Back in October, when European inflation shocked market observers after it tumbled to a then (revised)low of 0.7%, the reaction by the ECB was to shock everyone and lower rates by 25 bps – a completely unexpected move. Earlier today, Europe shocked everyone once again after it reported that annual Eurozone consumer inflation in March tumbled from 0.7% to a paltry 0.5%, the lowest level since November 2009, below already the depressingly low 0.6% forecast, driven primarily by energy costs which tumbled 2.1% courtesy of Japan continuing to export deflation (where are energy costs soaring? Look at the price of natgas in Japan for a hint).

Reuters has more:

Inflation has now been in the ECB’s “danger zone” of below 1 percent for six consecutive months, and the flash reading increases the chances the ECB will cut interest rates when its Governing Council meets on Thursday. Speculation has also grown that it may employ other easing measures such as a negative deposit rate or even U.S.-style bond-buying.

 

But this year’s late Easter, which has delayed the impact of rising travel and hotel prices at a time when many people go away in Europe, could encourage the euro zone’s central bank to wait until its June meeting to act.

 

“This will keep the possibility of further monetary policy easing very much alive,” said Nick Kounis, head of economic research at ABN AMRO in Amsterdam. “Nevertheless, the central bank has shown quite some tolerance for low inflation recently.” ECB President Mario Draghi suggested after the ECB’s March meeting that the bank will either do nothing or take bold action should the outlook deteriorate.

 

He has also said the bank has been preparing additional policy steps to guard against possible deflation, and that the longer inflation remained low, the higher was the probability of deflationary risks emerging.

 

The relentless weakening trend may focus minds, especially after the head of Germany’s powerful central bank came out to discuss some of the bolder options in more detail, for example pumping more money into the economy via a bond-buying programme.

 

“There’s still a case for easing, but we don’t think there’s going to be enough agreement within the Governing Council members to ease on Thursday,” said Guillaume Menuet, an economist at Citigroup in London.

Not only that, but considering the relentless barrage of ‘hints” at the ECB joining the Fed and BOJ at QEing, even by Buba’s Weidmann, one can be absolutely certain that the ECB will do at most a token act, if anything, in its upcoming meetings. After all the ECB is now convinced, after Draghi’s “whatever it takes” comments, that it can talk not only FX but inflation (and deflation) up and down. Alas, while Draghi may have fooled investors into buying Greek bonds two years after the country’s default with nothing having been fixed, he will have a more difficult time halting the deflation-exporting juggernaut that is Japan. And furthermore, the last thing the collateral-starved world needs now, is to further impair the shadow banking machinery consisting of repo, margin and rehypothecation, all of which needs unencumbrable assets to operate. Assets which can not be in the possession of the central bank, as the Fed, which now owns 35% of all 10 Year equivalents, has found out the hard way.

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

Behold: the “8:30 am” risk repricing catalyst, because sometimes you just have to laugh… of course we also know how this has ended for 10 days in a row too.

“Normal”

And stocks…

 

“Fun-durr-mentals”

Of course, only one thing matters today – closing the S&P green to end the quarter… let algo battle commence…

Charts: Bloomberg

via Zero Hedge http://ift.tt/1pypSi9 Tyler Durden

As we noted last night, French President Hollande's first election since his gaining power was not going well for the ruling Socialist people. The municipal elections, especially in the South of the country, saw victories for the far-right National Front (FN) party (which is specifically anti-immigration and anti-Europe and often accused of being racist, anti-Semitic, and anti-Muslim) as widespread disappointment with the Socialist Party was clear. However, as The Mail reports, riot police were called in several towns on the south coast to guard the winning right-wing party's offices as "demonstrators are trying to get at the Front representatives and starting fights." Riot police were also out in force in other parts of the country as anti-fascist demonstrators threatened FN candidates with violence.

 

Via The Mail Online,

The National Front victories of note were in the south of the country…

Frejus and nearby Beziers are now expected to have National Front (FN) mayors sworn in, along with around five other towns, following a nationwide drubbing for President Francois Hollande's Socialists.

Riot police were also out in force in other parts of the country as anti-fascist demonstrators threatened FN candidates with violence.

Fights started outside French town halls tonight as they came under the control of the far-right National Front for the first time following dramatic gains in local elections.

…

'Demonstrators are trying to get at the Front representatives and starting fights,' said a police spokesman in Frejus, the picturesque Mediterranean town which is hugely popular with British tourists.

David Rachline, who is expected to become the FN mayor of Frejus, is a former head of the party's youth movement, and still just 26.

Mr Rachline said: 'The political establishment has failed the people – it has ruined the town and filled its pockets.

'You can't talk about a protest vote any more – the Front's scores show that people are backing its ideas.'

In a deeply humiliating blow for the Socialist government, finance minister Pierre Moscovici was unseated from the town council in Valentigny in the Doubs department.

The FN took 50.26 per cent of the vote in the northern town of Henin-Beaumont last Sunday, giving it an instant majority and meaning it already has its first mayor there.

As polls closed in the two round municipal elections tonight the FN said it was on track to claim 1,200 municipal council seats.

'We have moved on to a new level,' said Ms Le Pen. 'There is now a third major political force in our country.'

Mr Hollande's response to the expected nationwide drubbing is said to be a major reshuffle, replacing Prime Minister Jean Marc Ayrault with Interior Minister Manuel Valls.

Which, we are sure, will make all the difference. It seems socialism is not popular these days…

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

It was almost excatly five years ago to the day, on April 10, 2009, that Zero Hedge – widely mocked at the time by “experts” – began its crusade against HFT and the perils of algorithmic trading (which of course were validated a year later with the Flash Crash). In the interim period we wrote hundreds if not thousands of articles discussing and explaining the pernicious, parasitic and destabilizing role HFT plays in modern market topology, and how with every passing day, markets are becoming increasingly more brittle, illiquid and, in one word, broken. Or, as Michael Lewis put it most succinctly, “rigged.” With Lewis’ appearance last night on 60 Minutes to promote his book Flash Boys, and to finally expose the HFT scourge for all to see, we consider our crusade against HFT finished. At this point it is up to the general population to decide if this season’s participants on Dancing with the Stars or the fate of Honet Boo Boo is more important than having fair and unrigged markets (obviously, we know the answer).

For those who missed it, here it is again. In the video below, Lewis explains how an extra millisecond allows high-frequency traders to exploit computerized trading in the U.S. stock market. By “beating” investors to exchanges, Lewis argues that high-frequency traders can buy stocks and quickly sell them back at higher prices.

Billions have been spent by Wall Street firms and stock exchanges to gain the advantage of a millisecond. “Is it a scam?” 60 Minutes correspondent Steve Kroft asks. Bigger, Lewis says.

