Tag: finance

Last week, after western sanctions against Russia expanded to include not only the first financial institution, Bank Rosiya, but also SMP bank whose main shareholders were on the sanctions list, unexpectedly both Visa and MasterCard halted providing transaction services to the two banks, without providing an explanation. Over the weekend, one of the banks got its full credit card functionality back after Visa Inc and MasterCard both resumed services for payment transactions for clients at Russia’s SMP bank.

As a reminder, SMP, which has about 100 branches covering more than 20 Russian cities, has co-owners Boris Rotenberg and older brother Arkady,  who received large contracts in the Sochi Winter Olympics, and who were both added to the expanded US sanctions list, and as we reported before, SMP had said on Friday that Visa and MasterCard had stopped providing services for payment transactions for clients at Russia’s SMP bank. The bank said the decision to stop providing services by Visa and MasterCard was unlawful because the sanctions were imposed on shareholders, not the bank, which said it has no assets in the United States.

“We are glad that the two biggest international payment systems have heard our arguments and reversed their decision to block (SMP bank transactions),” SMP bank CEO Dmitry Kalantyrsky, said in a statement.

What was the purpose of this escalation? Simple: as Reuters reports, SMP Bank said on Monday around 9 billion roubles ($248 million) had been withdrawn by depositors since U.S. sanctions were announced last week.

Washington imposed sanctions on Thursday against 20 Russians close to President Vladimir Putin over Moscow’s involvement in the Ukraine crisis, including Boris Rotenberg and his older brother Arkady, the co-owners of SMP Bank.

SMP CEO Dmitry Kalantyrsky told a news conference that an estimated 4 billion roubles had been withdrawn by individuals and 5 billion by organisations.

In other words, the staggered escalations against Russian banks, to which credit card processors have joined without any specific reason, were meant solely to incite a bank panic and to promote bank run conditions. With SMP this succeeded partially, with quarter of a billion withdrawn, however hardly enough to cripple the bank. At least for now.

As Bloomberg reports, as the new Cold War escalates between the West and Russia, the next most likely event is a Russian recession:

Banks including state-run VTB Capital say the world’s ninth-biggest economy will shrink for at least two quarters as penalties for annexing Crimea rattle markets, curb investment and raise the cost of borrowing. Sanctions that have so far focused on individuals via visa bans and asset freezes may be expanded to target specific areas of the economy.

 

President Vladimir Putin sent his popularity surging to a five-year high by making Crimea a part of Russia again after 60 years and says he won’t be swayed by foreign retaliation. Even so, the costs of the decision are starting to unfold, with Russian stocks this year’s worst performers and the economy set to suffer more than the West, said Mircea Geoana, Romania’s government representative for diplomacy and economic projects.

 

“We’re witnessing the start of a new geopolitical and economic Cold War and I think it will take at least two to three years to establish some sort of equilibrium,” he said. “The ones who’ll pay the bill for this aggression, no matter how popular and patriotic it looks, will be the Russian people because there’s a huge difference between the economic force of the EU and the U.S. and that of Russia.”

 

* * *

 

Russia will probably dip into a recession in the second and third quarters of this year as “domestic demand is set to halt on the uncertainty shock and tighter financial conditions,” according to Moscow-based VTB.

 

Russia’s central bank unexpectedly raised its benchmark interest rate by 150 basis points after the armed takeover of Crimea triggered a rout in the ruble. Putin completed his annexation of the Black Sea peninsula March 21.

 

Russia may shun foreign debt markets in 2014 because of higher borrowing costs, according to Finance Minister Anton Siluanov. He expressed frustration at disruptions to MasterCard Inc. and Visa services for cards issued by banks on or linked to persons on the U.S. sanctions list.

 

“Some people say these sanctions won’t affect Russia’s financial system but they already are,” he said March 21.

Of course, as we reported last week, any dramatic deterioration in the Russian economy will simply push it closer to China, which for all intents and purposes is the provider of funding for Western “discretionary spending” anyway, so why not just cut the middleman, and the petrodollar, entirely?

via Zero Hedge http://ift.tt/1hf7wMN Tyler Durden

• U.S. Small-Cap Rally Sends Valuation 26% Above 1990s  (BBG)
• Russian troops seize Ukraine marine base in Crimea (Reuters)
• Apple in Talks With Comcast About Streaming-TV Service (WSJ)
• Top J.P. Morgan Executive in China to Leave Bank (WSJ)
• Treasury’s Lew to undergo treatment for enlarged prostate (Reuters)
• Billionaire Sought by U.S. Holds Key to Putin Gas Cash  (BBG)
• Israel closes embassies around the world as diplomats strike (Reuters)
• Herbalife to Nominate Three More Icahn Candidates to Board (BBG)
• Australian ship homes in on possible debris from Malaysia plane (Reuters)
• California DMV Investigating Potential Credit Card Breach (WSJ)
• U.S. regulators failed to spot deadly GM defects that others saw (Reuters)
• Egyptian court sentences 529 Brotherhood members to death (Reuters)
• World Leaders Discuss Ukraine as Worry Grows Over Russia (BBG)
• Drug Firms Focus on Advanced Melanoma (WSJ)

 

Overnight Media Digest

WSJ

* Apple Inc is in talks with Comcast Corp about a streaming-television service that would use an Apple set-top box and try to bypass congestion on the web, people familiar with the matter said. (http://ift.tt/1rkWiyJ)

* One of JP Morgan Chase & Co’s top China executives is expected to resign amid a continuing probe of the U.S. bank’s Asian hiring practices, according to people familiar with the situation. (http://ift.tt/1f8YaC5)

