Tag: finance

While Ukraine’s leaders have on one side threatened retaliation and will not stand for Russia’s annexation of Crimea, they have also suggested that they should be compensated for the loss of the region. However, the latest headlines from Interfax suggest that the Ukraine government has to some degree given up hope…

• *UKRAINE GOVT ADOPTS PLAN TO EVACUATE CITIZENS FROM CRIMEA: IFX
• *UKRAINE TO SETTLE CRIMEAN CITIZENS ELSEWHERE IN COUNTRY: IFX

While no details are known on the timing – or whether this includes the military – it certainly appears like Ukraine has ceded the region to Russia (leaving it tough for western sanctions to achieve anything now).

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

As we explained in great detail yesterday, the selling in commodities is far from over. The extent of China’s commodity-backed-financing is only now beginning to be understood and forced sales (along with the vicious circle of collapsing collateral values and increasingly tightening credit) are hard to stop for a government set of reform. Copper prices were heavy overnight in Asia but this morning has seen futures plunge on heavy volume below $289 – the lowest since July 2009– breaking key support levels. For the same reasoning, zinc and aluminum are under pressure, as is steel rebar and gold.

 

 

Which has dropped copper prices to 5-year lows…(breaking critical support)

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The FOMC is now meeting for the first time with Janet Yellen as Chair. Goldman's US team expects the FOMC to deliver an accommodative message…alongside a continued tapering of asset purchases. However, they note, their market views here are likely to shift little in response, as much of that dovishness is arguably already priced, particularly in US rates. SocGen notes that "qualitative guidance" will probably consist of two components: the FOMC’s forecast for the fed funds rate (aka “the dots”) providing a baseline scenario, and a descriptive component signalling the elasticity of this rate path to the underlying economic outlook. SocGen also warns that this transition is worrisome for inflation in 2015. But BofA suggests this is not  problem as The Fed will indicate the US economy "lift-off" in late-2015 will save us all.

 

 

Via Goldman Sachs,

Some accommodative changes expected from the FOMC later today

The FOMC is now meeting for the first time with Janet Yellen as Chair. In addition to the usual post-meeting statement release later today, there will also be the quarterly release of the Summary of Economic Projections and a press conference with Chair Yellen. The current backdrop presents several challenges for the Fed. The US growth data have slowed, perhaps because of weather (our own models suggest that about ½ of the 1pp decline in implied real GDP growth is weather-related), but expectations remain firm that growth will accelerate later this year. The unemployment rate has declined sharply and is only two-tenths of a percent away from the Fed’s stated 6.5% target. And the FOMC has already embarked on a tapering of asset purchases, currently at about $10bn/month.

Given this backdrop, and under the guidance of Chair Yellen, our US Economics team expects the FOMC to deliver an accommodative message. They will likely acknowledge weather effects, but only partly, in describing current economic conditions and they are likely to continue to taper asset purchase at the current pace. Alongside this, we expect three other shifts that, taken together, are marginally more accommodative.

First, the FOMC’s long-run unemployment and funds rate projections may both decline.

 

Second, we expect two participants to move their target dates for the first rate hike (the so-called “dots”) further out.

 

Third, we expect the FOMC to move towards a more qualitative description of the labour market conditions needed to shift to a less accommodative policy stance.

This qualitative guidance could occur alongside the current 6.5% unemployment rate threshold or in place of it.

Despite these expected shifts from the Fed, our current assessment of where key macro-driven asset markets are likely to head over the medium term is not particularly captive to the outcome of today’s meeting. This is in part because some markets – rates in particular – have already reflected an accommodative Fed stance, leaving them relatively more exposed to the expected pick-up in US growth, and in part because other macro themes are likely to remain in focus, such as the ongoing adjustment process in EM assets and China-related weakness.

Longer-dated US rates vulnerable to better growth outcomes; dovish surprise unlikely

Turning first to the US rate market directly, with Dec 2015 Fed funds at 60bp and Dec 2016 Fed funds at 160bp, there is some room for a limited rally at the very front end. But Fed dovishness is well appreciated by the market, and short rates have already rallied over the last few months. Longer-dated US rates ought to be more connected to the US growth outlook, and here our bias is to be short. As Francesco Garzarelli and the Rates team have recently argued, US 10-year yields hovering around 2.7% is below our forecast for the end of Q2 at 3.1%, and we expect better US growth outcomes to push yields higher from here. From a trading perspective, our focus so far this year has been on the belly of the US curve via two trading recommendations, one tactical – recommending longs on the June-15 Short Sterling contract (LM5) against shorts on the June-15 Eurodollar contract (EDM5) – and one a strategic 'Top Trade' – recommending a long EUR swap (EONIA) 5y rate position vs. a short in 5y Treasuries.

More USD strength likely ahead, despite an accommodative Fed…

Despite a potential dovish tilt from the Fed, our tactical FX views are more geared towards incremental US strength relative to other majors, not weakness. Specifically, in the near term, our FX team has greatest conviction in USD strength against the Yen, CAD and AUD, as US growth bounces, the BoJ pivots to a more aggressively dovish stance, and China growth and commodity market headwinds remain in place.

The near-term EUR and GBP paths from here are less clear, although our inclination is for a shift towards USD strength. In both markets a good deal of USD weakness has already been priced, in the case of the EUR in part owing to a lack of ECB action, and in the case of the GBP in part due to a better patch of UK growth. However, with the EUR nearing 1.40, the top of our forecast range, ECB President Draghi’s recent rhetoric indicating that FX constraints are on his radar screen, and US data expected to improve, over the medium term we expect the USD to gain ground against both these currencies.

although EM assets may feel some relief temporarily

Over the last 18 months or so, US easing has, episodically, shielded EM rates and FX from their fundamental headwinds. These patches of relief have, thus far, proven only temporary, with structural needs to rebalance and domestic growth concerns ultimately the more important drivers of EM asset performance. This is our current view of EM market risks heading into the FOMC as well.

First and foremost, it is unclear at best if there will be any incremental US rate relief or if Fed dovishness is already fully appreciated by markets. And even if there is some incremental easing to be priced, EM headwinds remain intact. China growth outcomes continue to disappoint, and as our EM team recently demonstrated, that is only partially priced in many exposed markets. Beyond exposure to China weakness, which should abate somewhat as we go through the year, the degree of internal rebalancing still needed in several places implies significantly more market adjustments yet to come.

DM equities: An asset class for all seasons

DM equities are the one place where incremental Fed easing and the likelihood of a US growth recovery both push in the same direction. True, the S&P 500 is nearly back to all-time highs. With our Wavefront Consumer Growth and GDP Growth baskets mostly range-bound thus far in 2014, weather worries have been mostly absent, but so has growth optimism. Support has mostly come from easy financial conditions and still-supportive risk sentiment. So a pick-up in growth, incrementally more easing of financial conditions or a combination of the two should be enough to keep pushing DM equities higher. Indeed, our US strategists still expect modest S&P upside this year. And tactically, we are expressing our upbeat equity market view via a recommendation to be long the German DAX index, which had underperformed markedly over the last few weeks and could benefit from any FOMC surprise later today or better US growth news later this week, and as weather effects roll off.

 

SocGen is a little less exuberant but lays out the details of what to expect from qualitative guidance and warns of inflation concerns in 2015,

What will qualitative guidance look like?