Lewis further explains, video below, how ordinary investors are affected and argues that high-frequency traders have created instability in the stock market — for everyone.

 

A reoccurring metaphor Lewis uses in his book “Flash Boys” is one of “prey and predators.”According to Lewis, the prey is “anybody who’s actually an investor in the stock market.”

via Zero Hedge http://ift.tt/1gg7aEW Tyler Durden

Overnight, UK property consultancy Knight Frank reported that London property prices rose 7.5% annually, modestly slowing from 8.1% in March 2013, and 11.3% March 2012. Slowing you say? Not really, and certainly not at the high end: “London sales over £1 million accounted for 22% of the £4.7 billion total in the 2012/13 tax year, while sales over £2   million made a 15% contribution. Transaction volumes in both price brackets represent less than 2% and 1% of the total, respectively” Knight Frank reported. But really putting it into perspective is the observation that on the 5 year anniversary of the centrally planned, HFT-rigged market ramp, London real estate prices have risen by a stunning 68% in the 5 years since March 2009.

Why? Perhaps the breakdown presented below, showing that London is nothing more than a hot money parking lot, with Singapore, Hong Kong, China, Malaysia and Russia (ahem Ukraine) and others accounting for nearly three quarters of all London new-builds, should explain it, and also explain why if the Chinese property and credit bubble indeed are popping, then London should be very scared.

via Zero Hedge http://ift.tt/1dJN9Md Tyler Durden

• US, Russia talks fail to end Ukraine deadlock (AP)
• Russian forces ‘gradually withdrawing’ from Ukraine border (AFP)
• Turkish PM Erdogan tells enemies they will pay price after poll (Reuters)
• And Goldman arrives: Credit markets open to Argentina for first time in years (Reuters)
• Regulators Twice Failed to Open GM Probes (WSJ)
• Bad loan writedowns soar at China banks (FT)
• Investors Breathe Life Into European Banks’ Bad Loans (WSJ)
• Euro zone inflation drops to lowest since 2009 (Reuters)
• Yellowstone National Park rattled by largest earthquake in 34 years (Reuters)
• Biggest ETF Flow From U.S. Debt Since ’10 Signals Rate Rise (BBG) – or just more confused algorithms
• Swiss Antitrust Regulator Probes Eight Banks Over FX-Rigging (BBG)
• Deutsche Bank Said to Mull Forgoing IPO Amid China Probes (BBG)

 

Overnight Media Digest

WSJ

* Congressional investigators looking into why General Motors Co took nearly a decade to recall vehicles with faulty ignition switches said on Sunday that federal regulators twice declined to open formal probes into complaints about the cars and that GM rejected a proposed fix for the problem in 2005 because it would have taken too long and cost too much. (http://ift.tt/1kh6B1r)

* Royal Bank of Scotland Group PLC is close to appointing a Credit Suisse investment banker as its next chief financial officer. The appointment of Ewen Stevenson, who advised on the bailout of the 81 percent government-owned RBS, still needs to be approved by UK regulator Prudential Regulation Authority, according to a person familiar with the matter. (http://ift.tt/Qy6ru8)

* Caterpillar Inc, a maker of construction and mining equipment, on Tuesday will become the latest blue chip hauled before the Senate’s Permanent Subcommittee on Investigations to explain strategies designed to shrink tax bills. Caterpillar officials are preparing to defend a corporate restructuring in the late 1990s that helped the company reduce U.S. taxes, particularly on sales of parts to foreign customers. (http://ift.tt/1kh6CTi)

* The Food and Drug Administration’s efforts to speed approvals of drugs to fight antibiotic-resistant bacteria will be front and center on Monday as the agency considers two new antibiotics with possible advantages. The FDA’s methods to advance new antibiotics so far haven’t generally led to great new drugs, and there has been considerable debate over attempts to speed the approval process. (http://ift.tt/Qy6rub)

* Alibaba Group Holding Ltd <IPO-ALIB.N> said Monday it agreed to pay $692 million to take a roughly 35 percent stake in Chinese department store operator Intime Retail (Group) Co in a bid to link more closely e-commerce and shopping at bricks-and-mortar retail stores. (http://ift.tt/1kh6CTl)

* Blucora Inc is preparing an all-cash bid for Brookstone Inc that would challenge Spencer Sprit Holdings Inc’s offer, which includes $120 million in cash and the assumption of Brookstone debt, among other things, according to people familiar with the matter. Spencer earlier offered to serve as the lead bidder at an auction for Brookstone, which is preparing to file for bankruptcy protection in the coming days. (http://ift.tt/Qy6ruc)

* British entrepreneur Clive Cowdery plans to spend as much as $2 billion of investors’ money in the United States over the next several years trying to replicate his success in scooping up life insurers in the UK. (http://ift.tt/1kh6B1C)

* Jury selection is scheduled to begin Monday in the Securities and Exchange Commission’s civil trial against entrepreneur Sam Wyly and his deceased brother, Charles. In a 78-page complaint filed in July 2010, the agency accused the Wylys of using a web of offshore trusts to conceal more than $750 million of stock sales in companies on whose boards they sat. (http://ift.tt/Qy6pCk)

* In a renewed effort to lure a bigger share of the advertising dollars that now flow to major TV networks, YouTube has told marketers it will offer audience guarantees to advertisers that make advance commitments, according to people familiar with the matter. (http://ift.tt/1kh6D9E)

* The U.S. Supreme Court is wading into a messy debate over when software deserves a patent – an issue that is important to big technology companies such as Microsoft Corp and Google Inc yet has so far flummoxed the federal judiciary. The high court will hear oral arguments Monday in an appeal brought by Alice Corp, whose patents on a computer program to reduce risk in financial transactions were ruled invalid by lower courts. (http://ift.tt/1kh6D9F)

 

FT

Outgoing chairman of Lloyds Banking Group, Sir Win Bischoff, calls for informal banking regulation opposed to the rule-book style of regulation followed by regulators.

UK’s financial services sector is set to add up to 26,000 jobs in the year to June according to an industry survey by the CBI employers’ group and PriceWaterHouseCoopers.

The Libyan Investment Authority has accused France’s second-biggest bank Societe Generale of funnelling bribes worth tens of millions of dollars to associates of Saif al-Islam, the son of former Libyan leader Muammar Gaddafi.

Glencore Xstrata Plc has reached a preliminary deal for a $1 billion contract for access to railway and port facilities with Mauritania as part of its plans to expand into iron ore mining.

The London-listed telecom giant Vodafone has acquired an e-money licence to expand in Europe, with plans to launch M-Pesa in Romania, after the success of its mobile payment system in sub-Saharan Africa.

