Tag: finance

Over the past year, pictures of China’s unprecedented air pollution have been seen around the world (for a sample see here and here), Chinese smog has been exported to Japan, and there is even a dedicated hourly twitter update looking at the quality, or lack thereof, of Beijing air. As such, it was only a matter of time before the tragic consequences of China’s unprecedented and unplanned scramble to industrialize started manifesting themselves. This happened overnight when an eight-year-old girl has become China’s youngest lung cancer patient, reports said, with doctors blaming pollution as the direct cause of her illness. The girl, whose name was not given, lives near a major road in the eastern province of Jiangsu, said Xinhuanet, the website of China’s official news agency.

Since this is just what is officially reported, one can only imagine just how bad the reality is behind the Ministry of Truth firewall, but at least China is finally starting to come clean on its pollution problem, in what one can only hope is an attempt to remedy it. However, if that means even slower growth and a less furious scramble to industrialize through the construction of ghost cities, this will likely mean even slower economic growth, even less of an inflation tolerance by the premier and the PBOC, and even more animosity toward Bernanke’s QE, which as we reported earlier is the main reason for today’s reddish tint in the equity futures.

AFP reports that according to a doctor at Jiangsu Cancer Hospital in Nanjing, the 8-year old girl had been exposed to harmful particles and dust over a long period of time.

Lung cancer cases among children are extremely rare, with the average age for diagnosis at about 70, according to the American Cancer Society.

 

But the incidence of the disease has skyrocketed in China as the country’s rapid development has brought with it deteriorating air quality, particularly in urban areas.

 

Lung cancer deaths in China have multiplied more than four times over the past 30 years, according to Beijing’s health ministry. Cancer is now the leading cause of death in the smog-ridden capital.

 

The report of the eight-year-old girl’s diagnosis comes after choking smog enveloped the northeastern city of Harbin two weeks ago, bringing flights and ground transport to a standstill and forcing schools to shut for several days, with visibility in some areas reduced to less than 50 metres.

 

At the height of the smog, the city’s levels of PM2.5 — the smallest, most dangerous type of airborne particle — reached 1,000 micrograms per cubic metre, 40 times the World Health Organization’s recommended standard.

High levels of PM2.5 have been linked to health problems including lung cancer and heart disease.

And now with China finally admitting it has a health hazard problem, one wonders how long until Japan does the same with the even greater environmental catastrophe that is Fukushima, or will Abe continue to hide the disastrous health consequences of the worst nuclear catastrophe since Chernobyl until his entire economic revitalization house of cards comes tumbling down and he is once again escorted out of the building in yet another epic case of diarrhea?

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/KuOvM6XLGKQ/story01.htm Tyler Durden

The extreme experiment of current US monetary policy has evolved (as we noted yesterday), from explicit end-dates, to unlimited end-dates, to threshold-based end-dates. Of course, this ‘threshold’ was no problem for the liquidty whores when unemployment rates were extremely high themselves, but as the world awoke to what we have been pointing out – that it’s all a mirage of collapsing participation rates – the FOMC (and sell-side strategists) realized that the endgame may be ‘too close’. Cue Goldman’s Jan Hatzius, who in today’s note, citing two influential Fed staff economists, shifts the base case and forecasts that the Fed will lower its threshold for rate hikes to 6.0% (and perhaps as low as 5.5%) as early as December (as a dovish forward-guidance balance to an expected Taper announcement).

 

Via Goldman Sachs,

• The most senior Fed staff economists for monetary policy analysis and domestic macroeconomics, William English and David Wilcox, have published separate studies that imply a strong case for a reduction in the 6.5% unemployment threshold for the first funds rate hike. We have proposed such a move for some time, but have been unsure whether it would in fact happen. And while the uncertainty around near-term Fed policy remains very considerable, our baseline view is now that the FOMC will reduce its 6.5% threshold to 6% at the March 2014 FOMC meeting, alongside the first tapering of QE. A move as early as the December 2013 meeting is possible, and if so, this might also increase the probability of an earlier tapering of QE.

It is hard to overstate the importance of two new Fed staff studies that will be presented at the IMF’s annual research conference on November 7-8. The lead author for the first study is William English, who is the director of the Monetary Affairs division and the Secretary and Economist of the FOMC. The lead author for the second study is David Wilcox, who is the director of the Research and Statistics division and the Economist of the FOMC. The fact that the two most senior Board staffers in the areas of monetary policy analysis and domestic macroeconomics have simultaneously published detailed research papers on central issues of the economic and monetary policy outlook is highly unusual and noteworthy in its own right. But the content and implications of these papers are even more striking.

It will take us some time to absorb the sizable amounts of new analysis in the two studies, and we are only able to comment on a few selected aspects at this point. But our initial assessment is that they considerably increase the probability that the FOMC will reduce its 6.5% unemployment threshold for the first hike in the federal funds rate, either coincident with the first tapering of its QE program or before.

The first study, written by William English, David Lopez-Salido, and Robert Tetlow and entitled “The Federal Reserve’s Framework for Monetary Policy–Recent Changes and New Questions,” uses a smaller version of the staff’s large-scale econometric model FRB/US to analyze the optimal path for the federal funds rate. Using “small FRB/US,” a set of assumptions about Fed preferences, and a set of assumptions about the baseline performance of the economy, the authors find that the theoretically optimal policy involves a commitment to hold the federal funds rate near zero until 2017, followed by a series of hikes that push the rate well above neutral by the early 2020s. In this simulation, the unemployment rate falls below the structural rate for a time, and inflation rises modestly above the 2% target. (The optimal policy in the English et al. study is more aggressive than that shown in Vice Chair Yellen’s earlier set of optimal control simulations, which points to the first hike in early 2016; the reasons seem to include a lower assumption for the structural unemployment rate and a later baseline for the first hike in the funds rate.)

However, the authors note that such an optimal policy is possibly infeasible because it is complex and model-dependent, and because it simply assumes that policymakers are able to overcome the credibility problems associated with a commitment to a particular policy path far in the future. Hence, they investigate several different ways in which Fed officials might be able to approximate the optimal policy: (1) different sets of unemployment and inflation thresholds for the first hike, (2) a higher inflation target, and (3) a switch to a nominal GDP level target. They see potentially sizable benefits from a higher inflation target or a nominal GDP level target but also very sizable risks, and conclude that “it is hard to be confident” that such a change would enhance performance.

Regarding the unemployment and inflation thresholds, they simulate the performance of unemployment thresholds for the first hike ranging from 5.0% to 7.0% and inflation thresholds ranging from 1.5% to 3.0%. The results with respect to varying the inflation threshold are not very surprising. The authors find that the current 2.5% threshold performs no worse than other choices, and the differences are relatively minor (at least in the baseline simulation). But the results with respect to varying the unemployment threshold are much more striking. The key conclusion is that “…reducing the unemployment threshold improves measured economic performance until the unemployment threshold reaches 5.5 percent; a further reduction in the threshold to 5.0 percent, however, reduces welfare, as the control of inflation becomes notably less precise.” In other words, a 6% unemployment threshold outperforms a 6.5% threshold, and a 5.5% threshold outperforms a 6% threshold!

