Tag: news

As can be seen by the violently volatile markets themselves, over the past 24 hours there has been substantial confusion about the implications of the ECB’s “all in” gamble, with the initial kneejerk euphoria leading to a rapid selloff and surge in the USD, followed by an overnight levitation in all risk assets as virtually the entire ECB move has now been faded on both sides.

Still, much confusion remains as can be seen by the following three reactions by financial pundits, two of whom even work for the same company.

First, here is Bloomberg’s Mark Cudmore with “The Good“:

“The euro is stronger, therefore the European Central Bank’s new policy measures have failed.” That seems to be the dominant sentiment after Thursday’s expansion of stimulus. But far from disappointing, the ECB’s shift to focus on the credit channel over the FX channel is a master-stroke -– if only markets can catch up with them.

 

It seems to have been forgotten that exchange rates are not the ultimate target of central bank policy -– even by some central banks themselves. A weaker exchange rate is a means to an end, not the end itself. And it’s just one of several tools a central bank has at its disposal, not the only one

 

Analysts’ misplaced focus on the currency means they’re confusing the bigger picture. They spend weeks criticizing negative rates and then bemoan the fact the ECB says it won’t go even more negative

 

European banks have been in a bad place the last few months, not least due to struggling with negative rates. As of yesterday and the advent of the ECB’s new four-year T-LTROs (targeted longer-term refinancing operations), banks will now be paid to both borrow and lend. That’s one problem solved. And with a simultaneous boost to lending

 

After a week many commentators criticizing China for focusing on further credit growth to stimulate the economy, the ECB have followed suit. And whatever else you can say about each country’s monetary policy, they are definitely reflationary. This will be a boost to commodities, and also emerging markets over time

 

The euro zone has a structural deflation problem, partially caused by labor market reforms in the region, and yesterday’s moves may not solve it. But they are an innovative and ambitious step in the right direction, and they should at least help headline inflation tick higher over time

 

These policies aren’t even long-term euro-positive –- they’re just smart moves which have caught euro zone bears offside in the short-term

Then, here is Bloomberg’s Richard Breslow with “The Bad“:

If I were ill and there was only one doctor in town, I’d still make an appointment even if my complaint was chest pains and the sign over the door read “fallen arches a specialty.” The ECB is being forced to continue treatment on problems that are increasingly beyond the scope of its abilities. 

 

The litany of measures rolled out at yesterday’s meeting have great optics, increase the dose on some previous medicines, like bank subsidies, but at the end of the day can’t fix the ultimate malady

 

The problems in Europe, beyond the obvious things like a refugee catastrophe that isn’t being solved by dinner meetings in Brussels, are myriad and masked in their severity by aggregated numbers. Eurozone unemployment, only one example, doesn’t look so bad until you look at the dispersion of data points. By the time anything on the table pans out, a big if, you will have a generation of youth who have reached maturity never having held a job

 

Subsidizing a corporate bond market that is short of supply because borrowers don’t see a need for the proceeds, rather than lack of credit, benefits asset prices not the real economy. Sound familiar?

 

It will also further cloud price discovery and liquidity. The most immediate effect on jobs will be the shuttering of investment grade bond research departments.

 

They really do still believe that subsidizing banks to slide down the credit curve will somehow create entrepreneurial epiphanies or global demand for products. More likely a good portion of bank borrowing will go to backstopping existing non-performing loans. That’s okay, just call it what it is, so you will understand why the German press has been unimpressed

 

On a happier note, suppressing periphery sovereign spread differentials is an unambiguously good thing. It’s an enormous benefit to their national accounts and the best part of this package

 

The market reacted most to the notion that rate cuts might be over. In a world of negative rates, I take that as a good. But until fiscal policy is deployed, don’t think for a moment that more unusual monetary policies are off the table. Equities will take comfort and off we go again

And finally, here is Deutsche Bank’s Jim reid who explains the ECB’s action to a petulant child:

I suppose if I was trying to explain yesterday’s ECB meeting to a child it might go something like this. Imagine you were expecting a trip during school holidays in a caravan around the country but instead you can take 2 weeks off school, fly first class to Disneyworld, have a go in the cockpit on the way, stay at a hotel made of chocolate, and then be able to go on every ride every day without queuing and have a private play session with the real Mickey Mouse as each day draws to a close.

 

However if the market was the same kid its reaction yesterday was “do I not get unlimited spending money, and where are we going for our summer holidays then?”

The truth: the ECB engaged in the latest act of desperate monetary intervention, one which may work and ultimately boost inflation expectations thereby stimulating the economy and leading to that holy grail for central bankers, credit demand, but if history is any precedent it won’t, at which point the question will become: what other tricks does Draghi have left up his sleeve?