 

NYT

* Federal regulators decided not to open an inquiry on the ignitions of General Motors Co’s Chevrolet Cobalts and other cars even after their own investigators reported in 2007 that they knew of four fatal crashes, 29 complaints and 14 other reports that showed the problem disabled air bags, according to a memo released by a House sub-committee on Sunday. (http://ift.tt/1jO7vGX)

* China’s Alibaba Group Holding Limited <IPO-ALIB.N>, one of the world’s biggest e-commerce companies, said it would invest 5.37 billion Hong Kong dollars ($692.3 million), for a stake of as much as 35 percent in Intime Retail Group, which operates 36 department stores and shopping centers across China.(http://ift.tt/1pwLviR)

* Vince McMahon and his company, World Wrestling Entertainment, have positioned themselves on the cutting edge of Internet television with the WWE Network, a new subscription-only streaming video service. Shares of the WWE, a publicly traded company based in Stamford, Connecticut, have more than tripled over the last year with the introduction of the subscription network and takeover rumors. (http://ift.tt/1pwLviV)

* Officially, it’s Apple Inc versus Samsung Electronics Co Ltd in another tech patent face-off in a San Jose courtroom this week. But there is another company with a lot at stake in the case – Google Inc. In a lawsuit, Apple is seeking about $2 billion in damages from Samsung for selling phones and tablets that Apple says violate five of its mobile software patents. Samsung, meanwhile, says Apple violated two of its patents. (http://ift.tt/1pwLvj1)

* Some companies housed in specific low-income areas of San Francisco receive breaks on taxes if they perform tasks that help improve their neighborhoods. (http://ift.tt/1hSiWXb)

* U.S. Secretary of State John Kerry and his Russian counterpart agreed on Sunday that a political solution was needed for Ukraine and said they planned to continue discussing ways to de-escalate the crisis over the country’s future and Russia’s annexation of Crimea. But neither side claimed a breakthrough, and Russia did not commit to pulling back the more than 40,000 troops the United States says are massed near Ukraine’s border. (http://ift.tt/1pwLvj8)

 

Canada

THE GLOBE AND MAIL

* Ontario Premier Kathleen Wynne is challenging Progressive Conservative Leader Tim Hudak to either back up his “false” and “defamatory” allegations that she oversaw the purging of government documents or face legal action. (http://ift.tt/Qy6pCr)

* Dimitri Soudas, Prime Minister Stephen Harper’s choice as the Conservative Party’s executive director, has been pushed out after four months on the job. The move that follows an uproar over a local nomination race involving the departed staffer’s spouse. (http://ift.tt/1kh6D9L)

Reports in the business section:

* Almost two-thirds of Canadian executives say the country is too dependent on resource industries such as mining, oil and gas and needs to become more diversified to inject better balance into the economy. (http://ift.tt/Qy6rKx)

* Sunshine Oilsands Ltd, largely backed by state-owned Chinese enterprises and Asian retail investors, faces 71 lawsuits seeking a total of $94-million for unpaid bills as the company struggles to raise the money it needs to restart development of its stalled northern Alberta project. (http://ift.tt/1kh6D9M)

NATIONAL POST

* Health Council of Canada issued a report saying the 2004 health care “fix for a generation” was nothing of the sort. On the contrary, it reported, the $41-billion deal negotiated between Paul Martin’s Liberal government and the provinces raised expectations beyond reality and failed to keep pace with societal shifts – everything from aging to economics – and their impact on access to care. (http://ift.tt/1kh6Bi3)

* Canada’s largest medical regulator would bar doctors from accepting almost any gift from a pharmaceutical company under a proposed new ethics policy, part of a growing movement to reform the intimate and controversial relationship between industry and physicians. (http://ift.tt/1kh6D9P)

FINANCIAL POST

* Canadians could soon be warming up to an improving economy. Both Canada and the United States are coming out of severe winter storms that disrupted output, sales and hiring. The weather factor already accounted for weaker growth in both countries at the end of 2013, and the harsh climate limited activity in the first months of this year, as well, before the impact began to recede. Economists are already seeing that pattern emerging. (http://ift.tt/1kh6D9Q)

* Prime Minister Stephen Harper, fresh from a trip to Europe where he talked up Canada’s energy export potential, is scheduled to meet Monday with a delegation from British Columbia headed by Premier Christy Clark for an update on liquefied natural gas plans on the West Coast. (http://ift.tt/Qy6pCy)

 

China

CHINA SECURITIES JOURNAL

— A study of 1,731 Chinese fund firms showed they made a collective profit of 168.7 billion yuan ($27.16 billion) in 2013, up 36.5 percent from a year earlier, according to data from TX Investment Consulting. Mixed funds showed strong growth, while debt-based and capital guarantee funds slipped.

SHANGHAI SECURITIES NEWS

— The Chinese government’s real estate policy has shifted focus from curbing the rapid rise in house prices to helping the poor buy homes, according to Xu Shanda, former deputy head of China’s tax bureau.

— Baoshan Iron & Steel Co Ltd has launched a stock incentive plan that will award 47.5 million shares to its managers and some employees, part of a wider reform of China’s state-owned enterprises.

SECURITIES TIMES

— The biggest non-life insurance joint venture in China – between French insurer Axa SA and China’s Tian Ping Auto Insurance – officially opened for business on Monday.

CHINA DAILY

— China’s government is seeking measures to tackle a rising divorce rate. The country sees nearly 10,000 marriages break up every day, according to the social affairs unit at the Ministry of Civil Affairs. More than 3 million people sought divorce in 2012, a 133 percent increased against 2003.

SHANGHAI DAILY

— China’s big five banks posted a combined net profit of 862.8 billion yuan ($138.89 billion) in 2013, an average yearly growth rate of 11 percent, analysts told the paper. Profit growth at the five banks is likely to slow to under 10 percent this year, they added.

 

Britain

The Telegraph

INSURERS URGE OSBORNE TO REBUKE HEAD OF REGULATOR

(http://ift.tt/1gRuI9d)

The Chancellor is under pressure to carpet Martin Wheatley, the boss of the Financial Conduct Authority as it launches a review today of 30 million insurance policies and their potential “unfairness”.

INVESTOR GIANT WARNS BANKS ON PAY ARRANGEMENTS AHEAD OF EU BONUS CAP

(http://ift.tt/1gRuJtQ)

The Association of British Insurers is to issue an “amber top” alert ahead of the annual meetings of Britain’s biggest banks warning its members to examine closely the new pay arrangements put in place by the lenders.