The second paper, written by David Reifschneider, Willam Wascher, and David Wilcox and entitled “Aggregate Supply in the United States: Recent Developments and Implications for the Conduct of Monetary Policy,” discusses the considerable evidence that the US economy’s supply-side performance has deteriorated significantly since 2007, with very slow potential GDP growth and an increase in structural unemployment. They estimate that real potential GDP growth has only averaged 1.3% since 2007, the output gap is currently about 3% of GDP, and the structural unemployment rate had risen to 5.75% by 2012 (although it is now again on a slight downward trend). They then use a modified version of FRB/US with an added role for “hysteresis” in labor markets–that is, a gradual transformation of cyclical unemployment into structural unemployment and/or labor force withdrawal –to analyze the sources of this deterioration, using a simulation in which the model economy is hit by a major financial crisis that is calibrated to match the size of the 2007-2009 episode. In a nutshell, they find that the post-crisis period “features a noticeable deterioration in the economy’s productive capacity” and that about 80% of the deterioration “…represents an endogenous response to the persistently weak state of aggregate demand.”

The authors then go on to discuss the “optimal” policy response to the crisis, taking into account not just the cyclical position of the economy but also the implications of weakness in aggregate demand for the supply side and therefore the longer-term structural position of the economy. They are careful to note that optimal control solutions are sensitive to the specification of the model economy, assumptions about the baseline performance of the economy, and assumptions about the Fed’s objectives. But eve
n with these caveats, it is striking that the optimal control solutions imply a period of near-zero interest rates that lasts until the unemployment rate has fallen to a level that is somewhere around the structural rate. This finding reflects the usual optimal control logic, namely that the central bank’s objectives over the simulation period as a whole are best served by allowing for a period of modest overheating and overshooting of inflation in the more distant future in order to frontload a greater amount of monetary stimulus early on in the simulation period. But this logic is now enhanced by the hysteresis effects from weakness in aggregate demand on the supply side of the economy, which further increase the longer-term costs of failing to return to full employment.

The implications of the results strengthen further under an alternative assumption about the Fed’s objectives. This is that Fed officials interpret the employment side of their mandate in terms of what we have called the total employment gap. As the authors note, “…optimal policy should become even more accommodative if the central bank did not target the unemployment gap but instead aimed at keeping the employment-to-population ratio near the trend level that would prevail in the absence of hysteresis effects and exogenous (but ultimately transitory) shocks to the natural rate.” In fact, their simulations show that under this alternative assumption the funds rate remains at its current near-zero level until the unemployment rate has fallen about 1 percentage point below its structural rate.

Taking the two studies together, our preliminary takeaways are as follows:

First, the studies suggest that some of the most senior Fed staffers see strong arguments for a significantly greater amount of monetary stimulus than implied by either a Taylor rule or the current 6.5%/2.5% threshold guidance. To be clear, both studies contain a significant amount of caveats and offsetting considerations, as well as a disclaimer that they only reflect the views of the authors. But given the structure of the Federal Reserve Board, we believe it is likely that the most senior officials–in particular, Ben Bernanke and Janet Yellen–agree with the basic thrust of the analysis.

 

Second, the studies provide two complementary reasons for why additional easing is warranted, which correspond closely to our own recent analysis: (a) optimal control considerations that argue for “credibly promising to be irresponsible” and (b) the possibility that the economy is underperforming its “deep” structural potential–that is, the level of potential output that would have obtained in the absence of the demand weakness of the past five years–by much more than suggested by the current unemployment gap alone. These two reasons are additive in the sense that each provides a separate rationale for further easing, and taken together they provide a very strong rationale for such a move.

 

Third, the studies suggest that the most likely form of this additional easing would be a reduction in the 6.5% unemployment threshold, i.e. a further ramping-up of the primary form of forward guidance that the committee has already chosen. The discussion of QE–the other key form of unconventional policy currently in place–is quite scant; however, the English et al. paper notes that “uncertainty about the level of costs and efficacy…would lead to a reduced level of purchases.” This discussion admittedly does not give us much to go on, but we would view it as broadly consistent with the idea that a reduction in the unemployment threshold might be accompanied by a tapering of QE.

The upshot from our perspective is that the probability of an outright reduction in the unemployment threshold has increased by enough to make this our baseline expectation. Admittedly, the uncertainty around what the committee will do to strengthen the guidance remains considerable. On the one hand, the discussion in the minutes of the September 17-18 FOMC meeting seemed to reveal more sympathy for an inflation lower bound–an option that does not receive any attention in the staff studies–than for a reduction in the unemployment threshold. On the other hand, both the English et al. study and at least parts of the Wilcox et al. study seem to make a fairly strong case for an even bigger reduction in the threshold, perhaps to as low as 5.5%. But our central case is now that the FOMC will reduce the threshold from 6.5% to 6% at the March 2014 FOMC meeting, alongside the first tapering of QE; however, a move as early as the December 2013 meeting is possible, and if so, this might also increase the probability of an earlier tapering of QE.

 

In other words… Goldman is expecting Taper to be announced at the December FOMC and believs the Fed need to cut its threshold on rate hikes to as low as 5.5% to balance the potential ‘tightening’ implicit in the Taper announcement that the market is likely be unhappy about… because – it would seem – Goldman (like many others) still do not understand that it is all about the “flow” not the stock.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/Rwr3s5dUs3k/story01.htm Tyler Durden

While the Obamacare website rollout may be a huge slap in the face of government efficiency and organization (and healthcare.gov has now joined the ranks of all other New Normal “full-time” workers by working part-time following a daily maintenance shutdown from 1 am to 5 am), the reality is that sooner (unlikely) or much later it will be fixed. And while the realization that the Unaffordable Care Act is just that, and will soak up far more cash from the majority of the population will be a slap in the face of most who never understood that socialist Ponzi schemes always cost more in the end, it is nothing that America’s favorite pastime can’t resolve – paying on credit. Which means that the biggest threat to Americans as a result of Obamacare is neither the healthcare.gov site, nor the question of who foots the bil, but the actual impact on services and as CBS reports, the next shock to brace for is the sudden drop off in healthcare providers as an imminent “explosion of demand for doctors and services” mean a looming doctor shortage is just around the corner.

From CBS:

At Current Rate, As Many As 52,000 Primary Care Physicians Needed By 2025. Even doctors who support Obamacare say there could be delays due to more patients and fewer doctors, CBS 2’s Dick Brennan reported Monday.

