale of Essar Oil stak

European equities opened relatively flat this morning, brushing off the firm risk off sentiment in Asia, which came in spite of positive Chinese services PMI data. As we head into the North American crossover equities are broadly in negative territory however, with a bid in oil preventing a more pronounced selloff. The SMI (-0.0%) outperforms its major counterparts, after Syngenta (+5.7%) confirmed yesterday’s reports that they will be acquired by ChemChina , with the touted figure exceeding USD 43b1n or CHF 475/shr, the largest ever foreign acquisition by a Chinese conglomerate. Elsewhere, luxury names perform well in Europe following LVMH’s (+5.9%) beat on headline revenue, which they posted after the European cash close yesterday.

European Top News:

  • Euro-Area Price Cuts Intensify Pressure on Draghi to Act: Euro area’s manufacturing and services industries cut prices at the fastest pace in almost a year in Jan.
  • U.K. Services Firms Start to Crack as Risks Mount: Confidence at U.K. services companies fell to the lowest in 3 yrs in Jan.
  • Swatch Sales Growth Forecast Draws Skepticism Amid Asia Slowdown: Watchmaker forecast sales gain “well over” 5% this year; 2015 oper. profit missed ests.
  • LVMH Shares Surge as Louis Vuitton Maker Beats Asian Blues: Fashion and leather-goods lead 4Q performance; 4Q organic revenue up 5%, topping the 3.9% estimate
  • BBVA Quarterly Profit Beats Estimates on Lower Provisions: BBVA 4Q net EU940m vs est. EU824.9m, Provisions for bad loans fell to EU157m in 4Q vs EU513m yr earlier
  • ABB Profit Margin Widens as Cost Cuts Help Offset Slowdown: 4Q Ebita margin rises 60bps to 11.7%; sees Chinese growth in 2016, at slower pace
  • Lundin Suffers Biggest Loss as Oil Collapse Forces Impairments: 4Q loss widened to $493m vs loss $436m yr ago; booked an impairment charge of $296m, FX loss of $129m
  • EU Bank Rules Divide at Euro-Area Border in Draft Cameron Deal: Draft deal foresees separate rules for euro, non-euro banks, provisional pact needs endorsement of all EU leaders at summit
  • Novo Nordisk CEO Sees Limited Scope for U.S. Price Increases: 4Q profit misses ests. on diabetes drug Victoza
  • Statoil Seen Deepening Cuts to Keep Dividends Amid Oil Rout: Adjusted net seen dropping 33% in 4Q, seen extending investment cuts to 30% compared to 2014

In FX, the yen climbed 0.5 percent to 119.36. It’s taken back more than half of its decline against the dollar triggered when Bank of Japan Governor Haruhiko Kuroda on Friday unexpectedly cut the rate on excess reserves held by financial institutions at the central bank to minus 0.1 percent.

The New Zealand dollar jumped as the nation’s central bank signaled it won’t rush to cut its official cash rate further as inflation hovers near zero. A report Wednesday showed employment in New Zealand rebounded more than economists expected in the fourth quarter while the jobless rate tumbled to near a seven-year low.

In commodities, unlike yesterday’s rout, WTI and Brent have seen a bid since the European traders have been at their desks despite a build in API inventory levels from yesterday’s session, which printed at a build of 3.8mln. Once again we have seen some comments from Iran and Russia both stating they are willing to cooperate with OPEC in regards to the price of oil, however the rhetoric is largely a reiteration.

West Texas Intermediate crude futures climbed 1.6 percent to $30.37 a barrel in New York after falling 11 percent on Monday and Tuesday, the most since March 2009. Analysts are projecting prices will soar more than $15 by the end of 2016. New York crude will reach $46 a barrel during the fourth quarter, while Brent in London will trade at $48 in the same period, the median of 17 estimates compiled by Bloomberg this year show.

The Bloomberg Commodity Index rallied 0.4 percent for the first advance in three sessions as oil rebounded from the biggest two-day drop in almost seven years.

