Tag: news

Yesterday at the Deutsche Bank Global Financial Services Conference the biggest blockbuster announcement came from Citigroup which, following in JPM’s footsteps, announced that trading revenue could slide by 20%-25%. As such, this would mean that just like JPM, more of the big banks are setting up for the worst trading start in the first half of the year since the financial crisis. However, a far more important announcement came during the Keystone Presentation by JPM’s CEO of its Investment Bank, Daniel Pinto, who explained the reason behind this TBTF trading revenue slowdown, which also happens to be the explanation why the bulk of the hedge fund community is not profitable so far in 2014.

According to Pinto, a pair of wrong-way bets made by clients at the start of the year is partly to blame for Wall Street’s trading slowdown. Namely: the two mega-pain trades so far in 2014: being long USDJPY and short Treasurys which everyone had put on with mega-conviction at the beginning of the year, and which have so far generated mega-losses for all those involved.

Bloomberg quotes Pinto who said succinctly summarized that “Neither of those trades paid.” He added: “Essentially you start the year with the wrong momentum, where you lose money at the very beginning, and you ended up with probably a lower risk appetite than you would have otherwise.” And, as a result of actually, gasp, losing money, “Clients appear to be hesitating in placing the larger hedges that typically happen earlier in the year.”

Imagine that: trading in size only when guaranteed profits in “right momentum” trades. So what happens to volume when the Fed fully walks away – one block of spoos moves the market by 1%?

More from Pinto: “You have episodic trades, big hedges, big corporate trades, that happen along the year,” Pinto said. “Particularly in the first and part of the second, the amount of those trades, even though the pipeline is very healthy, they haven’t happened. It looks like they are going to happen later in the year, and that is a big swing factor.”

There was a third, and just as ironic, culprit: in its attempt to restore confidence, the Fed, both directly via its trading desk, and indirectly, has pushed volatility to near historic lows as covered here previously. So much so in fact, that nobody is making any money from daytrading anymore! Pinto added that when “the market doesn’t move, it’s really difficult to monetize your flows,” Pinto said. “It makes the market more competitive and margins really tighten because it costs you very little to provide liquidity, so you provide a lot.”

Well isn’t it ironic, again, then that it is the Fed’s explicit intervention and micromanagement of the market that has crippled banks? Sadly for JPM, considering that the Fed will likely not do much to boost vol on its own, and certainly not for the duration of Bernanke’s lifetime if the former chairman is correct, one probably shouldn’t expect much of a pickup in bank trading revenues any time during the next decade.

The full Pinto statement can be heard 10 minutes into the recording of his fireside chat below:

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

Some were confused by the latest bout of radiosilence emanating from the Kremlin in the aftermath of both the “Chocolate King” winning the Ukraine presidential election, and the most recent escalation of fighting in self-proclaimed as independent Republic of Donetsk, in which more than 50 “separatists” were killed. This ended moments ago when the Russian foreign ministry issued a press release that it has received appeals for humanitarian aid from the “conflict zone” in east Ukraine, and that more importantly, it is is ready to the “provide the population with the required assistance.”

As Bloomberg adds, Russia has asked for Ukraine’s help in allowing delivery of supplies to affected areas, and that it is ready to seek approval on routes, terms of transporation of supplies, ministry says.

“Given the urgent nature of the situation, Russia is counting on the fastest possible answer from Ukraine on this request,” the ministry says.

Naturally, since Ukraine will respond with a resounding “no” to any official Russian entry into its territory, it then puts Russia – which has formally acknowledged east Ukraine is asking for its help – in the position of deciding what the best way of aiding citizens in the east. Without the Kiev government’s support.

From the Russian Ministry:

The Ministry of Foreign Affairs of the Russian Federation Ministry of Foreign Affairs sent a note to Ukraine, which draws the attention of the Ukrainian side to the fact that the Russian side has received insistent appeals from individuals and organizations in the conflict zone in eastern Ukraine, where as a result of military actions there are numerous human casualties and victims, asking for urgent humanitarian assistance, especially medical supplies and medicines.

 

Russian stressed that it is ready to provide the population in these regions with the required assistance, and proposed to the Ukrainian side to promptly take the necessary measures to ensure the immediate delivery of Russian humanitarian aid to the affected regions.

 

Specific routes and transport conditions of such humanitarian assistance, according to the note, could be agreed in due course through the appropriate Russian and Ukrainian authorities.

 

Given the urgent nature of the situation, Russia is counting on the fastest possible answer from Ukraine on this request.

via Zero Hedge http://ift.tt/SPnt7G Tyler Durden

• Yellen Concerned by Housing Slowdown She Has Scant Power to Cure (BBG)
• Because snow in Q1? Citigroup’s CFO Says Trading Revenue Could Slide 25% (BBG)
• Banks Raise Caution Flag on Trading (WSJ)
• The answer is yes: Hilsenrath asks if BOJ’s Kuroda Awakening to His Limits? (WSJ)
• Google Develops Prototype Cars for Fully Autonomous Driving (WSJ)
• Amazon Expects Lengthy Hachette Dispute (WSJ)
• Ukraine Faces Hurdles in Restoring Its Farming Legacy (NYT)
• Tencent $1 Billion Game Shows Global Hunt for Mobile Hits (BBG)
• GE offer for Alstom has improved, French official says (Reuters)
• More than 50 rebels killed as new Ukraine leader unleashes assault (Reuters)
• To Make a Killing on Wall Street, Start Meditating (BBG)