 

“It’s like shopping during Christmas time. I mean, you’re going to have a tough time if you have all of these people demanding services at the same time,” said Dr. Steven Lamm of the NYU School of Medicine.

 

Lamm said the Affordable Care Act could mean an explosion of demand for doctors and services, but will the system be able to handle it?

 

“I think the concern would be that the system will be overwhelmed, that there will be a greater demand that we can meet in a quality fashion and that we will have to delay services for a lot of individuals,” Lamm said.

Wait, did someone just ask if the “system” would be able to handle an unforeseen consequence? The same system that couldn’t even maintain the most foreseen event such as website traffic on the main Obamacare portal into day one? Yes, they did!

In the meantime, doctors are preparing to just say to hell with it all.

Right now, there is already a shortage of 20,000 doctors nationwide, and with healthcare expansion, plus increasing population, there will be a need for about 52,000 primary care doctors by 2025.

 

This while only 20 percent of new doctors become primary care physicians and the new landscape has older doctors bailing, Brennan reported.

 

“Doctors are planning to retire. Anybody who is anywhere near retirement age is talking about retirement. … There’s just too much going on,” said Dr. Sam Unterricht of the New York State Medical Society.

 

Others fear that centralizing medical care will squeeze out small independent doctor groups, groups that insurers claim are more expensive, in favor of large centralized care.

 

“It will be inferior care. They will end up going to clinics, to situations where they don’t have their own private physician. When they go to hospitals they are not going to know any of doctors who are taking care of them,” cardiologist Dr. David Hess said.

…

Just by sheer numbers, doctor retirements will increase. Nearly half right now are over the age of 50, and the American Medical Association says nurses will also be in short supply, Brennan reported.

The makeshift solution: promote unqualified doctors

Doctors say one solution could be a quick infusion of residents. “They are not training enough residents. The number of medical students has increased a little bit, but the number of residency spots has not. They’ve kept the number of residency spots frozen for, I think, 13 years now,” Unterricht said.

In short: less qualified doctors, as those who know what they are doing, and know what is coming choose simply to retire, offset by a surge in veritable “Dr. Nicks.”

 Yet another unqualified success for central-planning.

The above in video format:

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/kPXivxaU5II/story01.htm Tyler Durden

• China premier warns against loose money policies (Reuters)
• Brussels forecasts tepid Eurozone growth (FT)
• SAC Case Began With Informant’s Tips on Cohen, Rajaratnam (BBG)
• Dirty Munich Home’s Nazi Loot Estimated at $1.35 Billion (BBG)
• Mortar hits Vatican embassy in Damascus, no casualties (Reuters)
• India Launches Mars Mission (WSJ)
• Lael Brainard to leave Treasury, heading to Fed (FT)
• U.S. Takes Aim at ‘Forced’ Insurance (WSJ)
• Wife of Jeff Bezos attacks book about Amazon (FT)
• Fall of Brazil’s Batista embarrasses President Dilma Rousseff (FT)
• The One Thing People Still Really Like About BlackBerry (BusinessWeek)
• Twitter IPO More Expensive Than Facebook Without Profits (BBG)
• Cash floods into property as investors seek alternative or safety (Reuters)
• Fired Deutsche Bank Rates Traders Said to Return to Work (BBG)
• Italy eyes ‘Google Tax’ to help fix public finances (RTRS)

 

Overnight Media Digest

WSJ

* SolarCity said Monday that it intends to privately place $54 million of securities backed by a pool of solar-power systems, leases and electricity contracts.

* Investment in the medical-device and equipment industry is on pace to fall to $2.14 billion this year, down more than 40 percent from 2007 and the sharpest drop among the top five industry recipients of venture funding, according to an analysis of data compiled by PricewaterhouseCoopers and the National Venture Capital Association.

* Twitter Inc, riding a wave of strong demand for initial public offerings, sharply increased the price range of its shares three days before its stock is expected to begin trading. San Francisco-based Twitter increased its proposed share-price range to between $23 and $25 a share, up from between $17 and $20 a share.

* Tencent Holdings Ltd is vying to lead a $200 million fundraising in Snapchat, the latest effort by one of China’s Internet giants to gain a foothold in the United States.

* BlackBerry has abandoned a plan to sell itself and instead will sell $1 billion of convertible debt to its major shareholder and other investors, and said it would replace CEO Thorsten Heins.

* Kellogg plans to cut its workforce by 7 percent as part of a four-year cost-cutting campaign, as the cereal maker posted higher earnings on flat sales.

* Allen Edmonds Corp, a maker of high-end men’s shoes that generated some takeover interest from Men’s Wearhouse Inc , itself a takeover target, has revealed it has agreed to be sold to another buyer.

* U.S. Attorney General Eric Holder said the government is willing to settle its antitrust lawsuit against the merger of AMR and US Airways if the airlines agree to broad concessions.

* Network-gear maker Alcatel-Lucent said Monday that it plans to raise about $2.7 billion to cut its debt and finance its turnaround plan, taking advantage of a rebound in shares to unveil a capital increase.

* TRI Pointe Homes has clinched a $2.7 billion deal to merge with timber conglomerate Weyerhaeuser’s home-building division.

 

FT

Twitter Inc IPO-TWTR.N increased its IPO price range by 25 percent after strong investor demand, putting the microblogging network on course to secure a valuation of over $17 billion at its stock market debut later this week.

Johnson & Johnson will pay $2.2 billion in fines to U.S. federal and state authorities for kickbacks to pharmacists and the marketing of pharmaceuticals for diseases beyond their approved uses over more than a decade.

BlackBerry Ltd abandoned its plan to sell itself and removed its chief executive on Monday, sending the share price of the one-time market leader down 16.4 percent to its lowest in a decade.

Britain’s Co-operative Group has detailed a rescue plan for its banking arm, under which it will hand control of 70 percent of the unit to a group of bondholders, and warned it would take up to five years to fix the troubled lender.

Budget airline Ryanair Holdings Plc issued its second profit warning in two months on Monday, citing aggressive fare cuts in response to increased competition and weak economic conditions.

Loss-making telecom equipment maker Alcatel-Lucent said on Monday it plans to raise 955 million euros ($1.3 billion) from shareholders and $750 million from a high-yield bond to shore up its balance sheet.

 

NYT

* While the hedge fund SAC Capital has put the government’s criminal case behind it, Steven Cohen remains the focus of a criminal investigation and a SEC administrative complaint.

* Federal officials said Johnson & Johnson promoted the anti-psychotic drug as a way to treat dementia patients for many ailments, when it was only approved for schizophrenia.

* Twitter has raised the price range for its initial public offering to $23 to $25, signaling the company’s bullish outlook ahead of its trading debut on Thursday.