* U.S. hedge fund RD Legal Capital LLC plans to bet as much as $100 million that it can collect on a court judgment against Iran for a deadly terror attack in Beirut three decades ago, according to marketing documents and people familiar with the matter. (http://ift.tt/1f8Yd0y)

* IMS Health Holdings Inc is in the final stages of preparing to launch an initial public stock offering that could value the prescription-data provider at $7 billion, people familiar with the matter said. IMS, owned by private-equity firms TPG, Leonard Green & Partners LP and the Canada Pension Plan Investment Board, will soon start a road show to pitch investors on its shares, which are expected to begin trading within the next two weeks. (http://ift.tt/1ghcw7K)

* Major pharmaceutical companies such as Bristol-Myers Squibb Co, Roche Holding AG and Merck & Co are racing to launch breakthrough drugs in the next 18 months to treat advanced melanoma, the deadliest form of skin cancer. All three companies are working on a potential blockbuster “immunotherapy” drug that would use the body’s immune system to fight the cancer. (http://ift.tt/1ghcw7M)

* California’s Department of Motor Vehicles is investigating a potential breach of its credit card-processing systems, in what might be the latest in a string of attacks that have highlighted vulnerabilities in how payment data are handled. (http://ift.tt/1ghcyMP)

* Cisco Systems Inc plans to begin offering “cloud” computing service to corporate customers, pledging to spend $1 billion over the next two years to enter a market now led by Amazon.com Inc. (http://ift.tt/1ghcwo6)

 

FT

The chief of General Electric’s European business said the industrial conglomerate wanted Britain to stay in the European Union and Scotland to remain part of Britain.

Geely-owned Volvo Car Group said it would double its marketing budget in the United States, looking to revive its faltering business there and keep a turnround at the Gothenburg-based carmaker on track.

As Gatwick prepares its case for expansion, it will argue this week that Britain will have less need for a big hub airport such as Heathrow because of the way the aviation industry is evolving.

A group of banks including Goldman Sachs and Nomura have agreed to lend nearly 1 billion euros ($1.38 billion) to private equity-backed Ceva Sante Animale, a veterinary drug producer.

FTSE 100 Tullow Oil will become the first oil company to disclose its payments to foreign governments with a level of detail demanded by anti-corruption campaigners.

 

NYT

* Data storage company Actifio is to announce it has raised $100 million in new financing, valuing the company at $1 billion. That deal places Actifio in an elite club of start-ups with 10-figure valuations. (http://ift.tt/1gtfuqF)

* Birchbox, an online retailer of cosmetic and beauty products, has decided to open a physical retail store by late May. Founded by two Harvard classmates, the company joins a list of e-tailers who have decided to have a physical retail store apart from an online presence. (http://ift.tt/1oTEN6u)

* Tribeca Enterprises, a Manhattan-based independent film concern co-founded by actor Robert De Niro, has agreed to sell 50 percent stake to Madison Square Garden Co. The deal, announced on March 22, values Tribeca at $45 million. (http://ift.tt/1gtfuqN)

* General Motors Co has turned to social media to earn its reputation back and manage its customers well in the wake of a recent recall storm involving 1.6 million cars. The once-bankrupt automaker’s dual approach – going about its normal business while trying to help specific customers – reflects the tightrope the company must walk. (http://ift.tt/1oTENmI)

* With an eye to achieve top TV ratings, attracting marquee advertisers and lots of social media buzz, kids’ TV channels are increasingly leaning towards award shows. (http://ift.tt/1oTELeB)

 

Canada

THE GLOBE AND MAIL

* The Parti Quebecois is trying to bolster a faltering campaign with a new wedge issue on Quebec identity, accusing Ontarians and other Canadians from outside Quebec of trying to steal the provincial election. (http://ift.tt/1oTx5Jo)

* Leaders of Canadian companies operating in Russia are fearful that Western sanctions and Ottawa’s overtly pro-Ukrainian position over Crimea will lead to a worsening business environment for them in Russia. (http://ift.tt/1oTx88a)

Reports in the business section:

* BlackBerry Ltd Chief Executive John Chen has so far received relatively kind treatment from his company’s long-suffering investors. There’s growing evidence that investors have been willing to cut the company a little more slack these days, as it continues trying to pull off a difficult transition from a smartphone giant to a software and services provider. (http://ift.tt/1jm4FbY)

NATIONAL POST

* An Ontario judge’s decision to hand Iran’s $7 million worth of state assets in Canada to victims of terrorism was branded “politically motivated” and of “no legal value” by the Islamic republic on the weekend. (http://ift.tt/1jm4FJ7)

* Canadian Prime Minister Stephen Harper has been criticizing Russian President Vladimir Putin and Russia on Ukraine and Crimea more sharply than any other leader of a major western country. (http://ift.tt/1jm4Fc4)

FINANCIAL POST

* Teen movie franchises are proving to be a very lucrative investment for Lions Gate Entertainment Corp, which appears to have yet another multi-part epic hit on its hands. The studio, which was founded in Vancouver by mining magnate Frank Giustra, won the North American box office over the weekend with “Divergent,” a film about a dystopian future where people are divided into factions based on human virtues. (http://ift.tt/1jm4Fc6)

 

China

SHANGHAI SECURITIES NEWS

– China will be able to achieve its goal for its economy to grow 7.5 percent this year, Jia Kang, head of the Ministry of Finance’s research, told an asset management forum in Beijing over the weekend.

