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With world markets begging for moar, Janet Yellen's prepared Humphrey-Hawkisn Testimony was a disappointment:

• *YELLEN: FED EXPECTS ECONOMY TO WARRANT ONLY GRADUAL RATE RISES (everything is fine)
• *YELLEN: JOB, WAGE GAINS SHOULD SUPPORT INCOMES AND SPENDING (everything is awesome)
• *FED REPORT: LEVERAGE RISKS IN FINANCIAL SECTOR `REMAIN LOW' (so don't worry about banks)
• *YELLEN: FINANCIAL STRAINS COULD WEIGH ON OUTLOOK IF PERSISTENT (so, there's chance)

The bottom line this is simply a rerhash of the Jan FOMC Statement and does not offer enouigh dovishness for the market.

As we detailed last night,

The dovish surprise is if she explicitly removes March from the hiking calendar (which would be Draghi-esque in front running the FOMC), broadly hints at a delay or expresses concern on downside risk to long term inflation or structural stagnation. The intention would be to show US households, business and investors that the Fed has their back.

This is not what she gave, and markets are disappointed.

Full statemenmt:

 

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

One week ago, in the aftermath of Japan joining the NIRP club, we wondered how low Kuroda could cut rates if he was so inclined. The answer was surprising: according to a Nomura analysis the lower bound was limited by gold storage costs. This is what the Japanese bank, whose profit was recently slammed by Japan’s ultra low rates, said:

“theoretically, negative interest rates’ lower bound depends partly on the cost of holding cash in the form of physical currency. When people hold cash out of aversion to negative interest rates, they risk losses due to theft and the like. The cost of avoiding this risk could be a key determinant of negative interest rates’ lower bound, but it is hard to directly quantify. As a proxy for the cost of holding physical currency, we estimated the cost of storing gold based on gold futures prices. This cost has averaged an annualized 2.4% over the past 20 years, though it has varied widely over this timeframe.”

 

Which, in conjunction with Kuroda’s promises that “Japan will cut negative rates further if needed”, raised flags: once the global race to debase accelerates, and every other NIRP bank joins in, will global rates be ultimately cut so low as to make a “gold standard” an implicit alternative to a world drowning in NIRP?

According to a just released report by JPMorgan, the answer is even scarier. In the analysis published late on Tuesday by JPM’s Malcolm Barr and Bruce Kasman, negative rates could go far lower than not only prevailing negative rates, but well below gold storage costs as well.

JPM justifies this by suggesting that the solution to a NIRP world where bank net interest margins are crushed by subzero rates, is a tiered system as already deployed by the Bank of Japan and in some places of Europe, whereby only a portion of reserves are subjected to negative rates.

Which leads to the shocker: JPM estimates that if the ECB just focused on reserves equivalent to 2% of gross domestic product it could slice the rate it charges on bank deposits to -4.5%. Alternatively, if the ECB were to concentrate on 25% of reserves, it would be able to cut as low as -4.64%.  That compares with minus 0.3% today and the minus 0.7% JPMorgan says it could reach by the middle of this year as reported yesterday.

In Japan, JPM calculates that the BOJ could go as low as -3.45% while Sweden’s is likely -3.27%.

Finally, if and when the Fed joins the monetary twilight race, it could cut to -1.3% and the Bank of England to -2.69%.

As Bloomberg adds, easing the fall is that the JPMorgan economists bet that banks are unlikely to be able to pass on the cost of the policy to borrowers, reducing potential repercussions. They also see limited pressure on bank profits or for a need to stash cash. On the other hand, DB has suggested that it is time to pass on NIRP to depositors in the most aggressive forms possible.

While Barr and Kasman still expect policy makers to tread carefully, such analysis may temper the recent fear of investors that after seven years of interest rates around zero and bumper bond-buying, central banks are now out of ammunition. Indeed, a fuller embrace of negative rates could “produce significant reductions in market rates,” said the economists.

 

“It appears to us there is a lot of room for central banks to probe how low rates can go,” they said. “While there are substantial constraints on policymakers, we believe it would be a mistake to underestimate their capacity to act and innovate.”

Here are the key observations by JPM:

• Sluggish growth and low inflation is building the case for further DM monetary policy stimulus. With term premia and forward rate expectations compressed, the benefits of additional QE and forward guidance is likely to be limited.
• The alternative of negative interest rate policy (NIRP) has been viewed as constrained as banks, corporates and households can increase holdings of zero-yielding physical currency when rates move negative.
• Innovations by central banks in Europe and Japan have enabled central banks to push policy rates well below zero. Using a tiered deposit scheme, deposit rates have fallen as low as -0.75% in Europe with no significant signs of a move into cash.
• Our analysis suggests that the use of these schemes could allow for considerably lower policy rates without undue pressure on bank profitability or creating a powerful incentive to move into cash.
• Calibrations based on Swiss experience suggest that with modest changes to the reserve regime, the policy rate in the Euro area could, in principle, go as low as -4.5%.
• Estimated bounds for the US (-1.3%) and UK (-2.5%) are higher, reflecting their larger bank reserve to asset ratios. We believe this bound is not binding and that rates could fall further in both cases.
• To date, markets price only a small probability of sustained NIRP of -0.75% or lower in the G4. This suggests that a strong signal that policymakers are willing to actively use NIRP could produce significant reductions in market interest rates.
• The actual transmission of NIRP is likely to be muted as we expect household deposit rates to remain sticky around zero which will limit pass-through of NIRP through the retail banking sector.
• Central banks are also likely to move cautiously into NIRP as they are sensitive to the uncertain consequences of these policies on local markets. This suggests their response to weakness may prove slower than in the past.
• Having put in place a three tiered deposit system and facing a significant inflation undershoot, the Bank of Japan is expected to lower its deposit rate to -0.5% alongside additional QQE this year.

Recall that JPM yesterday set the bogey on the one event that could prompt Yellen to go NIRP: a recession. Here is the latest take by JPMorgan on this:

With IOER at 0.5% and the Fed maintaining concerns about US money markets, the US is not close to considering NIRP. However, if recession risks were realized, the need for substantial additional policy support would likely push the Fed towards NIRP.

In other words, once the Fed makes up its mind, all that will be needed is for economic “data” to turn even more severely southward thus giving Yelen the required political cover to join the final lap of the global race to debase.

Finally, here is the summary table of where to look for the real negative lower bound.

via Zero Hedge http://ift.tt/1T781iA Tyler Durden

Back in November, Nils Smedegaard Andersen, CEO of Maersk, the world’s largest shipping company, gave the world a reality check when it comes to global growth and trade.

“The world’s economy is growing at a slower pace than the International Monetary Fund and other large forecasters are predicting” Andersen told Bloomberg. “We believe that global growth is slowing down [and that] trade is currently significantly weaker than it normally would be under the growth forecasts we see.”

That amounted to a harsh indictment of the IMF’s “built in optimism bias” (to quote HSBC), a bias which leads the Fund to perpetually revise down its estimates for global growth once it’s no longer possible to deny reality. “We conduct a string of our own macro-economic forecasts and we see less growth – particularly in developing nations, but perhaps also in Europe,” Andersen added. “Also for 2016, we’re a little bit more pessimistic than most forecasters.”

His comments came on the heels of a quarter in which Maersk’s profits fell 61% Y/Y. On Wednesday, we got the latest numbers out of the shipping behemoth and the picture is most assuredly not pretty.

For 2015, profits fell a whopping 84% to $791 million from $5.02 billion in 2014. Analysts were looking for a profit of $3.7 billion. 

For Q4, the net loss came in at $2.51 billion, far worse than the Street expected. Shares of Maersk fell sharply in repsonse.

Not helping matters was Maersk’s oil unit, which took a $2.5 billion impairment charge. “Given our expectation that the oil price will remain at a low level for a longer period, we have impaired the value of a number of Maersk Oil’s assets,” Andersen said. The company needs $45-55 a barrel to break even. Obviously, we’re a long way from that. 

The outlook for Maersk Line – the company’s golden goose and the world’s largest container operator – racked up $182 million in red ink last quarter and the outlook for 2016 isn’t pretty either. The company now sees demand for seaborne container transportation rising a meager 1-3% for the year. “Freight rates in 2015 averaged a monthly $620 a container on the key Asia to Europe trade route, with the break even level at more than $1,000,” WSJ notes. “In February the cost of moving a container from Shanghai to Rotterdam fell to $431, according to the Shanghai Containerised Index, barely covering fuel costs.”

“Guidance,” Citi wrote in a note this morning, “implies no respite for 2016”: 

“2016 guidance for an underlying net profit significantly below 2015 (US$3.1bn) vs. US$3.4bn consensus. Maersk Line significantly below 2015 (US$1.3bn); Maersk Oil a negative underlying result (breakeven at an oil price US$45-US$55); APMT flat and lower in other divisions. Heavy CAPEX continues at c.US$7bn. We expect consensus to reflect guidance.”

“Maersk Line expects an underlying result significantly below last year as a consequence of the significantly lower freight rates going into 2016 and the continued low growth with expected global demand for seaborne container transportation to increase by 1-3%,” the company said in its annual report out Wednesday.

Here’s a look at how swings in crude and freight rates affect the company’s bottom line:

Addressing the global deflationary supply glut, the company said it’s being “severely impacted by a widening supply-demand gap”. “The demand for transportation of goods was significantly lower than expected, especially in the emerging markets as well as the Group’s key Europe trades, where the impact was further accelerated by de-stocking of the high inventory levels,” Maersk noted. “In 2015, global economic conditions remained unpredictable and our businesses and long-term assets were significantly impacted by large short-term volatility.”