* Netflix said on Monday that starting early next year it will be the exclusive streaming distributor for “The Square,” an Arabic documentary about the Egyptian protest centered in Tahrir Square, which is considered a leading contender for an Oscar nomination.

* A tentative takeover bid for BlackBerry Ltd from its largest shareholder collapsed on Monday, clouding the immediate future of the company. Fairfax Financial Holdings of Toronto, the insurance and investment company, had made a conditional, non-binding offer to buy the 90 percent of BlackBerry shares it does not own for $9 each, valuing the company at about $4.7 billion.

* Tom Wheeler was sworn in on Monday as chairman of the Federal Communications Commission and promptly named to his senior staff Gigi Sohn, one of the agency’s most outspoken critics but a supporter of the new leader.

* A measure that would outlaw workplace discrimination against gay men, lesbians and transgender people overcame a significant obstacle in the Senate as seven Republicans voted to begin debate on the bill.

* The Carlyle Group has hired Kewsong Lee away from his post as managing director at
Warburg Pincus, an unusually high-level transition within private equity’s executive ranks.

* Tri Pointe Homes, the West Coast builder controlled by Barry Sternlicht’s Starwood Capital, is merging with the home-building subsidiary of Weyerhaeuser, a large owner of timberlands.

* Two activist hedge funds, the Clinton Group and Cannell Capital, have joined forces to mount a proxy battle for control of the Internet and television shopping network ValueVision Media.

 

Canada

THE GLOBE AND MAIL

* A meeting between British Columbia Premier Christy Clark and her Alberta counterpart Alison Redford scheduled for Tuesday has been canceled as talks between the two provinces on pipeline development in British Columbia have reached a tense stalemate.

* The number of Canadians using food banks fell 4.5 percent this year from 2012, reflecting improvement in some regions, particularly the Prairies.

Reports in the business section:

* Beijing-based computer manufacturer Lenovo Group Ltd actively considered a bid for BlackBerry Ltd, but the Canadian government told the smartphone company it would not accept a Chinese takeover because of national security concerns, according to sources familiar with the situation.

* Canadian manufacturers and steel producers are urging Ottawa to channel tens of billions of dollars in planned federal spending their way over the next decade.

NATIONAL POST

* Liberal leader Justin Trudeau is walking an intentionally fine line following two high-profile expressions of support in recent weeks for the oilsands and the controversial Keystone XL pipeline.

* Transport Canada has told its minister, Lisa Raitt, that it is gathering evidence that could lead to federal prosecution against Montreal, Maine and Atlantic Railway Inc, the company involved in the Lac-Megantic disaster, for allegedly failing to comply with safety regulations.

FINANCIAL POST

* Bankers still have a lot of work to do to sell all of Barrick Gold Corp’s $3 billion equity offering, but sources maintained on Monday that there is no talk of re-pricing the deal.

* The Ontario government is considering the introduction of new tax incentives in hopes of boosting the level of investment in research and development within the province.

 

China

CHINA SECURITIES JOURNAL

– China may allow private banks to be launched early next year under a pilot scheme, the newspaper reported without citing sources.

– Egg futures will be listed on Nov. 8 on the Dalian Commodity Exchange, according to a notice published by the exchange on Monday.

– China’s National Energy Administration said in a notice it plans to increase the country’s photovoltaic capacity by 20 percent to 12GW in 2014, under certain circumstances.

SECURITIES TIMES

– China should expand the testing areas for property tax as soon as possible, said Ren Xingzhou, leader of the economics institute in the State Council’s Development Research Center, a government think tank.

PEOPLE’S DAILY

– China is experiencing severe overcapacity in crude steel, electrolytic aluminium, cement and flat glass, which will lead to vicious competition and a waste of resources, said a commentary in the paper that acts as the government’s mouthpiece.

CHINA DAILY

– China will increase efforts to tackle the overcapacity problem in the cement, electrolytic aluminium, sheet glass, shipping and steel industries, the newspaper said in an editorial. Shang Fulin, chairman of the China Banking Regulatory Commission, called for green loans to curb overcapacity, it added.

 

Fly On The Wall 7:00 AM Market Snapshot

ANALYST RESEARCH

Upgrades

BlackBerry (BBRY) upgraded to Hold from Sell at Deutsche Bank
BlackBerry (BBRY) upgraded to Hold from Sell at Societe Generale
Energen (EGN) upgraded to Buy from Neutral at ISI Group
GT Advanced (GTAT) upgraded to Buy from Neutral at BofA/Merrill
GT Advanced (GTAT) upgraded to Overweight from Neutral at Piper Jaffray
HSBC (HBC) upgraded to Buy from Neutral at Mizuho
Holly Energy (HEP) upgraded to Neutral from Sell at Goldman
MGIC Investment (MTG) upgraded to Outperform from Market Perform at Keefe Bruyette
Safe Bulkers (SB) upgraded to Buy from Neutral at Citigroup
SunEdison (SUNE) upgraded to Overweight from Neutral at Piper Jaffray
TTM Technologies (TTMI) upgraded to Overweight from Neutral at JPMorgan

Downgrades

BlackBerry (BBRY) downgraded to Underperformer from Sector Performer at CIBC
ExlService (EXLS) downgraded to Market Perform from Outperform at Wells Fargo
ExlService (EXLS) downgraded to Perform from Outperform at Oppenheimer
Halcon Resources (HK) downgraded to Market Perform from Outperform at Wells Fargo
Kellogg (K) downgraded to Hold from Buy at Deutsche Bank
LINN Energy (LINE) downgraded to Neutral from Buy at Goldman
LinnCo (LNCO) downgraded to Neutral from Buy at Goldman
Ocwen Financial (OCN) downgraded to Market Perform from Outperform at Keefe Bruyette
Pearson (PSO) downgraded to Neutral from Buy at Goldman
RBS (RBS) downgraded to Underperform from Neutral at Exane BNP Paribas
Rovi (ROVI) downgraded to Sell from Neutral at Goldman
Siemens (SI) downgraded to Neutral from Buy at UBS
St. Jude Medical (STJ) downgraded to Market Perform from Outperform at Bernstein