 

Overnight Media Digest

WSJ

* Google Inc’s co-founder Sergey Brin said it has developed prototype cars for fully autonomous driving. In a promotional video, Google showed off one of the prototypes, a two-seater vehicle that resembles a gondola on wheels. It has no steering wheel, accelerator pedal or brake pedal. Instead, the car relies on its own sensors and software to do the work. (http://ift.tt/1piGAom)

* General Electric Co is willing to partner with French government in a possible alliance, Chief Executive Jeffrey Immelt told French lawmakers Tuesday as he tried to win their support for the company’s $17 billion bid for Alstom SA’s power equipment business. (http://ift.tt/1piGAEA)

*Pilgrim’s Pride Corp swooped in with a $5.5 billion offer for Hillshire Brands Co, maker of Jimmy Dean sausage and Ball Park hot dogs, a surprise bid that could upend Hillshire’s plan to expand its supermarket sway by buying Pinnacle Foods Inc. (http://ift.tt/1tOvPd8)

* After a turbulent few months marked by a management shake-up, lackluster performance and client withdrawals, Pacific Investment Management Co is turning to a familiar face to help soothe nervous investors. The money manager, based in Newport Beach, California, said it had rehired Paul McCulley, a former senior executive. (http://ift.tt/1piGAEE)

* Amazon.com Inc said Tuesday it does not expect a quick resolution of a contract dispute with Hachette Book Group that has led to Amazon restricting the sale of some Hachette titles. (http://ift.tt/1tOvPdc)

* Congress should require data brokers to tell consumers more about how they collect and use information and give consumers greater control over their personal data, the Federal Trade Commission said on Tuesday. (http://ift.tt/1piGBbK)

 

FT

Google could face specially created “cyber courts” as Berlin looks at a range of mechanisms to settle disputes concerning individuals seeking to protect their privacy and search engines.

Spanish government failed to protect citizens from recent housing crash because of which many are left with heavy debts, according to a report by Human Rights Watch, an international non-governmental organization.

Britain’s fraud office has launched a formal criminal investigation into GlaxoSmithKline, posing a new challenge to the drugmaker, which already faces claims of bribery in China and four other countries.

Siemens said it was preparing to make an official bid for for Alstom SA, and defeat rival offer by General Electric, in its bid to create two European leaders in power generation and rail.

M&G, the investment unit of Prudential Plc, and ING Investment Management rank among the insurers leading a push in real estate investment as both the companies pump millions into the property market.

 

NYT

* Restoring Ukraine’s farming legacy will be crucial to the success of the country’s newly elected president, Petro Poroshenko, as such efforts would go a long way toward fixing Ukraine’s economy and reducing its dependence on Russia. (http://ift.tt/1piGAoi)

* The Federal Trade Commission on Tuesday called on Congress to protect consumers against the unchecked collection and sharing of their digital data by providing people with tools to view, suppress and fix their information. (http://ift.tt/1piGBbO)

* Google Inc has begun building a fleet of 100 experimental electric-powered vehicles that will dispense with all the standard controls found in modern automobiles. (http://ift.tt/1piGAEI)

* After Mohamed El-Erian’s surprising departure in March, Pimco has now brought back a prominent former executive, Paul McCulley, to help the asset management firm reassure skeptical investors and bolster its intellectual credentials. (http://ift.tt/1tOvOpA)

* Since 2000, the Securities and Exchange Commission has sought to ensure equal access to that commodity through a rule known as Regulation FD. The rule generally requires that if a company disclosed material information to one person, it must do so to all. Yet even with that requirement and with the flood of information that is out there, some investors still appear to be getting premier access. (http://ift.tt/1piGAEM)

* The World Bank, a famously bureaucratic institution, is undergoing its first restructuring in nearly two decades. The overhaul is intended to keep it relevant at a time when even the poorest countries can easily tap the global capital markets. (http://ift.tt/1tOvPtw)

* A task force convened by the Obama administration issued the most detailed study yet of blight in Detroit on Tuesday and recommended that the city spend at least $850 million to quickly tear down about 40,000 dilapidated buildings. (http://ift.tt/1tOvOpE)

 

Canada

THE GLOBE AND MAIL

* A candidate in the Alberta Progressive Conservative leadership race is promising to change land-use rules that have angered some rural voters. Jim Prentice told the Medicine Hat News that he would rewrite the Land Stewardship Act if he becomes premier and would be more careful about private property rights. (http://ift.tt/1tOvRl2)

* Skin cancer, one of the most preventable forms of the disease, is also one of the fastest-rising in Canada, according to a new report from the Canadian Cancer Society that notes the death rate for all cancers combined continues to fall for most age groups. (http://ift.tt/1piGBs9)

Reports in the business section:

* Royal Bank of Canada, the country’s largest mortgage lender, is offering real estate agents C$1,000 for referring five first-time home buyers, as competition among banks for first-time buyers has heated up. (http://ift.tt/1tOvPty)