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

Just hours after Mario Draghi unveiled another €20 billion in monthly QE, bringing the total in “unconventional monetary policy” asset purchases to €80 billion per month, and entering the market for corporate bond purchases for the first time, the ECB released the text of an interview that was conducted with the Guardian on February 18, in which the central banker not only lamented youth unemployment but said he is “worried about increasing inequality.”

Here are the selected excerpts:

Are you worried about the position of young adults in Europe and is this an increasingly urgent issue?

 

Youth unemployment is a tragedy and prevents people from playing a full and meaningful part in society. If every second young person is out of work – as is still the case in some countries in Europe – it seriously harms the economy, because people willing to work cannot work and skills are not developed. And it threatens social harmony. Unemployment can lead in the long run to increased social problems and ill-health.

 

What might be the forces at work here – demographics / changing workplaces / fiscal-monetary policy – that mean that young adults appear to be receiving little of the rewards of two and half decades of average economic growth?

 

Nobody stays young forever. The crucial question is whether a person can participate fully in the economy over his or her life-time – get a good education, find a job, buy a home for the family. Income and wealth follow. What makes me worry is that increasing inequality might prevent people from doing that. This is an issue all our societies need to look at carefully. The ECB’s role in that is to maintain price stability, which prevents unfair redistribution. For example, our research shows that in the euro area too low inflation results in redistribution from younger, more indebted households to older households that are typically net creditors.

Naturally, what is particularly ironic about the head of the ECB complaining about inequality after doing everything in his power to make the rich even richer, is that one doesn’t have to read fringe websites to get to that conclusion. One just has to read a paper issued just a few days ago by none other than his “superior”, the Bank of International Settlements, titled “Wealth inequality and monetary policy” which explicitly states that monetary policy, i.e., more QE, is unambiguously responsible for the recent surge in inequality.

The highlights:

Our results suggest that the impact of low interest rates and rising bond prices on wealth inequality may have been small, while rising equity prices may have added to wealth inequality. A recovery of house prices appears to have only partly offset this effect… Since 2010, high equity returns have been the main driver of faster growth of net wealth at the top of the distribution. 

 

Frost and Saiki (2014) study the impact of unconventional monetary policy on income inequality in Japan in a vector autoregression (VAR) framework. Using household survey data, they find that quantitative easing widened income inequality, especially after 2008 when policy became more aggressive. They identify capital gains resulting from higher asset prices as the main driver. 

Yes, ironic, but we certainly expect Draghi to have even more heartfelt lamentations about how increasing inequality is preventing young people from getting an “education, finding a job, or buying a home for the family.” Courtesy of none other than Mario Draghi of course.

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

• Shares bounce, euro fades after savage ECB reaction (Reuters)
• Trump’s Islam comments draw attacks as Republicans discover civility (Reuters)
• IEA Says Oil Price May Have Bottomed as High-Cost Producers Cut (BBG)
• Oil Prices Rise on Hopes Glut Will Ease (WSJ)
• Why Euro-Area Inflation Will Be Low for Years, According to Draghi (BBG)
• Calmer markets, positive data prime Fed to push ahead with rate rises (Reuters)
• Key powers mulling possibility of federal division of Syria (Reuters)
• Deutsche Bank Cut Overall 2015 Bonus Pool by 17% (WSJ)
• JPMorgan, Goldman Said to Discuss Buying Deutsche Bank Swaps (BBG)
• MLP Investors Face Tax Hit On Top of Big Losses (WSJ)
• Mystery ‘Dude’ Rattles Turkish Stock Traders With Massive Bets (BBG)
• China angered as U.S. approves frigate sale to Taiwan (Reuters)
• Professor to Wall Street: You’re Doing Swaps Accounting Wrong (BBG)
• Wall Street’s Frustrated Chinese Bankers Are Heading Back Home (BBG)
• Brazil’s corruption probe leaves no one untouched (FT)
• Those Second — and Third — Homes Are Making Mark Carney Nervous (BBG)
• Islamic State defector brings ‘goldmine’ of details on 22,000 supporters (Reuters)

 

Overnight Media Digest

WSJ

– Two independent lab tests commissioned by the Wall Street Journal determines use of sodium lauryl sulfate, or SLS, in laundry detergent produced by Jessica Alba’s Honest Co, an ingredient it pledged to avoid. (http://on.wsj.com/1Rap44A)

– TransCanada Corp, the company behind the controversial Keystone XL oil pipeline project, is in takeover talks with Columbia Pipeline Group Inc, a U.S. natural-gas pipeline operator with a market value of about $9 billion.(http://on.wsj.com/1Rap6d1)