Initiations

AmBev (ABV) initiated with an Overweight at Barclays
Antero Resources (AR) initiated with a Buy at Citigroup
BancorpSouth (BXS) initiated with an Overweight at Evercore
Cinemark (CNK) initiated with an Outperform at FBR Capital
Duke Energy (DUK) initiated with a Buy at CRT Capital
FactSet (FDS) initiated with an Equal Weight at Barclays
Forum Energy (FET) initiated with an Overweight at Morgan Stanley
Gannett (GCI) initiated with an Outperform at FBR Capital
HSN, Inc. (HSNI) initiated with a Market Perform at FBR Capital
Lamar Advertising (LAMR) initiated with an Outperform at FBR Capital
Liberty Interactive (LINTA) initiated with an Outperform at FBR Capital
Liberty Ventures (LVNTA) initiated with an Outperform at FBR Capital
New York Times (NYT) initiated with a Market Perform at FBR Capital
News Corp. (NWSA) initiated with a Market Perform at FBR Capital
QTS Realty Trust (QTS) initiated with a Hold at Deutsche Bank
Regal Entertainment (RGC) initiated with a Market Perform at FBR Capital
SCANA (SCG) initiated with a Fair Value at CRT Capital
Southern Company (SO) initiated with a Fair Value at CRT Capital
Spectral Diagnostics (SDI) initiated with an Outperform at Wedbush
Stonegate Mortgage (SGM) initiated with an Outperform at Keefe Bruyette
Superior Energy (SPN) initiated with a Buy at Deutsche Bank
TECO Energy (TE) initiated with a Fair Value at CRT Capital
Thomson Reuters (TRI) coverage assumed with an Equal Weight at Barclays
Twitter (TWTR) initiated with a Buy at CRT Capital
Valassis (VCI) initiated with a Market Perform at FBR Capital
Wisconsin Energy (WEC) initiated with a Buy at CRT Capital

HOT STOCKS

Endo Health (ENDP) to acquire Paladin Labs for $1.6B in stock, cash
Ford (F) to launch 17 vehicles to accelerate growth in Middle East, Africa
AIG (AIG) may file lawsuit against Morgan Stanley (MS) over mortgage securities
Monsanto (MON) announced $1B debt issuance
Becton Dickinson (BDX) announced plan to repurchase about $450M of stock in FY14

EARNINGS

Companies that beat consensus earnings expectations last night and today include:
R.R. Donnelley (RRD), Vitamin Shoppe (VSI), Becton Dickinson (BDX), Ashland (ASH), Regis (RGS), Hertz (HTZ), Consolidated Edison (ED), Tidewater (TDW), Ea
rthLink (ELNK), Plains All American (PAA), XPO Logistics (XPO), Dun & Bradstreet (DNB), Marathon Oil (MRO), U.S. Auto Parts (PRTS), LeapFrog (LF), Hill International (HIL), Newfield Exploration (NFX)

Companies that missed consensus earnings expectations include:
NYSE Euronext (NYX), McDermott (MDR), Owens & Minor (OMI), Atlas Pipeline Partners (APL), Jamba (JMBA), Skilled Healthcare (SKH), Luminex (LMNX), Halcon Resources (HK), Tutor Perini (TPC), Polypore (PPO), BroadSoft (BSFT)

Companies that matched consensus earnings expectations include:
PAA Natural Gas Storage (PNG), Acura Pharma (ACUR), Tenet Healthcare (THC), Synchronoss (SNCR), Chemtura  (CHMT), Pioneer Southwest (PSE), Nautilus (NLS)

NEWSPAPERS/WEBSITES

• The Federal Housing Finance Agency is moving ahead with a ban on fees for “force-placed” insurance policies, expensive coverage that is thrust upon borrowers whose regular homeowners’ policy has lapsed, despite industry objections that such a move encroaches on state regulators (FNMA, FMCC, AIZ), the Wall Street Journal reports
• Attorney General Eric Holder said the government is willing to settle its antitrust lawsuit against the merger of AMR Corp. (AAMRQ) and US Airways (LCC) if the airlines agree to broad concessions that would preserve competition, the Wall Street Journal reports
• Apple (AAPL) will open a manufacturing facility in Mesa, AZ in partnership with mineral crystal specialist GT Advanced technologies (GTAT) to make sapphire materials for Apple’s popular electronic devices, Reuters reports
• Lael Brainard, the Treasury Department’s top international official, is likely to be nominated to the Federal Reserve Board, sources say, Bloomberg reports
• Cooper Tire & Rubber’s (CTB) dispute with India’s Apollo Tyres over a $2.5B buyout goes before a judge in a non-jury trial set to begin today in Delaware Chancery Court with no compromise in sight, Bloomberg reports

SYNDICATE

Boise Cascade (BCC) files to sell 8M shares of common stock for holder
CST Brands (CST) files to sell 13.1M shares of common stock for Valero Energy
Carrizo Oil & Gas (CRZO) files to sell 3.75M shares of common stock
Constellium (CSTM) files to sell 17.5M shares of common stock
Enterprise Products (EPD) files to sell 7.5M units for limited partners
Extra Space Storage (EXR) files to sell 4.5M shares of common stock
Integra LifeSciences (IART) files to sell 3.5M shares of common stock
InterMune (ITMN) files to sell 6.5M shares of common stock
PS Business Parks (PSB) files to sell 1.3M shares of common stock
Tableau Software (DATA) files to sell 6.5M shares of common stock for holders
Vantiv (VNTV) files to sell 15M shares of common stock for holder

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The US and the National Security Agency may well have just dug their own grave where the internet is concerned. Outwardly the eavesdropping and the spying has outraged the leaders (although they have done little in retaliation so far) around the world to actually do anything of any worth towards the United States except say ‘this is just not the done thing’ and ‘we’re friends, aren’t we?’. Despite the fact that their reactions might change in the growing row over the privacy of the countries on which the NSA has been (is still?) spying simply because the leaders of those countries might be more afraid of losing their own power if they sit back and do nothing. Inwardly, there is an opening for a grabbing-match to take place and for the Internet blanket to be pulled closer to their side of the bed. The NSA may have just opened the door to the balkanization of the internet: the division into smaller, and at the very same time more-hostile, separate entities that will bring about personal profit and gain for each country.  As the world turns already in upon itself for protection and fear of immigration or scapegoating par excellence become the order of the day, this may just be another step in the process of ‘I’m-alright-Jack’ economics and self-protectionist measures. It’s time for the internet to be regionalized and split. Welcome to the splinternet.

Jockeying for a Place

There are countries in the world that are already out to get a piece of whatever there is to divide up after the split takes place. Brazil and Germany are both making proposals today that will open the path to a different era of internet.

The scramble is on as there may be an opportunity to exploit the fact that the USA has used (and abused) digital means of accessing communications. This will enable traffic to be routed locally.

There may be a downside of rapid growth being hindered and changes or innovation taking longer than today, but countries would have (greater?) individual control over what happens to their citizens’ communications. Brazil has also put forward the defense of a secure national email service. Others will have little possibility of avoiding following suit. Although, it begs the question as to whether this would actually stop the availability of openings in the systems to allow the NSA to continue its surveillance.

India has even reverted to using typewriters as diplomatic staff have been told to protect sensitive documents in embassies around the world. Although, is this the real answer to protecting privacy today. Eavesdropping might have existed for centuries and it might be one of the oldest practices of any government anywhere, but today the digital and technical means make that much easier to do. They will be using pens next!