Zinc for delivery in three months led metals higher, gaining 0.7 percent to $1,685.50 a metric ton on the London Metal Exchange. Lead climbed to the highest in about a month, with copper, aluminum and nickel also higher.

Some notable headlines in the space:

  • Oman’s Foreign Minister says there is no agreement on the timing of an OPEC meeting, but he expects it will be announced soon (RTRS)
  • Iran are calling for closer ties between Russia, Iraq and Venezuela on energy issues according to the Iranian Supreme Leader. (RTRS)
  • Russia’s Foreign Minister Lavrov says they are ready for talks with OPEC if there is a consensus, according to IFX. (BBG)

Looking at today’s calendar, It’s a busy afternoon of data in the US this afternoon where a lot of focus will be on the January ADP employment change print ahead of Friday’s payrolls. Remember the employment component of the ISM-manufacturing was particularly poor last month. Speaking of which, the aforementioned ISM nonmanufacturing print will be of focus while we’ll also get the final revisions to  the services and composite PMI’s for the US. There’s little in the way of Central Bank speakers due up, however earnings season rolls on with 31 S&P 500 companies set to report including General Motors and Merck.

Global Top News:

  • ChemChina Agrees to Buy Syngenta in Record $43b Deal: ChemChina offered $465 a share in cash, is ~20% higher than the stock’s last close; acquisition would be biggest ever by a company in China
  • Yahoo Signals It’s Open to Sale in What May Be Final Flip- Flop: Co. to cut ~15% of staff, shutter some offices and units and exit product lines; to consider putting the company’s core assets up for sale, ; 4Q adj. EPS beats est.; sees 1Q adj. Ebitda, rev. ex-TAC below ests.
  • Editas Raises $94.4m in First U.S. IPO of the Year: Sold 5.9m shares for $16 apiece, according to data compiled by Bloomberg, after offering them for $16 to $18 each
  • Oil Seen Surging About 50% by Fourth Quarter as Supply Eases: WTI seen averaging near $46 a barrel in Q4; Brent at about $48; U.S. sees domestic oil output falling by 620,000 barrels a day
  • America Supplies OPEC With Oil Freed From 40-Year Export Ban
  • Chipotle Served With New Subpoena as Criminal Probe Expands: Says 2016 will be a “very difficult year,” says EPS Should Be “around” break even in 1Q, est. $1.95
  • SunEdison Evaluating ‘Least Bad’ Options for Closing Vivint Deal: Deal hinges on flipping Vivint portfolio of rooftop systems
  • 3M Boosts Dividend as $10 Billion Share Buyback Authorized: A Quarterly payout of $1.11/shr an 8% increase
  • Gilead Seeks Deals as U.S. Hepatitis C Sales May Flatten: 4Q EPS beats ests., adds $12b to buyback plan
  • Bill to Privatize U.S. Air-Traffic Control Bans In-Flight Calls: U.S. air-traffic control system would be spun off to a nonprofit corporation and airline passengers wouldn’t be allowed to talk on mobile phones
  • Exxon Faces First Downgrade Since Depression as Oil Rout Worsens: Chevron’s debt rating cut by S&P for first time since 1987
  • Starboard Said to Take 6.7% of Marvell; Hires Advisers: WSJ: Starboard sees opportunity for Marvell by cutting costs, for instance by exiting mobile-device business, WSJ reports

