Tag: news

The brief bounce from last night’s API data (lower than expected build) has been erased and WTI Crude is testing back to one-week lows with a $44 handle head of today’s DOE data. For now it’s not weighing on stocks…

It appears the big distillates build from the API inventory report is the biggest concern for now as JBC Energy warns of an “acute crude overhang” as refinery run growth decelerates… Forecast implies “slight increase in core refined product stocks — which in turn we see as necessary to deal with what looks like a particularly acute crude overhang early in 2017”

And amid growing doubts of any agreement in Algiers later thsi month, crude prices are sinking…

via http://ift.tt/2cXrAKn Tyler Durden

While the US relationship with Saudi Arabia can be described, perhaps courtesy of the latter’s donations to the Clinton campaign, as one of preferential treatment when it comes to arms deals, observed most recently a month ago when the US approves the sale of 130 Abrams tanks, 20 Armored vehicles and various other equipment to Saudi Arabia for $1.2 Billion, when it comes to America’s other “anchor”mid-east ally, Israel, the relationship is even simpler.

As Reuters reported overnight, the US and Israel reached an agreement on a record new package of at least $38 billion in U.S. military aid and the 10-year pact is expected to be signed this week.

In a major concession by Obama, whose relationship with Netanyahu has been rather contentious in recent years, the deal represent the biggest pledge of U.S. military assistance made to any country. As for Israel, the country will agree not to seek additional funds from Congress beyond what will be guaranteed annually in the new package, and also to phase out a special arrangement that has allowed Israel to spend part of its U.S. aid on its own defense industry instead of on American-made weapons, the officials said.

In other words, a win-win for, drumroll, the US Military-Industry Complex, which is about to benefit from some $38 billion in taxpayer largesse, as Israel receives funds which will then promptly be refunded in the US to buy weapons so that the various wars in the middle east can continue indefinitely, with the blessing of Uncle Sam, of course.

As Reuters reports, Israel’s chief negotiator, Jacob Nagel, acting head of Netanyahu’s national security council, arrived in Washington overnight in preparation for a signing ceremony with U.S. National Security Adviser Susan Rice, according to one source familiar with the matter.

Nearly 10 months of drawn-out aid negotiations have underscored continuing friction between U.S. President Barack Obama and Netanyahu over last year’s U.S.-led nuclear deal with Iran, Israel’s arch-foe. The United States and Israel have also been at odds over the Palestinians.

The Israel negotiator decided to rush and conclude the arrangement with Obama, who leaves office in January, rather than hoping for better terms from the next U.S. administration, according to officials on both sides. A deal now allows him to avoid uncertainties surrounding the next president, whether Democrat Hillary Clinton or Republican Donald Trump, and to give Israel’s defense establishment the ability to plan ahead.

Needless to say, for the MIC, a deal sooner than later is even better.

Obama’s aides want a new deal before his presidency ends, seeing it as an important part of his legacy. Republican critics accuse him of not being attentive enough to Israel’s security, which the White House strongly denies. Israel has long been a major recipient of U.S. aid, mostly in the form of military assistance against a backdrop of an ebbing and flowing conflict with the Palestinians and Israel’s neighbors, as well as threats from Iran.

The deal specifics

The 10-year aid packages underpin Washington’s congressionally mandated requirement to help maintain Israel’s “qualitative military edge” in the region. According to the MOU, at least $3.8 billion a year in aid, up from $3.1 billion annually under the current pact, would be provided to Israel. Netanyahu had originally sought upwards of $4.5 billion a year. The new package for the first time will incorporate money for Israeli missile defense, which until now has been funded ad hoc by Congress. U.S. lawmakers have in recent years given Israel up to $600 million in annual discretionary funds for this purpose.

And while officials say Israel has agreed not to lobby Congress for additional missile defense funds during the life of the new MOU, the wording is likely to be flexible enough to allow exceptions in case of a war or other major crisis. In other words, US taxpayers may and likely will be called upon soon to provide Israel with even more weapons. Barring a last-minute snag, the new agreement is expected to be officially rolled out this week, one source close to the matter said. Another source familiar with the negotiations confirmed that the signing would be “in the coming days”.

Finally, demonstrating just how farcical the role of the US commander in chief has become, the deal will not be signed by Obama or Netanyahu, who have had a fraught relationship, but instead by two of their senior aides, in keeping with the way the two governments have formally sealed previous deals of this type.

As Reuters adds, Obama and Netanyahu will both be in New York next week for the opening of the U.N. General Assembly, and officials have not ruled out the possibility of another entirely symbolic meeting on the sidelines: it is clear that despite “tensions” between the two leaders, the relationship between the two countries was never in jeopardy.

Negotiators working behind closed doors had all but completed the new package several weeks ago. Ironically, the announcement was quietly put on hold as objections were raised by a key pro-Israel lawmaker, Republican U.S. Senator Lindsey Graham, who had called for an even more generous and less restrictive aid package.

While U.S. congressional approval is needed each year for disbursement of the aid to Israel as part of the annual budget process, little opposition is expected in Congress, where support for Israel’s security is strong. It is unclear if the American people, and mostly taxpayers, share the Congressional enthusiasm to spend their money on weapons to be used for some far away war, with suppliers of the weapons collecting all the funds. At last check $38 billion amounts to a little over $100 for every American man, woman and child, money which would surely boost inflation quickly if handed out to Americans to be spent on US goods and services domestically; it would certainly result in less death and destruction.

via http://ift.tt/2c8pQvE Tyler Durden

Proving that Trump’s recent strategic shift to keep his mouth shut and let the media focus on the ongoing fallout from Hillary’s “basket of deplorables” comment as well as her recent health scare, has been successful, Bloomberg reported this morning that Donald Trump leads Hillary Clinton by 5% points in a Bloomberg Politics poll of Ohio, a key battleground state that has backed the winning presidential candidate in every election since 1964. The gap “underscores the Democrat’s challenges in critical Rust Belt states after one of the roughest stretches of her campaign.”