The Guardian

WONGA CHAIRMAN TO STEP DOWN AS FCA PREPARES TO REIN IN PAYDAY LENDERS

(http://ift.tt/1gRuIpv)

The multi-millionaire figurehead of the controversial payday lending industry is to stand down from his job as chairman of Wonga as a new City regulator prepares to impose tougher rules.

NETWORK RAIL FAILS TO MEET PUNCTUALITY TARGETS AND FACES A RECORD 70 MLN STG FINE

(http://ift.tt/1gezR5j)

Network Rail has admitted it has failed to meet its punctuality targets, as it braces for a record fine of up to 70 million pounds.

The Times

ROYAL MAIL FACING BACKLASH OVER “LOST £1 BLN” FROM SELL-OFF

(http://ift.tt/1gezPu0)

The National Audit Office will publish this week its findings on last autumn’s £3.3 billion sell-off by the Government. Ministers, investment bankers and senior civil servants are bracing themselves for government auditors’ verdict on the flotation of Royal Mail, which appears to have lost taxpayers in excess of £1 billion.

FEARS RAISED OVER “DEAL” FOR HOUSE OF FRASER

(http://ift.tt/1gezRlA)

A potential buyout of House of Fraser by a Chinese conglomerate has raised concerns that shareholders are not getting the best of a deal brokered by the company’s chairman.

Sky News

UNDER-FIRE FCA SEEKS BUDGET HIKE FROM CITY

(http://ift.tt/1gezPu4)

The City regulator will set out plans for an inflation-busting increase in its budget this week, just days after sparking fury from insurers over the launch of a probe into some industry practices.

RBS RAIDS SWISS GIANT FOR NEW FINANCE CHIEF

(http://ift.tt/1gezPua)

The taxpayer-backed Royal Bank of Scotland is close to luring one of the architects of its 45.5 billion pounds taxpayer bail-out to become its new finance chief. Ewen Stevenson, who works for Credit Suisse, is in advanced negotiations about joining RBS at a critical time for the bank

 

Fly On The Wall 7:00 AM Market Snapshot

ECONOMIC REPORTS

Domestic economic reports scheduled today include:
Chicago PMI business barometer index for March at 9:45–consensus 59.0

ANALYST RESEARCH

Upgrades

Affiliated Managers (AMG) upgraded to Buy from Neutral at Citigroup
Banco Santander (SAN) upgraded to Hold from Sell at Deutsche Bank
Big Lots (BIG) upgraded to Buy from Hold at KeyBanc
Builders FirstSource (BLDR) upgraded to Buy from Hold at Deutsche Bank
C.H. Robinson (CHRW) upgraded to Market Perform from Underperform at FBR Capital
DTE Energy (DTE) upgraded to Buy from Hold at KeyBanc
Delhaize (DEG) upgraded to Overweight from Neutral at JPMorgan
Echo Global (ECHO) upgraded to Outperform from Market Perform at FBR Capital
Edison International (EIX) upgraded to Buy from Neutral at UBS
Heartland Express (HTLD) upgraded to Buy from Neutral at Longbow
ING U.S.  (VOYA) upgraded to Buy from Neutral at Goldman
Knight Transportation (KNX) upgraded to Buy from Neutral at Longbow
Medley Capital (MCC) upgraded to Outperform from Neutral at Credit Suisse
Men’s Wearhouse (MW) upgraded to Buy from Neutral at Mizuho
SINA (SINA) upgraded to Outperform from Sector Perform at Pacific Crest
Travelers (TRV) upgraded to Neutral from Sell at Guggenheim
Vipshop (VIPS) upgraded to Buy from Neutral at Goldman

Downgrades

BlackBerry (BBRY) downgraded to Underperform from Neutral at Credit Suisse
BlackBerry (BBRY) downgraded to Underweight from Equal Weight at Evercore
CNOOC (CEO) downgraded to Neutral from Buy at UBS
Mack-Cali Realty (CLI) downgraded to Underweight from Equalweight at Barclays
MagnaChip (MX) downgraded to Sell from Neutral at UBS
MannKind (MNKD) downgraded to Underweight from Neutral at Piper Jaffray
Medley Capital (MCC) downgraded to Market Perform from Outperform at Wells Fargo
PGT, Inc. (PGTI) downgraded to Hold from Buy at Deutsche Bank
RenaissanceRe (RNR) downgraded to Underperform from Neutral at BofA/Merrill

Initiations

American Eagle Energy (AMZG) initiated with a Buy at Canaccord
FBR & Co. (FBRC) initiated with an Outperform at Barrington
KapStone (KS) initiated with an Overweight at Barclays
MercadoLibre (MELI) initiated with a Sell at Citigroup
ONEOK Partners (OKS) initiated with a Neutral at UBS
ONEOK (OKE) initiated with a Neutral at UBS
Targa Resources Partners (NGLS) initiated with a Buy at UBS
Targa Resources (TRGP) initiated with a Neutral at UBS
TriplePoint Venture (tpvg) initiated with a Neutral at Credit Suisse
William Lyon Homes (WLH) reinstated with a Neutral at Credit Suisse

COMPANY NEWS
Medtronic (MDT) said it will discontinue SYMPLICITY HTN-4 trial, said further clinical investigation on SYMPLICITY HTN-3 is warranted
Medtronic’s (MDT) said CoreValve shows superior results to surgical valve replacement
Trustwave disputed plaintiffs’ allegations related to Target (TGT) data breach
Turkish court overturned ruling that restricts viewing of Twitter (TWTR) account
Third Point urged Sotheby’s (BID) stockholders to vote for Third Point board nominees
Novartis (NVS) said its PARADIGM-HF trial of LCZ696 met efficacy, primary endpoints
Sally Beauty (SBH) said security breach may have affected more than earlier estimated

EARNINGS
Companies that beat consensus earnings expectations last night and today include:
Cal-Maine Foods (CALM)

Companies that missed consensus earnings expectations include:
UTi Worldwide (UTIW), InterOil (IOC), Century Casinos (CNTY)

NEWSPAPERS/WEBSITES

Citigroup (C) could reach close to $60 by FY15, Barron’s says
VeriFone (PAY) could rally another 15%, Barron’s reports
Coca-Cola’s (KO) management underperforms, Barron’s says
Exact Sciences (EXAS) could rise 50%, Barron’s says
Tesla’s (TSLA) Gigafactory looks too ambitious, Barron’s reports
Swiss regulator probing banks (UBS, CS, JPM, JBAXY, BCS, C, RBS) on possible forex manipulation, WSJ reports
Citigroup’s (C) stress test hit by audit lapses, FT reports
Delphi (DLPH) says GM (GM) approved ignition switches below specifications, Reuters reports
Libya fund accuses Societe Generale (SCGLY) of paying $58M in bribes, WSJ reports
RBS (RBS) close to appointing Credit Suisse (CS) banker as its next CFO, WSJ says
General Motors (GM) adds 971,000 vehicles to global recall, Bloomberg says
Deutsche Bank (DB) considering forgoing China General Nuclear Power Group’s IPO amid China probes, Bloomberg reports

