Йенс Вайдман (нем. Jens Weidmann, 20 апреля 1968, Золинген) — президент Немецкого федерального банка и член правления Европейского центрального банка, консультант канцлера Ангелы Меркель.Работал в Банке Франции и Национальном банке Руанды, а также в МВФ (1997). В 2003 году работал в Экспертном совете для определения общеэкономического развития Германии. В 2006 году стал советником немецкого канцлера. В числе его заслуг называют высокие показатели Германии в годы кризиса еврозоны. Вики
Тучи сгущаются: представитель Европейского центрального банка Йенс Вайдман закончит QE, в то время как реформы Макрона не решат никаких проблем. Это будет последний толчок для евроскептической Италии, где рождаются планы по параллельным валютам.
Тучи сгущаются: представитель Европейского центрального банка Йенс Вайдман закончит QE, в то время как реформы Макрона не решат никаких проблем. Это будет последний толчок для евроскептической Италии, где рождаются планы по параллельным валютам.
Via GEFIRA, Clouds are gathering: Weidmann will end QE while Macron’s reform will not solve any problem whatsoever. It’ll be the final push for a Eurosceptic Italy, where plans for parallel currencies are popping up. Add Trump’s trade war to the soup and 2020 promises to turn nasty. It is becoming increasingly clear that at the end of 2019 Jens Weidmann, current President of the Bundesbank, will replace Mario Draghi at the helm of the European Central Bank. The change in terms of economic beliefs will be radical and, combined with the other developing issues in Italy and the US, which will be discussed later in the text, might as well put an end to the misery of the Eurozone. What does Jens Weidmann believe in? As a typical post-Weimar German, he believes in strong currency and low inflation. The Financial Times carried an interesting interview with him a few weeks ago, in which the German financier expressed his opposition to everything that Mario Draghi has stood for in the last few years and made known his wish to stop the quantitative easing program and replace it with raised interest rates. What happens when interest rates increase? If they go up too fast, markets crumble. Low interest rates offered for too long have contributed to the subprime mortgages debacle of 2007-8. In 2012, at the peak of the Eurozone sovereign debt crisis, Draghi promised to do ”whatever it takes” to preserve the European common currency. Weidmann was the only one on the board of the ECB who was opposed to this too. Draghi’s statement had a therapeutic effect on financial markets which quickly calmed down after it. Once he’s gone, however, Weidmann is unlikely to show the same resolve to indeed do whatever it might take to keep the currency together. Finally, just like most Germans, he is not a fan of Emmanuel Macron’s idea of creating a Eurozone budget because the money transfer is seen as too much of a concession towards “lazy Southerners”. Maybe in the end Weidmann will opt to preserve the status-quo, but if he sticks to his beliefs, rates will increase, markets will fall and it’ll be the end of the Eurozone. Trump is winning, Macron is not The financial press ridicules the American President and regards his French counterpart as a godsend. Yet, when you look at their hitherto policies, they have been rather similar: less taxation, especially for the rich and restricted immigration. If you look at the results, both economies are experiencing solid growth. Still, it is Macron who is credited for “creating confidence among businesses for his reforms”while Trump’s success is framed as a fluke at best. It might as well be, but the US economic growth is stronger than France’s and the US stock market boom (which began on the night of November 8th 2016 when it became certain that Donald Trump had defeated Hillary Clinton and the market reversed galloping all the way throughout 2017) is a driving factor globally. So, if Mr. Market’s behaviour means anything, then Trump can partly claim credit, Macron can’t. The balance of real strength between Trump and Macron couldn’t have been made clearer. A few days ago Trump signed his tariffs on steel and aluminium into law, and when Macron called him on the matter it was to no avail.2)The latter also called on for the WTO to intervene, but the motivation adduced by Trump is “national security” and there is little the WTO or Macron can do about it. It’s game, set and match for the American president.3)Even if the roles had been reversed, the mainstream press would be still praising Macron and mocking Trump. As it is, the French president’s debacle has been rather ignored. The massive German trade surplus has often been named as a factor of instability on the international stage. Still, the European Commission, the IMF, former US presidents and the rest of the EU members have failed to lessen it so far. Trump is going to do what everyone else did not have the