The Republican nominee leads Clinton 48 percent to 43 percent among likely voters in a two-way contest and 44 percent to 39 percent when third-party candidates are included.

The Bloomberg poll was taken Friday through Monday, as Clinton faced backlash for saying half of Trump supporters were a “basket of deplorables” and amid renewed concerns about her health after a video showed her stumbling as she left a Sept. 11 ceremony with what her campaign later said was a bout of pneumonia.

According to Bloomberg, Trump’s performance in the poll, which features strength among men, independents, and union households, is better than in other recent surveys of the state. It deals a blow to Clinton after she enjoyed polling advantages nationally and in most battleground states in August before the race tightened in September as more Republican voters unified around Trump.

Why the surge? Darren Roberts, 45, a facilities maintenance and home improvement retail worker who lives in Columbus and considers himself an independent, provided a simple explanation: “I’m tired of career politicians being in office and nothing’s ever changed. I don’t like all of his policies, but I really don’t like Hillary Clinton’s.”

In other words, in the race between the two most unpopular candidates in US presidential history, Hillary suddenly finds herself on the back foot.  Indeed, Trump’s strength in Ohio, a state critical to his path to the White House, comes even as seven in 10 say they view one of his signature campaign pledges, to build a wall along the southern U.S. border funded by Mexico, as unrealistic.

The survey shows a strong majority of likely Ohio voters, 57 percent, are skeptical of trade deals such as the North American Free Trade Agreement that was backed by Bill Clinton when he was president and that Trump has used to his political advantage. One in five say such deals help increase exports and employment, and 23 percent aren’t sure. More than four in 10 Clinton supporters see NAFTA as a bad deal, compared to seven in 10 Trump loyalists.

* * *

And in more good news for the Trump campaign, at the national level, the latest LA Times poll, aka “USC Dornsife/Los Angeles Times “Daybreak” poll”, which tracks about 3,000 eligible voters, and which has shown a modest pro-Trump bias in recent polling, found that his advantage over Hillary has jumped to 4%, the widest lead for the republican candidate since late July when he was riding high on the back of the post-RNC convention.

While Trump maintains his lead among whites (55% to 33.1%) and “other” voters, Hillary’s lead among Black and Latino voters continues, despite a surprising downtick in Hillary support among the black community, as Trump support here has spiked to the highest since polling began. Also as expected, Trump’s lead among males has not only maintained but has risen to 54.5%, also the highest since polling began, while Hillary’s support among women voters remains comfortable 48.5% to 39.0%.

But what is more surprising is the education/income split, where college grads and higher educated voters support Hillary 48.3% to 39% for Trump, even as those making more than $75,000 are now decidedly in Trump’s camp, with some 49.2% of the vote to 40.6% for Hillary. Among low income voters, Hillary remains the dominant choice, with 51.1% of the vote to 37.6% for Trump.

With less than two months left until the election, Trump may have found the winning formula: stick to his core rhetoric, make no ridiculous statements, and force the media to focus its attention on the suddenly imperiled Hillary campaign. It remains to be seen if he can sustain this. To be sure, the biggest wildcard in the campaign will be the first debate between the two candidates which will likely lead to another dramatic shift in the voter calculus.

via http://ift.tt/2cqP5MR Tyler Durden

• Bayer wins over Monsanto with improved $66 billion bid (Reuters)
• Yen trims gains as doubts creep in over BOJ easing (Reuters)
• BOJ to make negative rates centerpiece of future easing: sources (Reuters)
• Stocks Halt Selloff in Europe as Commodities Gains Lift Miners (BBG)
• Donald Trump, New Team Recast His TV Image (WSJ)
• Hanjin Brings One of World’s Busiest Shipping Terminals Close to Standstill (BBG)
• New York attorney general opens probe of Trump Foundation (Reuters)
• Rubber bullets and tear gas – how China’s ‘democracy village’ was silenced (Reuters)
• Colin Powell Urged Hillary Clinton’s Team Not to Scapegoat Him for Her Private Server, Leaked Emails Reveal (Intercept)
• There’s a $300 Billion Exodus From Money Markets Ahead (BBG)
• Gloom Descends on Luxury-Goods Industry (BBG)
• Kremlin: Obama’s Trump criticism anti-Russian, won’t foster better ties (Reuters)
• Are Americans Better Off Under Barack Obama? (WSJ)
• Three ships chartered to troubled Hanjin sold, more on the block (Reuters)
• EpiPen Maker Dispenses Outsize Pay (WSJ)
• U.K. unemployment rate stayed at an 11-year low (BBG)
• U.K. Likely to Invoke Article 50 in January, Nigel Farage Says (BBG)
• Top German companies say refugees not ready for job market (Reuters)
• Briton pleads guilty on Trump gun charges (BBC)
• Saudi Arabia Ousts U.S. as Biggest Oil Producer, IEA Says (BBG)

 

Overnight Media Digest

WSJ

– Newly installed campaign chief executive Stephen Bannon and campaign manager Kellyanne Conway are steering Donald Trump away from a preoccupation with rallies and wall-to-wall TV interviews toward “moments” that show him as presidential, with a caring side. http://on.wsj.com/2cvjt9C

– Mylan, assailed for hefty price increases on its lifesaving EpiPen, had the second-highest executive pay among all U.S. drug and biotech firms over the past five years, paying its top five managers a total of nearly $300 million. http://on.wsj.com/2clkoXl

– In his first solo appearance on the campaign trail Tuesday, President Barack Obama accused Republican nominee Donald Trump of adopting authoritarian Russian President Vladimir Putin as his “role model.” http://on.wsj.com/2cFke1A

– U.S. household incomes jumped in 2015, delivering the first increase in eight years, with the largest gains in the bottom fifth of earners. The overall 5.2% jump was the largest since the Census Bureau began releasing the data nearly 50 years ago. http://on.wsj.com/2c6k1z7