In the EU, Germany’s privacy commission has put forward plans to keep internet traffic out of the reach of the USA and within EU borders. But, there is the added problem of the UK involved in all of that since they aided and abetted the NSA in their eavesdropping.  Last week at the Internet Governance Forum 2013 in Bali, there was an overriding element in all discussions: the US (and UK role) in the internet surveillance and individuals’ privacy.

Privacy is Important

According to recent research in the USA

• 3.5 billion people in the world use internet today and they go on line every day.
• 59% of the people aged 18-29 in the USA believe that the internet shapes their lives today.
• 38% of people over 65 also believe the same.
• Nearly 90% of people of all age groups are concerned about their privacy on the internet.
• 86% of people on line have taken the necessary measures to attempt to mask their footprints (email encrypting and cookie removal). Although, it has been proved that this has had no effect on the NSA.

Some say that the internet is just like the banking system. It only works just as long as people say that it is workable. As soon as people start pulling out of the system or disbelieving in it, then it collapses. If the system collapses because people want their own Cloud systems in each individual country, their own email provider, their own internet, then they could mean extra costs for companies in the future and losses that might amount to $35 billion of the internet market alone for the USA.

At one time it was the US that made the world a safe place to live in (apparently, people were told). Now, they have lost all credibility in the US and countries around the world are determined to find alternative ways to providing their citizens with the privacy that they believe to be so important. If they don’t, then the power of the ballot will be stronger than the bit. If they do it, then those countries will benefit from increased business. Why on earth did the Chinese set up their own personalized form of internet? Was it really to stop the population from accessing ideas and subversive information that would bring the Communist regime down? No, they were far too clever and more economically-minded than that. They just made the West believe that, while they carefully and methodically built their Great Firewall to protect their domestic internet market. It was a wall not to protect those inside from getting out, but those outside from getting in.

We will all possibly lose out from individual internets, or from being told that we need authorization to cross an ‘internet boarder’ into another country. Will we need passports to travel virtually across the web or will there be a warning that we are entering dangerous territory as soon as we enter the US. But, the commercial side of the advantages might just outweigh the fear of the citizens of countries around the world and also governments that are not willing to complacently allow the spying to continue.

Well done the NSA for making sure that the internet gets Balkanized. Welcome to theSplinternet. It’s not sure we will make gains in the name of freedom and access to information.

Originally posted: Internet or Splinternet

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Technical Analysis: Bear Expanding Triangle | Bull Expanding Triangle | Bull Falling Wedge | Bear Rising Wedge | High & Tight Flag

 

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Last’s night latest mass shooting event, just three days after a comparable situation at LAX airport, and this time just minutes away from New York City, is over with the alleged gunman, Richard Shoop, 20, taking his life.

ABC reports.

The gunman who opened fire inside a sprawling New Jersey mall was found dead inside the mall early this morning with a self-inflicted gunshot wound, authorities said.

Authorities identified the suspect as Richard Shoop, 20, of Teaneck, N.J., and said his body was found in a back area of mall around 3:20 a.m.

Police discovered his body more than six hours after they say Shoop entered the Westfield Garden State Plaza Mall Monday night and fired his weapon at least six times, Bergen County Prosecutor John Molinelli said at an early morning news conference. The gun, described as a modified rifle, was owned lawfully by his brother, Molinelli said.

Police are still sweeping the 2.2-million-square-foot building in Paramus to make sure all shoppers and employees evacuated. About 400 people were still inside the mall when police ordered a lockdown of the entire building.

There have been no other reported injuries at this time.

Shoop, according to Molinell, has a history of drug abuse and is known to law enforcement in Bergan County. Molinell said Shoop’s drug of choice was MDMA, also known as “Molly.”

Police found a suicide note at Shoop’s home, but did not disclose what was written.

Bergan County spokeswoman Jeanne Baratta said the first call came in shortly after 9 p.m. that a gunman was inside the mall. Police initially responded to an “active shooter” alert after reports of multiple shots fired.

Baratta said SWAT teams and other police agencies converged on the mall. Authorities swept the mall because they were unsure whether the gunman was still inside. Paramus Mayor Rich LaBarbiera intially said police found one shell casing inside the mall.

Panicked shoppers raced toward the exits or hid inside the mall. Witnesses said they saw authorities running inside the mall with their weapons drawn. The mall was immediately placed on lockdown.

Multiple eyewitnesses said the shooter was armed with some kind of rifle, wearing a motorcycle-style helmet and black clothing.

WATCH: Police Respond to Shooting at New Jersey Shopping Mall

Mall restaurant employee Joseph Rivera said his co-workers saw the suspect “…in full body armor. He had a huge rifle and a helmet on.”

Eric Delgado, 20, was shopping with friends inside the mall when heard a gunshot and saw the gunman. After Delgado saw the gunman, he along with seven others hid in a dressing room for 45 minutes and heard a second gunshot.

“He didn’t seem that he wanted to kill anyone because he clearly could of because there were people two feet in front of him that he could have shot at, but he didn’t shoot at them. Instead he shot towards the ceiling…” Delgado said.

A staging area has been set up near Chili’s Grill & Bar for family members to be reunited with anyone inside the mall during the lockdown.

Law enforcement officials have been informed by management of the Garden State Plaza Mall that it will be closed today. No word on when it will re-open.

The Garden State Plaza Mall, about 25 miles west of New York City, features more than 300 retail stores including Neiman Marcus, Nordstrom, Lord & Taylor, Gucci and Louis Vuitton.

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This morning US futures are an unfamiliar shade of green, as the market is poised for its first red open in recent memory (then again the traditional EURJPY pre-open ramp is still to come). One of the reasons blamed for the lack of generic monetary euphoria is that China looked likely to buck the trend for more monetary policy support. New Premier Li Keqiang said in a speech published in full late on Monday that adding extra stimulus would be more difficult since printing new money would cause inflation. “His comments are different from what people were expecting. This is a shift from what he said earlier this year about bottom-line growth,” said Hong Hao, chief strategist at Bank of Communications International. Asian shares struggled as a result slipping about 0.2 percent, though Japan’s Nikkei stock average bounced off its lows and managed a 0.2 percent gain. However, in a world in which the monetary tsunami torch has to be passed every few months, this will hardly be seen as supportive of the “bad news is good news” paradigm we have seen for the past 5 years.

In other news, the latest European “recovery” may be over before it started, if only in the minds of gullible pseudopundits, when the European Commission downgraded growth prospects for 2014 from 1.2% to 1.1%, on the heels of the recent shocking inflationary numbers, with Spain and France revised down the most. Not helping matters was the UK PMI which like the recent Chicago PMI, printed at a ridiculous 62.5, above 60.3 previously and well above the 59.8 expected – the highest print since 1997, making it increasingly less likely the BOE will inject liquidity in the short-run.