courage to: punish Germany. He will wage a trade and currency war against the Eurozone, and the above-mentioned tariffs are just the first act. Finally, consider what will become of Macron’s reform of the Eurozone and its budget. The latter according to journalist Wolfgang Munchau, who’s generally well informed on the topic, will be a grand total of €3 billion a year, roughly 0.03% of the Eurozone GDP,4)so its contribution to the efforts rescuing the losing members of the European common currency from their fate is negligible. Even if Macron has the finance minister of his own choosing and the budget he is calling for, it won’t help. Emmanuel Macron might have “all the right ideas” as the mainstream media love to say, but he’s also not delivering on them and there are doubts he ever will, while the media covering for him, come what may, keep digging the grave for their own credibility. The Italian revolt Since the last election, Italy is officially a Eurosceptic country. Mainstream parties committed to the European integration project have been vanquished. It is hard to predict if the country is going to have a government. The 5 Stars Movement won the most seats, but lacks the majority. The Democratic Party is imploding: the base wants to support a M5S government because “that’s where our voters went”, but the likely future leadership under the former development minister Carlo Calenda has no intention to do so. Lega has the strongest coalition, but also lacks the numbers and so far has been waiting on the sidelines. Its leader Salvini knows that in case a new election is held he is likely to finish off his ally Berlusconi, by taking even more votes from him. He also knows that if M5S makes a deal with the establishment, they’ll lose votes to him, making him the only credible candidate for change. He’s in no hurry. Mario Draghi will only become available for the position of prime minister in 2019. M5S might actually end up picking him, but supporting a technocratic government would be the end of the protest movement. The other side of the coin is that once Draghi is no longer at the head of the ECB, keeping interest rates low for the benefit of Italy, the arguments in favour of Italy remaining in the Eurozone are running out.
As European Union leaders try to coax President Trump to consider the reopening of talks over the Transatlantic Trade and Investment Partnership - a work-in-progress trade agreement that was abandoned shortly after Trump took office - the US has delivered a spate of demands on topics ranging from trade to national security, as a newly emboldened President Trump pushes his agenda with little room for compromise. According to Bloomberg, which cited a report in German-language magazine Der Spiegel, the Trump administration demanded that European countries demonstrably boost defense spending. Other demands included capping EU steel exports to the US at the 2017 level, as well as demanding that the EU take action to combat Chinese dumping. Jens Weidmann The EU and US are in negotiations over potentially exempting the EU from some or all of the steel and aluminum tariffs imposed by Trump earlier this month. Meanwhile, in an interview with Neue Osnabrücker Zeitung, a regional German newspaper, Bundesbank chief Jens Weidmann cautioned against any "reflexive or emotional" retaliation to US tariffs, emphasizing that the policy would harm US consumers on its own." "In any case, we should not respond reflexively or emotionally, because that threatens to further escalate the situation," said Weidmann. Already it is clear that especially the US consumers are likely to suffer from the threatened tariffs. "Incidentally, even in the United States, the current trade policy of the government is indeed critically questioned," said Weidmann. Instead, he said the EU should sue the US before the World Trade Organization, the transnational body set up to resolve trade disputes. If a negotiated solution fails "and there are doubts that measures are not compatible with WTO rules, the WTO offers procedures to resolve such issues," Weidmann said. "You should also use that to not just accept a breach of the rules and create a precedent." Weidmann claimed that neither party is interested in a trade war... "Nobody is interested in a trade war; in the end, everyone loses," continued Weidmann. "Let us take the US at our word and put us together with the aim of reducing existing tariffs comprehensively," he called for negotiations. Weidmann was speaking on his way to a G-20 summit in Buenos Aires, where he said he expected the ground to be laid for such talks. Work on the TTIP agreement can also be pushed forward again. "The EU should make it clear: Anyone who is interested in free and fair trade has a partner in us with whom he can make a difference," said Weidmann. He added that the prospects for an "agreement in principle" with the US are good.