– Wells Fargo & Co CEO John Stumpf, in his first public comments since the bank was fined over its sales practices and fired thousands, said there was “no incentive to do bad things” but that some employees wouldn’t “honor” the bank’s culture. http://on.wsj.com/2cGwM6a

– Samsung Electronics Co is facing growing consumer confusion and anger as the world’s biggest smartphone maker grapples with a recall of its newest devices following reports of exploding batteries. http://on.wsj.com/2coV5Vs

– Ruby Tuesday Inc Chief Executive James Buettgen has resigned, the company said Tuesday, one month after the restaurant operator said it would close about 13 percent of its locations amid declining sales. http://on.wsj.com/2cpZrN4

– Palo Alto’s moratorium on new office construction in its downtown is only the latest dust-up in Silicon Valley, where resistance and challenges to development are sprouting rapidly. http://on.wsj.com/2cBGdp9

– Space Exploration Technologies Corp on Tuesday said it aims to resume Falcon 9 launches as early as November from an alternate pad, after a rocket explosion during ground tests two weeks ago caused what the Air Force calls moderate damage to its launch site. http://on.wsj.com/2cm5zUv

 

FT

Bayer AG and Monsanto Co are close to announcing a deal where Bayer will buy Monsanto for just under $130 per share, people informed about the negotiations said.

BBC Trust Chair Rona Fairhead is to step down after Theresa May ordered a re-run of the process to find a head for the UK broadcaster.

The World Anti-Doping Agency accused a Russian cyber espionage group of hacking confidential files of athletes who competed at the Rio Olympics.

The top two executives at German industrial gases group Linde AG are to leave after the failure of talks with U.S. rival Praxair Inc about a merger.

 

NYT

– The billionaire hedge fund manager Ray Dalio on Tuesday defended the “unusual” culture at his $150 billion firm, Bridgewater Associates. Speaking at a hedge fund conference in Manhattan, Dalio said Bridgewater’s policy of “radical transparency” was not for everyone. http://nyti.ms/2cDjskG

– The 11-year-old accounting fraud case against former American International Group chief executive Maurice R Greenberg finally came to trial on Tuesday in a state courthouse in Lower Manhattan. http://nyti.ms/2crbAR6

– In one of the earliest moves to bring employee benefits to workers in the so-called gig economy, Care.com, an online marketplace that connects millions of families with babysitters, nannies and caregivers announced on Wednesday that it would provide up to $500 a year for workers to use for health care, transportation or education expenses. http://nyti.ms/2cHOczo

– Google may have to pay publishers for their content. Facebook might, too. WhatsApp could have to follow tougher telecom standards. A new set of rules, expected to be unveiled by European Union officials on Wednesday, is likely to put new pressure on American tech companies. http://nyti.ms/2cq4sVP

– Southern California Gas Company, which operated a natural gas storage system that leaked last year spewing thousands of tons of methane and other chemicals into the air and forcing the evacuation of more than 6,000 people, reached a $4 million settlement with state prosecutors, officials announced on Tuesday. http://nyti.ms/2cvlyz9

– A Delta Air Lines jet skidded off a snowy runway at La Guardia Airport and nearly plunged into Flushing Bay last year because its pilot used excessive force to slow the plane as it landed, federal transportation safety officials said on Tuesday. http://nyti.ms/2cHJ9is

– Vice Media said on Tuesday that it was delaying the start of its daily HBO half-hour newscast by two weeks. The program, “Vice News Tonight,” will now begin on Oct. 10 instead of Sept. 26, as Vice had announced. http://nyti.ms/2c9vpim

 

Britain

The Times

JD Sports Fashion Plc has put the recent poor performance of Sports Direct into the shade with its latest financial results, which showed profits up 66 per cent. http://bit.ly/2ckwoh7

An obstacle blocking approval for the Hinkley Point nuclear reactor was lifted yesterday as ministers appeared to change the decision criteria. http://bit.ly/2ckvOjv

The Guardian

James Dyson, the billionaire inventor, has said there is no reason for businesses in Britain to be uncertain as a result of the EU referendum and that they would be mad to withhold investment on the back of the vote. http://bit.ly/2ckxxp5

Shares in Ocado Group Plc plunged on Tuesday after the online grocer reported that profit margins were under pressure amid fierce competition between food retailers. http://bit.ly/2ckyBJu

The Telegraph

The European Union is facing an “existential threat,” European Commission President Jean-Claude Juncker will warn on Wednesday, as major splits emerge between East and West countries in the wake of Brexit. http://bit.ly/2ckyhum

Sky News

A British-based oilfield services group employing thousands of people is to fall under the control of a quartet of investment funds as part of a financial overhaul triggered by sharp falls in oil prices. http://bit.ly/2cjqoFm

British lender CYBG Plc is shutting 50 branches as it ramps up cost-cutting efforts. http://bit.ly/2ckzbqu

The Independent

The Bank of England is about to start buying up Apple Inc’s debt, in a move that will drive down borrowing costs for the company, which is currently embroiled in a tax scandal in Ireland. http://ind.pn/2cpP9wn

Uber Technologies Inc has accused London Mayor Sadiq Khan of favouritism towards black cabs after he announced new measures to regulate the industry. http://ind.pn/2cpPtv8

 

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In a transaction that will allow Bayer to command more than a quarter of the combined world market for seeds and pesticides, not to mention is set to be the biggest M&A deal for 2016, Reuters reported that Bayer has won over Monsanto’s management with a $128 per-share cash offer to acquire the global seed market leader, in a deal worth $66 billion.

Bayer has signed a deal that includes a fee of $2 billion should the transaction fail to get regulatory clearance as planned, the Reuters source said. The deal is expected to close by the end of 2017, the source told Reuters on Wednesday.

According to Reuters calculations, at a total deal value of close to $66 billion – based on 442 million Monsanto shares and the U.S. group’s net debt of $9.3 billion as per end-May – it will be the largest transaction ever involving a German buyer. It would trump Daimler’s merger deal with Chrysler in 1998, which valued the U.S. carmaker at more than $40 billion.