Right. So as we’ve said on too many occasions to count, global growth and trade has simply flatlined and one look at the Baltic Dry certainly seems to suggest that there’s no “recovery” anywhere on the horizon. Indeed we learned last month that in November, US freight volumes suffered their first Y/Y decline since 2012 and before that, the recession.

So once again, central bankers had better learn how to print trade or else it will be time to start “liquidating” excess inventory. And we mean “liquidating” in the most literal sense of the word…

via Zero Hedge http://ift.tt/1TS2xZL Tyler Durden

• Global Stocks Bounce Back After Market Selloff; Asia Stumbles (WSJ)
• New Hampshire Bucks the Establishment to Back Trump and Sanders (BBG)
• Trump shows his U.S. presidential bid is no mere publicity stunt (Reuters)
• Clinton Is Outdone by a Competitor Once Considered a Fringe Candidate (WSJ)
• Deutsche Bank Jumps as Lender Said to Consider Bond Buyback (BBG)
• Bank Executives Leading Surge of Insider Buying Amid Stock Rout (BBG)
• Morgan Stanley Trading Executive Provides Grim Picture for Wall Street (WSJ)
• Carlyle starts $200m share buyback as quarterly profits drop (FT)
• Deutsche Bank’s Short-Term Fix (BBG)
• Russia’s Biggest Oil Producer Skeptical on Output Deal With OPEC (BBG)
• Credit Suisse chief says bank sector sell-off ‘not justified’ (FT)
• Turkish soldiers clash with Kurdish militants crossing from Syria (Reuters)
• Nomura head blames SWFs for Japan sell-off (FT)
• Supreme Court blocks Obama carbon emissions plan (Reuters)
• No easy way out for Deutsche Bank as investors ‘lose faith’ (Reuters)
• Dollar Bulls Await Yellen as Citigroup Says Pessimism May Reign (BBG)
• Spain’s Abengoa asks for loan of up to 750 mln euros (Reuters)
• U.S., Russia Make Syria Diplomacy Push as Assad Gains Ground (BBG)
• Pimco Boosts Government Debt as Treasuries Rally to Top Place (BBG)
• U.S. 10-Year Sale’s Lowest Yield Since 2012 May Diminish Demand (BBG)

 

Overnight Media Digest

WSJ

– Donald Trump seized his first victory in 2016, winning the New Hampshire Republican presidential primary by a decisive margin, while the rest of the party’s presidential field was left as murky as ever. (http://on.wsj.com/1Wd3zhE)

– U.S. Supreme Court on Tuesday temporarily blocked the Obama administration’s initiative to limit carbon emissions from power plants, dealing an early and potentially significant blow to Obama’s efforts in fighting climate change. (http://on.wsj.com/1TRiY8z)

– U.S. Federal health officials sent more Zika virus kits to test to the state of Florida, while Delaware, Indiana, Ohio, Pennsylvania and Tennessee reported their first cases of the mosquito-borne virus. (http://on.wsj.com/1Wd2fez)

– Sumner Redstone’s lawyers say he cut his former companion Manuela Herzer out of his will, depriving her of a $70 million inheritance, on the same October day that he removed her as his healthcare agent, according to court documents filed Tuesday.(http://on.wsj.com/1Wd5WAW)

– U.S. Patent and Trademark Office is gearing up to rule nearly 13 years after Coke first tried to register “zero” in the U.S., triggering a challenge from Dr Pepper Snapple Group , which also has a diet drink named Zero. (http://on.wsj.com/1Wd68jG)

 

FT

* Deutsche Bank AG is looking to buy back several billion euros worth of its debt in an effort to reverse the falling value of its securities and is expected to focus its emergency buyback plan on senior bonds, of which it has about 50 billion euros ($56.44 billion) in issue, according to the bank.

* European Union antitrust regulators are investigating several banks for possible rigging of the $1.5 trillion government-sponsored bond market and have sent questionnaires focusing on the price of supra-national, sub-sovereign and agency (SSA) debt to a number of market participants as part of an early stage investigation.

* Ministers are looking at launching a review of tidal power, with talks leading nowhere over government support for a proposed tidal lagoon in Swansea. DECC Officials will examine the potential for tidal energy across the UK in the review, to be announced on Wednesday.

* Channel 4 is to spend an additional 10 million pounds a year on films, as the broadcaster seeks to define its public service credentials in the face of government moves to privatise it.