– The European Central Bank fired off a salvo of measures aimed at bolstering the Euro zone’s fragile economy but markets brushed off the efforts, raising questions about whether it and other central banks still have the tools to bolster weakening growth and inflation after years of easy-money policies. (http://on.wsj.com/1RapmZo)

– The U.S. Justice Department harshly criticized Apple Inc Thursday for allegedly helping the Chinese government access customer phone data while refusing to aid U.S. agents in the probe of last year’s massacre in San Bernardino, California, – a charge the company’s lawyer called “ridiculous” and “desperate”. (http://on.wsj.com/1RapxE4)

– Bridgewater Associates LP told clients it has hired a former senior executive at Apple Inc as co-chief executive, as the world’s largest hedge fund tries to settle a leadership plan in doubt. (http://on.wsj.com/1RapCaM)

– Defense Secretary Ash Carter on Thursday approved final plans from military service branches and the U.S. Special Operations Command to open up all combat positions to women, without exceptions, the Pentagon said. (http://on.wsj.com/1P2W8UK)

– Chinese shipping majors Cosco Group, China Merchants Group and ICBC Financial Leasing Co have placed orders for 30 giant Valemax vessels worth a combined $2.5 billion, people involved in the matter said Thursday. (http://on.wsj.com/1RD5mZA)

 

FT

* Lloyds Banking Group is set to give a one billion pounds ($1.43 billion) in cut rate loans to real estate customers who are seeking to better the energy efficiency of their buildings.

* Bridgewater has chosen Jon Rubinstein, a longtime technology executive who spent years working with Steve Jobs at Apple Inc. Rubinstein is set to join Bridgewater as co-Chief Executive Officer in May.

* The European Central Bank cut its deposit rate by 10 basis points to minus 0.4 percent and relaxed the impact on banks with cheaper short-term loans and longer-term liquidity at negative interest rates. The ECB gave expanded quantitative easing, incentives to banks to increase lending and further interest rate cuts.

 

NYT

– A new approach to managing China’s corporate debt burden may offer temporary relief for banks but spell further difficulties for the country’s economy – having deeply troubled companies use stock to pay overdue loans. (http://nyti.ms/1RUmMn7)

– The Obama administration argued on Thursday that “no single corporation” – even one as successful as Apple Inc – should be allowed to flout the rule of law by refusing to help the FBI unlock the iPhone used by one of the San Bernardino, California, attackers. (http://nyti.ms/1RUmOM1)

– TransCanada Corp, whose Keystone XL pipeline project was rejected by the Obama administration in November, had been in talks with Columbia Pipeline Group Inc about an acquisition, people briefed on the discussions said. (http://nyti.ms/1RUmPj4)

– Bridgewater Associates, the world’s biggest hedge fund, has hired a former senior Apple Inc executive to be a co-chief executive. Jon Rubinstein, who worked closely with Steve Jobs for many years and earned the nickname “the Podfather” for his work leading Apple’s iPod team, will join the $154 billion Bridgewater in May. (http://nyti.ms/1RUmZH3)

 

Canada

THE GLOBE AND MAIL

** Too many ships amid a soft economy have sent ocean-going container rates to new depths. An index of spot rates on 11 trade routes between Asia, Europe and the United States has fallen by 62 per cent in the past year, according to Drewry Shipping Consultants, which has published the World Container Index since 2011. (http://bit.ly/1XhsqkU)

** The European Central Bank’s bolder-than-expected new stimulus package, designed to fight deflation, got off to a rough start Thursday when the euro soared – the opposite of what the ECB had hoped it would do.(http://bit.ly/1TzmaH2)

NATIONAL POST

** Tough times in the oilpatch are leading to deep frugality in the grocery aisles, delivering a harsh blow to the owner of Sobeys and Safeway. Empire Co posted adjusted third-quarter earnings Thursday that were far below analyst estimates.(http://bit.ly/1YFcR7H)

** A deal for Houston-based natural gas pipeline operator Columbia Pipeline Group Inc would give TransCanada Corp access to high-growth U.S. shale plays, analysts said Thursday.(http://bit.ly/1RbDSdd)

** Canadian banks are actively pursuing opportunities to play an integral part in the growth of fintech, despite the fact that 81 per cent of global banking CEOs see the pace of technological change as a threat, PwC says in a new report.(http://bit.ly/1P2wjUP)

 

Britain

The Times

French warn over new 18 bln stg nuclear plant

The French state auditor has raised fresh doubts about plans to build the world’s most expensive nuclear power plant in Somerset by urging EDF, the energy company, to ask “serious questions” before going ahead. The Cour des Comptes rang alarm bells over the complexity of both funding and carrying out the 18 billion pound project at Hinkley Point. It urged Paris and EDF, which is 85 per cent owned by the French state, to think hard about whether it should proceed, citing “financial stress”.(http://thetim.es/1RaORDu)