By accepting Bayer’s offer, the largest cash acquisition proposal on record ahead of brewer InBev’s $60.4 billion offer for Anheuser-Busch in 2008, Monsanto is set to give the German company a shot at grabbing the top spot in the fast-consolidating farm supplies industry, combining its crop science business with Monsanto’s strength in seeds. It will also set the stage for the deal to be closely scrutinized by antitrust regulators, with some analysts predicting that various anti-trust authorities will not be too excited with the combined company.

The breakthrough in negotiations, which follows more than four months of talks, came after Bayer further improved on the sweetened offer of $127.50 per share in cash it disclosed last week, the people said. However, the deal will still value Monsanto at less than $130 per share, which the company was previously hoping to fetch, the people added.

Once St. Louis, Missouri-based Monsanto’s board of directors approves the deal on Tuesday, Leverkusen-based Bayer’s supervisory board will meet on Wednesday to also authorize the transaction, with an announcement expected before the stock market opens in New York on Wednesday, some of the people said.

The two companies were in talks to sound out ways to combine their businesses as early as March, which culminated in Bayer coming out with an initial $122 per-share takeover proposal in May.

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After a sudden rout in financial markets that wiped $2 trillion in global market cap over the past week showed signs of easing, overnight stocks tried to stage another “BTFD-type” comeback with European stocks climbing for the first time in five days as oil and metals prices gained. S&P futures were modestly in green, although they faded earlier gains, on the back of a slide in the USDJPY which initially spiked to 103.31 only to fade back to the mid 102-range.

As DB’s Jim Reid summarizes, markets have been busy since the end of last week and after no +\- 1% sessions for 43 days we’ve now seen 3 in a row as the S&P 500 (-1.48%) closed at its lowest level since July 7th. The VIX (+18% to 17.85) closed at its highest since June 28th and 10y Treasuries (+6.4bps) are now at their highest level since June 6th. So a lot has happened in a short space of time.

The moves haven’t just been confined to the US though with markets in Europe having also been sent into a tailspin in the last few days, while emerging market equities have tumbled nearly 4.5% since the close on Thursday. On this side of the pond the Stoxx 600 (-1.03%) was down for the fourth consecutive session yesterday and to the lowest level since August 4th while 10y Bund yields (+3.3bps) rose to 0.068% and are now at the highest yield since June 23rd. Yesterday was in fact the second day that we’ve seen bond and equity markets tumble in tandem since Friday and it’s interesting to see that the 20-day correlation between the 10y Treasury yield and the S&P 500 is now the most negative since 2007 (at -0.626).

The market continues to be glued to every move in long-rates, concerned that the upcoming change in BOJ monetary policy could deanchor Japan’s bond long-end.  The possible spillover effects of rising bond yields into stock and commodity markets has hit financial assets as funds, betting on a long period of low volatility and suppressed bond yields, are being forced to reassess positions. As such, headlines like these were closely followed and did not inspire much confidence in today’s rebound:

• JAPAN’S 20-YEAR YIELD RISES TO 0.495%, HIGHEST SINCE MAR.14
• JAPAN’S 30-YEAR YIELD RISES TO 0.605%, HIGHEST SINCE MAR.17
• JAPAN’S 40-YEAR YIELD RISES TO 0.67%, HIGHEST SINCE MAR.11

Japan’s yield curve steepened amid speculation the BOJ will concentrate its bond-buying program more heavily on short-term securities. The five-year yield decreased two basis points to minus 0.19%, while the 30-year rate jumped six basis points to 0.58%. “Investors are expecting that the BOJ will adopt a more flexible stance on its bond-buying measures and couple that with an additional cut to the deposit rates,” said Katsutoshi Inadome, a senior bond strategist at Mitsubishi UFJ Morgan Stanley Securities Co. in Tokyo. “Superlong bonds are being sold amid speculation that’s starting to look more of a reality.”

apanese banks were among the biggest losers among Japanese shares after Nikkei newspaper said the BOJ is considering delving deeper into negative interest rates, a policy that squeezes lenders’ earnings. Slightly more than half the economists surveyed by Bloomberg forecast an expansion of monetary stimulus on Sept. 21. Some officials still favor stepping up purchases of bonds, according to people familiar with the discussions, suggesting that cutting a key interest rate further below zero, or expanding purchases of risk assets such as real-estate investment trusts, aren’t the only options. “The limits of monetary policy are being discussed, and it’s unclear whether the situation will improve even if the BOJ does add to its easing program,” said Kiyohide Nagata, a senior global strategist at Tokai Tokyo Research Institute Co.

Keep a close eye on the long end in Bunds and USTs for a sense of whether the recent freakout about central banks losing control over the long end, leading to more acute VaR shocks, will persist.

Europe led the global gains with the Stoxx Europe 600 Index pulled out of its steepest slide in two months and U.S. equity index futures rose. The ruble and other currencies of resources-exporting nations recovered some of the last session’s slide as the Bloomberg Commodity Index advanced with crude oil back above $45 a barrel after yesterday’s smalled than expected API inventory build. Treasuries edged higher along with sovereign securities across most of Europe after global yields surged to this quarter’s high on Tuesday amid concern global central banks are turning less accommodative. The yen weakened after some Bank of Japan officials were said to still favor stepping up purchases of government bonds.

As we predicted last Thursday – correctly identifying the culprit for the ongoing risk-flaring episode in the face of the BOJ – volatility has roared back into financial markets over the past week as the Federal Reserve weighed the case for a U.S. interest-rate increase. Cited by Bloomberg, Harvard University Professor of Economics Kenneth Rogoff said  that “markets are losing confidence in the ability of central banks to boost inflation and there is a limit to how much quantitative easing programs can accomplish”. European Central Bank president Mario Draghi refrained from adding to stimulus last week and the BOJ is conducting a comprehensive review of the costs and benefits of its policies.”