SYNDICATE

Aeterna Zentaris (AEZS) files to sell $50M of common stock ‘at-the-market’
GasLog (GLOG) files to sell 39.46M shares of common stock for holders
HD Supply (HDS) files to sell 30M shares of common stock for holders
Houghton Mifflin (HMHC) files to sell 114.44M shares for holders
Pzena Investment (PZN) files to sell 39.14M shares of Class A common stock for holders
Triangle Petroleum (TPLM) files to sell 40.04M shares for holders

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

After ramping in overnight trading, following the spike in Japanese stocks following another batch of disappointing economic data out of the land of the rising sun and setting Abenomics which sent the USDJPY, and its derivative Nikkei225 surging, US equity futures have pared some of the gains in what now appears a daily phenomenon. Keep in mind, the pattern over the past 6 consecutive days has been to ramp stocks into the US open, followed by a determined fade all the way into the close, led by “growthy” stocks and what appears to be an ongoing unwind of a hedge fund basket by one or more entities. Could the entire market be pushed lower because one fund is unwinding (or liquidiating)? Normally we would say no, but with liquidity as non-existant as it is right now, nothing would surprise us any more.

Was there a goalseeked narrative for the fade? According to RanSquawk, the “Initial risk on sentiment buoyed by reports of constructive talks between US and Russian officials saw stocks gap higher at the open which gradually ebbed away, as focus turned on the looming risk events today and later this week. The release of weaker than expected EU CPI data failed to weigh on EUR, as comments by ECB’s Weidmann who downplayed the need to act on low inflation caused by cyclical factors, weighed on Bunds since the open and encouraged scaling back of expectations of ECB QE built up last week.”

Finally, the French CAC index underperformed its peers amid speculation over potential cabinet reshuffle following French municipal elections over the weekend which handed more ground to the far-right and further undermined Hollande’s efforts to conduct reforms.

Bulletin headline summary:

• Treasuries decline, 5Y and 30Y lead, as global stocks mostly higher on last day of quarter; week brings ECB meeting and Draghi press conference Thursday, nonfarm payrolls Friday.
• Consumer prices rose 0.5% in March, below 0.6% median estimate and the slowest pace in over four years, keeping pressure on the ECB to take action
• Bundesbank President and ECB council member Weidmann said Saturday current disinflation due to cyclical, not structural factors
• The specter of default in China’s trust loans market is deepening the distress of property developers that also borrowed in dollars
• French President Francois Hollande’s Socialists lost control of cities across the country yesterday, as voters punished the party for record joblessness
• Secretary of State Kerry said Russia must pull forces back from Ukraine’s border as both sides seek a diplomatic solution, while Russia’s Lavrov urged the government in Kiev consider devolving power to give Ukraine’s regions more autonomy
• Iran has forced a foreign policy dilemma on the Obama administration by choosing as its next UN ambassador an official who belonged to the group that held 52 Americans hostage in Tehran for 444 days.
• Sovereign yields higher. Asian equity markets ex-China rise. European equity markets mostly higher, U.S. stocks futures gain. WTI crude and copper lower, gold little changed

US event calendar:

• 9:00am: ISM Milwaukee, March est. 51.00, (prior 48.59)
• 9:45am: Chicago Purchasing Manager, March., est. 59.5 (prior 59.8)
• 10:00am: Annual Wholesale Inventory and Sales Revisions
• 10:30am: Dallas Fed Manufacturing Activity, March, est. 2.5 (prior 0.3)
• 2:00pm: Fed releases QE schedule for April
• NO POMO

 

Asian Headlines

JGBs settled marginally lower, with swaps curve bear-steepening, on the back higher Nikkei 225 index (+0.9%) and also ahead of tomorrow’s monthly 10y JGB auction, which will be the first in the new fiscal year. In terms of Chinese related commentary, the FT reported that China’s biggest banks more than doubled the level of bad loans they wrote off last year and removed CNY 59bln from their books, while analysts at Deutsche Bank cut their Chinese 2014 GDP growth estimate to 7.8% from 8.6% and cut 2015 GDP growth estimate to 8.0% from 8.2%.

EU & UK Headlines

Unwind of bull flattening trades was observed this morning, which saw Euribor curve bear steepen as market participants reacted to comments by ECB’s Weidmann who downplayed the need for the ECB to act, noting that the central bank should not overreact to a slowdown in inflation caused largely by cyclical factors. This view was further confirmed by the release of the latest EU CPI data, which despite coming in lower than the consensus estimate is expected to rebound next month on base effects. Of note, energy prices were the biggest and only negative factor pushing this months number lower. Elsewhere, IT/GE outperformed EU peers (trading at its tightest level since June 2011) on touted month-end related flows which are said to be particularly supportive on BTPs and OATs.

Barclays preliminary pan-Euro agg month-end extensions: (+0.07y) (12m avg. +0.08y)

Barclays preliminary Sterling month-end extensions: (+0.01y) (12m avg. +0.07y)

US Headlines

Little in terms of US macroeconomic commentary, with the focus now on the latest Chicago PMI release due later today. Barclays preliminary US Tsys month-end extensions:(+0.07y) (12m avg. +0.08y)

Equities

Stocks in Europe failed to hold onto best levels of the session and have gradually closed the opening gap higher, initially buoyed by expectation of further alleviation of fears surrounding Russia/Ukraine following constructive talks by Kerry and Lavrov. Financials were among the best performing sectors in Europe, with Monte Paschi trading up over 10%, following reports that bank’s foundation is to sell stake to Fintech and BTG.

FX

The release of weaker than expected EU inflation data failed to weigh on EUR, with the major pair recovering knee-jerk move lower after the chief hawk of the ECB downplayed the need for the ECB to act on what he described to be a slowdown in inflation caused by cyclical factors which should prove temporary. At the same time, USTs were dragged lower by Bunds amid an unwind of expectations of further easing by the ECB, which in turn benefited USD/JPY via interest rate differential flows.

Commodities

Energy complex was little reactive to the reports of constructive talks between US Secretary of State Kerry and Russia’s Lavrov, who agreed to work to ease Ukraine crisis, with reports today according to AFP that Russian troops are gradually withdrawing from the Ukrainian border. Furthermore, Germany’s Economy and Energy Minister Gabriel has sais the EU should cut its Russian NatGas dependance, whilst Finance Minister Schaeuble said Germany could cope with a Russian NatGas and oil embargo.