Manchester is next stop for Amazon

Amazon.com Inc has stepped up its expansion drive in Britain with plans to create a thousand new jobs in the northwest over the next three years. (http://thetim.es/2270PpJ)

The Guardian

Star Wars and Spectre power Cineworld to record box office figures

Box office hits Spectre, Jurassic World and Star Wars: The Force Awakens helped multiplex chain Cineworld Group Inc sell a record 93.6m tickets in 2015. (http://bit.ly/2248Q27)

The Telegraph

Bentley and Jaguar luxury paint supplier dips into BGF’s 2.5 bln stg warchest

Paintbox, the company that uses robots to paint Rolls-Royce, Bentley, Jaguar Land Rover and Aston Martin cars, has sealed a multi-million-pound deal with the Business Growth Fund, the venture capital fund backed by Barclays, HSBC, Lloyds and RBS. (http://bit.ly/1RaJft7)

Sky News

Harrods Boss Ward To Step Down This Year

The head of Harrods is to step down this year after a decade at the helm of the world’s most famous department store. Michael Ward’s departure, which is expected to take place this summer, was announced internally to Harrods staff on Thursday evening. (http://bit.ly/1UiNxUp)

Krispy Kreme Bakes Plan For London Flotation

The owners of Krispy Kreme Doughnuts Inc’s British operation are drawing up plans for a stock market listing in London later this year. Alcuin Capital Partners, which has owned Krispy Kreme UK since 2011, has appointed Investec, the investment bank, to oversee the flotation. (http://bit.ly/1QOrZdT)

 

 

via Zero Hedge http://ift.tt/1nCr1cl Tyler Durden

In its latest monthly market report released early on Friday, the International Energy Agency forecast that oil prices may have bottomed as shrinking supplies outside OPEC and disruptions inside the group erode the global surplus. This comes just one month after it had a far gloomier assessment of oil prices, warned on excess supply, and asked if the market was witnessing a “false dawn.“

“There are signs that prices might have bottomed out,” the Paris-based adviser said. “For prices there may be light at the end of what has been a long, dark tunnel” as market forces are “working their magic and higher-cost producers are cutting output.”

It predicted that production outside the Organization of Petroleum Exporting Countries will decline by 750,000 barrels a day this year, or 150,000 barrels a day more than estimated last month, the agency said. Markets are also being supported by output losses in Iraq and Nigeria, and as Iran restores production more slowly than planned following the end of international sanctions, Bloomberg reports.

As a reminder, on February 9, the IEA said “supply may exceed consumption by an average of 1.75 million barrels a day in the period, compared with an estimate of 1.5 million last month.” Curious since then prices are far higher, and are now pushing into territory where even shale companies are considering resuming production.

As shown in the chart below, oil prices have recovered 50 percent from the 12-year lows reached in early February when news of possible oil production cuts by OPEC unleashed a dramatic rally; instead all that was unveiled was a tentative production “freeze”, one which may never happen as Iran has sternly refused to comply with the term. This “freeze” which caps Russian and Saudi production at already record high levels, while currently supporting prices, is unlikely to have a substantial impact on markets in the first half of the year, the IEA said.

 

As Bloomberg writes, the agency’s view on prices is a shift from last month’s report, in which it said that crude could sink further as the market remained “awash in oil.” Brent futures traded at about $40 a barrel in London on Friday. In retrospect, this appears like nothing more than a case of the market making the news, and in this case, analysis.

Still, the outlook for the balance of supply against demand in the first half is “essentially unchanged” from last month, the IEA said. World oil consumption will increase by 1.2 million barrels a day, helping to reduce the global surplus from 1.7 million barrels a day in the first half to 200,000 a day in the last six months of the year. Last month it projected the second-half surplus would be 300,000 a day. The agency repeated that it could lower the demand estimate as the price recovery curbs U.S. appetite for gasoline.

In other words, everyone is guessing not only what supply will do, but when demand will finally come back; for now there hasn’t been a notable change in either, and in fact in the last DOE number, US producers actually saw a pick up in production.

More interesting, and related to our report earlier this week about some 550 million “missing” barrels of oil, the IEA increased it estimate of oil in floating storage/transit for 2015, moving more than a qtr of the volume it had previously categorized as “miscellaneous-to-balance” in its supply/demand tables.  The revision to the quarterly figures in latest monthly report issued today shows “a portion of these volumes were mis-allocated in 2015.” As a result, the IEA now sees 72 million bbl of crude stored in tankers at end-Feb., up ~17 million bbl from a year ago; this includes 42 million  bbl of crude, condensate in Iranian tankers.