– China’s decision to let listed firms to issue preferred shares for the first time will enable banks to raise funds without dilution of their earnings, making banking shares more attractive to investors, a signed article by the newspaper said.

PEOPLE’S DAILY

– The slowdown of the annual growth of China’s economy to below 8 percent over the past two years, down from more than 10 percent in most years since the start of this century, signals that the country needs to step up its efforts to improve its economic structure to sustain its rapid growth, a commentary by the newspaper said.

CHINA SECURITIES JOURNAL

– The depreciation of the yuan against the dollar since the start of this year is mainly a correction after the Chinese currency staged an unexpected strong appreciation last year. Now another round of yuan rise may have to wait until the fourth quarter of this year, judging from factors including China’s slowing economy, a research report by Huarong Securities said.

– China’s central government should be the main investment force for the country’s next round of urbanisation drive, said Wang Jian, an official at the National Development and Reform Commission, China’s top economic planner.

SECURITIES TIMES

– The China Securities Regulatory Commission will soon resume reviewing corporate applications for initial public offerings after an IPO lull since February as applicants are required to add their latest financial data for last year among their documents for applications.

CHINA BUSINESS NEWS

– A number of Chinese government departments are now coordinating to draft rules to manage and supervise China’s rapidly growing online banking business, sources said.

CHINA DAILY

– China and Netherlands pledged to seek closer cooperation during the ongoing visit to Europe by Chinese president Xi Jinping.

 

Britain

The Telegraph

SAINSBURY’S WINS SECOND BITE AT TESCO ‘PRICE PROMISE’

J Sainsbury’s has won the right to a judicial review in its legal battle against Tesco’s “misleading” Price Promise campaign after failing to convince regulators that it should be banned. (http://ift.tt/1fTbYQz)

MENTAL HEALTH-CARE GROUP CAMBIAN PLANS 500 MLN STG IPO

Cambian, Britain’s biggest mental health services provider, is joining the flotation flurry after unveiling plans to list half of the business on the London Stock Exchange. (http://ift.tt/1eDrRyg)

The Guardian

SUNRISE RADIO TAKEOVER BEING LED BY TORY DONOR FACING 14 MLN STG FRAUD TRIAL

The takeover of London’s biggest commercial Asian radio stations is being led by a former business associate of Conservative grandee Cecil Parkinson who is awaiting trial for fraud at the Old Bailey. (http://ift.tt/1jkNbNi)

The Times

‘SCOTS TO PAY PREMIUM FOR KILT-EDGED BORROWING’

BlackRock, the world’s largest fund manager, has warned that an independent Scotland would have to pay more to borrow when issuing “kilt-edged securities”, because of the country’s reliance on volatile oil revenues and an oversized banking sector. (http://ift.tt/1fTc0If)

ASDA MANAGERS FACE AXE AS GROCERS’ PRICE WAR ESCALATES

Asda is preparing to announce what are said to be “scores” of redundancies among senior managers in its central and head office functions. The grocer is expected to brief senior managers on Monday on who will be let go. (http://ift.tt/1eDrQdx)

PHOENIX IS PRESSING IGNITION ON SALE PLAN

Phoenix Group has entered exclusive talks with Standard Life over a potential 400 million pound ($659.8 million) sale of its Ignis Asset Management division. (http://ift.tt/1fTc0Yv)

RSA PREPARES FOR EASTER FUNDRAISING

RSA will this week pull the trigger on its emergency cash call to shareholders as Britain’s biggest commercial insurer sets out the terms of its bumper 775 million pound rights issue. (http://ift.tt/1eDrQdB)

INTEROUTE TO RAISE 200 MLN EUROS AS IT TARGETS CLOUD CONTROL

London-based telecommunications company Interoute intends to raise up to 200 million euros ($275.7 million) to fund expansion as it plots a listing within the next two years. (http://ift.tt/1fTc0Yx)

The Independent

THAMES WATER SEEKS INTERNATIONAL BACKERS FOR LONDON’S SUPER-SEWER

Thames Water has started the hunt for international investors to fund the construction of its controversial 4 billion pound super-sewer across London. (http://ift.tt/1eDrROC)

RECORD NUMBER OF WOMEN TAKE SEATS IN THE BOARDROOM

The equality campaigner Lord Davies will this week step up the pressure on companies to put more women into executive committee roles, as he reveals that females hold a record number of seats in the boardrooms of Britain’s biggest companies – but men still dominate the top jobs. (http://ift.tt/1fTc0Yz)

BIG LEAP IN BRITISH FOOD EXPORTS TO CHINA

A taste for Scottish salmon and British pork by China’s emerging middle classes drove UK food and drink exports 5 percent higher last year to 12.8 billion pounds, the Food & Drink Federation said. (http://ift.tt/1fTbYQB)

 

Fly On The Wall 7:00 Am Market Snapshot

ECONOMIC REPORTS

Domestic economic reports scheduled today include:
Chicago Fed national activity index for February at 8:30–consensus 0.1
Markit U.S. manufacturing PMI for March at 9:45–consensus 56.5