 

NYT

– The turmoil engulfing Viacom deepened on Tuesday as weak earnings and concern over the company’s leadership sent shares down more than 21 percent, the lowest level in more than five years. (http://nyti.ms/1oqxkRp)

– Speeding past Wall Street’s expectations, Disney on Tuesday reported a 28 percent increase in quarterly profit, with the “Star Wars” franchise as the primary engine. (http://nyti.ms/20KcJZt)

– US Foods disclosed on Tuesday that it intended to go public, less than a year after its planned merger with a rival, Sysco, collapsed because of opposition from government regulators. (http://nyti.ms/23W2hgH)

– Barclays said on Tuesday that Paul H. Compton, who most recently served as JPMorgan’s chief administrative officer, would join Barclays in May as chief operating officer. (http://nyti.ms/1TRoh7O)

 

Britain

The Times

Shepherd and Wedderburn has reported a bumper year for deal activity, after the law firm worked on transactions worth a total of 5.4 billion pounds ($7.81 billion), including some of the biggest takeovers and fundraisings in Scotland. (http://thetim.es/1TR6Pk3)

Jes Staley, the new Barclays Plc boss, has further enhanced his power base with another recruitment from JPMorgan Chase, his former employer. Paul Compton, who worked with Staley at the Wall Street bank, will join Barclays in May as chief operating officer, replacing Jonathan Moulds. (http://thetim.es/1TR7odt)

The Guardian

London black-cab drivers have rejected an apparent olive branch from Uber Technologies Inc as a “PR stunt” after the taxi-hailing app company said it would extend its service free to the traditional trade. (http://bit.ly/1TR5w4G)

British Airways is to launch services from Stansted this summer, the first time the flag carrier has operated from the airport. The airline will launch flights at weekends from May 28 to four holiday destinations- Faro, Malaga, Palma and Ibiza. (http://bit.ly/1TR5Hgi)

The Telegraph

The founder of easyJet Plc has accused the budget airline of taking a “scattergun” approach to dividends that confuses investors, ratcheting up the pressure on the carrier just days before its annual general meeting. (http://bit.ly/1TR7NNe)

UK’s communications watchdog is investigating how Vodafone Group Plc handles customer complaints amid fears the telecoms giant could have mishandles disputes. (http://bit.ly/1TR7ZvN)

Sky News

Age UK says it is suspending its fixed-price energy deal with Big Six gas and electricity provider E.ON. The charity said the two-year fixed tariff would no longer be available for new and renewing customers. (http://bit.ly/1TR5kCk)

U.S. Internet tycoon Barry Diller is in advanced talks to sell PriceRunner, one of the first price comparison websites to allow British shoppers to select online deals from leading high street retailers. (http://bit.ly/1TR5rhh)

The Independent

Scotland would see its budget “systematically” reduced by almost 3 billion pounds ($4.34 billion) within 10 years under UK government’s proposed devolution funding settlement, Nicola Sturgeon has said, as she acknowledged that time was running out to reach a deal. (http://ind.pn/1TR89Dn)

via Zero Hedge http://ift.tt/1TS2xZz Tyler Durden

While algos patiently await the only thing that matters for US stocks today which is Janet Yellen’s testimony before Congress. expected to be released at 8:30 am (and previewed here), the rest of the world this morning is a hot mess of schizophrenic highs and lows.

One look at Asia this morning and it was more of the same: another deja vu session for Japan where the relentless surge in the Yen pressued the Nikkei lower by another 2.3%, pushing it down to 15713, to the lowest close since October 2014. The MSCI Asia index was likewise down 1.4% with all 10 sectors falling.

Europe, however, was a different story entirely: following yesterday’s late afternoon FT “trial balloon” that Deutsche Bank would part with much needed liquidity to repurchase bonds in the open market (perhaps to indicate how unconcerned it is about the future), the German bank was up already over 4% in the premarket, and then proceeded to absolutely explode, soaring as much as 15% higher, up 13.15% at last check in Frankfurt, on what is likely a combination of short covering and a rumor which hit about an hour ago, when a German newsletter reported that the ECB could buy bank stocks as part of its QE.

We would be very surprised if in a world in which central bankers are being openly called out by markets that their bags of tricks are empty, the ECB were to actually do that, but we doubt the ECB has any intention of actually buying bank stocks: if anything, intention is far simpler – to slow down the relentless selling in Europe’s most systematically important bank, which between the FT trial balloon and today’s rumor, it has achieved… for now.

Also as a result, following 8 brutal days of carnage which sent European stocks to the lowest level since October 2013,Europe is solidly in the green, with the Stoxx up 2.3% the same as the Dax, however nothing compares to the European banking sector which as shown in the chart from Mark Barton below, is quite literally all green: not a single bank in Europe is in the red this morning.

 

We expect that today’s volatile European bank euphoria will be brief if not underscroed by concerte actions, because while central banks can jawbone, commercial banks are actually burning through funds, and as such don’t have the luxury of hoping for the best while doing nothing.

Which brings us back to Yellen’s testimonty, which DB previews as follows: “Yellen can give the market hope today that the committee is acknowledging the worrying signs from both financial markets and the global economy and take a step closer to a cleaner dovish stance. That would certainly help if for no other reason than it would halt the dollar bull market (notwithstanding the recent sell-off) which has caused problems with commodities, EM, China and encouraged shrinking global dollar liquidity. However we won’t get such a turnaround in one speech. If it happens it’s likely to be a multi month story.”