Despite the adjustment, this still means that there is nearly half a billion barrels of oil “out there, somewhere” which remain unaccounted for.

* * *

So while the IEA report served to boost the price of oil, roughly at the same time Goldman released its own report, reiterating a well-known warning on inventory constraints, and repeating that oil prices may drop “sharply lower” as US “storage saturation” is reached:

While supply responses and US stock draws on the horizon suggest price lows may have been set, the risk that US storage saturation pushes prices sharply lower in coming weeks remains high in our view. Current US inventory builds are setting new record highs for storage utilization and we expect these builds to continue through April. Further, the risk of petroleum product storage saturation pushing refinery runs lower in the face of strong imports could more than offset US production declines.

 

For now the market continues to ignore the near-term fundamentals, and to hope that production cuts and demand increases will normalize the crude market, even as key shale companies made it clear that once oil hits $40, production is going back on line. As of this moment, crude is right around that level.

via Zero Hedge http://ift.tt/225uenN Tyler Durden

Three months ago, on December 4, when the ECB clearly disappointed markets and European stocks tumbled as the Euro soared, it took a speech by Mario Draghi at the Economic Club in NY to send stocks soaring…

 

… when Draghi explained that the ECB’s announcement was not at all “disappointing”, and subsequently held this exchange with former BOE head Mervyn King who asked “was today’s speech deliberately designed to try offset some of the reaction yesterday?” to which Draghi responded  “Not really… well, of course.” As shown in the chart above, stocks promptly soared if only briefly.

Fast forward to the price action over the past 24 hours, when markets again stumbled into a world of mayhem after stocks first soared and the EUR tumbled, only for the move to reverse itself after Draghi hinted that there would be no more rate cuts. The markets clearly ignored the fact that at the same time, Draghi announced a far more important expansion of QE, one including corporate bonds to unclog what had been a largely blocked bond issuance pipeline together with 4 TLTROs which would end up paying banks to lend money.

It took a while, but market participants got it: “Draghi made the mistake of essentially saying that the ECB was done with stimulus, and the market overreacted to this,” said Teis Knuthsen, CIO at Saxo Bank’s private- banking unit. “At the end of the day, the ECB delivered more than expected and is pumping a lot of money into the system. A few years ago this would have marked the start of a significant rally, but now there seems to be a widespread fatigue with monetary policy.”

Maybe, but not today, because the result has been that after “reassessing” – in Bloomberg’s parlance – what the ECB did, following yesterday’s plunge, risk has soared overnight with both Asian and European stocks surging, sparing Draghi the indignity of having to explain why he did what he did, and that it was all to prop stocks higher. Sure enough, as of this moment European bourses are all broadly higher led by banks, with the DAX and FTSE both up over 2.7%, while the Stoxx 600 is higher by 2.3% as of this writing.

Nowhere is the return of euphoria clearer, however, than in bank stocks, which as seen below are soaring.

Still, as Bloomberg notes, despite today’s advances, European equities are heading for their first weekly drop in four, with the Stoxx 600 down 0.6 percent. Commodity producers, automakers and banks – the most battered in the recent selloff – had led a 13 percent rebound from February’s low through a five-week high on March 4. As of yesterday, the index traded at 14.6 times estimated earnings, still far below the 16.7 multiple reached last April.

As Bloomberg adds, “investors have had to deal with increased volatility this year, and Thursday’s market reaction exemplifies a trend that’s been intensifying in recent months: central banks are increasingly powerless when it comes to calming markets. The Euro Stoxx 50 Index of the biggest euro-area companies moved more than 5 percent intraday, its wildest swings since August, and the most on an ECB day since 2011. A measure of volatility expectations increased for four straight days, its longest streak this year. It tumbled 10 percent on Friday.”

For now, the markets have contained the damage, filling yesterday’s gaps on what still remains the ECB’s kitchen sink. The question remains where will the incremental stimulus come from?

Elsewhere, oil is higher by over 2% after the latest reported by the IEA which predicted that oil prices may have finally bottomed.