In terms of precious metals, analysts at Credit Suisse has raised it average 2014 gold price forecast to USD 1,260/oz from USD 1,080/oz and its 2015 average to USD 1,100/oz from USD 990/oz.

* * *

We conclude with the overnight recap by DB’s Jim Reid

As the new week begins, today also sees the end of the first quarter – a pretty fascinating one for markets. We’ll be doing our usual performance review tomorrow. Ahead of this let’s briefly review an important week ahead which sets up for an eventful end to Q1 and start to Q2.

Starting with Europe, ahead of the looming ECB meeting on Thursday, all eyes will be on the Euroarea CPI for the month of March (Monday). The core CPI print is expected to drop to 0.8% (from 1.0% last month) which would take us back to the Q4 2013 lows. Following this, the final PMIs (and the PMIs for the periphery) will be released tomorrow as Euroarea finance ministers meet in Athens to discuss bank supervision, amongst other topics. In terms of Thursday’s ECB meeting, an increasing number of participants expect the ECB to ease policy following the dovish comments that we saw from Weidmann and other ECB officials last week (we discuss Weidmann’s comments in further detail below). However this is not the expectation of DB’s Mark Wall and Gilles Moec. In their latest Focus Europe piece they write that they expect Draghi to press the “de facto loosening” argument, complemented by allusions to negative deposit rates and QE. Indeed, the FT’s Wolfgang Munchau wrote over the weekend that the ECB may wait until after European elections to roll out QE, and in the meantime pursue its strategy of “verbal intervention” which he describes as the central banker’s equivalent of a free lunch.

In the US, Janet Yellen will be speaking at an Interagency Development conference in Chicago today (around 3pm London) which will be her first public comments since the March FOMC. It’s unclear whether there will be Q&A. Lockhart and Bullard speak tomorrow. The highlight on the data docket is Friday’s payrolls where DB’s Joe Lavorgna is calling for a Top-of-the-Street +275k gain in the headline as hiring recovers from the winter-induced slump. The consensus is for a 200k gain in and a 0.1ppt fall in the unemployment rate to 6.6% (DB expects 6.5%). Ahead of payrolls, we have today’s Chicago PMI, Tuesday’s ISM, Wednesday’s ADP employment and Thursday’s February trade report and non-manufacturing ISM. The ADP and non-manufacturing ISM will likely prompt a number of revisions to estimates for Friday’s payrolls.

In emerging markets, China’s official PMI will be the most keenly observed data release (Tuesday). Consensus is for the index to edge down to 50.1 in March (vs 50.2 in Feb), though still significantly above the HSBC preliminary PMI of 48.1. While the first part of the week will be about the outcome of local elections, Turkey also releases its GDP (Mon), trade balance (Mon) and inflation (Thu). For Russia, we get the latest GDP data (Wed) and inflation data (Fri). The main event in LATAM will be Brazil’s (Wed) Central Bank rate decision, where our EM team expects yet another 25bps hike due to still high inflation forecasts.

Before we review the weekend news flow, we’ll take a quick look at overnight markets. Asian equities, outside of China, are seeing a better tone perhaps buoyed by Friday’s constructive market tone and the more conciliatory tone expressed by US and Russian officials over the weekend (more below). It’s been a relatively quiet start to the week newsflow-wise. Korean equities (- 0.2%) are down slightly after news that the two Koreas had exchanged artillery fire near a disputed border. The Nikkei (+0.5%) opened up strongly but has given up most of those gains as we type. Japan’s February industrial production data showed that activity dropped 2.3% MoM, sharply below forecasts of 0.3% growth. Our economists attribute this to negative payback from January’s outsized gains and snowfall over two weekends in February.

Looking at the the weekend newsflow, there was plenty of focus on the geopolitical developments in EMEA most notably in Turkey and Russia. Starting with Turkey, PM Erdogan’s ruling party has declared victory in Sunday’s local elections that some had described as a virtual referendum on the Turkish government. With nearly all ballot boxes opened and vote counting largely completed, NTV television is reporting that Erdogan’s AKP party has won more than 45% of the national vote and is set to retain control over Istanbul. The capital Ankara is still too close to call. The result is higher than the 39% achieved at the last local elections in 2009. The main opposition CHP party garnered around 28% of the vote according to NTV but they cited some irregularities with the voting process. According to Bloomberg, there were at least six fatalities as a result of election-related violence. The initial reaction this morning, albeit in illiquid markets, has seen the lira trade 0.75% higher
against the USD. Turkish bonds and the lira have had a strong run in the last fortnight, so it will be interesting to see how much further this rally could go post these elections.

In Russia, news broke shortly after Friday’s US market close that Putin had called Obama to discuss a diplomatic solution to the Ukraine crisis. The weekend press debated whether this was a turning point in the Ukraine crisis – but the Washington Post noted that the official recollections of the Putin- Obama call from the White House and Kremlin were starkly different, suggesting that perhaps diplomatic differences remain large. US Secretary of State John Kerry met with Russia’s Foreign Minister Lavrov for four hours on Sunday which concluded with both sides agreeing that they would continue to hold “constructive” talks to de-escalate the crisis. The recent build-up of Russian troops at the Ukraine border appeared to be one of the major sticking points. All this comes as the economic fallout to Russia gradually increases. On Friday, Moody’s changed the outlook on the Russia sovereign’s Baa1 rating to “Review for Downgrade” citing geopolitical risks and an economic slowdown.

A week earlier, S&P had changed the rating outlook on Russia to negative. Also on Friday, Russia’s largest aluminium producer, Rusal, warned of a potential covenant breach affecting nearly $4bn in debt unless a waiver is obtained from creditors by the end of today. Though it’s true that HK-listed Rusal’s woes have come from weakness in aluminium prices and an indebted balance sheet, the threat of economic sanctions against Russia are probably not helping its cause either.

Much of the weekend press was dedicated to the debate about the ECB and Fed’s policy, amid more data showing that inflation remains below target across the EU and US. The Bundesbank’s Weidmann surprised markets with his seemingly QE-supportive comments last week, but his interview with Reuters over the weekend appeared to have a more hawkish tone. Weidmann said that the Eurozone is not in a deflationary cycle and the ECB should not overreact to a slowdown in inflation caused by temporary factors affecting food and energy prices. He said the Euroarea “is not in a self-enforcing downward spiral of price decreases, which is nominally the definition of deflation”. With regards to the issue of financial stability, he said its “obvious that low rates are a risk” and that “eventually this might mean that a necessary structural change fails to take place”. The theme of financial stability was central to a speech that the Kansas City Fed’s Esther George gave on Friday.