Alternatively, she can just as easily send stocks reeling with one word out of place.

We will find out shortly which word she picks. For the time being, here is where markets stand right now.

• S&P 500 futures up 1.0% to 1867
• Stoxx 600 up 2.3% to 316.4
• FTSE 100 up 1.3% to 5708
• DAX up 2.4% to 9091
• German 10Yr yield up 3bps to 0.26%
• Italian 10Yr yield down 8bps to 1.6%
• Spanish 10Yr yield down 7bps to 1.69%
• MSCI Asia Pacific down 1.4% to 117
• Nikkei 225 down 2.3% to 15713
• S&P/ASX 200 down 1.2% to 4776
• US 10-yr yield up 3bps to 1.76%
• Dollar Index up 0.15% to 96.21
• WTI Crude futures up 1.8% to $28.45
• Brent Futures up 1.7% to $30.84
• Gold spot down 0.5% to $1,184
• Silver spot down 0.7% to $15.14

Top Global News

• New Hampshire Bucks the Establishment to Back Trump and Sanders: Biggest loser of the night was Hillary Clinton, who won the state in 2008; Clinton’s Loss to Sanders Exposes Weakness of Message—and Messenger; Christie Reevaluates Bid After Poor New Hampshire Showing
• Deutsche Bank Said in Early Stages of Mulling Bond Buyback: Shares gain most in more than 4 years
• U.S., Russia Make Syria Cease-Fire Push as Assad Regains Ground: Kerry, Lavrov among 17 diplomats to hold talks in Munich
• Renzi Says EU Can Dodge Titanic Disaster Following Italy’s Lead: EU leaders like band playing as doomed liner sank, Renzi says in interview
• How Low Can Central Banks Go? JPMorgan Reckons Way, Way Lower: Says ECB could cut to -4.5% and Fed to -1.3%
• Oil Snaps 4-Day Losing Streak as Crude Producers Cut Spending: Rebounds from lowest close in almost three weeks
• Goldman Sachs Abandons Five of Six ‘Top Trade’ Calls for 2016: Closes bet on dollar strength versus euro, yen
• KKR-Backed US Foods Files for Initial Public Offering: co. filed initial prospectus Tuesday with offering size of $100m
• BTG Said to Plan Granting Equity to Traders at Commodities Unit: Deal aimed at keeping staff as bank recovers from CEO arrest
• Disney Shares Sink as Lower ESPN Profit Overshadows ‘Star Wars’: Programming costs, subscriber losses, dollar hit sports network
• Google’s Self-Driving Car Software Seen as Driver by U.S. Agency: NHTSA interpretation contrasts with California’s push-back
• FTSE 100 Profits Shrink by GBP29b in 2015, Seen Falling Further: U.K. profits set to drop further 5.3% in 2016, Bloomberg data shows
• Kim Purges North Korea’s Military Chief of Staff, Yonhap Says: Ri Yong Gil executed early this month on corruption charges

Looking at regional markets reveals two different worlds: in Asia, the plummet equities saw no respite as they extended on yesterday’s losses following the lacklustre close on Wall St, alongside concerns over the banking sector. As such, Nikkei 225 (-2.3%) continued to take a hammering, subsequently paring the entirety of its gains since the BoJ QQE expansion in Oct’14 amid the persistent JPY strength, coupled with weakness in Tech heavyweight KDDI (-7.4%) after their earnings. ASX 200 (-1.2%) showed no signs of a resurgence having entered into a bear market territory with pressure coming from energy names. Despite the risk off sentiment, JGBs slipped in Asian trade with touted profit taking after yesterday’s stellar gains, whilst 20yr JGBs continued the recent record-breaking strike as yields fell to 0.075%.

Top Asian News:

• Nissan Profit Beats Estimates as Rogue Paces U.S. Sales Rise: U.S. sales of the Rogue crossover surged 44% last year
• Coal Trader Seeing Rebound Hunts for Bargains in Troubled Mines: Javelin Global Commodities Holdings, run by ex- Goldman traders sees recovery in 2017
• Yen Gains Sideline Kuroda as Volatility Sweeps Rates Shock Aside: Options protecting against yen gains cost most in over 5 yrs
• Behind China’s $720 Million Bet on British Tech Startups: Cocoon Networks plans London incubator for tech, biotech

In Europe, on the other hand, it has been a surge from the beginning on the back of the soaring banking sector were as noted earlier, not a single bank is red today following speculation the ECB may monetize bank shares in the next QE. Sure enough, after the heavy selling seen in yesterday’s trade, this morning sees equities reside in positive territory to pare back some of the recent losses (Euro Stoxx: +2.8%). Banking names remain in focus, with Deutsche Bank (+12.7%) outperforming today after source reports suggesting the bank is considering a bond buyback. The latest Deutsche Bank news has seen a broad based recovery in credit metrics in Europe, with the exception of Credit Suisse CDS rates, which are actually higher this morning. Gains in equities have been capped by the energy sector, with energy names lagging as a result of the continued subdued oil prices, with WTI Mar’16 futures remaining firmly below USD 29.00/bbl despite a smaller than anticipated build.