In any case, this is where the markets stand currently:

• S&P 500 futures up 1% to 2000
• Stoxx 600 up 2.3% to 341
• FTSE 100 up 1.5% to 6126
• DAX up 2.7% to 9757
• German 10Yr yield down 3bps to 0.28%
• Italian 10Yr yield down 11bps to 1.35%
• Spanish 10Yr yield down 8bps to 1.51%
• MSCI Asia Pacific up 0.7% to 126
• Nikkei 225 up 0.5% to 16939
• Hang Seng up 1.1% to 20200
• Shanghai Composite up 0.2% to 2810
• S&P/ASX 200 up 0.3% to 5166
• US 10-yr yield up 1bp to 1.94%
• Dollar Index up 0.54% to 96.59
• WTI Crude futures up 2.7% to $38.87
• Brent Futures up 2.2% to $40.95
• Gold spot down 0.5% to $1,265
• Silver spot down 0.1% to $15.58

Top Global News

• JPMorgan Said to Cut Credit Traders Amid Emerging-Market Swings: Bank cut several EM credit traders, including global head Robert Milam, due to volatility in asset class.
• United Technologies Weighing Acquisitions in Fire, Aerospace: “I wouldn’t be afraid to do a big deal, but it’s got to be something that’s actionable,” CEO Gregory Hayes said.
• Yahoo’s Mayer Hopes to Stay in Job Even If Changes Hands: Under pressure from investors, facing potential proxy fight, CEO Marissa Mayer has pledged to do what’s best for shareholders.
• Buffett’s Gen Re Shuts Operations in Hong Kong, Melbourne:
  Reinsurer said it’s exiting property-casualty operations at 6 smaller locations amid a global reorganization.
• AmEx Targets Loan Growth as Rivals Cut Fees in Partnerships: Focus on financing may help co. bolster revenue amid increasingly aggressive bidding on deals with retailers, airlines that bring in customers, fee-generating spending.
• Trump Embraces Unity; Bats Away Rivals in Subdued Debate: Final four candidates for Republican nomination mostly got along during the first half of the latest debate.
• Apple Announces March 21 Event to Update Smaller IPhone: Co. will introduce updated iPhone with 4-inch screen: person familiar.
• Oil Price May Have Bottomed as High-Cost Output Falls: IEA: Non-OPEC production to decline by 750kbbl/d this year, higher than last month’s est. by 150kbbl/d.
• Iron Ore Sags Toward $50 as ‘Insane’ Advance Gets Rolled Back: Analysts said that price leap at start of week simply wasn’t justified given poor fundamentals.

Looking at regional markets, we start as usual in Asia, where equity markets shrugged off the early dampened sentiment triggered by comments from ECB President Draghi that signalled a possible end to the ECB’s rate cut cycle, with the region recovering as it digests ECB’s looser policy and gains in oil prices. ASX 200 (+0.3%) and Nikkei 225 (+0.5%) were initially led lower by the energy sector, but then rebounded in late trade as oil re-approached 3-month highs, while Japanese stocks were also supported as JPY pared some of yesterday’s strength. Shanghai Comp (+0.2%) was also pressured at the open following a consecutive net weekly drain by the PBoC and a 3rd straight decline in margin trading, before reversing alongside the regional improvement in risk-tone. 10yr JGBs traded lower following spill-over selling in T-notes with demand also subdued amid recent volatility in Japanese bonds. The PBoC injected CNY 20bIn via 7-day reverse repos for a net weekly drain of CNY 205b1n vs. CNY 840b1n drain last week; PBoC set the CNY mid-point at 6.4905 vs. last close. 6.5075 (Prey. mid-point 6.5127); its strongest reference rate YTD.

Top Asian News

• Yuan Erases 2016 Drop as PBOC Raises Fixing Most in Four Months: Move follows advance in euro after Draghi’s says he didn’t see need to cut rates further
• Hong Kong Regulator Bans Hedge Fund Matchpoint Founder Raaj Shah: Shah failed to disclose all his personal trading accounts in line with firm’s policy
• BSI Singapore Banker Involved in 1MDB Investigation Leaves: Yak’s financial accounts were frozen as part of probe related to a Malaysian government fund
• China Said to Plan New Rules Facilitating Debt-to-Equity Swaps: Central bank and country’s top economic planning agency are tasked with outlining rules
• Hedge Fund Effissimo Ups Ante, Buying 25% of Japan Shipper: Kawasaki Kisen Kaisha shares have dropped almost 40% in past year
• Cyberdyne Plans Nasdaq Listing Next Year for U.S. Expansion: Maker of robot exoskeletons for physical therapy aims to boost its investor base
• Hedge Funds Bet on the Decline of Japanese Technology Giants: Oxford, Vinva and Stats among funds shorting technology stocks

In Europe, this morning has very much had a feel of ‘the day after the night before’, with markets continuing to feel the fallout from yesterday’s ECB meeting but with little other newsflow guiding price action. In tandem with the bazooka released by Draghi and Co. yesterday, European stocks trade significantly higher today (Euro Stoxx: +2.5%), with the FTSE and SMI underperforming given the lack of direct impact from the ECB action . Financials outperform today on a sector specific basis, with particular outperformance in the periphery from the typically volatile Italian banking names. Elsewhere, Bunds are also benefitting from the ECB action yesterday with the German benchmark higher today and back above 161.50, while the periphery remaining tighter today in light of the new easing measures.