“We are coming back from a very quiet summer period when volatility was unusually low,” said Daniel Murray, head of research at EFG Asset Management in London. “Markets woke up again, and investors have started to reposition their portfolios

Helping push risk modestly higher, crude oil rose 0.5 percent to $45.11 a barrel in New York following a 3% tumble in the last session. Official figures due Wednesday are forecast to show U.S. supplies rose by 4 million barrels, exacerbating a glut. Money managers have been slashing bets on falling oil prices at the fastest pace in five months before major producers meet this month in Algiers to discuss output constraints.

Amusingly, the Mexican peso erased its advance after a Bloomberg Politics poll of Ohio showed Donald Trump leading Hillary Clinton by 5 percentage points.

The Stoxx 600 climbed 0.4% in early trading. Glencore Plc and Anglo American Plc climbed at least 3.4 percent, pushing a gauge of basic-resource companies to the biggest gain of the 19 industry groups on the index as base metals rose. Richemont fell 2.9% after the maker of Cartier jewelry said first-half operating profit will probably decline about 45 percent. Hermes International SCA slid 6.8% after abandoning its mid-term annual sales growth target.

S&P 500 Index futures were little changed after the gauge of U.S. equities ended Tuesday 1.5 percent lower amid declines in commodity-related companies. Bayer AG rose as people familiar with the matter said Monsanto Co.’s top managers support an improved takeover offer from the German company. Emerging-market stocks extended the longest selloff since June. The MSCI Emerging Markets Index fell 0.3 percent, paring its 2016 gain to 11 percent. The Shanghai Composite Index closed down 0.7 percent and has shed 2.5 percent this week, the most since May.

More importantly than stocks, which have become a derivative play on rate volatility, were the ongoing sharp moves in global bonds. Euro zone bond yields rose across the board after European Central Bank Executive Board member Sabine Lautenschlaeger said the central bank should hold off on new monetary easing measures. Most yields touched their highest levels since Britain’s vote to leave the European Union in late June, extending a rise that started after the ECB’s policy meeting last week, when it disappointed investors by introducing no new easing measures. German 10-year bond yields rose 2 basis points to 0.05 percent on Wednesday, having climbed as high as 0.09 percent in early trades.

The ield on 10Y Treasury fell one basis point to 1.72%, following a 6 bps gain on Tuesday. The yield on the Bloomberg Barclays Global Aggregate Index climbed to 1.24 percent Tuesday, the highest since June 23. Portuguese bonds slid for a fifth day, trailing behind their euro-area peers, as the nation prepared to sell securities maturing in 2023 and 2037. The yield on the nation’s 10-year bond yields reached 3.36 percent, the highest since June 27.

“Markets have continued to be spooked by the potential for central banks to scale back the level of monetary support on almost a global basis,” Peter Chatwell, head of euro rates strategy at Mizuho said. “Lautenschlaeger’s comments did little to ease fear of withdrawal of central bank’s support.”

Morgan Stanley said trades most vulnerable to any unwind, are equities as well as bullish bets on the Japanese yen, emerging market currencies and Asia ex-Japan bonds.

* * *

Market Snapshot

• S&P 500 futures up 0.2% to 2126
• Stoxx 600 up 0.4% to 340
• FTSE 100 up 0.5% to 6696
• DAX up 0.1% to 10402
• German 10Yr yield down 2bps to 0.05%
• Italian 10Yr yield down less than 1bp to 1.32%
• Spanish 10Yr yield down 2bps to 1.08%
• S&P GSCI Index up 0.3% to 351.5
• MSCI Asia Pacific down 0.6% to 136
• Nikkei 225 down 0.7% to 16614
• Hang Seng down 0.1% to 23191
• Shanghai Composite down 0.7% to 3003
• S&P/ASX 200 up 0.4% to 5228
• U.S. 10-yr yield down 1bp to 1.72%
• Dollar Index down 0.06% to 95.58
• WTI Crude futures up 0.4% to $45.06
• Brent Futures up 0.1% to $47.15
• Gold spot up 0.2% to $1,322
• Silver spot up 1.1% to $19.07

Top Global Headlines

• Monsanto Board Said to Back Bayer Bid After Improved Offer: German company said to double break fee to about $3b
• Global Yields Highest Since June as El-Erian Says Fed Should Act: Japan L/T yields are highest since March on BOJ outlook
• Trump Has 5-Point Lead in Bloomberg Poll of Battleground Ohio: The poll was taken Friday through Monday
• Facebook Probe in Antitrust and Privacy Gray Zone, Vestager Says: Facebook has “a very dominant position” as social network
• Valeant’s New CFO Will Review 2016 Numbers, CEO Papa Says: Asset sales will be announced in next six months, Papa says
• Wells Fargo Eclipsed by JPMorgan as World’s Most Valuable Bank: Bank stocks pressured as traders bet against Fed rate hike
• Icahn Is Seeking Approval to Own Up to 50% of Herbalife: Billionaire says Ackman’s short is increasingly risky
• Oil Industry May Cut Spending for Third Year in Row, IEA Says: Upstream 2016 capex set to drop 24%, more than last est.
• Oi Top Shareholders Reach Accord Ending Legal Power Struggle: Societe Mondiale ends effort to call two shareholder meetings
• Philip Morris Raises Quarterly Div. to $1.04/Shr: Increased regular quarterly div. by 2% to annualized rate of $4.16/share

Looking at regional markets, we start in Asia where markets traded mixed following a negative lead from the US where sentiment was dampened alongside declines in oil after a bearish market forecast by the IEA. This initially pressured ASX 200 (+0.5%) and Nikkei 225 (-0.7%) at the open and although markets in Australia staged a recovery, Japanese stocks were not so resilient as energy names and financials suffered after yesterday’s 3% drop in WTI and reports the BoJ could explore cutting rates deeper into negative territory. Chinese markets were lower with Shanghai Comp (-0.7%) underperforming and Hang Seng (-0.1%) ahead of tomorrow’s extended weekend in the mainland and after the PBoC kept its liquidity injections firm. 10yr JGBs traded higher amid weakness in risk appetite, although yields in 20yr and 30yr JGBs rose to their highest since March amid reports BoJ could discuss shifting some purchases from 25yr+ debt into shorter term bonds to curb the declines in long term yields.