European Top News:

• Opera to Be Sold to Chinese Tech Companies for $1.2b: 71 kroner/shr cash tender offer at 46% premium to latest close
• Maersk Profit Plunges as Oil, Container Units Both Suffer: reports 2015 net income $791m vs $5.02b in 2014; est. $3.7b
• Heineken, Carlsberg Forecast Profit Gains as Asia Sales Rise: Vietnam, Southeast Asia growth offsetting weak China, Russia
• Hermes Says 2016 Sales Growth May Fall Short of Mid-Term Target: Cites global economic, geopolitical, monetary uncertainties
• James Bond, Star Wars Studio Pinewood Puts Itself Up for Sale: Rothschild hired to conduct a strategic review of company
• Telenor Earnings Fall Short Amid Norway Wireless Competition: Margin forecast for 2016 also trails analysts’ estimates
• Daimler Sees $384 Million Expense for Takata Air-Bag Recall: xpense cuts net income to EU8.7b for 2015
• ARM 4Q Sales Beat Ests., Sees 2016 Revenue ‘Broadly In Line’: says enters 2016 with robust opportunity pipeline for licensing

In FX, a banking sector recovery has led to the near term relief in global stocks to lend a period of calm. The familiar FX correlations have followed through as a result, though USD/JPY looks to be lagging, but this is down to the dovish expectations of Fed Chair Yellen’s semi-annual testimony due later today. 115.00+ is proving a struggle, so positive risk sentiment preferred through Ccy/USD elsewhere, with AUD and NZD notable gainers. GBP brushed off the weak Q4 manufacturing numbers, as the ONS stated this would have less than a 0.1 % impact on GDP. Cable struggling on a 1.4500 handle, but supported for now. EUR crosses have come right back down again — including GBP — and this has pulled EUR/USD back into the mid 1.1200’s, which is also in line with the risk scenario at present. CAD well contained as Oil prices stabilise post API last night.

In commodities, WTI and Crude have steadily risen in the European session as a result of more comments from Iran about cooperating with Saudi Arabia regarding oil output. Furthermore, the latest API crude oil inventory report produced a build of 2.4mln which was below expectations of a 3.6mln build and below today’s DoE expected build of 2.85m1n.

Overnight gold traded range bound failing to benefit from further risk off sentiment in Asia. The yellow metal has enjoyed its best start to the year since 1980, but could be set to drop according to some analysts, as Chinese purchases that ramped up prior to the Lunar New Year, slow down. This comes after a rather bearish note from Goldman Sachs yesterday, who said they see prices falling to USD 1,000 by year end, citing fed rate hikes. In the short term at least, prices will be dictated by the fed, given Chair Yeliens semi-annual testimony later on today. The market has priced in a dovish testimony, with some saying she will er on the side of 2 rate hikes this year. Should she surprise to the hawkish side we could see dovish USD bets unwinding and this will ultimately drive the price gold.

Elsewhere in the metals complex, copper, which also received a bearish note from Goldman yesterday, has declined an is one of the worst performers on the LME, following the news that Freepoort McMoRan have been granted new permits from Indonesia. The company’s Grasberg mine in the country is the world second largest on terms of capacity, consequently the markets expect the glut to swell further. LME zinc outperforms, continuing to benefit from a bullish note by Goldman.

On today’s US calendar, the only thing that will matter will be Yellen’s semi-annual testimony to the House Financial Services Panel delivered at 10:00 however her speech will be out at 8:30 am. We’ll also hear from the Fed’s Williams later this evening (due at 6.30pm GMT). Earnings wise we’ve got 18 S&P 500 companies set to report including Cisco and Time Warner.

 