On today’s US  docket there are more central bank speakers including Asmussen from the ECB; and Williams and Lacker from the Fed. Elsewhere the European Commission releases its latest growth forecasts which as noted was merely the latest haircut. In terms of data, the US ISM nonmanufacturing is the main reports to look out for on this planet.

Main US events

• US ISM non-manufacturing, cons 54.0 (9:00 CST)
• US IBD/TIPP economic optimism, cons 41.8 (9:00 CST)
• API Inventory release (15:30 CST)
• Fed speakers: Lacker, Williams

Overnight news bulletin from Bloomberg and RanSquawk

• EU sees 2014 Euro-area economic growth at 1.1% vs. Prev. est. 1.2%, maintained 2013 forecast for Euro-area contraction of 0.4%.
• UK Services PMI (Oct) M/M 62.5 vs. Exp. 59.8 (Prev. 60.3) – highest since May 1997.
• Chinese HSBC Services PMI (Oct) M/M 52.6 (Prev. 52.4) – Chinese Premier Li Keqiang has reiterated the country’s 7.5% GDP growth target for 2013 stays in tact, but weak export sales are a risk.
• Treasuries steady before ISM Services, speeches from Fed’s Lacker and Williams after Rosengren and Powell yesterday said policy should remain stimulative for “some time.”
• Market focused on Friday’s nonfarm payrolls (est. 120k from 148k, unemployment rate 7.3% from 7.2%
• The EU trimmed its forecast for euro-area growth next year to 1.1% from 1.2%, raised unemployment est. to 12.2% from 12.1%
• A gauge of U.K. services rose to 62.5 in Oct. from 60.3 in September, the fastest pace in 16 years as the economy showed signs of pulling away from the rest of Europe
• Reserve Bank of Australia left rates unchanged at its policy meeting; AUD fell after Governor Glenn Stevens said the currency is “uncomfortably high”
• Mizuho Securities Co. said Bank of Japan dominance has killed the JGB market, leaving it unable to reflect either the success of stimulus policies or fiscal risks
• Japan’s government needs to do more to shore up its books to stave off a bond crisis should inflation return, said former Ministry of Finance official Takatoshi Kato
• U.S. Senate Democrats are packing the calendar this month with bills appealing to the party’s base as they seek a distraction from Obamacare’s troubled start
• Sovereign yields mostly higher, EU peripheral spreads narrowing. Nikkei +0.2%, Shanghai gains 0.1%. closed for Japanese holiday; European stocks, U.S. equity-index futures fall. WTI crude, gold, copper lower

Market Recap from RanSquawk

Despite the cautious sentiment which resulted in stocks trading lower in Europe this morning, Bunds remained under pressure, which saw the 10y yield rise above 1.7% in the process, as market participants positioned for a raft of supply. Basic Materials and health care sectors outperformed, with Fresenius trading up over 2.5% following earnings and Shire up over 1% after the company announced positive top-line results for Vyvanse. Looking elsewhere, this morning also saw market participants digest the latest EU macroeconomic forecasts, which saw the European Commission downgrade growth projections for next year to 1.1% vs. Prev. est. of 1.2%, with GDP projections for France and Spain revised down the most. This together with the release of much better than expected UK services PMI reading which came in at its highest level since May saw EUR/GBP fall to its lowest since early October. The move lower was also exacerbated by touted leverage names selling, which in turn resulted in GBP/USD outperform EUR/USD. Going forward, market participants will get to digest the release of the latest ISM non-manufacturing report and the latest set of API data after the closing bell on Wall Street.

Asian Headlines

Chinese HSBC Services PMI (Oct) M/M 52.6 (Prev. 52.4)
Chinese Premier Li Keqiang has reiterated the country’s 7.5% GDP growth target for 2013 stays in tact, but weak export sales are a risk.

EU & UK Headlines

UK Services PMI (Oct) M/M 62.5 vs. Exp. 59.8 (Prev. 60.3) – highest since May 1997.
UK services PMI new business component 63.4 in October vs 60.6 in September, highest since series began in 1996.
NIESR raised its UK growth forecast to 1.4% for 2013 and said that the BoE unemployment target is subject to considerable uncertainty, adding that the knock-out related to financial stability risks will probably lead to a rate increase in H2 2015.

EU sees 2014 Euro-area economic growth at 1.1% vs. Prev. est. 1.2%, maintained 2013 forecast for Euro-area contraction of 0.4%. Raises 2014 jobless forecast to 12.2% from 12.1%.

• Keeps 2014 CPI forecast at 1.5%.
• Sees UK economy expanding 1.3% in 2013, 2.2% in 2014.
• Sees French economy expanding 0.2% in 2013, 0.9% in 2014.
• Sees German economy expanding 0.5% in 2013 and 1.7% in 2014.

EU’s Rehn says sees increasing signs economy has reached turning point.

UK DMO sold GBP 1.25bln in 0.25% I/L 2052 Gilts, b/c 1.96 and avg. real yield 0.032%. While Austrian debt agency sold EUR 1.5bln worth of bonds vs. Exp. EUR 1.65bln.

US Headlines

Goldman’s top economist Jan Hatzius says his baseline expectation is that at the March 2014 Fed meeting, the FOMC will lower the level at which it would start considering rate hikes.

Fed’s Powell (Voter, Neutral) said US monetary policy is likely to remain highly accommodative for some time and timing of when the Fed will trim pace of bond buying is necessarily uncertain and depends on evolution of economy. At the same time, Fed’s Rosengren (Voter, Dove) said the Fed can be patient on adjusting policy because taper in December versus April is not too significant to the balance sheet.

Equities

Risk averse sentiment dominated the price action in Europe this morning, as market participants positioned for a raft of key risk events due to take place later on in the week. As a result, health care sectors was among the best performing in Europe, also supported by solid earni
ng by Fresenius and also Novartis, which advanced at the open following reports that the company has identified its animal-health business as a top candidate for a sale.

FX

GBP/USD outperformed this morning, supported by the release of yet another encouraging macroeconomic data from the UK, with UK Services PMI for the month of October rising to its highest level since May 1997. In addition to that, NIESR said that the knock-out related to financial stability risks will probably lead to a rate increase in H2 2015.

The RBA kept rates unchanged, alongside expectations, at 2.50%. However, the RBA signalled concern over AUD stating that AUD is still uncomfortably high and that a lower AUD is likely needed to achieve balanced growth. The central bank added that the setting of monetary policy remained appropriate and that the full impact of past cuts are still to be felt.

Commodities

China 2013 gold output may rise 6.7% Y/Y to reach a record high of around 430 tons, according to Deputy General Manager of China National Gold Group Corp. Du Haiqing.

State Dep. spokesman Harf said US Secretary of State Kerry asking Congress to halt movement on new sanctions adding that Iran progress on nukes could lead to limited relief. Harf said US not calling for existing sanctions.