ANALYST RESEARCH

Upgrades

Axiall (AXLL) upgraded to Buy from Neutral at BofA/Merrill
Banco Bradesco (BBD) upgraded to Outperform from Neutral at Credit Suisse
First Bancorp (fbnc) upgraded to Outperform from Market Perform at Raymond James
STAAR Surgical (STAA) upgraded to Outperform from Market Perform at William Blair
Stratasys (SSYS) upgraded to Overweight from Neutral at JPMorgan
Symantec (SYMC) upgraded to Outperform from Market Perform at BMO Capital
U.S. Bancorp (USB) upgraded to Neutral from Underweight at Atlantic Equities
United Continental (UAL) upgraded to Outperform from Market Perform at Raymond James
VMware (VMW) upgraded to Buy from Neutral at Sterne Agee
Wells Fargo (WFC) upgraded to Neutral from Underweight at Atlantic Equities
Yanzhou Coal (YZC) upgraded to Neutral from Underperform at Credit Suisse
Yanzhou Coal (YZC) upgraded to Overweight from Neutral at JPMorgan

Downgrades

American Electric (AEP) downgraded to Hold from Buy at Jefferies
BBCN Bank (BBCN) downgraded to Market Perform from Outperform at BMO Capital
Bank of America (BAC) downgraded to Neutral from Overweight at Atlantic Equities
Exelis (XLS) downgraded to Hold from Buy at Jefferies
Gartner (IT) downgraded to Market Perform from Outperform at Wells Fargo
KPN (KKPNY) downgraded to Neutral from Buy at Citigroup
Loews (L) downgraded to Hold from Buy at Deutsche Bank
Manitowoc (MTW) downgraded to Underperform from Hold at Jefferies
NetApp (NTAP) downgraded to Underweight from Equal Weight at Morgan Stanley
Susser Holdings (SUSS) downgraded to Market Perform from Outperform at Wells Fargo
Zions Bancorp (ZION) downgraded to Market Perform from Outperform at BMO Capital

Initiations

Abiomed (ABMD) initiated with an Outperform at Leerink
CECO Environmental (CECE) initiated with a Hold at Jefferies
Clovis (CLVS) initiated with a Neutral at Goldman
Descartes Systems (DSGX) initiated with an Outperform at Raymond James
NCI Building Systems (NCS) initiated with an Outperform at Credit Suisse
National General (NGHC) initiated with an Outperform at FBR Capital

COMPANY NEWS

Herbalife (HLF) to nominate three additional Icahn designees to board
Nokia (NOK) now expects deal with Microsoft (MSFT) to close in April
Credit Suisse (CS) in $885M settlement with FHFA
Twitter (TWTR) said hopes to have access in Turkey returned ‘soon’
Nu Skin China (NUS) penalized $524K for direct sales of certain products
Ctrip.com (CTRP) said 93 users’ credit card information may have been hacked
AT&T (T) responded to Netflix’s (NFLX) Hastings, said ‘there is no free lunch’ 
Madison Square Garden (MSG) purchased 50% interest in Tribeca Enterprises

EARNINGS

Sinopec (SNP) reports FY13 net profit RMB66.1B vs. RMB63.9B in FY12
Republic First Bancorp (FRBK) reports Q4 EPS (13c), two estimates 2c
Hackett Group (HCKT) reaffirms Q1 EPS, revenue guidance
Dataram (DRAM) reports Q3 EPS (40c) vs. (44c) a year ago
Arrhythmia Research (HRT) reports Q4 EPS (3c) vs. (44c) a year ago

NEWSPAPERS/WEBSITES

Cisco (CSCO) plans to offer cloud computing services, WSJ reports
Apple (AAPL), Comcast (CMCSA) in talks about streaming-TV service, WSJ says
Nasdaq (NDAQ) re-evaluating FinQloud partnership with Amazon (AMZN), FT reports
JPMorgan (JPM) executive in China expected to resign amid probe, WSJ says
Bristol-Myers (BMY), Roche (RHHBY), Merck (MRK) working on possible blockbusters for melanoma, WSJ says
Artist Series makes $350M cash offer for MSG’s (MSG) Fuse TV, Bloomberg says
U.S. considers bankruptcy link in GM (GM) ignition defect probe, NYT says
Apple (AAPL) to move towards automoated production for iPhone batteries, DigiTimes says
Oceanografia CEO questioned in Citigroup (C) fraud case, Reuters says
A sale of stake in Alibaba after its IPO could net Yahoo (YHOO) billions, Barron’s says
Principal Financial (PFG) should be worth 25% more, Barron’s says
McDermott (MDR) shares could rise over 20% in a year, Barron’s says
CommonWealth REIT (CWH) could eventually trade higher, Barron’s says
A bigger iPhone screen could boost Apple’s (AAPL) earnings 10%-15%, Barron’s says
Visteon (VC) shares could reach $100 in a year, Barron’s says

SYNDICATE

Cardica (CRDC) files to sell 32.15M shares of common stock
Galectin Therapeutics (GALT) files to sell $100M of common stock
Rand Logistics (RLOG) files to sell $8.2M of common stock
SeaWorld (SEAS) files to sell 15M shares of common stock for holders

via Zero Hedge http://ift.tt/1nTl2id Tyler Durden

If there was one thing that the market was demanding after last night’s disappointing March HSBC manufacturing PMI, which has now fallen so low, local market participants are convinced a stimulus is imminent (despite China’s own warnings not to expect this), and sent both the SHCOMP and the CNY surging, it would have been further weak data out of Europe, where the other possible, if not probable, “QE-stimulus” bank is located now that the Fed is in full taper mode. It didn’t get precisely that however there was a step in the right direction when overnight the Euro area Composite Flash PMI eased marginally from 53.3 to 53.2 in March, largely as expected. The country breakdown showed a narrowing of the Germany/France Composite PMI gap owing to a notable (3.7pt) increase in the French PMI while the German PMI eased somewhat (1.4pt). On the basis of past correlations, a Euro area Composite PMI of 53.2 is consistent with GDP growth of around +0.4%qoq, slightly stronger than our Current Activity Indicator (+0.35%qoq).