Bulletin Headline Summary from Bloomberg and RanSquawk

• Deutsche Bank (+12.7%) are outperforming today after source reports suggesting the bank is considering a bond buyback
• The banking sector recovery has led to the near term relief in global stocks and consequently lent a period of calm to FX markets
• Looking ahead, the standout event through the rest of the session will be any comments from Fed’s Yellen at her semi-annual testimony to congress. Participants will also be looking out for the latest OPEC reports and DoE crude oil inventories as well as comments from ECB’s Praet and Hansson
• Treasuries lower in overnight trading as European equities rally, led by bank stocks, ahead of Yellen’s testimony before House Financial Services Committee at 10am ET, remarks to be released at 8:30am; Treasury to sell $23b U.S. 10Y notes, WI 1.765% vs 2.09% in Jan.
• Deutsche Bank shares jumped the most in more than four years as Germany’s biggest bank is considering a bond buyback to help ease concerns about its funds, according to a person with knowledge of the matter
• Financial firms will have an additional year to comply with MiFID II, the overhaul of European Union market rules covering everything from derivatives trading to bond pricing. The deadline has been moved forward to Jan. 3, 2018
• 699 officers and directors of American companies purchased their own stock in the last 30 days compared with 828 who sold, the most bullish ratio in more than four years, according to data compiled by The Washington Service and Bloomberg
• The cost of insuring the bonds of State Bank of India is surging before the nation’s largest lender reports quarterly earnings on Thursday amid concern over worsening asset quality
• U.K. industrial production plunged 1.1% m/m in December, more than economists forecast, capping its worst quarterly performance in almost three years, the Office for National Statistics said in London on Wednesday
• Italian industrial production unexpectedly plunged in December, down 0.7% m/m, signaling that the recovery in the euro region’s third-biggest economy probably slowed in the last quarter of 2015 and might struggle to continue in coming months
• Recent U.S. labor-market data shows persistent hiring, near- record job openings, and growing confidence among workers that they can quit their jobs with the prospect of easily finding another one
• No IG corporates (YTD volume $181.575b) and no HY (YTD volume $9.275b) priced yesterday

US Event Calendar

• 7:00am: MBA Mortgage Applications, Feb. 5 (prior -2.6%)
• 2:00pm: Monthly Budget Statement, Jan., est. $47.5b (prior -$17.5b)
• 8:30am: Yellen’s prepared remarks to House committee released
• 10:00am: Fed’s Yellen testifies to House committee
• 1:00pm: U.S. to sell $23b 10Y notes
• 1:30pm: Fed’s Williams speaks in Los Angeles

DB’s Jim Reid concludes the overnight wrap

Can Yellen help create peace today in a market in full battle mode? She is set to deliver her semi-annual testimony to the House Financial Services Committee today at 3.00pm GMT (although her prepared remarks may be released earlier) before answering questions from lawmakers. It’s likely that much of what she says today will be repeated in her speech tomorrow at the same time to the Senate, with only the Q&A sessions different.

We clearly have long thought that any rate rise in this cycle is a policy error given our growth and financial system concerns but the Fed are probably nowhere near to acknowledging that they are now on hold for an indefinite period. Yellen can however give the market hope today that the committee is acknowledging the worrying signs from both financial markets and the global economy and take a step closer to a cleaner dovish stance. That would certainly help if for no other reason than it would halt the dollar bull market (notwithstanding the recent sell-off) which has caused problems with commodities, EM, China and encouraged shrinking global dollar liquidity. However we won’t get such a turnaround in one speech. If it happens it’s likely to be a multi month story.

Meanwhile European banks continue to feel the full force of the latest leg of this sell-off with the Stoxx 600 closing down -1.58% yesterday and to the lowest level since October 2013. Peripheral banks were the hardest hit and that saw equity markets in Italy, Spain and Greece tumble -3.21%, -2.39% and -2.89% respectively. In fairness yet another sharp leg down for Oil (WTI closing -5.89% at $27.94/bbl) also more than played its part. Interestingly it was a much better day for European credit markets. With much of the commentary suggesting that Monday’s moves were overdone yesterday we saw the iTraxx senior and sub indices tighten 5bps and 7.5bps respectively. That helped Main close 2bps tighter and Crossover finish more or less unchanged.

Whilst the profitability outlook for European financials remains highly uncertain, a personal view is that the credit risk has been exaggerated in recent days. The ECB still has numerous facilities that banks can use to prevent liquidity concerns. Having said this even if the market is wrong on this, a mistaken sell-off can lead to self fulfilling problems in a sector like financials. If stress continues then as a minimum bank lending that has recently helped European growth could easily suffer which in turn would weaken the operating environment for banks – and all because of a sell-off that was sentiment driven. Banks are often a confidence play and there isn’t much of it around at the moment. One wonders what the ECB could possibly do at their March 10th meeting to enhance such an elusive commodity. At some point soon the market will start discussing this as surely it’s not in the ECB’s interest to see such destabilising focus on what are transmitters of their policy through the economy.

Volatility was the name of the game again for US equity markets yesterday. After trading as much as 1% lower in early trading and then as high as +0.7% in late trading the index eventually finished more or less unchanged (-0.07%) although the tone for the most part felt distinctly negative with the VIX up again (+2%) and closing above 20 for the seventh consecutive session. US credit indices staged a similar roundabout performance while US Treasury yields extended their march lower. 10y Treasuries eventually closed 2.2bps lower at 1.727% but did in fact dip as low as 1.680% which was close to the testing the low print we made around this time last year (1.665%).

It’s a familiar start for markets in Asia (for those open) this morning. Equity bourses in Japan have extended yesterday’s steep losses with the Nikkei and Topix both down close to 3.5%. In Australia the ASX is currently -1.17% although it has pared earlier steep losses but still sits on the verge of dipping into bear market territory. US equity futures are down close to half a percent despite an early 2% bounce for WTI to back above $28/bbl. Much like European markets yesterday its credit markets which are outperforming. The iTraxx Australia is currently 2bps tighter and iTraxx Japan 3bps tighter.