BoJ are said to explore delving deeper into negative rates and plans to make NIRP centre of future monetary easing, according to reports in Nikkei. The report further added that the BoJ will also discuss reducing purchases of 25yr+ JGBs and the increase of shorter-term bond purchases due to declines in long-term yields. Further source reports have also suggested that the BoJ could debate extending rates further in to negative territory and offer new forward guidance.

Top Asian News

• PBOC Boosts Weekly Injections as Yuan Climbs Amid Stability Bets: Yuan interbank rates in Hong Kong surge before China holidays
• China’s Credit Growth Rebounds in Aug. as Growth Stabilizes: Broadest measure of new credit exceeded estimates in August
• Japan Banks on Wildest Ride Since Global Crisis Before BOJ: Steeper yield curve fueled rally that’s now reversing course
• Japan Said Planning to Seek $5b From Kyushu Railway IPO: Listing planned for Oct. 25
• Samsung Limits Note 7 Battery Charging to Prevent Overheating: Software update from Sept. 20 will cap capacity at 60%
• China Brewer Said to Mull Bid for $6b of SABMiller Assets: China Resources Beer would join Asahi, private equity bidders
• Last Holdout in Korean War Sees Busy Docks Idled by Hanjin: More than 11,000 jobs in Busan at risk if shipping line folds
• Thailand Holds Key Rate as Economic Recovery Gains Momentum: Consumer prices rose for fifth month after year of deflation
• Singapore Air Won’t Extend Lease on Airbus A380 Jet Next Year: Carrier yet to decide on future of 4 other A380s on lease

The European session has got off to a tentative start, with equities opening in the green but failing to hold onto their gains, to trade relatively flat by mid-morning (Euro Stoxx 50: flat). In terms of a sector breakdown, luxury names are the notable laggards, with Richemont (-3.8%) and Hermes (-6.4%) weighing on the indices after performance updates. Elsewhere, energy and material names are among the best performers, retracing some of their recent weakness. Furthermore, a BBC journalist has reported that sources suggest that a Commons decision on Hinkley is likely today or tomorrow and is expected to be a ‘Yes, with conditions.’ Finally, fixed income markets initially opened lower, however in a similar fashion to equities, pared the early move to trade flat by mid-morning with fixed income related newsflow once again on the light side ahead of tomorrow’s deluge of US data and central bank decisions.

Top European News

• Richemont, Hermes Slump as Luxury-Goods Malaise Worsens: Richemont says 1H earnings will probably drop 45%
• U.K. Labor Market Shows Continued Resilience to Brexit Vote: Unemployment rate stayed at 11-year low in 3 months through July
• ZF Raises Offer for Haldex to Match Rival Bid for Brakemaker: Knorr-Bremse says it can offer Haldex a ‘better future’
• Unilever Chief Says Brands Can Profit Despite Global Turmoil After Brexit, time for politicians to ‘cool down’: Polman
• Imaginary VW Deadline Prompts Flood of Real Investor Lawsuits: More than 1,000 cases will be filed by Sept. 19
• Telecom Italia’s Cattaneo Says He’s Ready to Fight Niel’s Iliad: Co. preparing counter measures to compete with Iliad

In FX, the Bloomberg Dollar Spot Index, a gauge of the greenback against 10 peers, was little changed after climbing 0.7 percent on Tuesday. Goldman Sachs Group Inc. is holding fast to a bullish call on the U.S. currency, undeterred by waning expectations for a Fed interest-rate increase this month. The yen fell 0.2 percent as investors weighed the BOJ’s options. The Mexican peso was little changed, erasing gains of about 0.4 percent, after the Bloomberg Politics poll of Ohio, a key swing state, showed Trump leads Clinton 48 percent to 43 percent among likely voters in a two-way contest and 44 percent to 39 percent when third-party candidates are included. The currency has shown signs of acting as a barometer of the presidential contest, according to data compiled by Bloomberg. It tends to drop when Trump gains ground in RealClearPolitics’s average of presidential poll results, and increases when he falls. The yuan strengthened 0.1 percent in Shanghai amid speculation China’s central bank was shoring up the exchange rate before this week’s holidays. HSBC Holdings Plc said a daily fixing for the currency was set stronger than it expected on Wednesday and yuan borrowing costs jumped in Hong Kong, making its costlier to bet on depreciation in the offshore market. The MSCI Emerging Markets Currency Index was little changed, paring losses of as much as 0.3 percent, as the Russian ruble strengthened 0.5 percent, the biggest gain in a week, and the South African rand advanced 0.4 percent.

In commodities, the Bloomberg Commodity Index rose 0.3 percent after dropping 1.3 percent on Tuesday. Gold reversed earlier losses to trade 0.2 percent higher, set for its first advance in six days. Crude oil rose 0.5 percent to $45.11 a barrel in New York following a 3 percent tumble in the last session. Official figures due Wednesday are forecast to show U.S. supplies rose by 4 million barrels, exacerbating a glut. Money managers have been slashing bets on falling oil prices at the fastest pace in five months before major producers meet this month in Algiers to discuss output constraints. Nickel gained 0.5 percent, after slumping almost 5 percent over the last two sessions. Mines in the Philippines, the world’s largest supplier, are being shut amid a nationwide audit of welfare and environmental standards that’s set to end this week. The government said more closures are coming and Goldman Sachs has warned that nickel ore stockpiles could sink to “critically low” levels by March or April 2017.

Looking at the day ahead, its another quiet day for data in the US with the import price index reading the only data due.