The breakdown for Eurozone manufacturing is shown in the charts below:

 

So for those wondering why futures are no up and set to fill the gap from Friday’s surprising late day tumble, now you know – more bad news masked with hopes that central banks will come in and fix things and this time it may actually work.

Other weekend headlines were relatively few and far between but there was some focus on French local elections, the ECB, geopolitical tensions in various pockets of the globe and ongoing corporate distress in China. Starting with France the far-right National Front party made significant gains in local elections in what is being spun as a backlash against Francois Hollande’s policies. The National Front party is reportedly ahead in some towns including the northern town of Henin-Beaumont which has historically voted for the left. All in all, the National Front is predicted to win half a dozen towns after next Sunday’s round two run-offs (Reuters). In terms of the ECB, Vice President Vitor Constancio, speaking on Saturday at a Fed-sponsored conference, said that the ECB will not adopt threshold-based rate guidance. Constancio also remarked that markets had mostly missed that the ECB actually strengthened its forward guidance at the March meeting, tying its accommodative stance to the closure of slack in the economy. In Ukraine, NATO’s commander in Europe warned on Sunday that Russian forces just to the east of Ukraine were “very, very sizeable and very, very ready”. This came after pro-Russian forces seized a couple more of the remaining military bases in Crimea held by Ukrainian troops on the weekend. In Asia, there were reports that more Chinese onshorebonds will be suspended from trading after the Chinese corporate reporting season concludes in March-April. Indeed there is talk that some 24 bonds from 19 Chinese domestic issuers are in danger of having their bonds suspended in the near future (IFR).

Headline bulletin from RanSquawk and Bloomberg

• Treasuries decline, 10Y yield holding just above 100-DMA; 5Y at highest since Jan. 9 before U.S. sells $109b in 2Y fixed/FRN, 5Y and 7Y notes beginning tomorrow.
• China’s manufacturing weakened for a fifth straight month, with the HSBC/Markit PMI dropping to 48.1 from 48.5, est 48.7
• Chinese stocks rebounded from initial losses on speculation that weakening growth will prompt policy makers to reconsider their aversion to broad stimulus measures
• Ukraine’s foreign minister said the risk of war with Russia was growing as world leaders gather in The Hague to discuss  the situation amid growing concern over a Russian buildup on its neighbor’s border as pro-Kremlin troops seized a Ukrainian base in Crimea
• Growth in euro-area manufacturing and services stayed close to the fastest since 2011 in March as France improved
• Fang Fang, JPMorgan’s CEO of investment banking for China, is leaving after more than 12 years at the firm
• Sovereign yields mostly higher. Asian equities rise, Nikkei +1.8%, Shanghai +0.9%. European equity markets decline U.S. stock-index futures gain.  WTI crude and copper steady, gold lower

US Economic Calendar

• 8:30am: Chicago Fed National Activity Index, Feb.,  est. 0.10 (prior -0.39)
• 9:45am: Markit U.S. PMI Preliminary, March, est. 56.5 (prior 57.1
• 9:00am: Fed’s Stein speaks in Washington Supply
• 11:00am: Fed to purchase $500m-$750m notes in 2024-2031 sector

The complete overnight recap from DB’s Jim Reid

Overnight the preliminary HSBC Chinese manufacturing PMI for March was released which disappointed relative to market expectations (48.1 vs 48.7 expected). The PMI is down 0.4 pts MoM and down 3.5 pts YoY which is disappointing to those who expected the PMI to bounce back after potential  Lunar New Year seasonal distortions in January and February’s data. Asian stocks and credit edged lower following the data but overall the market reaction has been limited, potentially because the weak PMI has renewed calls for the Chinese authorities to expand fiscal spending this year. We note though  hat the Chinese Finance Minister Lou Jiwei ruled out large fiscal stimulus in a speech at a development forum in Beijing yesterday, instead stressing Beijing’s commitment to carrying out reforms. The Nikkei (+1.9%) is leading gains in Asia after reopening from its long weekend, and Chinese banking stocks are underpinning the Shanghai Composite (+0.5%). Chinese bank stocks have been buoyed by news that the government may allow banks to issue preference shares to open up an additional source of funding. The underperformers post-PMI are copper futures (-0.3%) and the AUDUSD (- 0.05%) but initial losses have been pared.

The weekend commentary devoted substantial ink to discussing the exact meaning of Yellen’s “six months” remark at last Wednesday’s FOMC press conference. This was spurred by the St Louis Fed’s Bullard’s comments on Friday where he suggested that Yellen’s “six month” estimate of the interval between QE ending and the first rate hikes was an assessment that was in line  with private sector surveys. Bullard’s comments on Friday precipitated a brief wobble in the S&P500 (-0.29%) late in the session. The weekend commentary suggested that perhaps Yellen had made a “gaffe” in her first press conference as Fed Chair (CNBC). Despite Bullards’ comments, Reuters said on Sunday that its survey of economists shows that Yellen’s comments have not altered their views. Ten dealers of 17 polled see rate hikes in the second half of 2015, with another four saying increases would not start until 2016.

Previewing what’s in store for the rest of the week, we have the release of the flash global manufacturing PMIs today in the Euroarea and US. Further out on the data docket, the release of US new homes sales and consumer confidence comes tomorrow, durable goods orders on Wednesday, initial jobless claims and Q4 GDP (3rd estimate) on Thursday, followed by personal income/spending data on Friday. In the Euroarea, German IFO will be released on Tuesday, followed by the ECB’s February money supply report and UK retail data on Thursday. Japan reports CPI on Friday. In China, the focus will be on Chinese bank earnings announcements throughout the week.