Meanwhile, over in the US the New Hampshire primary results have started filtering through this morning. According to FT, in the Democrat race and with 60% of the ballots currently counted for Sanders has a 59%-39% lead over Clinton (who has since conceded victory in the state), while in the Republican race Trump has secured 34% of the overall vote and is leading with Ohio Governor, John Kasich, coming in second place with 16% with Cruz (12%), Rubio and Bush (both 11%) closely behind. Eyebrows may be raised at the success of these two extreme candidates yesterday but there is still a long way to go.

As expected the data out of the US JOLTS job opening report yesterday shone a positive light on the US labour market. Job openings rose a better than expected 261k in December to 5.61m (vs. 5.41m expected) and to the second highest level on record. In the details the quits rate nudged up one-tenth to 2.1% and to the highest since April 2008. The hiring rate was unchanged at 3.7%. Meanwhile the NFIB small business optimism print was down 1.3pts to 93.9 (vs. 94.5 expected) and wholesale inventories (-0.1% mom vs. -0.2% expected) and trade sales (-0.3% mom vs. -0.4% expected) were down a little less than expected in December. With markets getting smacked from all angles, just to confuse matters the Atlanta Fed upgraded their Q1 GDP forecast again yesterday following the wholesale trade report. They now forecast GDP growth of 2.5% (up from 2.2%).

The other notable dataflow yesterday was out of Germany where the most significant was an unexpected drop in industrial production in December (-1.2% mom vs. +0.5% expected and the biggest monthly decline since August 2014), which has helped to push the YoY rate now down to -2.2% from +0.1%. Also underperforming relative to expectations was the latest trade data where exports in particular slid -1.6% mom in December (relative to expectations for a +0.5% gain). A bigger than expected decline in imports however did see the trade surplus shrink. As our colleagues in Europe pointed out, the latest data clearly poses downside risks ahead for Friday’s Q4 GDP release. That said, turnover data, new orders and capacity utilization data does suggest that December data somewhat overstates the weakness and that the Q1 outlook for production is not threatened. Still, growth looks ever further tilted towards domestic demand.

In terms of the day ahead, this morning in Europe the main releases of note are the next slug of industrial production reports where we’ll get the readings for the UK, France and Italy. Datawise in the US this afternoon we’ll get the January Monthly Budget Statement but expect that to be secondary to Fed Chair Yellen’s semi-annual testimony to the House Financial Services Panel at 3.00pm GMT. We’ll also hear from the Fed’s Williams later this evening (due at 6.30pm GMT). Earnings wise we’ve got 18 S&P 500 companies set to report including Cisco and Time Warner.

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Gold fell $2.40 to $1,187.80 yesterday. It remained resilient despite Chinese markets being closed due to strong physical demand and concerns about the global economy, the banking sector and the risks of a new global financial crisis.

Gold jumped $34.70, or 3%, to $1,192.40 an ounce on Monday and registered its best single-session point and percentage gain since December 2014.

“Gold was like a beach ball that had been pushed too low in the water and is now bouncing higher with a vengeance,” Mark O’Byrne, research director at GoldCore, told MarketWatch:

But prices have climbed by more than 12% higher in just 5 weeks so a “correction is quite possible and may take place when gold reaches $1,200 per ounce.”

He says a correction is likely on tap, but the “more important question is whether gold has bottomed and we are in a new bull market.”

“We believe we are and gold’s fundamentals and technicals look better and better,” said O’Byrne.

Global stock markets are facing sharp losses amid more signs that international growth is tapering, led by the world’s second-largest economy, China.

Market participants said this week’s start of the Lunar New Year—a holiday in China and many parts of Asia—was helping drive physical demand for gold.

“While the Chinese Lunar New Year is the high point for Chinese gold demand, it does not drop off significantly afterward as the steady current of growing middle classes continues to attract demand,” said Julian Phillips, a founder and contributor to GoldForecaster.com.

“This is not just a one-off purchase when they become middle class—it signals the start of a continuous purchasing pattern,” he said.

Other metals on Comex traded mostly higher. March Silver, outpaced the gains in gold to gain 55.7 cents, or 3.8%, to $15.34 an ounce.

 

LBMA Gold Prices

9 Feb: USD 1,188.90, EUR 1,061.90 and GBP 822.31 per ounce
8 Feb: USD 1,173.40, EUR 1,050.16 and GBP 810.44 per ounce
5 Feb: USD 1,158.50, EUR 1,035.58 and GBP 797.40 per ounce
4 Feb: USD 1,146.25, EUR 1,027.29 and GBP 782.16 per ounce
3 Feb: USD 1,130.00, EUR 1,034.04 and GBP 781.25 per ounce

 

Gold and Silver News and Commentary – Click here

 

www.GoldCore.com

 

 

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