It has been 15 months since the Fed switched from calendar guidance to one based on economic thresholds. Now that the 6.5% unemployment threshold has become virtually obsolete, the FOMC is shifting to a new framework. Qualitative guidance will probably consist of two components: the FOMC’s forecast for the fed funds rate (aka “the dots”) providing a baseline scenario, and a descriptive component signalling the elasticity of this rate path to the underlying economic outlook. Over the past year, “the dots” have been very inelastic to data surprises, and we expect this to continue. Indeed, at this week’s meeting, we expect that the Fed will lower its unemployment rate projections, yet keep its rate forecasts largely unchanged. The Fed will probably explain this away by pointing to hidden slack in the labour market.

What to expect this week – a laundry list

Asset purchases to be reduced by $10bn to $55bn.

 

We expect the Fed to drop the 6.5% unemployment threshold, or at least start phasing it out.

 

The threshold will be replaced with a qualitative description of conditions for rate hikes. We expect something along the lines of: The Committee expects that the exceptionally low rate will be appropriate at least as long as unemployment remains elevated and inflation remains low. In judging the amount of labour market slack the Committee will consider a number of statistics, including labour force participation, part-time employment, and long-term unemployment.

 

The Fed’s GDP and inflation forecasts are unlikely to change at all, but the unemployment rate projections will likely be revised down (we assume by 0.2% for YE 2015 and by 0.1% for YE 2016).

 

“The dots” are unlikely to change, with the median forecast still at 0.75% for the end of 2015 and 1.75% for the end of 2016. The median may be quoted in the FOMC statement itself.

All else equal, such an outcome should be viewed as more accommodative at the margin. In the chart below, we demonstrate this visually by calculating the policy gap for the March meeting, based on the assumptions outlined above. The policy gap is the difference between prescribed rates and the FOMC median rate projection, measured about ten quarters ahead.

By guiding towards an even wider policy gap, the Fed will be reinforcing the current growth momentum. But if, like us, you believe that the participation rate drop is unlikely to be reversed and the unemployment rate is “real” then this should also be viewed as raising inflation risks for 2015 and beyond.

 

BofAML's take is similar with an "escape velocity" recvery expected in late-2015…

The March FOMC meeting will be the first with Janet Yellen as Chair. In addition to the usual statement, this meeting will also feature updates to the Summary of Economic Projections (SEP) and a post-FOMC press conference. Top of the agenda will be revising the Fed’s forward guidance.

 

We expect the numerical thresholds to be dropped in favor of more “qualitative guidance” that communicates the Fed’s support for a prolonged period until rate hikes begin, a slow pace of tightening, and a low terminal rate relative to history. We expect the FOMC will note that they intend to look at a broad range of labor market indicators, as well as inflation and financial stability issues, to guide their decisions on interest rate policy.

 

We also see some chance that the Fed will modify the SEP to better support forward guidance. One or two hawkish Fed dissents from the new forward guidance language are possible. Overall, in our view this shift in guidance structure should have little bearing on market pricing of the tightening cycle, which appears to coincide with the SEP “dot plot” that suggests a mid- to late-2015 “lift-off” date.

+++++++++++++++++
So, in summary, Fed will shift to highly accomodative (sounding) forward-guidance (because they've nailed their projections so well in the past), continue the taper come hell or high water, bonds are priced for this but stocks are not… inflation is a fear in 2015 but "escape velocity" growth will save us from that problem…

via Zero Hedge http://ift.tt/PP8dXl Tyler Durden

While it has been public for a long time that i) JPM is eager to sell its physical commodities business and ii) the most likely buyer was little known Swiss-based Mercuria, there was nothing definitive released by JPM. Until moments ago, when Jamie Dimon formally announced that JPM is officially parting ways with the physical commodities business. But while contrary to previous expectations, following the sale JPM will still provide commercial gold vaulting operations around the world, it almost certainly means farewell to Blythe Masters.

From the release:

JPMorgan Chase & Co. (JPM) announced today that it has reached a definitive agreement to sell its physical commodities business to Mercuria Energy Group Limited, a global energy and commodities trading company, for $3.5 billion. The all cash transaction is expected to close in the third quarter of 2014, subject to regulatory approvals.

 

J.P. Morgan will work closely with Mercuria to ensure a smooth transition of commodities assets, transactions, physical trading operations and employees to Mercuria at the close of the transaction.

 

“Our goal from the outset was to find a buyer that was interested in preserving the value of J.P. Morgan’s physical business,” said Blythe Masters, head of J.P. Morgan’s global commodities business. “Mercuria is a global leader in the commodities markets and an excellent long-term home for these businesses.”

 

Following the sale, J.P. Morgan will continue to provide traditional banking activities in the commodities markets, including financial products and the vaulting and trading of precious metals – businesses that the firm has been a leader in for years. The firm will also continue to make markets, provide liquidity and risk management, and offer advice to global companies and institutions around the world.

For those curious who Mercuria is (yes, Goldman is involved) and missed our previous profile of the little known commodities behemoth, here it is again:

Meet The Mysterious Firm That Is About To Leave Blythe Masters Without A Job

It was about a month ago when it was revealed that the infamous JPMorgan physical commodities group, plagued by both perpetual accusations of precious metal manipulation and legal charges most recently with FERC for $410 million that it had manipulated electricity markets, was in exclusive talks to be sold to Geneva-based Marcuria Group. It was also revealed that Blythe Masters, JPMorgan’s commodities chief, “probably won’t join Mercuria as part of the deal.” Of course, we all learned the very next day that Ms. Masters – an affirmed commodities market manipulator – and soon to be out of a job, had shockingly intended to join the CFTC trading commission as an advisor, a decisions which was promptly reversed following an epic outcry on the internet. This is all great news, but one thing remained unclear: just who is this mysterious Swiss-based company that is about to leave Blythe without a job?

Today, courtesy of Bloomberg we have the answer: Mercuria is a massive independent trading behemoth, with revenue surpassing a stunning $100 billion last year, which was started less than ten years ago by Marco Dunand and Daniel Jaeggi, who each own 15% of the firm’s equity. And it probably should come as no surprise that the company where the two traders honed their trading skill is, drumroll, Goldman Sachs.

Dunand and Jaeggi first met studying economics at the University of Geneva in the late 1970s. Their friendship was galvanized a few years later working for grain trader Cargill Inc. and sharing an apartment while on a training course in Minneapolis. Mercuria’s corporate strategy and culture have reflected the professional paths of its founders, who spent the bulk of their early careers at investment banks.

 

 

They left Cargill in 1987 for Goldman Sachs’s J. Aron unit in London. They stayed until 1994, then joined Phibro for a five-year stint when it was controlled by Salomon Brothers.

 

That experience defined the trading strategies of Dunand and Jaeggi who moved from Phibro to start Sempra’s European and Asian trading business in 1999 before founding Mercuria in 2004.

 

Without a commanding position in any region or commodity, the firm has sought out bottlenecks and imbalances in niche markets and positioned itself to make money trading derivatives using insights gained from its physical trading. In its early days it profited by opening a trade route shipping Russian crude to China from Gdansk, Poland.

 

Mercuria also differs in tone. At its headquarters on Geneva’s poshest shopping street, traders and executives wear open-collared shirts, sweaters and jeans, a sharp contrast to the shirt-and-tie policies at more established firms.

Not surprisingly, some of the key hires in the past couple of years as the firm expanded at a breakneck pace and added some 570 people, bringing its total headcount to 1,200, were from Goldman: “The hires include Houston-based Shameek Konar, a former managing director with Goldman Sachs Group Inc. who is chief investment officer overseeing Mercuria’s corporate development, including the JPMorgan negotiations. Victoria Attwood Scott, Mercuria’s head of compliance, also joined from Goldman Sachs.” We find it not at all surprising that the Goldman diaspora is once again showing JPMorgan just how it’s done.