After two consecutive days of failed S&P ignition attempts, in which US stocks opened sharply higher only to close near the lows, on Wednesday the algos will try for the third consecutive time to escape the recent late-day selloff funk. S&P futures are higher after declining on Tuesday following a fresh personnel shakeup in the Trump administration and renewed US trade war speculation with China dampened investor sentiment. European stocks rose modestly led by mining shares even as Asian shares fell despite stronger than expected Chinese economic data. Equity markets were attempting to recover after Tuesday’s hefty losses, encouraged by stronger than expected Chinese factory data, but struggled to overcome fears of a global trade war as well as the prospect of political uncertainty in the United States. “As long as the threat of protectionism and a trade war remains, markets will remain vigilant,” Rabobank analysts told clients according to Reuters. The latest set of tariffs, reportedly targeting Chinese tech, electronics and telecoms, were revealed by sources hours after Trump abruptly fired Secretary of State Rex Tillerson. Tillerson’s exit follows that of economic advisor Gary Cohn, a strong free trade proponent. Since Trump took office in 2017 as many as 35 senior officials from his administration have walked out, including Tillerson, according to Citi. “The market probably correctly viewed this move as weakening internal White House opposition to some of Trump’s less market-friendly policies, in particular the President’s trade policy,” Daiwa strategist Mantas Vanagas said, quoted by Reuters. The negative momentum faded somewhat in Europe, with a pan-European equity index up 0.24% after falling 1% on Tuesday. That left MSCI’s all-country equity index down 0.12% its second day in the red, although a rebound in the US will likely push it back in the green. European stocks rose modestly after opening in the red after Tuesday’s plunge as traders assess the implications of a shakeup in the Trump administration amid corporate updates from companies including Inditex SA and Prudential Plc. The Stoxx Europe 600 Index rises 0.3%, with all major sectors with the exception of utilities are trading higher in the Euro Stoxx, while much of the morning stock movers have been dictated by company earnings, with Adidas (+9%) shares sitting at the top of DAX. Elsewhere, the IBEX underperforms its counterparts as index heavyweight Inditex (-3%) slipped after highlighting concerns over FX headwinds. Zara owner Inditex drops after reporting a slowdown in sales and its weakest profitability in a decade, while U.K. insurer Prudential rises after saying it divested 12 billion pounds ($16.7 billion) of annuities from its U.K. portfolio and plans to spin off its M&G Prudential unit. Miners were the best-performing industry group after Goldman Sachs analysts said the sector is enjoying robust global demand and after China reported strong economic data overnight. There was no bounce earlier in Asia, where markets followed the negative US lead with the Nikkei (-0.9%), Kospi (-0.3%), Hang Seng (-0.5%) and Shanghai Comp (-0.6%) all down. The latest batch of mixed activity indicators were released in China early this morning. Industrial production in February rose unexpectedly to +7.2% ytd yoy (vs. +6.2% expected; +6.6% previously), as did fixed asset investment (+7.9% yoy vs. +7.0% expected; +7.2% previously) while retail sales were slightly below expectations at +9.7% yoy (vs. +9.8%) from +10.2% in the month prior. As shown in the chart below, Chinese macro data has been disappointing in recent months so the modest upside surprise in factory orders was a welcome change. In global FX, the dollar pared an early decline as the euro felt some heat from another Draghi reference to the exchange rate, while the Yen rose following continued focus on the Moritomo scandal that has again rocked the Abe administration. A lackluster London session saw the pound shedding gains ahead of a May speech over the U.K.’s relationship with Russia. Bloomberg breaks down the latest overnight FX action: The euro set a day low of $1.2364 in early London trading after ECB President Draghi said in a speech that adjustments to monetary policy will remain predictable as policy makers look for further evidence that inflation dynamics are moving in the right direction He also said the central bank needs to monitor developments in the common currency closely as its appreciation since the beginning of the year cannot be explained solely by economic expansion AUD/USD saw leveraged demand on stronger-than- expected gains in China’s factory output and investment growth Kiwi shook off weaker-than-estimated 4Q current-account balance to climb on global fund demand to buy New Zealand’s bonds after Tuesday’s issuance Treasuries and euro-area bonds were little changed. German 10-year government bond yields approached one-month lows and currently stand 20 basis points below this year’s peak at 0.60 percent, following a soft 30Year debt auction. Economic