George argued that rates have been “too low for too long”. Contrary to the recent talk of QE and negative deposit rates at the ECB, Reuters reported that Germany’s finance ministry expects borrowing costs to rise next year as the ECB will hike interest rates in response to an economic recovery, citing an internal document seen by Der Spiegel magazine.

Across the Atlantic, the latest PCE deflator index, one of the Fed’s preferred inflation gauges, came in at only 0.9% YoY in February, which was the weakest reading since October. The WSJ’s Hilsenrath wrote that U.S. inflation has now run below the Fed’s target for the 22nd straight month in February, a development that could give some Fed officials pause as they debate whether to keep pulling back on bond purchases and when to start raising short-term interest rates. The WSJ says that the last time inflation ran below the Fed’s target for as long as the current 22-month run was from 1997 to 1999.

Back in Europe, the ekathimerini said that Greece could return to the international bond markets as early as the end of April. A key factor that will determine the timing of the issue as well as its terms is the spread between the Greek bond yields and those of Portugal. The Greek government is targeting a spread to Portuguese bonds of around 200bp (vs circa 250bp at the moment). While the ekathimerini says that international markets may be ready to welcome Greece back, international investors “continue to underestimate political risk” which “has not diminished at all” according to the newspaper.

In Asia, there was an increasing amount of focus on the health of China’s banks following the FY13 earnings announcements from the major banks over the course of the weekend and last week. The five biggest Chinese banks, which account for more than half of all loans in the country, wrote off $9.5bn from their books in debts that could not be collected, according to 2013 results cited by the FT. That was up 127% from 2012, and the highest since the banks were rescued from insolvency, recapitalised and publicly listed over the past decade (FT).

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With Chinese authorities increasingly looking like they are sticking to their reform promises, fighting moral hazard and allowing defaults to occur (in a completely 'contained' way, of course); the continued crackdown on graft and government corruption has hit a new high (or low). As Reuters reports, Chinese authorities have seized assets worth at least 90 billion yuan ($14.5 billion) from family members and associates of retired domestic security tsar Zhou Yongkang, who is at the center of China's biggest corruption scandal in more than six decades. 71-year-old Zhou has been under house arrest since first being investigated late last year but the size and scale of the corruption is unprecedented including 300 apartments, 60 vehicles, bonds, stocks, and gold – "it's the ugliest in the history of the New China."

 

Via Reuters,

More than 300 of Zhou's relatives, political allies, proteges and staff have also been taken into custody or questioned in the past four months, the sources, who have been briefed on the investigation, told Reuters.

 

The sheer size of the asset seizures and the scale of the investigations into the people around Zhou – both unreported until now – make the corruption probe unprecedented in modern China and would appear to show that President Xi Jinping is tackling graft at the highest levels.

 

…

 

Zhou, 71, has been under virtual house arrest since authorities began formally investigating him late last year. He is the most senior Chinese politician to be ensnared in a corruption investigation since the Communist Party swept to power in 1949.

 

"It's the ugliest in the history of the New China," said one of the sources, who has ties to the leadership, requesting anonymity to avoid repercussions for speaking to the foreign media about elite politics.

However, some suggest it's just politics…

But it may also be driven partly by political payback after Zhou angered leaders such as Xi by opposing the ouster of former high-flying politician Bo Xilai, who was jailed for life in September for corruption and abuse of power.

 

"Zhou Yongkang is tough and claims its political persecution," the source said.

But the confiscations are widespread…

The first two sources said prosecutors and the party's anti-corruption watchdog had frozen bank accounts with deposits totaling 37 billion yuan and seized domestic and overseas bonds and stocks with a combined value of 51 billion yuan after raiding homes in Beijing, Shanghai and five provinces.

 

Investigators had also confiscated about 300 apartments and villas worth around 1.7 billion yuan, antiques and contemporary paintings with a market value of 1 billion yuan and more than 60 vehicles, the sources added. Other items seized included expensive liquor, gold, silver and cash in local and foreign currencies.

 

…

 

The first two sources added that more than 10 of Zhou's relatives had been detained. They included Zhou's one-time television reporter wife Jia Xiaoye, his eldest son from a previous marriage Zhou Bin, Zhou Bin's in-laws and Zhou Yongkang's brother.

 

About 10 officials who held a rank equivalent to at least vice minister were also under investigation, the sources said.

 

More than 20 of Zhou's bodyguards, secretaries and drivers had also been detained, the sources said. Many other family members and associates had been questioned.

But Xi has a problem with his next steps…

Since becoming head of the party in late 2012 and then president a year ago, Xi has vowed to go after both powerful "tigers" and lowly "flies" in an effort to crack down on the corruption he says threatens the party's very existence.

 

But Xi is in a dilemma over whether to put Zhou on trial lest it further undermine public faith in the party, the three sources said, referring to the growing disillusionment in China over rampant graft and abuse of power.

While the following cartoon may have summed up most people's attitudes to the corruption probes – especially in light of the ease of washing money out o fthe country that we explained here…

 

It seems with the confiscations this weekend, Xi is sending a rather loud signal to his political frenemies.

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Authored by Mathilde Mathieu, Thomas Spencer, & Oliver Sartor, via Vox EU blog,

The recent rapid growth in the production of unconventional oil and gas (shale gas and tight oil) in the US has led to a significant decrease of natural gas prices as well as reduced oil imports. This has raised questions about the impacts of the unconventional oil and gas revolution on the US macroeconomy, industrial competitiveness, and energy sector. It has also raised questions about its implications for the EU (e.g. Beffa and Cromme 2013). Given the considerable discussion about the impacts of shale, in a recently published study by the Institute for Sustainable Development and International Relations (IDDRI), we aimed to address these questions empirically (Spencer et al. 2014).

Energy-sector impacts of unconventional oil and gas in the US

Between 2005 and 2013, US production of natural gas increased by 33% from 18 to 24 trillion cubic feet per year. Most of this was due to production of shale gas, which increased from 0.75 to 8.5 trillion cubic feet (Gruenspecht 2013). Over the same period, US production of liquid fuels increased by 52%, and the contribution from tight oil increased from 0.29 million to 3.48 million barrels/day.

As a result, net oil imports have also fallen, from over 11 million barrels/day in 2007 to 8 million barrels/day in 2013. Less well known, however, is that this has occurred as much due to a broader drop-off in energy demand. Alongside greater domestic production, US energy consumption has been moderated by a combination of recession, new energy efficiency standards, and changed consumer behaviour – in particular in response to higher global oil prices and an ageing population. For example, in 2012, per capita energy use in the US actually fell by 5% versus 2011, despite economic growth in that year.