NATIONAL POST

* Toronto Liberal Member of Parliament John McKay was secretly recorded criticizing party leader Justin Trudeau over his edict that prospective MPs must follow the party’s pro-choice position on abortion. (http://ift.tt/1piGAES)

* Councillor Doug Ford indicated on Tuesday that his brother, Toronto Mayor Rob Ford, intends to stay in the mayoral race when he returns from addiction treatment. (http://ift.tt/1tOvPtA)

FINANCIAL POST

* It is becoming increasingly difficult for families to own a home in Canada and affordability is expected to get worse going forward, according to the Royal Bank of Canada. (http://ift.tt/1piGBsh)

* Canada’s biggest financial institutions have agreed to voluntarily reduce service costs for those that need to save the most following discussions with a federal government eager to push its “consumers-first agenda”. (http://ift.tt/1piGDAg)

 

China

CHINA SECURITIES JOURNAL

– Zhou Xiaochuan, governor of the People’s Bank of China (PBOC), said the economy was in an “unusually intricate” situation and local branch offices needed to implement a prudent monetary policy to ensure economic stability and strengthen financial regulation.

– Song Liping, general manager of Shenzhen Stock Exchange, said the exchange would continue to promote and extend China’s ChiNext board.

21st CENTURY BUSINESS HERALD

– Miao Jianming, president of China Life Insurance (Group) Co, said the company was going to get licences to start payment, securities and financial services, paving the way for the firm to become a full-fledged financial services company.

SHANGHAI SECURITIES NEWS

– Data from the China Insurance Regulatory Commission showed investments by insurers into stocks and equity funds reached 822 billion yuan ($131.6 billion) in the first four months of this year, accounting for just 10 percent of their total investment portfolio, which is a one-year low.

CHINA DAILY

– The government will release a detailed list of administrative fees for micro-sized and small enterprises as it seeks to alleviate the financial burden of a group of companies that are a source of economic dynamism, an official said on Tuesday.

SHANGHAI DAILY

– Shanghai plans to establish 8-10 smart parks with top-class technologies such as cloud computing and Big Data by 2015 as it looks to lead the sector nationwide, the city’s information technology regulator said.

PEOPLE’S DAILY

– Stabilising and developing Xinjiang is the primary goal, the newspaper said in a commentary.

Britain

The Telegraph

BARCLAYS: INDEPENDENT SCOTLAND LIKELY TO GET NEW CURRENCY

(http://ift.tt/1tOvRl8)

An independent Scotland would be twice as likely to adopt its own currency as continue using the pound, according to an analysis produced yesterday by Barclays for its investors.

M&S’S SWANNELL HIRED TO OVERSEE GOVERNMENT ASSET SALES

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

Robert Swannell, the chairman of Marks & Spencer and City veteran, has been hired to help the Government speed up the sale of billions of pounds of state assets.

The Guardian

MORRISONS ASKS SUPPLIERS TO PAY FOR PRODUCTS TO MEET REGULATIONS

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

Morrison Supermarkets Plc is asking suppliers to cover the cost of ensuring products meet regulations in the latest of a series of payment demands as the supermarket faces falling profits.

UK CINEMA CHAINS BAN ADS ON SCOTTISH INDEPENDENCE REFERENDUM

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

The UK’s major cinema chains have banned all adverts on the Scottish independence referendum after customers inundated them with complaints.

The Times

RIO TINTO CUTS MONGOLIAN MINING JOBS

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

Rio Tinto is planning to cut about 300 jobs from its troubled project in Mongolia, further testing its turbulent relationship with the government.

TSB PARKS ITS TANK ON THE BIG BANKS’ LAWN

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

The chief executive of TSB Banking Group <IPO-TBS.L> declared that his company would do more to change the face of high street banking in Britain than any other challenger bank as he set out ambitious expansion plans in the wake of its 1.5 billion pound flotation next month.

Sky News

NATIONWIDE BIG WINNER FROM SEVEN-DAY SWITCH

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

Britain’s biggest building society Nationwide will emerge on Wednesday as one of the principal winners from a new system designed to encourage customer mobility when it discloses that it opened more than 420,000 current accounts last year.

MORTGAGE APPROVALS DECLINE FOR THIRD MONTH

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

High street banks have reduced the number of mortgage approvals for the third month in a row, despite their total value reaching a six-year high. The British Bankers’ Association said 12.2 billion pounds in loans were activated in April.

 

 

Fly On The Wakk 7:00 AM Market Snapshot

ECONOMIC REPORTS
No major domestic economic reports are scheduled today.