So just how big is Mercuria now? Well, it is almost one of the biggest independent commodities traders in the world:

Mercuria traded 182 million metric tons of oil or oil equivalent in 2012, according to its website. Vitol, the largest independent oil trader, handled 261 million and Trafigura traded 102.8 million tons of oil and petroleum products. Brent crude rose 3.5 percent that year in a fourth annual advance. It slipped 0.3 percent in 2013 and is down 2.6 percent this year at about $108 a barrel.

 

With more trading companies trying to gain an edge by owning businesses that produce, store or process commodities, Mercuria followed suit. It now has stakes in a coal mine in Indonesia, oil and gas fields in Argentina, oil storage in China and a biodiesel plant in Germany. In June, it invested $50 million in a Romanian gas producer.

 

The JPMorgan unit employs about 600 and represents a range of assets assembled over decades by firms including Bear Stearns Cos. and RBS Sempra, which the bank bought during an acquisition binge beginning in 2008.

 

They include gas and power trading on both sides of the Atlantic, physical assets spanning 40 locations in North America, an oil-trading book with a supply and offtake contract with the largest refinery on the U.S. East Coast, 6 million barrels of storage leases in the Canadian oil sands, and Henry Bath & Sons Ltd., a 220-year-old metal-warehouse operator based in Liverpool, England.

In other words, the old boys’ club is about to get reassembled, only this time even further away from the supervision of the clueless, corrupt and incompetent US regulators. And with the physical commodity monopoly of the big banks finally being unwound, long overdue following its exposure here and elsewhere over two years ago, it only makes sense that former traders from JPM and Goldman reincarnate just the same monopoly in a jurisdiction as far away from the US and Fed “supervision” as possible. Which also means that anyone hoping that the great physical commodity warehousing scam is about to end, should not hold their breath.

As for the main question of what happens to everyone’s favorite commodity manipulator, “It hasn’t been determined whether Blythe Masters, who has led the JPMorgan unit since 2006 and orchestrated the buying spree, would join Mercuria, a senior executive at Mercuria said.” Which means the answer is a resounding no: after all who needs the excess baggage of having a manipulator on board who got caught (because in the commodity space everyone manipulates, the trick, however, is not to get caught).

Finally, with “trading” of physical commodities, which of course include gold and silver, set to be handed over from midtown Manhattan to sleep Geneva, what, if any, is the endgame?

The talks with JPMorgan forced Mercuria to put another deal on hold. Mercuria was nearing the sale of an equity stake of 10 percent to 20 percent to Chinese sovereign wealth fund State Development & Investment Co., according to two people familiar with the matter. The discussions with SDIC were halted once Mercuria neared the JPMorgan business, one of the people said.

But they will be promptly resumed once JPM’s physical commodities unit has been sold, giving China a foothold into this most important of spaces. Because recall what other link there is between China and JPM?

• China’s Largest Conglomerate Buys Building Housing JPMorgan’s Gold Vault

One may almost see the connection here.

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

Just days before the annexation of Crimea, while promising that they would not instigate actions to antagonize the West, Russia launched a massive unscheduled military drill. Now, with Crimea under their pro-Russian forces control, and despite promises that Putin seeks to go no further than Crimea, the Wall Street Journal reports that Russia will begin unscheduled military aviation exercises in regions bordering Ukraine. The crews will be practicing “actions during airstrikes” on enemy military targets, communications jamming, air defense and attacks by military jets, the spokesman said.

 

Via WSJ,

Russia will begin military aviation exercises in regions bordering Ukraine, Interfax news agency reported citing a spokesman for the military Wednesday.

 

The news comes a day after Russia signed a treaty to annex Crimea.

 

The military exercises, which will involve 40 combat crews and 300 servicemen, will go on till the end of May and are scheduled, the spokesman said.

 

The crews will be practicing “actions during airstrikes” on enemy military targets, communications jamming, air defense and attacks by military jets, the spokesman said.

 

On Thursday the Russian military already announced that it was increasing the intensity of military exercises involving troops on the ground in regions bordering Ukraine.

 

Last month Russia announced unscheduled military exercises that involved 150,000 troops in regions close to its border with Ukraine. This prompted fears that Russia was considering military action in mainland Ukraine. The soldiers involved in the drills were ordered to return to their bases last week but the order didn’t apply to troops that had been sent to Crimea.

So once again, Putin spoke, made promises, the market bought it, and tensions escalated…How odd that the market expected the Russian president to telegrpah his intention in a public broadcast…

via Zero Hedge http://ift.tt/1eRxO7o Tyler Durden

It only makes sense that now that Crimea is officially Russian territory once again, that the Russians would do with it as they see fit. Which they did. Overnight Russian troops and unarmed men stormed Ukraine’s naval headquarters in the Crimean port of Sevastopol and raised the Russian flag in what Reuters described as “a tense but peaceful takeover that signals Moscow’s intent to neutralize any armed opposition.” Russian soldiers, and so-called “self-defense” units of mainly unarmed volunteers who are supporting them across the Black Sea peninsula, moved in early in the morning and quickly took control.

Keep in mind that this took place the day after the Ukraine military authorized its forces to use weapons to defend themselves if attacked. Considering that they did not do that is only further evidence of just how seriously Putin and Russian generals take any attempts by Ukraine to “defend” itself.

And yet in what is certainly an invitation for future provocations, shortly after the incident, Ukraine’s acting Defence Minister Ihor Tenyukh said in Kiev that the country’s forces would not withdraw from Crimea even though Russian President Vladimir Putin has signed a treaty to make it part of Russia.

But an hour later, Ukrainian servicemen, unarmed and in civilian clothing, began walking out of the headquarters. As NBC added, “about a dozen Ukrainian servicemen were later pictured being led out of the base.”

More from Reuters:

The first group of servicemen was followed within a few minutes by a handful of troops in Ukrainian uniform, looking shell-shocked at the dramatic turn of events. “This morning they stormed the compound. They cut the gates open, but I heard no shooting,” said Oleksander Balanyuk, a captain in the navy.

 

“This thing should have been solved politically. Now all I can do is stand here at the gate. There is nothing else I can do,” he told Reuters, appearing ashamed and downcast.

 

Russia’s Itar-Tass news agency reported that Alexander Vitko, commander of Russia’s Black Sea Fleet which is based in Sevastopol, had been involved in talks at the headquarters. Viktor Melnikov, in charge of the “self-defence” unit, said talks were going on to negotiate a surrender.

 

“We’ve had difficult negotiations with the command here,” he told reporters. “Some Ukrainian servicemen are already leaving, without their uniforms, but there was no violence.” A Reuters reporter saw three armed men, possibly Russian soldiers in unmarked uniforms, at the gate and at least a dozen more inside the compound.

Yet for all the ongoing posturing, the situation on the ground appears to have calmed down:

In Crimea’s main city, Simferopol, where one Ukrainian serviceman was killed after a shooting on Tuesday, the situation was calm on Wednesday.

 

It was the first death on the Black Sea peninsula from a military clash since the region came under Russian control three weeks ago. Ukrainian prime minister Yatseniuk denounced it as a “war crime”.

 

Aksyonov, Crimea’s pro-Moscow leader, suggested the incident was the fault of “provocateurs” opposed to the annexation of the region to Russia.