The conventional wisdom also holds that the US consumer has received a massive boost from lower energy prices resulting from the gas glut. In reality, the unconventional oil and gas revolution has actually had a quite uneven impact on consumer energy prices. Gas prices for residential consumers have fallen around 20% from their pre-2008 peak, while industrial and power-sector gas prices fell by about 50% from their 2008 peaks. Residential electricity prices have continued to rise, and industrial electricity prices have also risen – albeit at a lower rate. For households, however, the effects of the unconventional oil and gas revolution have been largely outweighed by continued rises in electricity and in particular gasoline prices (Table 1).

Table 1. Average household energy expenditure, 2005–2012

Data: US Census Bureau, 2012, Consumer Expenditure Survey.

Outlook for the US energy sector

It is likely that the US will become a net gas exporter around the end of this decade, subject to political approval of export infrastructure. This would lead to some narrowing of price gaps over time between US and regional gas prices. However, the range of scenarios assessed in the study suggest that the US will remain a significant importer of crude oil in coming decades. Policies to improve the efficiency of the transport sector will therefore be crucial for reducing US crude imports and costs to US motorists.

The scenarios examined do not suggest that the US shale revolution will lead to a significant emissions reductions from the US energy sector. Indeed, historical data shows that the recent decline in the share of US coal-fired electricity was due to the cyclical drop in natural gas prices, which has largely reversed (Figure 1). Longer-term production cost expectations for shale gas are closer to $6–$10/MBTU. In the absence of further policy, such as the currently-proposed emissions standards for new power plants, the shale revolution will be insufficient on its own to drive coal out of the US power fleet or decarbonise the US energy sector.

Figure 1. Coal-gas share in US electricity and natural gas prices for power generation

Source: US Energy Information Administration, 2013, Net Generation by Fuel Type, Natural Gas Electric Power Prices. http://ift.tt/1agiGkZ

Macroeconomic impacts of the unconventional oil and gas revolution

• Impact on productivity and GDP of lower gas prices

The impact of lower gas prices on US productivity can be broadly categorised into two parts: a) the income effect, resulting from the fact that the same economic good, gas, can now be produced more cheaply and so, if the same amount of gas is consumed as before, more income can be spent on other goods; b) substitution effects, resulting from the fact that changing gas prices may change the relative prices of other goods in which gas is an input and this may in turn have a range of knock-on consequences for productivity in other sectors.

A detailed microeconomic analysis suggests that the impact on GDP of these latter effects is likely to be negligibly small, affecting sectors representing only 1.2% of the US economy (see Figure 2). Assuming a persistent gap of -$4/MBTU to -$8/MBTU between US gas prices with shale compared to the no-shale scenario, we estimate a total income effect of around 0.575% of GDP on average between 2012 and 2040. This is a long-term increase in the level of GDP, not the growth rate. A multi-model comparison study by Stanford University came up with a similar figure for the long-term GDP impact of shale gas (0.46% of GDP) (Huntington 2013).

• Improvement in the US trade balance due to decreased oil imports

Increased production of oil and gas has lowered US imports. Since gas imports are small at the level of GDP, essentially this means that oil producer surplus is being transferred from non-US oil exporters to US oil producers and thereby into the US economy. Assuming a long-run marginal production cost of around $70–$80/barrel for light tight oil and a long-run oil price of $114/barrel, we estimate that the long-run GDP effects of reduced oil imports would be roughly equivalent to a 0.35% increase in the level of GDP in the period to 2040 relative to 2012 levels. This may be offset slightly, but not entirely, by a small increase in the exchange rate and other crowding-out effects in US capital and labour markets, but we ignore these effects. As with the point above, this is a long-term increase in the level of GDP, not the growth rate.

Combining the two calculations would lead to a change in the long-run level of GDP of 0.875% on average over the next two to three decades. As discussed further below, we do not see a significant positive impact on the US manufacturing deficit in aggregate.

• Stimulus effect due to the recessionary circumstances in which the unconventional oil and gas revolution took place.

The US economy was not and is not at full employment of labour and capital during the recent shale boom. We estimate the short-term stimulus of lower gas bills and increased investment, employment, and spending on intermediate inputs in the oil and gas sector at 0.13% of GDP and 0.48% of GDP, respectively.

Impact on manufacturing competitiveness

Figure 2 shows the share of gas as a feedstock and fuel in value added in gas-consuming manufacturing subsectors. This is compared with sectoral expenditure on employer-sponsored health insurance in order to give a point of comparison. Gas-intensive sectors make up a relatively small share of the US manufacturing sector, and only about 1.2% of US GDP. There is no evidence that the shale gas revolution will contribute to a ‘reindustrialisation’ in the US at the level of the manufacturing sector as a whole. Exports have increased in gas-intensive sectors, but only to a total of $23.6 billion in 2012 compared to a US manufacturing trade deficit of $779.4 billion (Figure 3). Coupled with other factors since 2007 which would tend to boost exports and reduce imports, including declines in the US real exchange rate during this time, and the effects of the recession on net imports, it is difficult to conclude that any evidence exists of a US manufacturing renaissance led by shale gas. This conclusion is similar to that reached in an IMF staff working paper which concluded that the benefits of cheaper gas are likely to be limited to the chemicals, primary metals, and paper and print sectors, and that, on average, a doubling of the US–G7 gas price gap was associated with only a 1.5% increasing in US manufacturing production (Celasun et al. 2014).

Figure 2. Gas and health care expenditures in the manufacturing sectors, 2010

Data: US Energy Information Administration, US Census Bureau.

Figure 3. US real trade balance by product type, millions of 2009 dollars

Data: US Energy Information Administration, US Census Bureau Foreign Trade Statistics.

Conclusions: A revolution, not a panacea

Our analysis suggests that commentators and policymakers need to better distinguish between the ways in which the US shale gas boom constitutes a ‘revolution’ and the ways in which it does not. The US unconventional energy boom has reversed the decline of domestic production, significantly lowered oil and gas imports, reduced gas costs for consumers, and created a political space for tougher regulations on coal-fired power plants. But it is not a panacea. Even if current estimates of production turn out to be accurate, the benefits to the US economy in the long run are relatively small, and the benefits to manufacturing competitiveness in most sectors are even smaller. In the longer term, US energy security and climate goals will still require a strong role for public policy frameworks. Improving energy efficiency and promoting low-carbon technologies will be just as important as before. For the EU, given its more limited known reserves of unconventional oil and gas, these conclusions are likely to be all the more relevant.

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