Top European News

• Old Mutual to Be Broken Up as CEO Hemphill Chases Growth: Co. to split into 4 units.
• Deutsche Bank Sees Industry-Wide Trading Revenue Drop in 2016: Securities firms will see debt trading revenue fall “slightly” from a year earlier; Deutsche Bank Cuts Bonus Pool 11% to Spreads Legal Costs
• ArcelorMittal to Sell Stock at 2.20 Euros in $3b Offering: Co. will sell seven new shares for every 10.
• Porsche Profit Rises 25% to Record as Macan SUV Lifts Sales: Revamp of brand’s 911 segment, robust demand for its SUVs should help Porsche meet its 15% operating profit margin target in 2016.

In FX, some temperance seen in EUR/USD this morning, with the 1.1200 breach yesterday topping out some 17 ticks through the figure but seeing profit taking bringing us back into low 1.1100’s — briefly dipped below here. No major recovery seen as the USD index is edging higher tentatively, but what we did see is some notable EUR/GBP sales going through to lift Cable back to 1.4300, with a view to testing the Thursday highs at 1.4317. UK trade data saw the headline deficit narrowing — this the only reason we could see for sudden GBP focus. Elsewhere, USD/JPY is looking to 114.00 again, but we ran into strong resistance ahead of 114.55 Thursday, so we may see a little struggle up here, but will need a strong stock market performance to do so. USD/CAD is back testing the 1.3220 level, with Oil eyeing $39.0. Canadian jobs data later on today. AUD/USD through .7500 again, but momentum has faded here of late.

In commodities, oil markets are still trading at a relatively high levels as Brent stays above USD 40bbl with WTI above USD 38bb1 respectively with the spread differential tightening over the last 24 hours. Gold has been retracing after gains following the ECB rate decision and press conference. Base metals have all been trading slightly lower with many analysts touting profit taking after recent rallies. IEA have said that monthly production dips on outages in Iraq and Nigeria and Iran’s market return more modest than forecast. World oil demand was revised to 94.6m from 94.4m bpd by the EIA. And they have also commented on the price of oil saying it may have bottomed out as high cost producers have cut production. (BBG/RTRS)

This afternoon in the light US calendar we get the February import price reading due up. There’s little in the way of Central Bank speakers today, while the latest Baker Hughes rig count will be closely watched in the commodity space.

Bulletin Headline Summary from RanSquawk and Bloomberg

• Markets continue to digest yesterday’s ECB-inspired mayhem with European equities trading higher across the board in a pull-back of some of Thursday’s losses
• Some temperance seen in EUR/USD this morning, with the 1.1200 breach yesterday topping out
• some 17 pips through the figure but seeing profit taking bringing us back into low 1.1100’s
• Looking ahead, highlights include US Import Price Index, Canadian Net Change in Employme

DB’s Jim Reid concludes the overnight wrap

With regards to the price action which ensued, the most impressive way to show the sheer swing in sentiment is by detailing some of the massive high to low ranges after that early rally faded fast. The Stoxx 600 peak-to-trough amounted to 4.07%, with the index eventually closing -1.66%. The range on the DAX was 4.98% and the closing level -2.31%. Peripheral bourses were actually the relative outperformers from an equities perspective, although that also reflects the fact that they rallied so hard on the initial headlines. The FTSE MIB closed -0.50% but not without a 4.69% range, while the IBEX (+0.07%) actually closed just in positive territory, again with a large 3.70% range however. European Banks were at the centre of the volatile moves with the Stoxx 600 Banks Index closing -0.52% and out-performing but the daily range amounting to 6.00%. It’s worth noting that we’ve also added an update piece from our European Banks team at the end of the report touching on some potential impacts for the sector post the announcements.

Elsewhere, the moves for the Euro seemed to cause some of the greatest debate. The single currency initially weakened over 1.5% in the minutes post the news, touching a low of 1.082 (and the lowest since the start of February) before then staging one heck of a rebound to rally off the lows and finish up +1.62% on the day at 1.118. The intraday high-to-low range of 3.66% lower than what we saw on December 3rd last year (when the ECB ‘under delivered’) but still the 10th highest daily range that we’ve seen in the currency in the last 10 years (especially impressive when you consider some of the massive swings in 2008/09 which account for seven of the top ten).