 

“Unfortunately, two people were killed,” he said, speaking in Moscow. “I’m sure we will find these scoundrels. The security service of the Crimean Republic is investigating.”

But nowhere is the resignation within Ukraine’s acting political leadership more evident than in a statement just uttered by potential presidential candidate and former boxer, Vitali Klitschko:

• UKRAINE GOVT SHOULD WITHDRAW TROOPS FROM CRIMEA, KLITSCHKO SAYS

More appeasement of Putin: will it result in the annexation of east Ukraine? Surely. The only question is when.

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

Remember when in what at the time was the ultimate #Ref! moment, in January UPS missed and guided lower due to a, drumroll, surge in business resulting from “an unprecedented level of online shopping that included a surge of last-minute orders.” Yes, not only was it the weather’s fault the company had a surge in business and shipments, but the company actually missed and guided lower due to this surge? Moments ago it was FedEx’ turn to miss Q4 revenues and earnings across the board, and to guide lower due to, what else, the weather.

Specifically:

• Q4 ESP was $1.23, Exp. $1.46
• Q4 revenues $11.3 billion, Exp. $11.43 billion
• Reduced full year EPS guidance: projects full year EPS of $6.55 to $6.80 for fiscal 2014.

Here is what the company scapegoated the miss on:

“Historically severe winter weather significantly affected our third-quarter earnings,” said Frederick W. Smith, FedEx Corp. chairman, president and chief executive officer. “On days when the weather was closer to normal seasonal conditions, our volumes were solid and service levels were high. The FedEx strategy of maintaining separate express and ground networks with multiple hubs proved to be an especially important advantage for our package customers during this quarter’s severe weather and peak shipping.”

But wait a minute, according to UPS the abnormal weather was a reason for surging shipments? Now FedEx is saying the opposite – so who’s lying?

Also, it wasn’t all weather. “Results also include a negative net impact from fuel.” Specifically, “Revenue decreased slightly due to lower freight revenue, lower fuel surcharges and the impact from weather. U.S. domestic revenue per package was up slightly, as higher rates and weight per package were mostly offset by lower fuel surcharges.”

Finally, one can surely attribute the fact that the company now plans to spend less CapEx in 2014 than earlier predicted – something we have been warning about for months – on the weather.  To wit: “The capital spending forecast for fiscal 2014 is now $3.8 billion, down $200 million from the previous forecast.” Because one never invests in their business whn it’s snowing…

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

• How Putin Parried Obama’s Overtures on Crimea (WSJ)
• West Readies Tighter Sanctions After Russia Seals Crimea Claim (Bloomberg)
• Putin says U.S. guided by ‘the rule of the gun’ in foreign policy (Reuters)
• JPMorgan Said to Agree on Commodities Unit Sale to Mercuria (BBG)
• Short Sellers Target Chinese Developers as Rout Deepens (BBG)
• HFT finally under the spotlight: High-Speed Trading Firms Face New U.S. Scrutiny (WSJ)
• Chinese Dollar Bond Investors Demand Higher Yields After Default (BBG)
• According to Joe LaVorgna it’s the snow’s fault: Deutsche Bank Said to Plan Job Cuts at Investment Bank (BBG)
• Israeli airstrikes kill 1 Syrian soldier, wound 7 (AP)
• U.K. Unemployment Stays at 7.2% as BOE Sees Further Pound Risks (BBG)
• Brazilian Billionaire Creates Plan to Beat Death (BBG)
• China Slowdown Adds to Challenges for U.S. Companies (WSJ)
• Christie Counts on Revenue Surge Not Seen in Most States (BBG)
• Toyota Set to Pay $1 Billion in U.S. Probe (WSJ)

 

Overnight Media Digest

WSJ

* General Motors Co Chief Executive Mary Barra intensified her campaign to show the auto maker is serious about product safety, saying a newly appointed executive will brief her monthly to discuss vehicle problems. (http://ift.tt/1l2pxVK)

* Google Inc looks set to beat Apple Inc to market in a new category of mobile devices – smartwatches. LG Electronics Inc and Google’s Motorola unit on Tuesday said they would begin selling smartwatches that run on a new version of Google’s Android operating system for wearable devices, Android Wear. (http://ift.tt/1eQJDKX)

* The Justice Department is expected to announce a settlement with Toyota Motor Corp as early as Wednesday that could cost the auto maker more than $1 billion to end a criminal probe into its disclosure of safety issues, people familiar with the matter said. (http://ift.tt/1eQJDL1)

* Viacom Inc resolved copyright litigation with Google Inc over the tech giant’s YouTube video site, ending a seven-year legal fight that became a symbol of tensions between media companies that produce content and websites that let users share it. (http://ift.tt/1eQJFTk)

* Merger discussions between apparel chain J. Crew Group Inc and Japan’s Fast Retailing Co have broken down, people familiar with the matter said, reducing the prospects for a deal that would create a global retailing behemoth. (http://ift.tt/1eQJDLb)

* Mercury Systems Inc is on the auction block, according to people familiar with the matter. The sale process is still in the early stages, with initial bids due around now, the people said. The company, which supplies aerospace and defense companies with warfare and intelligence applications, as well as other software, could fetch around $500 million in a sale. (http://ift.tt/1eQJE1s)

* Oracle Corp, the corporate-software company best known for databases that are used by many big companies, posted quarterly earnings that fell short of investor expectations. (http://ift.tt/1eQJG9z)

 

FT

Mark Carney, governor of the Bank of England, unveiled a radical overhaul of the BoE, introducing sweeping changes to senior management and operations as he warned of risks in housing markets and the international financial system.

Wall Street banks are preparing to split up one of the largest fees yet for handling a stock market listing, as they expect Chinese e-commerce giant Alibaba to pay them $400 million for its float.

Hedge fund Och-Ziff Capital Management warned its results could take a hit from a U.S. Department of Justice investigation into alleged corruption in Libya before the fall of Muammar Gaddafi.

New York’s top securities regulator is investigating U.S. stock exchanges and other trading platforms, hoping to determine whether some of their services give high-speed traders an unfair advantage, sources said.

Europe’s biggest automaker Volkswagen has refused to increase its 6.7 billion euro ($9.32 billion) bid for the remainder of Swedish truckmaker Scania that it does not already own.

 

NYT

* Mary Barra, barely two months into her job as General Motors’ chief executive, pledged to fix faulty ignition switches linked to 12 deaths and sought to restore some measure of confidence in the company’s new leadership. (http://ift.tt/1j2OUXi)

* The Consumer Financial Protection Bureau and other authorities are redoubling efforts to shield vulnerable Americans from a range of lenders that offer short-term loans with interest rates that can exceed 300 percent. (http://ift.tt/1gOGPP4)

* Mutual funds and other big money managers, which now control a record share of public company stock, are working with activist hedge funds behind the scenes, pressing for change at underperforming companies in their portfolios and lending their support to calls for management shake-ups. In some cases, the institutional investors are even stepping out from the shadows to pick their own fights. (http://ift.tt/1j2OUXm)

* As Janet Yellen takes over as Fed chairwoman, the immediate challenge confronting her is to overhaul the Fed’s forward guidance for short-term interest rates. (http://ift.tt/1j2OSih)

* Google on Tuesday unveiled Android Wear, a version of Google’s Android operating system software that is tailored specifically for wearable computers, starting with so-called smartwatches. (http://ift.tt/1j2OSij)

 