ANALYST RESEARCH

Upgrades

Auxilium (AUXL) upgraded to Buy from Neutral at MKM Partners
DreamWorks Animation (DWA) upgraded to Hold from Sell at Topeka
FormFactor (FORM) upgraded to Buy from Neutral at B. Riley
The Pantry (PTRY) upgraded to Outperform from Neutral at Macquarie
Twitter (TWTR) upgraded to Buy from Neutral at Nomura
Vince Holding (VNCE) upgraded to Buy from Hold at KeyBanc
Williams-Sonoma (WSM) upgraded to Overweight from Neutral at Piper Jaffray

Downgrades

Dollar General (DG) downgraded to Hold from Buy at Deutsche Bank
Live Nation (LYV) downgraded to Neutral from Buy at Sterne Agee
Lowe’s (LOW) downgraded to Sell from Hold at Canaccord
Nautilus (NLS) downgraded to Neutral from Buy at B. Riley
Vodafone (VOD) downgraded to Hold from Buy at Berenberg

Initiations
Coca-Cola Enterprises (CCE) initiated with a Neutral at ISI Group
Delek US (DK) initiated with a Buy at BofA/Merrill
Nimble Storage (NMBL) initiated with a Neutral at Macquarie
Veeva (VEEV) initiated with an Overweight at JPMorgan
Waste Management (WM) initiated with an Outperform at Imperial Capital

COMPANY NEWS

Valeant (VRX) raises proposal for Allergan by $10.00 per share to $58.30 per share; adds new CVR related to DARPin sales which would provide up to approximately $25.00 per share of additional value
Valeant (VRX) to sell filler, toxin assets to Nestle (NSRGY) for $1.4B in cash
LoJack (LOJN) CFO Donald Peck to leave the company; Casey Delaney named Acting CFO
PetroLogistics (PDH) agrees to be acquired by Flint Hills for $14.00 per unit 
Sanofi (SNY), Eli Lilly announce licensing agreement for Cialis OTC
Workday (WDAY) sees Q2 revenue $173M-$178M, consensus $171.5M
Qihoo 360 (QIHU) sees Q2 revenue $300M-$305M, consensus $270.18M
MiMedx (MDXG) raises lower end of Q2 revenue view to $22.5M-$23.5M from $21.5M-$23.5M
FormFactor (FORM) raises Q2 revenue guidance to $65M-$69M from $62M-$66M
Wet Seal (WTSL) sees Q2 adjusted EPS (9c)-(12c), consensus (4c)

EARNINGS
Companies that beat consensus earnings expectations last night and today include:
Toll Brothers (TOL), Seadrill (SDRL), Qihoo 360 (QIHU), Workday (WDAY)

Companies that missed consensus earnings expectations include:
America’s Car-Mart (CRMT)

Companies that matched consensus earnings expectations include:
Wet Seal (WTSL)

NEWSPAPERS/WEBSITES

Apple (AAPL) expected to announce purchase of Beats for $3B this week, NY Post says
Broadcom (BRCM) extends market share to 49% in worldwide STB market, DigiTimes says
Facebook (FB) asks for EU review of WhatsApp deal, WSJ reports
GE (GE) sweetens bid for Alstom with job pledge, Reuters says
Google (GOOG) unveils self-driving car without steering wheel, Re/code reports
Microsoft (MSFT) CEO says not selling search to Yahoo, Re/code reports
Pfizer (PFE) looks like a buy after dropping bid for AstraZeneca, Barron’s says
Xerox (XRX) beats out HP for $500M NY Medicaid contract, Bloomberg says

SYNDICATE

3D Systems (DDD) announces offering of 5.95M shares of common stock
ARAMARK (ARMK) launches 20M share common stock offering for holders
BioCryst (BCRX) files to sell $100M in common stock
Brookdale (BKD) announces secondary offering by affiliates of Fortress Investment
Cache (CACH) commences public offering of $14M of common stock
Health Care REIT (HCN) files to sell 1.8M shares of common stock
Installed Building (IBP) files to sell 8.1M shares of common stock for holders
Rexnord (RXN) launches 15M share common stock offering for holders
Strategic Hotels (BEE) commences 34M share common stock offering

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

It has gotten beyond ridiculous: a few short hours ago the yield on the 10 Year bond tumbled to a fresh low of 2.49% (and currently just off the lows at 2.50%), wiping out all of yesterday’s “jump” on better than expected Durables and leading to renewed concerns about the terminal rate, deflation and how slow the US economy will truly grow. Amusingly, this happened just as US equity futures printed overnight highs. Doubly amusing: this also happened roughly at the same time as Spanish 10 Year yields dropped to a record low of 2.827%, or about 30 bps wider than the US (moments after Spain announced that loan creation in the country has once again resumed its downward trajectory and a tumble in retail deposits to levels not seen since 2008). Triply amusing: this also happened just about when Germany had yet another technically uncovered 30 Year Bund issuance, aka failed auction. So yes: nothing makes sense anymore which is precisely what one would expect in broken, rigged and centrally-planned markets (incidentally those scrambling to explain with events in bond world where one appears to buy bonds to hedge long equity exposure, are directed to the minute of the Japanese GPIF pension fund which announced it would buy junk-rated bonds to boost returns – good luck to Japanese pensioners).

Stocks in Europe initially opened higher following another strong performance on Wall Street which saw the E-Mini S&P futures hit yet another record high and the small-cap index Russell 2000 now outperforming the S&P 500 for the first time in over 2 months, with the Nikkei 225 up 0.2% during Asia-Pac trade. However, this move was consequently reversed following weakness in EM currencies (see below). The Italian MIB has outperformed throughout the session, being supported by Telecom Italia after their positive broker move at Goldman Sachs, which has consequently lifted the telecoms sector.