Bulletin Headline Summary from RanSquawk and Bloomberg

  • Brent and WTI have retaken USD 33.00 and USD 30.00 bbl respectively, shrugging off yesterday’s API data
  • In FX, GBP was the main mover in London trade, aided by positive services PMI data and ahead tomorrows ‘Super Thursday’
  • Looking ahead, highlights include, US ADP Employment Change and ISM Non-Manufacturing, comments from ECB’s Draghi and Knot
  • Treasuries lower in overnight trading despite continued selloff in global equity markets as oil stabilizes; 10Y yield closed yesterday at 1.84%, lowest since April 3.
  • China’s central bank plans to loosen rules on when foreign investors can bring money in and out of the country, according to people with direct knowledge of the matter
  • The gap between the Chinese yuan’s exchange rates at home and abroad expanded to the biggest in three weeks, a sign that international traders are reviving bets against the currency after getting burned by the central bank earlier this year
  • “The markets are a gift in the sense that there are prices out there that make no sense,” Bill Miller, whose Legg Mason Opportunity Trust has lost 23% year-to-date, said in a Bloomberg interview, “Almost everything is a buy in my opinion”
  • Banks complaining that regulation is damaging Europe’s €5.6 trillion ($6.1 trillion) market for borrowing and lending securities as repo agreements showed a sharp drop in the availability of securities to use as collateral
  • Bankers in Europe have the most to fear in 2016 job cuts as cost reductions haven’t been enough to revive the profitability of the region’s lenders which were slower than their U.S. counterparts to eliminate jobs, reduce salaries
  • Confidence at U.K. services companies fell to the lowest in three years last month as a mounting litany of threats took its toll with indicators of sentiment and order backlogs giving little reason for optimism
  • Analysts are projecting prices of New York crude will reach $46 a barrel during the fourth quarter, while Brent in London will trade at $48 in the same period, the median of 17 estimates compiled by Bloomberg this year show
  • The San Francisco Bay area is the first region to host a Super Bowl and like other businesses, local pot shops are offering promotions aimed at the throngs of visitors in town for the festivities
  • Enrollment for food stamps remains near record levels even as the unemployment rate has fallen by half. About 45.4 million Americans, roughly one-seventh of the population, received aid last October, the most recent month of data
  • Sovereign 10Y bond yields mostly lower, led by Australia (-10bp). Asian, European stocks lower; U.S. equity-index futures drop. Crude oil, gold, copper rally

US Event Calendar

  • 7:00am: MBA Mortgage Applications, Jan. 29 (prior 8.8%)
  • 8:15am: ADP Employment Change, Jan., est. 193k (prior 257k)
  • 9:45am:
    • Markit US Services PMI, Jan. F, est. 53.7 (prior 53.7)
    • Markit US Composite PMI, Jan. F, (prior 53.7)
  • 10:00am: ISM Non-Manufacturing Composite, Jan., est. 55.1 (prior 55.3)

DB’s Jim Reid concludes the overnight wrap

Hopes of an OPEC production cut meeting are fading fast with Persian Gulf Arab oil producers the latest to weigh in by rebuffing earlier claims which had helped to send Oil markets into a bull market. Instead, the focus is turning back to what is still a difficult fundamental picture with Oil markets succumbing to a second consecutive sharp loss yesterday. WTI (-5.50%) plummeted back below $30/bbl, eventually closing at $29.88/bbl. It’s holding around that level this morning too. The energy sector was also rocked with the news of S&P downgrading credit ratings on some of the big US drillers including Chevron and Hess, while in Europe Shell was cut by one notch to A+ and to its lowest rating on record. Weaker than expected results were announced from BP, although there was a slither of positivity to take from Exxon’s results after earnings came in ahead of analyst forecasts (which may show how low expectations have fallen more than anything).

All told risk assets were hit hard yesterday. European equity markets finished broadly 2% lower, while the S&P 500 finished with a -1.87% loss as a poor day for financials also added to the woes. Credit indices were under considerable pressure also with both CDX IG and Main finishing around 5bps wider. Sovereign bond yields resumed their downward spiral after briefly pausing for breath on Monday. 10y Bund yields were down over 4bps by the close of play at 0.305% while 10y Treasury yields collapsed 10.4bps and at 1.846% are at the lowest now since April last year (yields have now fallen over 40bps since the turn over the year). It won’t come as much surprise to hear then that Fed Funds rates are following a similar path. In fact, the probability of just the 1 rate hike this year has fallen below 50%. That’s after we started the year with the market pricing in a 93% probability that the Fed would move at least once in 2016.

Clearly the BoJ move last week has heated up the negative rates chatter and an eye-catching headline which caught our eye on Bloomberg yesterday was one which reported that $7.1tn of global government debt is now trading with a negative yield. JGB yields are currently negative up to the 8.5 year maturity mark with 9y and 10y yields currently 0.2bps and 5.9bps respectively – the latter close to joining Switzerland as the only country with negative 10y benchmark yields.