Full US Event Calendar

• 7am: MBA Mortgage Applications, Sept. 9 (prior 0.9%)
• 8:30am: Import Price Index m/m, Aug., est. -0.1% (prior 0.1%)
• 10:30am: DOE Energy Inventories

Bulletin Headline Summary From RanSquawk and Bloomberg

• European equities trade with little firm direction after failing to hold on to their opening gains
• USD/JPY made new highs through 103.00, on fresh reports of negative rates, but has since slipped back into the mid 102.00’s
• Looking ahead, highlights include US DoE Crude Oil Inventories, New Zealand GDP and a speech from RBA Assist Gov Debelle
• Treasuries rise during overnight trading, rebounded from yesterday’s drop as Japanese funds, Asian banks added 5Y, 10Y duration “in decent size,” Seaport Global managing director Tom di Galoma said in note.
• Traders who complained all summer about markets stuck in a zombie state are getting what they wanted, and probably will be for a while
• Bayer AG has reached an agreement to acquire Monsanto Co. for about $56 billion to create the world’s biggest maker of seeds and pesticides, according to people familiar with the matter
• Some BOJ officials still favor stepping up purchases of government bonds if the board decides it needs to expand stimulus, according to people familiar with the discussions
• As activist short sellers descend on Japan’s stock market for the first time, one local analyst is emerging from obscurity to contend for the title of Tokyo’s most influential bear
• U.K. unemployment rate stayed at an 11-year low in the three months through July as the economy added jobs, according to figures from the Office for National Statistics
• If everyone was caught out by the U.K.’s vote to leave the EU, at least some people in financial markets are going to be right about the next referendum that threatens to upend a country’s politics

DB’s Jim Reid concludes the overnight wrap

Markets have been busy since the end of last week and after no +\- 1% sessions for 43 days we’ve now seen 3 in a row as the S&P 500 (-1.48%) closed at its lowest level since July 7th. The VIX (+18% to 17.85) closed at its highest since June 28th and 10y Treasuries (+6.4bps) are now at their highest level since June 6th. So a lot has happened in a short space of time.

The moves haven’t just been confined to the US though with markets in Europe having also been sent into a tailspin in the last few days, while emerging market equities have tumbled nearly 4.5% since the close on Thursday. On this side of the pond the Stoxx 600 (-1.03%) was down for the fourth consecutive session yesterday and to the lowest level since August 4th while 10y Bund yields (+3.3bps) rose to 0.068% and are now at the highest yield since June 23rd. Yesterday was in fact the second day that we’ve seen bond and equity markets tumble in tandem since Friday and it’s interesting to see that the 20-day correlation between the 10y Treasury yield and the S&P 500 is now the most negative since 2007 (at -0.626).

While yesterday’s losses for risk assets in particular were fairly broad-based across sectors, energy names were again at the epicentre of things following a tumble across the Oil complex. WTI (-3.00%) closed back below $45/bbl following the latest bearish update from the IEA. The agency said that ‘supply will continue to outpace demand at least through the first half of next year’ and that ‘it looks like we may have to wait a while longer’ for the market to return to balance. Energy credits were hit hard too as a result with CDX IG eventually finishing over 3.5bps wider. European credit indices outperformed relatively (Main +2bps) given the lower exposure to energy.

The bigger story for credit at the moment continues to be the glut of new issues hitting the market. Despite a weak day for indices, over $30bn was said to have priced in the US IG market according to Bloomberg across 15 tranches. That’s only the second time this year that daily issuance has topped the $30bn mark. Perhaps more notable though was the latest deal in the Sterling market. National Grid yesterday raised £3bn across four tranches, attracting over £6bn of orders in the process. The deal is said to be the biggest Sterling deal by a non-financial ever and comes just one day after the BoE announced that the power company is eligible to be bought under the BoE’s corporate purchasing program.

So while Oil was a driving force yesterday the last few days have shown that markets are clearly on edge with global Central Bank uncertainty (and to a degree disappointment) as high as its been in sometime. Speculation as to what the BoJ might do from a purchasing perspective has seen yield curves steepen globally but the 22% probability of a September Fed hike has now returned us back to the lowest likelihood in four weeks. With US and global economic surprise indices also at their lowest in two months and persistent concerns about valuations and weak corporate earnings it’s not just central banks that are to blame. It does however seem like one eye is already on the BoJ next week though which is the next big event for markets before we move straight on to the FOMC.

On that subject, another story which caused a few heads to turn was the report out of the Nikkei newspaper yesterday suggesting that the BoJ board is expected to conclude in its comprehensive assessment next week that the benefits of negative rates outweigh the side effects. The article suggests that the BoJ is exploring the idea of cutting rates further with asset purchase expansion now near their effective limit. Supposedly BoJ Governor Kuroda and his deputy governors are unanimous on the point and the rest of the board members are expected to show similar support. The same report also suggests that the BoJ may consider lowering purchases of JGB’s longer than 25 years in a bid to push long-end yields up, while purchases of short-end JGB’s may by increased to compensate.

The Yen was -0.70% weaker yesterday and is down another -0.30% this morning (around 102.90) however weakness in energy stocks has seen the Nikkei and Topix fall -0.36% and -0.30% respectively. Elsewhere it’s a bit more mixed this morning in Asia. Bourses in China are also struggling (Shanghai Comp -0.59%) however the Hang Seng (+0.08%), Kospi (+0.40%) and ASX (+0.23%) are all firmer. Oil has recovered slightly (WTI +0.51%) while Gold is flat. Looking at the JGB curve, 2y yields are unchanged this morning however 30y yields have surged over 6bps with the curve again steepening.