Canada

THE GLOBE AND MAIL

* Canadian Finance Minister Jim Flaherty is resigning from the federal cabinet and will be returning to the private sector. Flaherty said in a statement released by his office on Tuesday that he made the decision with his family earlier this year. (http://ift.tt/1gOGQ5w)

* Three years after it ended combat operations in the Afghanistan war, Canada is finally marking the end of its soldiering in the conflict-ridden central Asian country, as the last batch of Canadian soldiers returned home from Kabul. (http://ift.tt/1gOGQ5B)

Reports in the business section:

* A prominent oil-by-rail proponent is urging Ottawa to back away from legislation that will give grain priority over crude oil on the nation’s rails, saying such a move would hurt the energy sector just as it eases the costly problem of pipeline constraints. (http://ift.tt/1j2OVdG)

NATIONAL POST

* Finance Minister Jim Flaherty has resigned from the Harper government and Natural Resources Minister Joe Oliver will be appointed the new finance minister, the CBC reported late on Tuesday and sources have confirmed. (http://ift.tt/1gOGQlU)

* As the last Canadian soldiers returned from Afghanistan on Tuesday, those who would follow them into uniform are being stymied by a woefully inept recruiting system where it takes an average of 166 days to be processed. (http://ift.tt/1j2OVdK)

FINANCIAL POST

* U.S. retailers will not ease pressure on Canadian rivals in 2014, according to a new report predicting a meagre 1.5% to 2% retail sales rise in Canada amid relentless competition. (http://ift.tt/1gOGOKY)

* Bank of Canada Governor Stephen Poloz has warned Canada and the world that they should get used to slower growth. (http://ift.tt/1gOGRGo)

 

China

SHANGHAI SECURITIES NEWS

– The Shanghai Stock Exchange reported 130 cases of potential illegal trading activity to China’s securities regulator last year, according to a 2013 work report from the city’s exchange. This was up 124 percent from the year before.

CHINA DAILY

– China’s restive northwestern Xinjiang region plans to expand its textile industry five-fold by 2020 to create jobs and maintain stability in the area, local officials told the paper. The industry will aim to employ 1 million people by 2020, up from 200,000.

CHINA SECURITIES JOURNAL

– Aluminum Corp of China Ltd rebounded in the fourth quarter after three straight quarters of losses, notching a profit of 948 million yuan ($153.1 million) for the year. It cited reductions in sector overcapacity and cost control measures as factors that helped the turnaround.

SHANGHAI DAILY

– Shanghai’s new births fell last year to 211,700, the city’s Health and Family Planning Commission said on Tuesday, although it expects the number to rise by up to 30,000 in the next few years as families make use of recently relaxed family planning rules.

Britain

The Telegraph

MARK CARNEY TO TRANSFORM BANK OF ENGLAND IN SHAKE-UP

Mark Carney has unveiled a series of “transformative” changes at the Bank of England that he said would help Britain to avoid a repeat of the 2008 financial crisis. (http://ift.tt/1j1omWw)

BARCLAYS AWARDS 12 EXECUTIVES 32 MLN STG IN SHARES

Barclays has handed its top executives share bonuses worth more than 30 million pounds ($49.72 million) as it faces pressure from investors to explain the scale of awards handed to its staff despite a fall in profits. (http://ift.tt/1j1ol4N)

BUDGET 2014: GEORGE OSBORNE TO ANNOUNCE NEW 1 POUND COIN

The 1-pound coin is to be replaced by a new model based on the old threepenny bit, Finance Minister George Osborne will announce in Wednesday’s Budget. He will say that the current coin, which has been in circulation for 30 years, is no longer suitable for use because it has become vulnerable to sophisticated counterfeiters. (http://ift.tt/1j1oncN)

The Guardian

TALKTALK RAISES ITS BROADBAND AND TV PACKAGE PRICES

TalkTalk customers will pay up to 42 pounds a year more for their broadband and TV packages from May, as the telecoms company announced its second price rise in six months. (http://ift.tt/1j1ol4T)

The Times

GEM DIAMONDS SET TO BE INVESTORS’ BEST FRIEND

London-quoted miner Gem Diamonds benefited from rising diamond prices towards the end of 2013. Clifford Elphick, its chief executive, said the company intended to pay out to shareholders next year off the back of the improved performance. (http://ift.tt/1j1ol4X)

BOSSES CAN’T PUT A NUMBER ON ROYAL MINT

The Royal Mint’s top executives were lambasted by Members of Parliament on Tuesday for failing to plan for a privatisation of the coinage business despite indications that it could be put up for sale. (http://ift.tt/1j1oncR)

TOP SCIENCE COMPANY EXOVA JOINS RUSH TO MARKET

One of Britain’s leading industrial science companies is gearing up for a 750 million pound flotation. Exova, the Edinburgh-based laboratory testing company that ensures components for Airbus jetliners and Rolls-Royce aeroengines are safe, is likely to announce plans for an initial public offering when it reports its annual results next week. (http://ift.tt/OA6zrj)

The Independent

SAINSBURY’S JUSTIN KING SEES NO NEED FOR PRICE WAR ON ALDI

Sainsbury’s posted its first fall in sales for nine years yesterday, as outgoing chief executive Justin King said the market was now growing at its slowest rate since 2005. (http://ift.tt/OA6zrl)

NO BONUS FOR GLENCORE XSTRATA CHIEF IVAN GLASENBERG

Ivan Glasenberg, the billionaire chief executive of Glencore Xstrata, took no bonus or pay rise last year, getting by instead on his $182 million share of the dividend payout. (http://ift.tt/OA6zrn)

 

Fly On The Wall 7:00 AM Market Snapshot

ECONOMIC REPORTS

Domestic economic reports scheduled for today include:
Current account balance for Q4 at 8:30–consensus deficit $88.1B
FOMC meeting announcement at 14:00

ANALYST RESEARCH

Upgrades

Enterprise Products (EPD) upgraded to Outperform from Neutral at Credit Suisse
Gannett (GCI) upgraded to Equal Weight from Underweight at Barclays
Juniper (JNPR) upgraded to Outperform from Market Perform at Wells Fargo
LATAM Airlines (LFL) upgraded to Strong Buy from Outperform at Raymond James
MakeMyTrip (MMYT) upgraded to Outperform from Perform at Oppenheimer
Regal-Beloit (RBC) upgraded to Outperform from Neutral at RW Baird
Teva (TEVA) upgraded to Neutral from Sell at Goldman
Transocean (RIG) upgraded to Neutral from Sell at Citigroup

Downgrades

Aviva (AV) downgraded to Underperform from Neutral at Exane BNP Paribas
HSBC (HSBC) downgraded to Underperform from Outperform at Credit Suisse
ION Geophysical (IO) downgraded to Equal Weight from Overweight at Barclays
Orbitz (OWW) downgraded to Sell from Neutral at Goldman
Susser Holdings (SUSS) downgraded to Market Perform from Outperform at Raymond James
Walker & Dunlop (WD) downgraded to Market Perform from Outperform at Keefe Bruyette
Wisdom Tree downgraded to Sell from Neutral at Citigroup
Yingli Green Energy (YGE) downgraded to Neutral from Buy at BofA/Merrill