On the diplomatic front,. President Obama attends a G7 meeting in The Hague this week, called in response to the crisis in Ukraine. Obama will also meet with leaders from 20 nations to discuss nuclear security. In terms of the Fed, DB’s Joe Lavorgna notes that we have an eventful week of Fedspeak lined up.

This week’s lineup includes Atlanta Fed President Lockhart (non-voter) and the Philadelphia Fed’s Plosser (voter), who will both be speaking on the economyand monetary policy tomorrow. Bullard speaks on Wednesday afternoon where we may get some clarification of his comments from Friday. Sandra Pianalto’s speech on Thursday will not be less relevant, despite her impending retirement from the Cleveland Fed, because she is a useful bellwether of the moderates on the Committee. Chicago Fed President Evans (non-voter), one of the more dovish of the regional Presidents, also speaks on Thursday. Kansas City’s Esther George (non-voter), a well- known hawk, is the last scheduled Fed  speaker on Friday afternoon. Elsewhere the Fed releases its Comprehensive Capital Analysis and Review on Wednesday which provides its assessment on bank’s ability to keep making dividend payments and funding share buy backs.

In the EM space, our strategists highlight two bellwether trade reports this week which will shed more light on regional Asian trade. Thailand and Hong Kong are expected to see a boost in exports after earlier reports were affected by poor weather and seasonal one-offs. In EMEA, there are rate meetings in Israel (Mon), Hungary (Tue), South Africa (Thu), Czech Republic (Thu) and Romania (Fri). There will also be landmark local elections held in Turkey (Sun) which are being viewed as a referendum on the future of PM Erdogan’s
government.

via Zero Hedge http://ift.tt/1juW2Yk Tyler Durden

There’s a skeleton in everybody’s closet

I can think of one or two in my own room

But I would like to introduce them both to you

You’d shake their bony hands and so dispell the gloom

 

“The Ghosts That Haunt Me”

Brad Roberts/Crash Test Dummies (1991)

Once again it is time for the Federal Reserve stress tests for major US banks, which were released last week.  This exercise is not so much about financial stability, to borrow the title of my new upcoming book, as it is about “confidence.”  The Fed stress tests are mandated by the ill-considered “Dodd-Frank Wall Street Reform Act” or “DFA,” which is of course not about reform so much as about screwing up the US economy.  To get a sense for what  the DFA, as the Fed calls it, is doing to housing, have a look at my presentation to the Five Star Institute tomorrow.

http://tinyurl.com/lw2oxdw

The first hint of problems with the stress tests is the fact that the Fed is focused on capital instead of issues like transparency and fraud.  For those of you who were in cryogenic sleep during the 2008 financial crisis, the market breakdown was caused by securities fraud rather than a lack of capital.  As I discussed in Breitbart last week, “Washington & Wall Street–Memo to GOP: Fed Losses Are Good News.”

http://tinyurl.com/l837wlx

First and foremost, let’s talk about why the Fed has been buying hundreds of billions of dollars’ worth of Treasury paper and MBS for the past several years. Back in 2008, when the subprime crisis exploded into the consciousness of global investors, the markets suddenly realized that the U.S. balance sheet was out of balance to the tune of tens of trillions of dollars. Toxic subprime paper created by the monopoly of big banks and government-sponsored entities such as Fannie Mae and Freddie Mac, and hidden via “off balance sheet” fraud, suddenly came rushing back into view and onto the balance sheets of U.S. banks. 

Horrified investors fled the market for Treasury securities and MBS. Eventually, Fannie, Freddie, AIG, and, ultimately, Citigroup had to be rescued by the U.S. Treasury. The serious imbalance between assets and liabilities was illustrated by then-Treasury Secretary Hank Paulson, who famously announced in 2008 that Citigroup was insolvent and that we needed a “Super SIV” scheme to buy the toxic assets from the largest banks, including Citi, JPMorgan, and Bank of America.  

It was the fact of some $60 plus trillion in hidden, fraudulent toxic waste that nearly crated the global economy.  Capital in US banks had nothing to do with it.  Now that the FASB has essentially outlawed most (but not all) off-balance sheet games, the banks are earnings and revenue constrained.  The DFA restrictions on housing finance are a big part of why large bank earnings are going to be an ongoing disappointment.

The second clue that the DFA stress tests are a bad joke is the continued insistence by the Fed on using three macroeconomic scenarios to define the test process.  Anyone even vaguely familiar with financial analysis understands that you don’t need an economic narrative or an economist for that matter to stress test a financial institution.  You start with loss assumptions, examine capital, earnings and liquidity, and then assess the loss absorption potential of a given institution.  

The participating banks have noted in public comments on the DFA stress tests that the Fed and other agencies “do not have a strong record of identifying emerging risks in the past, and that the scenario variables were not sufficiently plausible to be useful as a risk management tool.”  These comments are well founded and illustrate the silly nature of this exercise.  The fact that the Fed has required bank management to spend time on this idiocy while closing year-end financial statements is just another piece of evidence that nobody at the Fed is living in the real world.

Another clue that the Fed stress tests are not to be taken seriously is the dependence upon risk modelling, a requirement that is designed to provide employment to economists, lawyers and risk managers.  Not only do the banks need to spend time and money modeling meaningless macroeconomic scenarios, but they are also meant to include “regional variables” in the analysis.  Since the “the paths of any additional regional or local variables that a company used would be expected to be consistent with the path of the national variables in the supervisory scenarios,” this whole process is ridiculous.  But, again, investors in large banks should bear in mind that this process is about “confidence,” not the ability to absorb loss.