Rates markets were in major reversal mode too. 10y Bund yields initially tumbled 8bps lower to strike an intraday low of 0.156%, before spiking higher and closing at 0.304%, up 6.4bps on the day but the high-to-low range an impressive 17bps. Unsurprisingly moves in the peripheral bond market were even more exaggerated. 10y BTP’s were as much as 18bps lower on the day but closed 5bps higher with a range of 24bps. 10y Portugal yields actually closed 3bps tighter but again not without a 33bp range.

Along with the Euro, it was credit markets which were the other big outperformer on the day which is unsurprising given the news of the inclusion of corporate bonds in the ECB’s expanded asset purchases. The iTraxx Main index was as much as 12bps tighter at one stage before paring a bit of that into the close to finish 7bps tighter. Crossover ended 18bps tighter although again was a huge 40bps tighter at its best. Senior and Sub iTraxx financials closed 7bps and 17bps tighter respectively with the peripherals names leading the charge.

The inclusion of non-financial corporate bonds was a surprise and it marks another landmark moment for the ECB. This is the first time they’ve entered the private unsecured market. Longer term this might be significant as it paves the way for other non-government or unsecured risk purchases at a later date. For now we’ll have a good 3 months of speculation as to what they might buy and how successful they’ll be. In the note my team have just published we take a look at what the potential universe looks like, as well as discuss how the ECB’s market of eligibility could grow through looking at issuance, redemptions and net issuance trends over the past decade or so. Ultimately we expect ECB purchases to be positive for IG credit, although clearly there is still a certain amount of execution risk, while the liquidity of the market is also a big consideration. Experience from ABS purchases has not been great but whatever the risks from a performance/liquidity perspective it’s hard to imagine investors wanting to be short corporate bonds at least until the program starts in a few months or until more details are known.

Back to the bigger picture. Overall perhaps the eventual negative market reaction was due to the increasing realisation that this meeting might mark the point where focus shifts from easing being solely for the financial markets to one where it’s aimed at improving credit in the economy. By association this may explain the significant rally in the Euro as markets feel that the game of trying to weaken the currency is shifting. Elsewhere if the sell-off in core rates yesterday reflected reflation then this would have been a positive. However the move in breakevens didn’t suggest that this was the case so one has to be a bit concerned at the move. As a last word, clearly one has to be skeptical as to whether the package will work for the wider economy but it terms of having a go it’s hard for us to say that it’s not an impressive attempt.

It’s a rare occurrence – this year at least – for us to mention this so far along, but a selloff for oil markets (WTI -1.18%, Brent -2.48%) also coincided with the timing of Draghi’s negatively perceived comments and so certainly contributed to some of that risk-off move. That said, a bit of a rebound into the close for energy did eventually result in US equities bouncing off their lows to finish pretty much unchanged by the close of play (S&P 500 +0.02%), with US credit markets (CDX IG -5bps) enjoying similar gains to those in Europe.

This morning in Asia we’ve seen bourses rally back after an early weak opening which saw most markets open in the red. A big reversal for Oil (which has wiped out yesterday’s losses) has seen the Hang Seng (+1.06%), Shanghai Comp (+0.29%), Kospi (+0.28%), ASX (+0.32%) and Nikkei (+0.76%) all move back into positive territory. Market have also seemingly put to one side the latest CNY fix which was strengthened (+0.34%) by the most since November. Elsewhere credit markets are playing catch up in Asia this morning with iTraxx Asia and Australia indices 7bps and 5bps tighter respectively.

Before we look at today’s calendar and away from the ECB focus, labour market data in the US continues to remain supportive with last week’s initial jobless claims falling 18k to 259k (vs. 275k expected) and a new five-month low. Prior to this we saw Germany report a shrinking in their trade surplus in January, aided by an unexpected fall in exports (-0.5% mom vs. +0.8% expected). Finally in France the January industrial production print was up a much better than expected +1.3% mom (vs. +0.8% expected).

Looking at the day ahead, today we begin in Germany where shortly after this is out we’ll receive the final revision to the February CPI print (no change from the +0.4% mom expected). That’s before we turn to the UK where we’ll see the January trade numbers. This afternoon in the US the calendar continues to remain light with just the February import price reading due up. There’s little in the way of Central Bank speakers today, while the latest Baker Hughes rig count will be closely watched in the commodity space.

It’s worth keeping an eye out on some important China data over the weekend too (Saturday morning to be specific) where we’ll get the February industrial production, retail sales and fixed asset investment data. If that wasn’t enough, we’ll also hear from PBoC Governor Zhou tomorrow morning who is set to hold a press conference on ‘financial reform and development’. And if that still wasn’t enough, three regional elections in Germany this weekend will also prove an early test for German Chancellor Merkel’s refugee policy. Expect all this to help set the tone for the open on Monday.

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