Initiations

AMC Entertainment (AMC) initiated with an Equal Weight at Barclays
Canadian Natural (CNQ) initiated with an Outperformer at CIBC
Cell Therapeutics (CTIC) initiated with a Hold at WallachBeth
Cenovus Energy (CVE) initiated with a Sector Performer at CIBC
Compugen (CGEN) initiated with a Buy at Jefferies
Encana (ECA) initiated with a Sector Performer at CIBC
Epigenomics (EPGNY) initiated with a Buy at Maxim
Hyperion Therapeutics (HPTX) initiated with a Buy at Cantor
ITT Corp. (ITT) initiated with a Buy at SunTrust
Imperial Oil (IMO) initiated with a Sector Performer at CIBC
Mattress Firm (MFRM) initiated with a Buy at Jefferies
Meru Networks (MERU) initiated with a Buy at Mizuho
Ruckus Wireless (RKUS) initiated with a Buy at Mizuho
Suncor (SU) initiated with an Outperformer at CIBC
Susser Holdings (SUSS) initiated with a Hold at Jefferies
Talisman Energy (TLM) initiated with an Underperformer at CIBC

COMPANY NEWS

Och-Ziff Capital (OZM) warned over probes by DOJ, SEC
Peugeot (PEUGY) nominateed Louis Gallois to become chairman of supervisory board
Shah Capital, which holds a 5.64% stake in Corinthian Colleges (COCO), sent a letter to the company’s board outlining strategic initiatives the company should undertake, including evaluating possible sale of non-core assets and a headcount reduction
Activist funds Corvex and Related said 81% of CommonWealth REIT (CWH) holders approve of their proposal to remove the entire board of the company
Nu Skin (NUS) disclosed in a filing with the SEC that it has received inquiries from regulators in China, which it said may result in sanctions against the company
Exact Sciences (EXAS) said a clinical trial of its Cologuard test, which it co-developed with the Mayo Clinic, showed unprecedented rates of precancer and cancer detection by a noninvasive test
Boeing (BA) said it sees new aircraft financing market remaining strong

EARNINGS

Companies that beat consensus earnings expectations last night and today include:
Renren (RENN), SolarCity (SCTY), Pacific Sunwear (PSUN)

Companies that missed consensus earnings expectations include:
Oracle (ORCL), Elbit Systems (ESLT), Global Brass & Copper (BRSS), Aerie Pharmaceuticals (AERI), Veracyte (VCYT)

NEWSPAPERS/WEBSITES

Source: JPMorgan (JPM) to sell commodities business to Mercuria, WSJ reports
Toyota (TM) to pay $1B to settle acceleration probe with DoJ, CNN says
Sony’s (SNE) virtual reality headset to be used with PS4, AP reports
Barclays (BCS) reportedly planning sale of index unit valued at $400M, Bloomberg says
GameStop (GME) can survive Wal-Mart (WMT) entry into used-game market, Barron’s says
Blackstone (BX) considering higher bid for Gates Global, Reuters reports
Transcanada (TRP) under fire for Energy East pipeline, Globe and Mail says
Monitor says four large banks (BAC, JPM, C, WFC) met their commitments under a 2012 nationwide mortgage settlement, NY Times says

SYNDICATE

American Eagle Energy (AMZG) 11M share Secondary priced at $6.60
Associated Banc-Corp (ASBC) files to sell $500M of common stock
Kindred Biosciences (KIN) files to sell $86.25M of common stock
Marchex (MCHX) files to sell 5.7M Class B shares
Orchid Island Capital (ORC) files to sell 4M shares of common stock
Paylocity (PCTY) 7.045M share IPO priced at $17.00
Relypsa (RLYP) files to sell $100M in common stock
Rubicon (RBCN) files to sell common stock for holders
TherapeuticsMD (TXMD) files to sell 9M shares of common stock for holders

via Zero Hedge http://ift.tt/1l3c9As Tyler Durden

Follow ZeroHedge in Real-Time on FinancialJuice

As Putin rejoices at his new-found wealth in Crimea after it was annexed (in a duff referendum where there was either ‘now’ or ‘later’ up for grabs to join the Russian Federation), the USA is wiping its tears with things that are closer to home and causing a great deal more grief than far off Ukraine. That was obviously shown with President Obama’s half-hearted ‘string’ of 11 Russian oligarchs that will have their accounts frozen in the USA. So what’s the USA getting upset about? Only the fact (as has been predicted for months and now years) that the USA is not on any road to recovery and never has been. Weak inflation, Housing data that’s falling and sluggish growth (if that can be called growth).

USA: Not Even Tepid

The US economy is neither hot nor cold. It’s just the US economy. It’s boringly tedious. It’s going nowhere. If at least it were crashing we would be able to say something. If it were at most booming or expanding, we might have cause for joy. But, no, it’s static, boringly static, staid and uneventful. Rather watch paint dry and sit and witness the economic roll of film getting stuck in the cog wheels and doing nothing.

• February saw an increase in the Consumer Price Index of just 0.1% and that’s the second month in a row. 
• The only thing that increased immensely was food, going up by the largest amount in over two years. 
• This was off-set by a reduction in gas prices. 
• In February 2014 prices increased on the year-on-year figure by only 1.1%. 
• January’s year-on-year figure stood at 1.6%.
• The Federal Reserve has been fixing an inflation rate of 2% in its sights. 
• Housing starts also fell 0.2% in February (to 907, 000 units). 
• House prices as well as lack of properties on the market have meant that buying activity has been held back. 
• The largest segment of the housing market (single-family homes) saw groundbreaking increase by 0.3% in February.
• The multi-family segment fell by 1.8%.

Buffet Tax

President Obama announced the wonderful (so-called) Buffet tax that would stand at least 30% on the incomes generated by millionaires, treating capital gains as simple revenue and that would limit tax deductions to just 28% of income. Although, Wall Street didn’t bat an eyelid and certainly had nothing to worry about. President Obama announced the ‘newspeak’ tax for the pleasure of the 99%, the masses drudging to work. But, that very same evening he went to dinner for a fund-raising event at one of the richest private equity executives in New York, one of the 1%. Wall Street didn’t stop the champagne flowing that night, because it seemed all like simple talk for the crowds banking on the bank doors. Keep the masses quiet and you control them feeding them with little titbits of news that will make them interested, but that you don’t have to put into practice.

The Federal Reserve Policy Meeting has just started and the figures were released during that. That means that the benchmark overnight rates will be sticking at zero while inflation is muted. Will they continue with tapering? Hardly seems possible while the economy is still to all intents and purposes in dire straits. They are expected to taper again by $10 billion by the time it all ends on Wednesday (the meeting that is). We shall see if they go through with it.

Some economists have seen the US rise in the stock market linked to the fact that there was little change in the housing sector in February according to figures released by the Commerce Department. Some are saying that the housing sector is stabilizing after declining less than expected from January. The bad weather seems to be over and the construction workers will be heading back to the building sites. But, perhaps there should be no question of rejoicing on such little activity in the sector and it’s hardly because the snow has thawed that the US housing market is crawling out of its ‘hell that froze over’. Why shouldn’t they be optimistic? After all, the Federal Reserve will always be there to bail them all out.

Janet Yellen stated in February that the US economy was strong enough to be able to stand tapering. US equities have entered a bull market that has been on-going since March 9th 2009. Now we are rejoicing because things are not actually getting any better, but because they are stagnating. A 6 year high for equities and an S&P 500 that is up 177% from a 12-year low should be little excuse not to have revamped the economic situation.

What, honestly, is there to hang the bunting out for?

Originally posted: USA: Economic Thumbs-Down

 

Average:

via Zero Hedge http://ift.tt/1l3caEy Pivotfarm

In an overnight session that had little in terms of macro and news flow, the most notable event was that the Dollar-Renminbi finally crossed above 6.20 which as a reminder is the suggested “max vega” point beyond which even more max pain lies for levered accounts long the Yuan.