Anadarko Petroleum are set to take over operations at Chevron’s Coronado discovery in the US Gulf Of Mexico’s Shenandoah mini-basin following the co. increasing its stake.

SocGen’s Ken Broux summarizes the key overnight macro news

ECB president Draghi will offer concluding remarks today at 14:30 cet at a scheduled event in Frankfurt, but this comes only two days before the monthly ECB council meeting so it is unrealistic to expect him to make off-the-cuff comments on last week’s inflation data and whether it changes the nature of the discussion at this Thursday’s meeting. The autumn macroeconomic forecasts from the EC are due this morning and may give the market a heads up on the inflation (and growth) outlook in the euro area in 2014.

The currency and bond markets are waiting on tenterhooks not just for the ECB meeting but also for the advance estimate of US Q3 GDP, which coincides with the start of Draghi’s press conference on Thursday, and for the US employment report on Friday. The UST 10y yield backed off 3bp yesterday, returning below 2.60%, but we are over 10bp above the low (2.469%) registered the day after the delayed September payrolls data was released. The non-manufacturing ISM and its employment component will be in the spotlight today as we look for anecdotal hiring data during and immediately after the government shutdown. Given the low 125k consensus estimate for payrolls on Friday, one could wonder why yields are not lower than they are. A greater degree of scepticism over the state of the US economy is evident in the currency markets, where the USD surrendered partial gains made over the last 24 hours and PLN, HUF, BRL and ZAR outperformed.

The RBA left rates unchanged as expected overnight. However RBA Governor Stevens’ comment saying the Aussie is still “uncomfortably high” knocked AUD/USD back below 0.9500 after the pair traded a 0.9521 high earlier. For EUR/AUD, having dropped 1.9% already since last week, a test of 1.4128 now looks on the cards and could tempt tactical bears to push for a pullback below 1.40 depending on the ECB’s signal on Thursday. It is a similar story for EUR/GBP, where a strong UK services PMI this morning could force a test of Fibo support at 0.8429. In EM, Romania’s central bank was forecast to cut its benchmark rate by 25bp to 4.0% and USD/RON rallied back over 3.31 yesterday, its highest level since 30 September.

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

Yesterday we heard three Fed speeches, all from FOMC members, but perhaps the most interesting comments came from the St Louis Fed’s James Bullard in an interview on CNBC. Bullard who is considered a centrist on the dove-hawk scale, said that “preconditions for tapering” had been met but that he was willing to be patient because inflation remains low. He also said that he was in no hurry to taper because the Fed “had room on the balance sheet”. Pressed on this point, Bullard pointed that the size of Fed’s balance sheet relative to US GDP was in the low twenties (in percentage terms) and was behind Japan, Europe and the UK on that measurement. Bullard once again dismissed the notion that a low participation rate in the labour market was a signal of a weaker employment picture than the headline unemployment rate indicated. The Boston Fed’s Rosengren, who is usually dovish, compared two “hypothetical” approaches to QE: one in which the rate of buying is unchanged until April 2014; and another fairly aggressive approach in which the buying is reduced to $75 billion in December, $50 billion in January, $25 billion in March, and completed altogether by April. “Start dates differing by a quarter or two would generate only relatively small changes in the overall size of the Fed’s balance sheet,”

Rosengren said, which led him to conclude that it was better to be patient before reducing the pace of QE. Jerome Powell described the timing of the Fed’s tapering as “necessarily uncertain” because it depends on the strength of the recovery. But then he went on to say that the Fed is likely to push on with stimulus for some time. So it seems from yesterday’s comments that the Fed is willing to err on the side of caution with respect to policy accommodation, which probably helped 10yr UST yields stabilise at 2.60% yesterday (-2bp) after ticking higher for three consecutive days.

While the markets debate the Fed and the ECB’s next moves, stocks continue their march higher. Indeed, after passing the 1700 mark just a little more than a month ago the S&P500 is now only 34 points away, or less than 2% from the 1800 mark. Indeed, the S&P500 has been on an impressive run since its most recent bottom on the 8th October. Since that day, the index is up almost 7% and there has only been four negative days out of the last 19. Reports continue to suggest strong inflows into the equity asset class, mostly at the expense of fixed income funds. Data from earlier in the week from TrimTabs showed that there were $54.2bn into all equity mutual funds/ETFs in October, the third-largest inflow on record. On the other hand, bond mutual funds and ETFs redeemed $13.5bn in October, almost triple the outflow of $4.9bn in September. Bond funds posted five consecutive monthly outflows for the first time since late 2003.

Looking at overnight markets, some of the underperformance in Asian EM yesterday has been reversed this morning, helped by the halt to the slide in US treasuries. After gapping wider yesterday, buyers of Indonesian paper are returning, and bonds are generally about half a point firmer while 5yr CDS is around 5bp tighter. EM currencies are generally trading with a firmer tone including the Korean Won (+1.1%) and Malaysian Ringgit (+0.1%). AUDUSD is trading 0.4% lower after the RBA described the AUD as “uncomfortably high” in its policy statement this morning. Chinese equities are the notable underperformer overnight (HS China Enterprises index -0.7%, CSI300 -0.7%) led by banking stocks (-1.2%). There have been a number of reports as to why Chinese banks are lagging. The first is that the Chinese government may issue the first batch of private bank licenses next year as part of financial sector reforms (Bloomberg). There are also reports that the PBOC is preparing to once again drain cash from onshore money markets to suppress inflation and prevent an oversupply of liquidity (SCMP).

Coming back to yesterday, though the S&P500 and Stoxx600 added 0.36% and 0.31% respectively, there was notable underperformance in financials on both sides of the Atlantic (European banks -0.2%, US banks -0.2%). Swiss banking groups UBS (-5.3%
) and Credit Suisse (-6.7%), were the standout laggards after the country’s finance minister hinted that current leverage ratios of around 4% were too low. The prospect of higher capital levels perhaps explained some of the outperformance in the European senior and subordinated financial credit indices which tightened 3bp and 4bp respectively, against a 1bp tightening in the broader European iTraxx.

Looking at the day ahead, we have more central bank speakers on the cards including Asmussen from the ECB; and Williams and Lacker from the Fed. Elsewhere the European Commission releases its latest growth forecasts. In terms of data, Spanish unemployment, UK services PMIs and the US ISM nonmanufacturing are the main reports to look out for on this planet. Who knows what’s going on elsewhere in the Milky Way.

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As we recently noted, China is taking over the world on gold bar at a time. This growing world super-power has, it would appear (by words and deeds) grown tired of being on the receiving end of the USDollar and Fed money printing. The Real Asset Company illustrates how, in the space of a few decades, China has opened up her huge gold market which is now hungrily devouring the world’s physical gold.

 

 

(click image for large legible version)

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