That takes us to the latest in Asia this morning where equity markets have followed the lead from Oil-led selloff yesterday. Bourses have declined across the region, led by Japan where the Nikkei is -3.29%, while the Hang Seng (-2.75%), Shanghai Comp (-1.64%), Kospi (-0.84%) and ASX (-2.33%) have also tumbled. Asia and Australian credit indices are 3 to 6bps wider while US equity index futures are pointing towards a slightly softer start. There has been some Chinese data for us to digest meanwhile, with the non-official Caixin services PMI for January showing a 2.2pt gain last month to 52.4 and in fact the highest since July last year. That’s of course in stark contrast to the manufacturing print we got earlier in the week. The data has however supported a 0.7pt gain for the composite print to 50.1.

Moving on. Yesterday also saw the Kansas City Fed President, Esther George, weigh in with some hawkish comments. Given her reputation as a renowned hawk within the voting committee the comments weren’t seen as hugely surprising. She said that recent market volatility is ‘not all that unexpected, nor necessarily worrisome’ and that ‘monetary policy cannot respond to every blip in financial markets’. George reiterated her view that the committee should continue the gradual adjustment of moving rates higher, while opining that the US economy has proven to be resilient to a wide range of shocks including sluggish growth abroad.

Yesterday’s economic data was a bit of a sideshow. US total vehicle sales were up a better than expected 17.5m annualized rate last month (vs. 17.3 expected) having dipped to 17.2m in December, while the February IBD/TIPP economic optimism print was up 0.5pts for this month to 47.8 (vs. 47.6 expected). Meanwhile in Europe we saw the Euro area unemployment rate nudge down one-tenth to 10.4% in December (expectations had been for no change), falling to a new four-year low in the process.

Staying in Europe, it was noted yesterday that the ECB’s favored measure of inflation expectations, the 5y5y breakeven rate briefly broke below 1.5% intraday before settling at the lowest close since January 2015 (a record low) which of course was just before ECB QE1 was announced. It’s significant that the rate has failed to break higher with any bounce in Oil prices and is something to consider ahead of the ECB next month.

Speaking of which, the ECB’s Mersch generated a few headlines yesterday after comments to the WSJ. The ECB Board Member said that the Bank needs to reassess its monetary policy stance ‘in view of the deterioration since our December analysis’ and that ‘everything is on the table’. Mersch also suggested that ‘we have no constraint in the use, the diversity, or the volume of our toolbox as we see fit’.

Looking at today’s calendar now, this morning in Europe will see the final revisions to the services and composite PMI’s for the Euro area, Germany and France, while we’ll also get prints for Spain, Italy and the UK. Euro area retail sales data covering the December month is also due out this morning. It’s a busy afternoon of data in the US this afternoon where a lot of focus will be on the January ADP employment change print ahead of Friday’s payrolls. Remember the employment component of the ISM-manufacturing was particularly poor last month. Speaking of which, the aforementioned ISM non-manufacturing print will be of focus while we’ll also get the final revisions to the services and composite PMI’s for the US. There’s little in the way of Central Bank speakers due up, however earnings season rolls on with 31 S&P 500 companies set to report including General Motors and Merck (both pre-market).


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Endless Arrogance of the Political Class: New at Reason

Ted Cruz won the Iowa Republican caucus, while on the Democratic side Hillary Clinton edged out Bernie Sanders by just a handful of votes. Marco Rubio finished third on the GOP side, just behind Donald Trump. That’s moved the betting odds in Clinton and Rubio’s favor at ElectionBettingOdds.com.

But, writes John Stossel, none of these candidates show an interest in limited government:

They scoff at anyone who suggests that their grand schemes do more harm than good. But big government does do more harm than good.

I shouldn’t single out Rubio or Clinton, or even Donald Trump. Almost everyone running for office today declares himself a “leader” who “gets things done.” There’s no modesty, little acknowledgement that so much of what government does is costly attempts to fix problems that government created at home and abroad.

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