Staying in Asia, following on from the stabilization in August economic activity indicators in China yesterday, our Chief China Economist Zhiwei Zhang also noted a strengthening in property sales last month, both in volume terms (+19.8% yoy) and in value terms (+31.8% yoy) reflecting rising property prices in tier 1 cities especially, as well as some tier 2 cities. In his mind the latest developments in the property sector puts upside risk to his H2 GDP forecast of 6.5% in Q3 and 6.4% in Q4, but downside risks to his 2017 forecast of 6.5%. Zhiwei believes that a bubble is building in some of the tier 2 cities and that he had previously though that the government would have started to tighten liquidity conditions and contain the risk of a bubble in the summer, but property sales and land auctions have continued to boom. While this poses some upside risk into year end, the development of the property sector is critical to his growth and policy outlook in 2017. On that, Zhiwei has revised his policy outlook. He no longer expects an RRR or interest rate cut in 2016 and instead expects further policy easing to happen in the first half of 2017.

Before we look at the day ahead, a quick wrap-up of the relatively small amount of economic data released yesterday. In Europe the main focus was on Germany’s ZEW survey which dipped 2.5pts this month to 55.1 (vs. 56.0 expected). While lower relative to August that reading is still some 5pts above the post-Brexit slump the index tumbled to in July. The expectations survey held steady at 0.5. Also released in Germany was the final August CPI revisions however there were no surprises with the print left at 0.0% mom and +0.4% yoy. In the UK headline CPI in August was +0.3% mom which was a shade lower than the consensus of +0.4%. RPI printed at +0.4% mom and in line, while PPI input prices were up only +0.2% mom (vs. +0.6% expected).

Looking at the day ahead, this morning in Europe we’ve again got some more inflation data, this time in France where the final August CPI figure is due. In the UK it’s worth keeping an eye on the latest employment indicators covering July and August, while the other data due out this morning is the industrial production reading for the Euro area in July. It’s another quiet day for data across the pond this afternoon with the import price index reading the only data due.

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One week ago, with the Yuan having traded within fractions of what many consider a key psychological level for the USDCNY at 6.70, we reported that as many traders expected that following the just concluded G-20 meeting in China, the PBOC would finally relent in its devaluation defense, and let the currency slide on through to the other side. Not only did that not happen, but last Thursday the Chinese Central bank unleashed an unexpected and aggressive attack on currency Yuan shorts, the biggest since the January devaluation scare when the cost of borrowing yuan in Hong Kong soared to a seven-month high amid. The overnight HIBOR, or Hong Kong Interbank Offered Rate, jumped – seemingly without reason – by 3.88% points to 5.45%, the most expensive since February, according to Treasury Markets Association data. Other tenors joined with the one-week rate rose 2.09% points to 4.06%.

 

Then overnight, the onshore Yuan gained even more following the latest CNY fixing at 6.6895 (some had expected that based on the USD move, the PBOC would have to finally fix the currency above the key 6.70 level) with USD/CNH seeing broad-based selling driven by banks turning to spot market to reduce CNH funding needs. The reason for that is that after last week’s dramatic spike in overnight funding rates, this morning Hong Kong’s overnight interbank yuan borrowing rate, or the yuan hibor, shot up to its highest level since February , soaring nearly threefold to 8.16% from only 2.84% on Tuesday.

Even more acute, the 1-week yuan hibor was set at 10.15% according to the Treasury Markets Association.

One reason for the latest surge in funding costs is that with Chinese and Hong Kong holidays on deck, liquidity is scarce. The Hong Kong market will be closed on Friday for the mid-autumn festival and the China markets will be closed on Thursday and Friday. China has traditionally intervened in currency markets just before holidays: according to the FT, last October using illiquidity just before its long National Day celebrations to intervene in Hong Kong and reduce an embarrassingly wide gap between the offshore and onshore rates.

Of course, next week we will have the Fed and BOJ meetings as well, where uncertainty is leading to even more illiquidty.

However, the most likely explanation is that in order to force Yuan shorts to capitulate as 6.70 remains just barely within reach, the PBOC is simply continuing to squeeze the yuan shorts and raising the cost of shorting yuan, as explained last week.  Ultimately, the PBoC weakened its yuan fix by 169 pips to 6.6895 versus yesterday’s 6.6726, even as many were expecting the USDCNY to finally breach the the 6.70 resistance level, the defense of whjich may have explained today’s aggressive spike in HIBOR tightening.

Interventions to dampen volatility are not costless, warned Hao Zhou, strategist at Commerzbank. “On one hand, the market volatility will surge, which could lead to sell off in risk assets, therefore cracking down the market confidence,” he said. “On the other hand, as the central bank frequently intervenes, the market will tend to believe that CNY depreciation is inevitable, resulting in further capital outflows.”

And so the PBOC, like the Fed, remains trapped.

Confirming that today’s action was merely another intervention, Bloomberg reports that big Chinese banks sold dollars to support the currency: at least three Chinese banks sold USD onshore, pushing CNY higher, two traders were quoted by BBG. USD/CNH selling was also seen, focused on covering funding needs, according to FX traders in North Asia

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Seems that Colin Powell is the latest target of the hacking group DC Leaks which apparently posted a treasure trove of 30,000 emails from his private account late last night.  One of the more interesting exchanges is the one below between Powell and Democratic mega donor Jeffrey Leeds which confirms what we’ve all known all along, namely that the Clintons and Obamas can’t stand each other. 

The email exchange was disclosed via the following tweet from Lee Fang at The Intercept:

Colin Powell & mega Dem donor Jeffrey Leeds chat about how much the Clintons hate Obama (via newly leaked emails) http://pic.twitter.com/6dEbD4AU3r

— Lee Fang (@lhfang) September 13, 2016

 

The following email from Leeds to Powell on March 6, 2016 points out Obama’s disdain for his former Secretary of State saying that “I don’t think the president would weep if she found herself in real legal trouble.”  Well that seems so much more hostile than the friendly embraces and warm speeches we heard at the DNC.

 

Meanwhile the following email from a year earlier reveals that Hillary “HATES that the President (“that man,” as the Clintons call him) kicked her ass in 2008.”

Sounds eerily similar to when John McCain made the mistake of referring to Obama as “That One” in a debate which promptly led most of the mainstream media to label him a racist…somehow we suspect Hillary won’t receive the same treatment.

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