The final indicator that the DFA stress tests are not to be taken seriously is that the inmates – that is, the large banks – are still being allowed by regulators to select the loss variables for the test.  Indeed, the stress tests manage to ignore truly relevant real world risks while pandering to the management of the largest banks.  

For example, a real world test would be to ask the top five banks to stress tests a 50% write down of all second lien exposures on 1-4 family mortgages over a 24 month period. Since the major rating agencies have already identified second liens as the next “surprise” for the big banks, you would think the good people at the Fed would be asking that question.  But no, the stress tests instead allow the participating banks to each select their own stress tests factors, thereby assuring that the tests will have no consistency or comparability from one bank to the next. 

Another area of stress that the Fed seems happy to ignore is interest rates,  a factor that is a direct result of quantitative easing or “QE.”  The US banking industry faces trillions of dollars’ worth of duration risk due to the Fed’s aggressive manipulation of interest rates over the past several years.  The baseline, adverse and severely adverse scenarios in the DFA stress tests do not begin to address this concern, but at least the regulators have asked the banks to structure their thinking accordingly.

Whether US banks are able to accurately model their interest rates risk as part of the DFA stress tests is not really a relevant question since the banks are probably no better at this sort of risk modeling than the regulators.  The relevant question is why neither the Fed nor their sponsors on Capitol Hill admit that the continued fiscal dissolution of the US government is the chief source of risk to the US economy.

It may not matter whether the Federal Reserve System loses money as a result of a gradual change in interest rates over the next year and more.  But you can be sure that the US equity markets are going to react – and probably soar – when the crowd of happy campers now packed tightly into the crowded trade in bonds starts to head for the exit. Concepts like option adjusted duration may even be heard again as banks manage the largest shift in interest rate risk seen the “sucker bond” trades of the 1990s.  Does Askin Capital Management or Kidder Peabody ring any bells?

But you can be sure that you won’t hear about second liens, interest rate risk or anything else of this nature before the fact from our beloved friends at the Federal Reserve Board. Remember, the definition of “systemic risk” is when markets are surprised.  But this reality, despite past experience,  does not seem to affect the thinking of the members of the Federal Open Market Committee, where ignorance is truly bliss.

via Zero Hedge http://ift.tt/1h0ulaO rcwhalen

HSBC's Flash China Manufacturing PMI printed at 48.1 (against a hope-strewn 48.7 bounce expectation). This is the lowest in 8 months and among the lowest prints since Lehman. Even the usually silver-lining-seeing HSBC Chief economist had little positive to add, "weakness is broad-based with domestic demand softening further." Early strength in CNY, stocks, and copper is eroding fast.

 

 

Copper was holding in early but is fading fast now…

 

The Yuan rallied out of the gate on a modestly higher fixing but is fading back fast post PMI…

 

And for everyone hoping that bad news is good news and stimulus is coming…

*CHINA MUST FACE `MORAL HAZARD' ISSUE, VICE MINISTER SAYS: CNBC

 

via Zero Hedge http://ift.tt/1dgrOd3 Tyler Durden

Having discussed the links between economic growth and energy resource constraints, and with the current geo-political fireworks as much about energy (costs, supply, and demand) as they are human rights, it would appear the following chart may well become the most-important indicator of future tensions…

 

Source: Goldman Sachs

This is not the first time we have discussed "self-sufficiency" – As none other than Bridgewater's Ray Dalio noted in a slightly different context:

"self-sufficiency encourages productivity by tying the ability to spend to the need to produce,"

 

"Societies in which individuals are more responsible for themselves grow more than those in which they are less responsible for themselves." The nine-factor gauge of self-sufficiency provides some interesting insights into those nations most likely to experience above-average growth going-forward and those that are not; as European countries, notably Italy, France, Spain, and Belgium, all ranking at the very bottom on self-sufficiency.

And here we discussed, What If Nations Were Less Dependent On One Another?

The ability to survive without trade or aid from other nations, for example, is not the same as the ability to reap enormous profits or grow one’s economy without trade with other nations. In other words, 'self-sufficiency' in terms of survival does not necessarily imply prosperity, but it does imply freedom of action without dependency on foreign approval, capital, resources, and expertise.

 

Freedom of action provided by independence/autarky also implies a pivotal reduction in vulnerability to foreign control of the cost and/or availability of essentials such as food and energy, and the resulting power of providers to blackmail or influence national priorities and policies.

 

…

 

Consider petroleum/fossil fuels as an example. Nations blessed with large reserves of fossil fuels are self-sufficient in terms of their own consumption, but the value of their resources on the international market generally leads to dependence on exports of oil/gas to fund the government, political elites, and general welfare. This dependence on the revenues derived from exporting oil/gas leads to what is known as the resource curse: The rest of the oil-exporting nation’s economy withers as capital and political favoritism concentrate on the revenues of exporting oil, and this distortion of the political order leads to cronyism, corruption, and misallocation of national wealth on a scale so vast that nations suffering from an abundance of marketable resources often decline into poverty and instability.

 

The other path to autarky is selecting and funding policies designed to directly increase self-sufficiency. One example might be Germany’s pursuit of alternative energy via state policies such as subsidies.

 

That policy-driven autarky requires trade-offs is apparent in Germany’s relative success in growing alternative energy production; the subsidies that have incentivized alternative energy production are now seen as costing more than the presumed gain in self-sufficiency, as fossil-fueled power generation is still needed as backup for fluctuating alt-energy production.