Turning to Asia, all major bourses across the region are trading firmer with the HSCEI (+1.3%) being the region’s best performer led by cyclicals. The sentiment is perhaps helped by a frontpage editorial in the China Securities Journal suggesting that the PBoC may continue with further “targeted easings” such as cuts to RRR for more banks, and bond purchases, in an effort to stabilise growth. Bloomberg is reporting that China’s State Council has recently approved plans for China Development Bank to issue securities at below-market rates to other state institutions which will allow CDB to better fund re-development projects.

In Japan, more questions are being raised about whether we see more BoJ stimulus at some point later this year. As we noted yesterday, a Reuters article from Monday suggested that the BoJ was quietly increasing its focus on how it will eventually exit from its current extraordinary monetary policy. In addition to this, the WSJ’s central bank-watcher Hilsenrath asked the question yesterday whether Governor Kuroda is awakening to the limits of monetary policy. Indeed, Kuroda was on the newswires last week urging the government to pursue structural reforms in an effort to lift potential growth, to complement monetary stimulus. There are more articles today suggesting that Abeadministration will be moving to bring forward corporate tax cuts as part of structural reforms – Bloomberg says that the Japanese ruling party has agreed that changes to corporate taxes will become party policy. The Nikkei is somewhat underperforming other bourses today at +0.3%, though it has had a very strong start to the week.

Bulletin Headline Summary from Bloomberg and RanSquawk

• EM concerns (Rand and Lira) reverse initial gains for European equities after yesterday’s record highs seen on Wall St.
• Fixed income markets gained amid these EM concerns, with the move higher being exacerbated by a weak German jobs report, EU M3 money supply and dovish ECB comments.
• Treasuries gain, 10Y yield dips below 2.50% level; week’s auctions continue with $13b 2Y FRN and $35b 5Y notes.
• 5Y notes to be sold today yielding 1.550% in WI trading after being awarded at 1.732% in April
• RBS plans to cut hundreds of U.S. jobs while shrinking its mortgage-trading business before stiffer capital rules are implemented
• China’s biggest banks are poised to report the highest proportion of bad debts since 2009 after late payments on loans surged to a five-year high, indicating  borrowers are struggling amid an economic slowdown
• Bunds rally as euro zone M3 money supply rose 0.8% in April vs est. +1.1%; signals low inflation in euro area will probably persist if ECB doesn’t act quickly, Market Securities says
• German unemployment unexpectedly increased for the first time in six months amid signs of a slowdown in Europe’s largest economy, with the number of people out of work rising a seasonally adjusted 23,937 to 2.905m in May
• Bids at Germany’s auction of 30Y bonds fell short of EU2b maximum target; drew 2.25% average yield vs 2.53% on Feb 26
• While the hesitant U.S. housing recovery has surprised and concerned Yellen and her colleagues at the Fed, it’s not clear how much they can do about it
• Obama plans to use his commencement address today at West Point to present a foreign-policy vision that has been lacking, according to critics at home and abroad who cast the president as weak and ineffective
• Defense secretary Hagel yesterday ordered the Pentagon to conduct a review of the U.S. military health care system; the House Veterans Affairs Committee is to hold a hearing at which VA officials are scheduled to testify on delays in the agency’s delivery of health care
• Ukraine’s government said it will press on with military operations against pro-Russian rebel fighters after its forces retook Donetsk airport and inflicted “significant” losses on the separatists
• Sovereign yields fall. Nikkei +0.2%, Shanghai +0.7% as Asian stocks rose. European equity markets lower, U.S. stock futures gain. WTI crude and copper higher; gold little changed

US Event Calendar

• 7:00am: MBA Mortgage Applications (prior 0.9%) Supply
• 11:00am: Fed to purchase $850m-$1.1b notes in 2036-2044 sector
• 11:30am: U.S. to sell $25b 52W bills, $13b 2Y FRN in reopening, $45b 4W bills
• 1:00pm: U.S. to sell $35b 5Y notes

EU & UK HEADLINES

EM concerns helped provide a bid-tone across fixed income markets which was then later exacerbated by a disappointing jobs report from Germany and Eurozone money supply which revealed a contraction in lending, with the future path of ECB policy remaining a prevalent theme in the markets. Also helping fixed income was the break of 2.5% to the downside in US 10y and month end and portfolio adjustments.

This morning also saw yet another technically uncovered auction by the Buba and comments from ECB’s Mersch who said the ECB is looking to its expand policy toolbox but it is up to the governing council to decide, adding narrowing the interest rate corridor for ECB’s main policy rates could put constraints on money markets.

Prelim Barclays month end extensions show Pan-Euro Agg at +0.04y (Prev. +0.10y), Sterling-Agg at +0.06y (Prev. +0.02y)

US HEADLINES

Fed’s Lockhart (Non-Voter Dove) said yesterday that the timing of the first rate increase as six month after the end of QE is ‘too mechanical’ and could be on the ‘short end’ of a potentially longer time span. Lockhart added that added sees no increase until H2 2015. (RTRS)

Final Barclays month end extensions show US Treasury at +0.12y (Prelim +0.13y)

EQUITIES

Stocks in Europe initially opened higher following another strong performance on Wall Street which saw the E-Mini S&P futures hit yet another record high and the small-cap index Russell 2000 now outperforming the S&P 500 for the first time in over 2 months, with the Nikkei 225 up 0.2% during Asia-Pac trade. However, this move was consequently reversed following weakness in EM currencies (see below). The Italian MIB has outperformed throughout the session, being supported by Telecom Italia after their positive broker move at Goldman Sachs, which has consequently lifted the telecoms sector.