 

 

However, in a world in which nothing is discounted and in which no news matters, the “market” broadly ignored this significant development (which as we explained further yesterday means an accelerated unwind of Chinese Commodity Funding Deals, and a potential drop in global commodity prices), and eagerly awaited today’s non-event of an FOMC conference, where nothing new will be announced save for the novelty of it being Yellen’s first appearance before the press as the head of the Fed. And of course the Fed will almost certainly scrap the 6.5% employment threshold, as the FOMC scrambles to make the economy appear worse than it is reported to be, in a stark reminder that the biggest optically manipulated tool meant to boost confidence in the recovery was nothing but a number meant to serve political purposes.

Cautious sentiment dominated the price action again in Europe this morning, with stocks trading lower as market participants await the upcoming FOMC decision due out later today. Much of the attention this morning was on UK macroeconomic publications, with the most recent BoE minutes indicating that there is lack of unity  amongst the MPC, while the latest jobs report showed that number of people in employment highest since records began in 1971. As such, GBP has outperformed EUR this morning, with the shorter dated UK paper underperforming EU equivalent.

Going forward, market participants will look forward to UK Chancellor presenting Budget, the release of the latest weekly DoE data and then await the FOMC decision. Expect a new all time high in the S&P 500 just because.

 

Bulletin news summary from Bloomberg and RanSquawk

• BoE MPC voted 9-0 for unchanged QE and bank rate, range of views over inflation outlook.
• According to German Banking Association BDB, German economy to grow 1.8% in 2014, 2% in 2015, adding that interest rates much too low for Germany.
• Going forward, market participants will look forward to UK Chancellor presenting Budget, the release of the latest weekly DoE data and then await the FOMC decision.
• Treasuries steady before Fed rate and QE decision at 2pm ET, Yellen’s first press conference as Fed chair at 2:30pm; market looks for additional $10b taper, discussion of changes to forward guidance, unemployment rate threshold.
• Russia cemented its claim to Crimea as Putin showed no sign of backing down in the standoff over Ukraine’s breakaway Black Sea region, prompting Western leaders to vow further sanctions this week
• Britain’s jobless rate held at 7.2% in the three months through January, in line with median forecast in a Bloomberg survey
• Bank of England policy makers said the pound’s strength is putting downward pressure on inflation and there’s a risk of further increases as the economy recovers
• Chancellor of the Exchequer George Osborne to present his budget today
• China’s yuan slid below 6.20 per dollar for the first time since April as the central bank cut the currency’s fixing amid concern that rising financial risks will slow growth
• Investors are demanding the highest premium to hold Chinese dollar notes in almost seven months as the collapse of a developer and the first onshore bond default fuel speculation missed payments will spread
• Less than 12 months after saying the Fed’s stimulus and a plunge in defaults would support the market for junk-rated debt for another four years, Jeffrey Gundlach is trimming DoubleLine’s allocations to the asset class
• JPMorgan agreed to sell its physical commodities unit to Mercuria Energy Group Ltd., according to two people with knowledge of the matter
• Obama is a polarizing figure in some districts and states, especially those where Democrats are in closely competitive  races. Even while raising money, the president runs the risk of hurting Democratic candidates in nearby districts
• Sovereign yields mixed. EU peripheral spreads narrow. Asian equities mixed, Nikkei +0.4%, Shanghai -0.2%. European equity markets lower, U.S. stock-index futures gain. WTI crude little changed, gold and copper lower

US Event Calendar

• 7:00am: MBA Mortgage Applications, March 14: -1.2%, prior -2.1%
• 8:30am: Current Account Balance, 4Q, est. -$88b (prior – $94.8b)
• 2:00pm: FOMC seen holding overnight bank lending rate in 0%-0.25% range; Fed QE3 Purchases, est. $55b (prior $65b)
• 2:30pm: Fed’s Yellen holds news conference

 

Asian Headlines

BoJ board member Kiuchi said side-effects of more easing could exceed benefits and that excessive easing could hurt long-term economic growth. (BBG)

Fitch said Zhejiang Xingrun default reflects China’s housing dynamics and believes there will be further defaults in this industry. Fitch also added that China banks may favour larger developers after defaults. (BBG)

EU & UK Headlines

BoE MPC voted 9-0 for unchanged QE and bank rate, range of views over inflation outlook.
– Rise in Q4 unemployment and higher self-employment suggests greater labour market slack, but low youth productivity points other way.
– Official wage growth weak by historic standards and indications given by other surveys.

UK ILO Unemployment Rate (Jan) 3M/3M 7.2% vs. Exp. 7.2% (Prev. 7.2%)
– Jobless Claims Change (Feb) M/M -34.6k vs. Exp. -25.0k (Prev. -27.6k, Rev. -33.9k)
– Number of people in employment highest since records began in 1971.

According to German Banking Association BDB, German economy to grow 1.8% in 2014, 2% in 2015, adding that interest rates much too low for Germany. (BBG)

Germany sells EUR 3.262bln 1.75% 2024 Bunds, bid/cover 1.6 (Prev. 1.1), yield 1.58% (Prev. 1.64%), retention 18.5% (Prev. 24.1%)

US Headlines

FOMC Decisions and Projections due at 1800GMT/1300CDT, followed by Press Conference from Chair Yellen at 1830GMT/1330CDT.
– Vast majority expect another taper of USD 10bln this month, taking monthly bond buys down to USD 55bln per month.
– Markets may look for indications of how the committee will adjust its forward guidance with regard to a hike of the federal funds rate.

Equities

German DAX index has outperformed its peers this morning, supported by banking stocks and also BMW, which advanced after the company said it targets significant profit gain. German banks benefited from the reports by Boersen-Zeitung citing sources that German federal and state finance ministers have agreed to allow banks to treat interest they pay on subordinated debt as an operating profit. At the same time, SAP shares traded lower this morning as market participants reacted to yesterday’s weaker than expected earnings report by Oracle, which also saw shares fall 5% in after market trading hours.

FX

Of note, USD/CNY advanced above the 6.20 level, which various analysts flagged up as a level which may begin to trigger further unwind linked to TRF (Target Redemption Fund) products and thus potentially lead to further pressure on the credit market in China. On that note, according to a Chinese government source, a weaker CNY and FX sales could prompt a cut to the Reserve Requirement Ratio, with 6.30 in USD/CNY seen as a medium-term limit. (MNI)

Commodities

WTI crude futures have outperformed Brent this morning, while also recovering API inspired losses as overnight news of the earlier than expected Seaway pipeline’s opening gave support to the reversal. A consequence of this positive news flow over the removal of bottlenecks at Cushing has been WTI and Brent crude spreads narrowing by 3%.

US API Crude Oil Inventories (Mar 14) W/W 5920k vs. Prev. 2600k
– Cushing Crude Inventories (Mar 14) W/W -1040k vs. Prev. -1300k
– Gasoline Inventories (Mar 14) W/W -1410k vs. Prev. -2150k
– Distillate Inventories (Mar 14) W/W -674k vs. Prev. -839k

Iranian crude exports to Asia rose sharply in February, with oil exported at levels higher than allowed under Western sanctions for a fourth straight month. (RTRS)

According to sources, JP Morgan has agreed to sell its commodities trading business to Switzerland-based energy-trading company Mercuria Energy Group. The terms of the deal aren’t yet clear, but when the bank first opened its books to potential buyers in October it valued the assets at USD 3.3bln.