 

Though dependence on foreign energy has been lowered, Germany remains entirely dependent on its foreign energy suppliers, and as costs of that energy rise, Germany’s position as a competitive industrial powerhouse is being threatened: Industrial production is moving out of Germany to locales with lower energy costs, including the U.S.

 

The increase in domestic energy production was intended to reduce the vulnerability implicit in dependence on foreign energy providers, yet the increase in domestic energy production has not yet reached the critical threshold where vulnerability to price shocks has been significantly reduced.

 

…

 

America’s ability to project power and maintain its freedom of action both presume a network of diplomatic, military, and economic alliances and trading relationships which have (not coincidentally) fueled American corporation’s unprecedented profits.

 

The recent past has created an assumption that the U.S. can only prosper if it imports oil, goods, and services on a vast scale.

via Zero Hedge http://ift.tt/NI4s3T Tyler Durden

via Zero Hedge http://ift.tt/1f8inb4 williambanzai7

Submitted by Wei Zongyou via The Diplomat,

People around the world were astounded by Vladimir Putin’s rapid decision to annex Crimea in response to the latter’s referendum to secede from Ukraine and join Russia, which Kiev and the West view as illegal. The decision also drew worldwide criticism and vehement condemnation by the West and Ukraine, and triggered a second wave of economic sanctions from the United States, and soon afterwards Europe. Relations between Russia and the West are at their chilliest since the end of the Cold War.

So why has Putin risked Russia’s economic welfare and political space to swallow Crimea, push Ukraine out, and alienate the entire Western world? Is Putin “in another world” as German Chancellor Angela Merkel claimed he is? In my opinion, there are at least two considerations behind Putin’s decision.

The first is the realist, geo-political consideration. In Putin’s world, since the collapse of the former Soviet Union, Russia has lost nearly one fourth of its geography, one half of its population, and more than half of its GDP. Among the “lost” territories are those that are strategically important or militarily advanced, such as Ukraine and the Baltic states. With the eastward expansion of NATO, and the integration of former Soviet satellite states and republics in Eastern Europe and the Baltics into Europe, the traditional buffer zone between Russia and the West is increasingly squeezed and Russia’s space for strategic maneuvering becomes smaller with each year. When Russia craved for entry into the West, this might not have been particularly worrisome or embarrassing for Moscow. But since Russian leaders decided long ago that joining the West was neither particularly helpful to Russia’s political standing nor particularly attractive in terms of economic gains, it has begun to view the expansion of the West at its own strategic expense as both ill-intentioned and threatening.

Ukraine holds a unique position in Russia’s geo-strategic consideration. First, it is crucial territory in the passage of Russia’s oil exports to Europe. Each year more than one third of the oil Russia ships to Europe travels via the Ukraine pipeline. Second, Crimea gives Russia’s Black Sea Fleet access to the Black Sea. If the pro-West Kiev government were to have decided to end its lease to the Russian naval base in Crimea, Russia would have lost its strategic gateway to the Black Sea and the Mediterranean Sea. Third, Ukraine is deemed the most crucial member of Russia’s Eurasia Union project, an economic and strategic plan to closely connect Russia, Belarus, Ukraine, and Central Asia. If all goes according to plan, this union will integrate these former Soviet republics and now independent countries economically, politically, and diplomatically with Russia, and go some way to restoring the glory of the Soviet empire at its peak. The “coup d’état” in Kiev and the political orientation of the new government put all these things in jeopardy, if Russia remains disinterested and passive.

The second consideration is more psychological in nature. Following the end of Cold War, embracing the West was the first priority of Russian foreign policy. But to Moscow’s dismay, it found that the West still harbored strong reservations and considerable distrust. Years spent courting and wooing provided little of what Russia craved most: equal membership in the West and economic prosperity. Though Russia became part of the exclusive G8, it never enjoyed the full status and say of the other seven members, always remaining an “other.” Economically, the shock remedy proposed by the West and faithfully implemented by Boris Yeltsin didn’t bring the expected economic benefit. Instead, it took Russia’s economy into freefall, leaving the average Russian worse off than before. Russia’s look West ended in humiliation and disaster.

It was Putin who saved Russia from its miserable condition. He readjusted both Russia’s domestic and foreign policies, and distanced the country from the West, instead seeking opportunities to resurrect past Soviet glories. As the Russian economy improved, the West found that its time was passing. The 2008 economic crisis hit the U.S. and Europe hard and they found themselves more reliant on the emerging powers, Russia included. It is Britain, France, and even Germany who are now busy appealing to Russian oil bacons to buy more and invest more. The balance of power between Russia and the West has shifted. The small war in Georgia in the summer of 2008 only strengthened this trend and the response from the West impressed Russia greatly: Europe is rotten and the U.S. has become too weak to lead. Then came the Arab Spring and the Syria crisis. In the former case, the U.S. “led from behind,” and in the latter it was Russia that decided the course of the Syria civil war.

Russians, and especially Putin learned a hard lesson from the post-Cold War romance with the West: For all the talk of democracy and freedom, the fact remains that the strong dictate to the weak.

With Europe rotten and United States weakened, a resurgent and confident Russia will definitely not let a geo-strategically important former Soviet republic fall entirely into the West’s camp. By annexing Crimea, Putin not only secured Russia’s naval base and its strategic gateway to the Black Sea, he also sent a powerful message to Ukraine and the West: Ignore Russia’s legitimate strategic concerns at your own peril.

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