FX

EM currencies were the key focus as the Turkish Lira (TRY) took out stops through the 200DMA and South African Rand (ZAR) took out stops though the 50DMA. Recent losses in gold has hurt smaller cen. banks as they hold large amounts of their reserves in the yellow metal and the near USD 30 drop in gold yesterday will impact the countries current accounts. The Rand was under continued pressure following yesterday’s weak South African GDP as mining output is at its lowest since Q1 due to platinum strikes. The move in EM currencies consequently saw the USD index move above its 200DMA which weighed on the major pairs. Month end demand from the Bundesbank was also seen in EUR/GBP which pushed GBP/USD lower alongside more data showing mortgage lending falling in the UK.

* * *

DB’s Jim Reid concludes the overnight event recap

Not for the first time this year the market is reverting back to being fairly subdued. It’s hard to find a big theme at the moment. Maybe we’re waiting on next week’s ECB meeting and payrolls to shake us out of our slumber. Having said this markets are happy with this outcome for now with the S&P 500 (+0.6%) closing at a record high again and Crossover (-10bps) closing within 8bps of its multi-year tights.

“Becalmed” is the word that Citigroup’s CFO used to describe the market yesterday at DB’s big financial sector conference in NY and the numbers seem to back that up with the VIX index also near multiyear lows. This seems to be affecting the broader broker-dealer community and case-in-point was Citigroup’s warning also at our conference that trading revenues could be down by 20-25% y/y during Q2. Citi’s CFO said trading revenues are suffering because market participants are happy to “sit on the sidelines” referring to both equities and fixed income trading. This comes after JP Morgan made a similar warning earlier this month that it’s trading revenue could drop by around 20% y/y in the second quarter. JPMorgan’s head of investment banking Mr Pinto was quoted yesterday as saying that a pair of consensus wrong way trades including long USDJPY and short USTs had resulted in losses for many investors since the start of the year and hence has resulted in reduced risk appetite across the board. Despite the downbeat assessment from Citi and JPM, the S&P500 banks index was one of the better performers yesterday helped by a 3.4% gain in BofA who announced that it had resubmitted its capital plan to the Fed. The index notched up a 1.17% gain though it did show a small wobble following Citi’s comments.

Short USTs have definitely been one of the pain trades this year, with yields starting at 3.00% in January and reaching a low of 2.49% in the middle of this month. It’s also interesting to see price action we typically associate with riskoff (low treasury yields) occur while we have risk-on in equities (as we type S&P500 futures are reaching new highs of 1910). Even yesterday’s stronger than expected US housing, durable goods orders and PMIs couldn’t shake the price action in treasuries where 10yr yields closed 1.8bp lower at 2.51%. Taking a closer look at the data, US durable goods orders rose 0.8% (vs -0.7% expected) after the prior month was revised up +0.9% to +3.6%. However, this headline gain was mainly due to a +39.3% increase in defence orders. Ex transportation orders were up a modest +0.1% (though still above the 0.0% expected) after the prior month was revised up +0.9% to +2.9%. Core orders (non-defence capital goods orders ex aircraft) were down 1.2% (versus +4.7% previously and -0.3% expected). Outside of durables, the US Markit PMI rose to 58.6 which was its fastest rate since March 2012. US Case-Shiller home prices decelerated slightly in March but were still a little above consensus expectations. Prices are up +12.4% y/y (vs+11.8% expected) from +12.9% previously, while the MoM change was +1.2% vs. +0.8% prev and 0.7% expected. US consumer confidence for May rose to 83.0 from 81.7 previously (in line with expectations) with the labour components continuing to point upwards. The jobs plentiful component rose to a post-recession high (14.1 vs. 13.0 prev) and jobs hard-to-get fell (32.3 vs. 32.8 previous).

Turning to Asia, all major bourses across the region are trading firmer with the HSCEI (+1.3%) being the region’s best performer led by cyclicals. The sentiment is perhaps helped by a frontpage editorial in the China Securities Journal suggesting that the PBoC may continue with further “targeted easings” such as cuts to RRR for more banks, and bond purchases, in an effort to stabilise growth. Bloomberg is reporting that China’s State Council has recently approved plans for China Development Bank to issue securities at below-market rates to other state institutions which will allow CDB to better fund re-development projects.

In Japan, more questions are being raised about whether we see more BoJ stimulus at some point later this year. As we noted yesterday, a Reuters article from Monday suggested that the BoJ was quietly increasing its focus on how it will eventually exit from its current extraordinary monetary policy. In addition to this, the WSJ’s central bank-watcher Hilsenrath asked the question yesterday whether Governor Kuroda is awakening to the limits of monetary policy. Indeed, Kuroda was on the newswires last week urging the government to pursue structural reforms in an effort to lift potential growth, to complement monetary stimulus. There are more articles today suggesting that Abeadministration will be moving to bring forward corporate tax cuts as part of structural reforms – Bloomberg says that the Japanese ruling party has agreed that changes to corporate taxes will become party policy. The Nikkei is somewhat underperforming other bourses today at +0.3%, though it has had a very strong start to the week.