China Iron and Steel Association said that China steel average production was 2.1mln tons/day in first 10 days of March, which was the highest since mid-November. (BBG)

China plans to create 6-8 large scale mining groups over the next decade each with an output target of at least 30mln tonnes. (BBG)

* * *

The full overnight summary by DB’s Jim Reid

Attention turns to today’s FOMC and Yellen’s debut press conference as Fed chair, where the broad market consensus is that the Fed will taper by another $10bn while moving away from its current quantitative rate guidance. For the record, DB’s Peter Hooper thinks consensus appears to have been formed that it’s time to update the Committee’s forward guidance. However the center of the FOMC wants to achieve this change without giving the market reasons to raise interest rate expectations significantly above the path that the guidance has implied up to now. To achieve this, Peter thinks that the Fed is more likely to drop mention of the 6.5% threshold and strengthen its current references to other labour market indicators – for example highlighting their commitment to substantial further progress in reducing unemployment and raising inflation up to target, so long as inflation expectations remain stable. Peter also expects that either the new statement or the press conference will acknowledge the growing importance of the “dot chart” making more specific use of the Summary of the Committee’s Economic Projections (SEP), for interest rates in particular, to guide market expectations. The SEP could show that most members of the Committee currently expect economic conditions that would allow them to begin to raise rates to be in place by sometime after mid-2015. This message could be bolstered by adding the observation (again inspired by the SEP) that most on the Committee also expect that various headwinds are likely to be in place that will warrant raising rates only slowly once the process has begun.

In terms of other tweaks to the FOMC statement, the WSJ’s Hilsenrath writes that the Fed will likely tone down their assessment of growth in activity, reflecting the recent soft bout of economic data and will probably reference the transitory effects of unseasonable weather. Meanwhile, the FT’s Hildebrand warns that the time for Fed tightening could be nigh given that some in the Fed think the fall in participation rates appear to be more structural than cyclical. Hildebrand notes that wage growth is at 2.5% versus a 10 year average before the financial crisis of 3.5%. For some perspective, following the last recession wage growth returned to that level by the end of 2004 – by which point the Fed funds rate had already been increased four times (FT).

Ahead of all this, risk is having a mixed overnight session, reflecting some caution going into the FOMC and renewed fears over a slowdown or deleveraging event in China. Shanghai copper futures are down 0.1% and eyes are again on USDCNH (+0.25%) and USDCNY (+0.05%) with the latter approaching a key 6.20 technical level (6.1994 as we type). The latest PBoC CNY fixing hasn’t helped matters much, coming in at 6.1351 or 10 pips above yesterday’s midpoint, and in the process notching up the weakest fixing since early December 2013. Onshore Chinese rates climbed by a not-insignificant amount today (7 day repo +80bp) despite the continued weakening in CNY.

There is some lingering concern over the state of Chinese property developers amid the reported collapse of Fenghua city developer Zhejiang Xingrun, which is leading to underperformance in Chinese USD bonds and the Shanghai Property equity index (-1.4%). The broader Shanghai Composite is down as  well overnight (-0.9%). Adding to worries, late on Tuesday the PBOC denied that it was not involved in dealing with the collapse of Zhejiang Xingrun, and there is concern that a number of banks (as many as 20 domestic banks) may have exposure to the troubled developer. Though the systemic risks from this potential default are minimal given the single-city concentration of the developer and relatively small size of its bank obligations (around US$550m), it’s probably reflective of tough operating conditions for many smaller developers in China.

Outside of China, the Nikkei (+1.3%) has bounced back strongly from early losses though the exact catalyst for this unclear. The Feb Japanese trade report again disappointed (adjusted trade balance for February –JPY1.13trn vs –JPY907bn expected). Within the detail of the trade report, Japanese exports rose 9.8% YoY, which was lower than the 12.5% expected. Overall, the Japanese trade deficit has come in weaker than market consensus in 8 of the last 10 months. On a more positive note for PM Abe and the BoJ, land prices in Japan’s three largest cities rose for the time in six years in January. Adding to recent positive wage/hiring anecdotes, major Japanese retailer Fast Retailing said it was converting 16,000 part time contractors to full time workers (Kyodo News).

Coming back to yesterday, there was some relief in Putin’s statement that he does not plan to seize other regions of the Ukraine outside of Crimea, judging by the gains in the S&P500 (+0.72%) and Stoxx600 (+0.64%). After a solid Monday and Tuesday, the S&P500 is back within 6pts of all time highs. Our Russian economics team thinks that the key message in Putin’s address to the Federal assembly was that “Russia does not need division of Ukraine” which may render the escalation of tensions in the eastern part of Ukraine less likely. This in turn also lowers the probability of a significant escalation of sanctions vis-à-vis Russia. Overall, our Russian economists note that Putin’s direct appeal to the West does signal greater openness to negotiations, but regional risks do remain elevated due to the uncertainty over further developments in eastern Ukraine as well as the contours of the eventual accord between Russia and the West.

Nevertheless despite the assurances by Putin, there were reports that Russia was boosting its military presence on the eastern Ukraine border and that Russian forces were concentrated near major roads into Ukraine, according to Bloomberg who cited the Kharkiv city governor. Pro-Russian forces also reportedly stormed a Ukrainian military base in the Crimean capital Simferopol, resulting in one casualty (Bloomberg), an incident which was described by the Ukrainian PM as a “war crime” (BBC). Accounts of the incident are conflicting – a local Crimean news agency suggested that a local defense unit had come under fire, while Interfax-Ukraine reports that both local defense forces and Ukrainian servicemen came under fire at the same time. US Vice President Joe Biden said that the EU and US plan more sanctions aimed at Russia, and stressed to a number of eastern European NATO allies that the US was committed to defending their security.

In spite of all this Moscow’s MICEX closed with gains of 4%, and a number of Russian ADRs trading in the US such as Gazprom (+3.6%) and Sberbank (+5.0%) recorded strong gains. Putting Russia aside, EM had a buoyant session, allowing sovereigns such as Hungary to price US$3bn in bonds, but Russia was forced to cancel its sixth ruble bond auction this year due to “unfavourable market conditions”. The ruble gained 0.1% against the USD, and the Russian Central Bank said it had no plans to introduce capital controls to defend the RUB.

Back in DM, 10yr UST yields drifted lower (-2bp) after a somewhat lower than expected US February CPI reading (1.1% YoY vs 1.2% expected and 1.6% previously) and weaker than consensus February housing starts (-0.2% vs 3.4% expected). Housing starts were dragged lower by activity in the US northwest, suggesting some weather impact lingered during the month. US building permits were substantially above consensus at 7.7% MoM (1.6% expected). In Europe, markets lauded the first Greek bank to access the international bond market in five years (Financial Times) after Piraeus Bank priced a EUR500m 3yr notes at a yield of 5.125%. Piraeus joins banks from Portugal, Spain and Ireland in issuing their first post-crisis unsecured bonds.

Looking at the day ahead, all eyes will be on the FOMC with the statement due at 6pm London time. Yellen’s debut press conference follows 30 minutes afterwards. Ahead of that there isn’t too much data from Continental Europe but the UK will print its latest jobs report and the Bank of England releases its minutes from the March 5th/6th MPC meeting. The UK’s 2014 budget will be delivered to parliament today. DB’s George Buckley writes that he expects that the Budget will be fiscally neutral – either over the forecast horizon or across policy measures. Buckley also notes that this year’s budget may provide the government the best chance for “electioneering” ahead of the May 2015 general elections.

via Zero Hedge http://ift.tt/1gFYf3O Tyler Durden