One asset class we’re watching is gold (-2.16%) which suffered its biggest drop of the year yesterday and has fallen by about 9% since the 2014 highs in March. It’s broken out below its 200 day moving average as some of this year’s tailwinds such as geopolitical risks (for example in Ukraine) and weak US economic growth appear to be abating somewhat, while all the recent Fedspeak debating when and how the Fed will be winding back its policies is partly to blame as well. Seasonality is also working against the precious metal as May and June have been negative months over the last 3 years, not including the -2.1% performance seen so far this month. Dovish comments from the ECB’s Nowotny yesterday failed to boost gold. Nowotny commented that the central bank is in discussions over a rate cut and Draghi said overnight that he is confident that the ECB has the tools to deliver on its inflation target. All eyes on June 5th.

We have a lighter data docket today with Euroarea economic sentiment, German unemployment and US weekly mortgage applications. The monthly EC money and credit supply report will also be released today. Brazil’s BCB holds its policy meeting where most analysts expect the bank to hold the Selic rate constant

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

Submitted by Llewellyn Rockwell via the Ludwig von Mises Institute,

Until Ron Paul raised the issue at the national level in 2007, the Federal Reserve System had been treated with the kind of lazy indifference or acquiescence with which the public gradually comes to accept any institution of long standing. To be sure, most of the public still treats it that way. They have not lost sufficient confidence in the so-called experts, despite the debacle of 2008, to give the Fed a second (or even a first) look.

But a skeptical minority is growing sizable enough to influence the debate. Whether any major change to our monetary system will take place of course remains to be seen. What we can know for sure is that the kind of scrutiny of the Fed we have seen over the past several years is not going away. Monetary policy will forever take place against the backdrop of an articulate and expanding segment of the population that dissents from Fed policy not because it is too tight or too expansionary, but because it exists in the first place.

Is monetary policy inherently destabilizing? Yes and no. Discretionary monetary policy is certainly not destabilizing for institutions on the receiving end of the central bank’s largesse. But it is destabilizing for everyone else.

The general public has been led to believe that the economy is a giant number that goes up and down. It is thought to be the role of the monetary authority to push that number back up whenever it shows signs of falling. The only potential drawback to such a course of action, the public is told, is the risk of an increase in consumer prices, which is a chance our policymakers have traditionally been willing to take.

But the economy is not a giant number. It is a latticework of interlocking production processes that work in implicit cooperation with one another to produce the diverse array of goods we enjoy. This latticework comes together without the need for central direction. It is assembled with the aid of the price system to which the free market gives rise. Economic calculation, the profit-and-loss reckoning that a free price system makes possible for the entrepreneur, directs resources into their most value-productive uses, and constantly pushes the economy toward an outcome in which the ever-changing desires of consumers are satisfied in the most cost-effective way in terms of opportunities foregone.

“Monetary policy” introduces white noise and confusion into this spontaneous process, and distorts the pattern of resource allocation that would have occurred in its absence. Interest rates on the unhampered market coordinate production across time. When consumers want more of existing products right now, that’s what the market produces. When consumers prefer to save more of their income, the market accordingly gets to work on projects that will mature in the future, when consumers are once again prepared to spend.

Artificially low interest rates, brought about by the central bank, affect the profitability of different production projects differently. Projects that are farther removed in time from finished consumer goods are given artificial stimulus by this contrived lowering of interest rates. These projects, which seem profitable at the time they are begun, run into difficulties as the true saving and consumption preferences of the public are revealed and the real saving necessary to fund them does not materialize.

Thus the central bank’s intervention rearranges the structure of production into an unsustainable configuration. Entrepreneurs are misled into investing in projects that do not conform to the pattern of consumer demand. Projects are begun for which the complementary resources are not available in sufficient quantities. As it becomes clear that this apparent prosperity is built on sand, the monetary authority is tempted to increase the dose of monetary pumping and push interest rates still lower. Should they do so, they deform the economy even further, and increase the number of lines of production that can survive profitably only if the loose monetary policy continues.

This is what F.A. Hayek meant when he said of inflationary monetary policy that “its stimulus is due to the errors which it produces.” It stimulates activity, all right, but not the kind of activity consumers demand. The more artificial stimulus the Fed creates, the more artificial the economy itself becomes. Ever more production projects come to rely for their profitability not on whether they involve the employment of resources within the latticework of production in such a way as best to serve consumer preferences, but instead on whether the central bank continues to pump in cheap money. The more such interventions the Fed engages in, the larger the sector of the economy whose survival comes to depend on the continuation of those interventions, and the harder the system will crash when the central bank finally decides to scale back or discontinue its activities.

As Jim Grant observes, “My fear is that because interest rates are suppressed, therefore earnings are inflated. So when rates go up … the hall of mirrors is shattered and we look at each other and see what actually is real rather than what the Fed wants us to believe.”

Meanwhile, the world’s central banks, and the financial journalists who enable them, act as if every right-thinking person knows that monetary central planning has been a tremendous success, and that only the grossly uninformed or the blindly ideological could dissent from this near-universal judgment.

David Stockman cleaned the clock of every bailout apologist in his indispensable 2013 book The Great Deformation, so I won’t expand on that here. I’ll say only that every one of the scare claims made in the media and by the political class has subsequently been exposed as a fraud. The alleged flight from money-market funds, the purported danger to Main Street banks of AIG’s credit-default swap problem, and the whole collection of phony claims of 2008 stand forever exposed as the pretexts for the expansion of government power that the most astute economists pegged them as at the time.

Meanwhile, what has the Fed’s record been like so far in the twenty-first century? Stockman writes:

If the monetary central planners have been trying to create jobs through the roundabout method of “wealth effects,” they ought to be profoundly embarrassed by their incompetence. The only thing that has happened on the job-creation front over the last decade is a massive expansion of the bedpan and diploma mill brigade; that is, employment in nursing homes, hospitals, home health agencies, and for-profit colleges. Indeed, the HES complex accounts for the totality of American job creation since the late 1990s.

Moreover, the number of breadwinner jobs did not increase at all between January 2000 and January 2007, remaining at 71.8 million. The booms in housing, the stock market, and household consumption had only this grim statistic to show for themselves. When we consider the entire 12-year period beginning in the year 2000, there has been a net gain of 18,000 jobs per month — one-eighth of the growth rate in the labor force.

In the wake of the crash, the Fed has continued to gin up the stock market. By September 2012 the S&P had increased by 115 percent over its lows during the bust. Of the 5.6 million breadwinner jobs lost during the correction, only 200,000 had been restored by then. And during the vaunted recovery, American households spent $30 billion less on food and groceries in the fall of 2012 than they did during the same period in 2007.

This is the record that the Fed’s allies are forced to defend.

And defend it they do. Although I am happy to say that more Austrian economists are in faculty positions around the country than ever before, the university system remains a notoriously uncongenial place for ideas that challenge existing orthodoxy. At the Mises Institute we supply instruction in economics, through online courses as well as in-person seminars and special events, outside the traditional university setting. We bring our case directly to the general public through short videos, articles, publications, and other media. We make an end run around the guardians of approved opinion.

Renaissance humanism and the Scientific Revolution, two major intellectual events in the history of the West, occurred largely outside the university system, which was dominated by conventional thinking and obeisance to traditional sources and authorities. Although the number of Austrian School economists working within the university system is on the rise, it is in the writing and speeches they produce outside the university where they are liable to have the greatest impact and reach the largest audience.

In the 1830s, William Leggett, the antislavery Jacksonian editorial writer in New York, proposed the lovely phrase “separation of money and state.” He was on to something. Ludwig von Mises once said that the history of money is the history of government efforts to destroy money, and Hayek observed that we have no reason to expect governments to give us good money. To the contrary, we have every reason to expect governments to exploit their positions as monopolists of the production of money in ways that increase their power and benefit favored constituencies.

We do not need “monetary policy” any more than we need a paintbrush policy, a baseball bat policy, or an automobile policy. We do not need a monopoly institution to create money for us. Money, like any good, is better produced on the market within the nexus of economic calculation. Money creation by government or its privileged central bank yields us business cycles, monetary debasement, and an increase in the power of government. It is desirable from neither an economic nor a libertarian standpoint. If we are going to utter monetary truths, this one is the most central and subversive of all.

via Zero Hedge http://ift.tt/1tl0xbJ Tyler Durden

As we discussed previously, delinquent loans in China are a problem… and a growing one. It seems that news is finally starting to filter to a mainstream audience as Bloomberg reports that China’s biggest banks are poised to report the highest proportion of bad debts since 2009 after late payments on loans surged to a five-year high, indicating borrowers are struggling amid an economic slowdown.As S&P warns,"overdue loans are a leading indicator of asset-quality deterioration and show the rising liquidity constraints among borrowers… and the distrubring thing is the end is nowhere in sight." CNY has pluned almost 150 pips to new 19-month lows on the news.

 

China bad debt at multi-year highs…

 

CNY is plunging in the news – back to its lowest against the USD in 19 months…

 

 

How much bad debt can China withstand? We discussed previously…

These numbers tell us that it does not appear that China can bear a very large increase in debt, and that the idea that the government can simply “bail out the financial sector” is erroneous, or at least, a stretch.

 

 China does not have the luxury of the United States, which can spend excessively because foreign countries continue to buy U.S. government debt (as the dollar is the world reserve currency). If the leadership attempts to spend down its large cache of dollar reserves, it will lose control of its currency, as a larger supply of U.S. dollars relative to the Chinese RMB would depreciate the currency unless sterilized.

 

The only remaining option is the least savory: the Chinese government must control its debt, and this includes reducing overindulgence within the real economy. It seems that the punch bowl is empty already and the party is winding down. Now the question is, who will clean up the mess?

But as S&P warns:

"Overdue loans are a leading indicator of asset-quality deterioration and show the rising liquidity constraints among borrowers,” said Liao Qiang, a Beijing-based director at Standard & Poor’s. “While we believe Chinese banks’ credit woes will unfold gradually, the disturbing thing is that the end is nowhere in sight.”

via Zero Hedge http://ift.tt/1nyu3uJ Tyler Durden