data include retail sales and PPI. Williams-Sonoma and Signet Jewelers are among companies due to release results Market Snapshot S&P 500 futures up 0.3% to 2,776.00 STOXX Europe 600 up 0.3% to 376.55 MXAP down 0.5% to 178.18 MXAPJ down 0.4% to 587.85 Nikkei down 0.9% to 21,777.29 Topix down 0.5% to 1,743.21 Hang Seng Index down 0.5% to 31,435.01 Shanghai Composite down 0.6% to 3,291.38 Sensex down 0.4% to 33,720.90 Australia S&P/ASX 200 down 0.7% to 5,935.31 Kospi down 0.3% to 2,486.08 German 10Y yield fell 1.0 bps to 0.609% Euro down 0.2% to $1.2370 Brent Futures down 0.2% to $64.51/bbl Italian 10Y yield fell 0.9 bps to 1.737% Spanish 10Y yield rose 0.8 bps to 1.405% Brent Futures down 0.2% to $64.51/bbl Gold spot down 0.2% to $1,324.41 U.S. Dollar Index up 0.2% to 89.83 Top Overnight News ECB’s Praet says the central bank’s forward guidance on the path of policy rates will have to be further specified and calibrated as appropriate for inflation to remain on the sustained adjustment path toward levels below, but close to, 2% over the medium term The special election in southwestern Pennsylvania remained too close to call with all precincts reporting results. House seat in Pennsylvania may be a bellwether for the fall elections that will decide control of Congress Theresa May will meet with her national security and intelligence chiefs Wednesday to assess whether Russia has given a credible answer to her charge that it was behind the poisoning of Sergei and Yulia Skripal in Salisbury. She will then update Parliament on her response. China’s factory output and investment growth unexpectedly accelerated in the first two months of the year amid robust global demand U.S. Trade Representative Robert Lighthizer presented President Donald Trump with package of tariffs targeting equivalent of $30b a year in Chinese imports, but Trump urged him to aim for higher number, Politico reports, citing three unidentified people familiar with discussions Japanese Prime Minister Shinzo Abe and his finance minister denied ordering officials to tamper with documents at the center of a scandal rocking his administration. German Chancellor Angela Merkel was formally elected to a fourth term in a parliamentary vote, extending her 12 years in office at the helm of Europe’s biggest economy Germany may be ready to sacrifice Jens Weidmann in the contest of becoming the next head of the ECB in a trade for more influence on French President Emmanuel Macron’s push to create closer ties among euro countries European equities are trading in the green this morning, subsequently pairing the initial losses that stemmed from Asian and US bourses, which saw risk-sentiment soured by reports of Secretary of State Tillerson being fired and increased caution over trade wars. All major sectors with the exception of utilities are trading higher in the Euro Stoxx, while much of the morning stock movers have been dictated by company earnings, with Adidas (+9%) shares sitting at the top of DAX. Elsewhere, the IBEX underperforms its counterparts as index heavyweight Inditex (-3%) slipped after highlighting concerns over FX headwinds. Top European News Germany Ready to Sacrifice Weidmann as a Pawn in EU Chess Match Draghi Says Policy Adjustments to Proceed at Measured Pace Corin’s Billionaire Owners Said to Mull Sale of Orthopedic Firm Volvo Venture Seeks Top Self-Driving Role Angling for More Deals May Plots to Punish Russia as Crisis Over Poisoned Spy Deepens In Asia, equity markets were negative across the board as the region tracked the losses on Wall St, where sentiment was dampened after another high-profile departure from the administration in which President Trump fired Secretary of State Rex Tillerson, while trade war concerns were also stoked by reports the US is looking to impose tariffs on Chinese goods. ASX 200 (-0.7%) and Nikkei 225 (-0.9%) were negative with financials pressured amid the ongoing royal commission hearings in which NAB employees were said to knowingly approved fake loans to reach targets, while Nikkei 225 was pressured by a firmer JPY and with some analysts also noting ‘Abexit’ worries in the wake of the land-sale/cronyism scandal. Shanghai Comp. (-0.4%) and Hang Seng (-1.4%) conformed to the weakness with tech and telecom names weighed as the US seeks to impose tariffs of USD 60bln on Chinese goods, which would target tech and telecom products as a punishment for intellectual property infringement. Although, losses in the mainland were somewhat stemmed by mixed data including higher than expected Industrial Production and Fixed Asset Investments. Finally, 10yr JGBs were flat despite the weakness in stocks, with an uneventful BoJ minutes release and unchanged BoJ Rinban operation amount for 1yr-10yr maturities also ensured quiet price action. BoJ Minutes from the January 22nd-23rd meeting stated it is appropriate to pursue powerful easing and that price momentum to reach target is maintained. Top Asian News China’s Factory Output, Investment Rise on Robust Global Demand China Imposes Record $870 Million Fine for Stock Manipulation Noble Group Seeks to Sweeten Disputed Debt Deal After Backlash Toyota Offers Bigger Raises as Japan Pushes for Inflation Not Even Trump Can Slow Vietnam’s Economy, Official Says In FX, USD weakness amidst ongoing global trade war and White House personnel concerns remains the principle theme, as the DXY continues to reject advances towards the 90.000 level and beyond, which in turn is shifting the technical outlook more bearish. However, EURUSD and single currency crosses have been knocked back to an extent by comments from ECB President Draghi and Chief Economist Praet, reiterating that inflation is still below target and therefore policy needs to stay ‘patient, persistent and prudent’. Key downside risks were highlighted – FX and the aforementioned potentially adverse trade developments due to US President Trump’s import tariff proposals. Eur/Usd is back below 1.2400, but holding above the 30 DMA at 1.2345, and also eyeing decent expiry interest from 1.2390-1.2405 (around 1 bn). Conversely, Aud/Usd is testing resistance either side of the 0.7900 handle again and recent peaks just below the big figure, aided by some Chinese data beats overnight and more balanced rather than dovish/cautious RBA rhetoric via Assistant Governor Kent. Chart-wise, yesterday’s 0.7898 high forms the first/nearest bullish target and offers are touted around 0.7925, if 0.7900 is breached. Cable looks capped by the 1.4000 level, and Usd/Cad by 1.3000, while Usd/Jpy is back in the 106.50 area after a further retreat from 107.00+ peaks late last week and earlier this week with the 10 DMA at 106.31 holding in for now. Elsewhere, Eur/Sek just a fraction softer after broadly as forecast Swedish CPI data that will underscore growing calls for the Riksbank to refrain from tightening for longer. In commodities, oil prices are trading slightly higher with prices finding some slight reprieve from yesterday’s smaller than expected build in the latest API report, alongside the improvement in risk sentiment, which has seen WTI retest USD 61/bbl Looking at the day ahead, it looks set to be another important day of data with February retail sales and PPI, followed by January business inventories. It's worth also highlighting that the European Commission is expected to make comments on US steel and aluminium tariffs to the European Parliament. US Event Calendar 7am: MBA Mortgage Applications, prior 0.3% 8:30am: Retail Sales Advance MoM, est. 0.3%, prior -0.3% Retail Sales Ex Auto MoM, est. 0.4%, prior 0.0% Retail Sales Ex Auto and Gas, est. 0.32%, prior -0.2% Retail Sales Control Group, est. 0.4%, prior 0.0% 8:30am: PPI Final Demand MoM, est. 0.1%, prior 0.4% PPI Ex Food and Energy MoM, est. 0.2%, prior 0.4% PPI Ex Food, Energy, Trade MoM, est. 0.2%, prior 0.4% 8:30am: PPI Final Demand YoY, est. 2.8%, prior 2.7% 8:30am: PPI Ex Food and Energy YoY, est. 2.6%, prior 2.2% 8:30am: PPI Ex Food, Energy, Trade YoY, prior 2.5% 10am: Business Inventories, est. 0.6%, prior 0.4% DB's Craig Nicol concludes the overnight wrap Picking the right moment to run out and grab lunch is something of a fine art working in markets. Indeed, anyone who was out for the 12 minutes between 12.30pm GMT and 12.42pm GMT yesterday probably felt like they’d been gone a lot longer when they returned to their screens. It takes something fairly significant to overshadow US inflation data at the moment however the shock news that President Trump had ousted now former US Secretary of State Rex Tillerson was certainly enough to do just that. The announcement came via a tweet from the President and it also included confirmation that CIA Director Mike Pompeo would take over the role. Trump confirmed with reporters that Tillerson “had a different mindset” relative to the President with the Iran nuclear deal named as an example. It was no secret that Tillerson’s tenure had been somewhat rocky however it’s fair to say that markets were still caught off guard, despite his clock probably ticking. Indeed Politico also reported that Tillerson had no plans to leave and was also unsure why he had been let go. There were suggestions that Tillerson’s vocal statements on Monday about condemning the Russian government about its alleged role in the Russian spy incident in the UK could have played a part however that remains to be seen. Various news outlets also confirmed that Trump wanted a new team in place ahead of talks with North Korea and also ongoing trade talks. It’s not the first time that Trump has moved quickly in his administration without warning, with Reince Priebus and James Comey two other such examples. In fact, the NY Times also reported that Trump’s personal assistant, John McEntee, was let go on Monday and escorted from the White House, while another headline from the Times suggested that there would be more staff shifts this week. The bottom line for us is that all these moves show that the President is certainly moving a lot closer to his anti-globalist policy agenda. On that point, the view on Pompeo is that he and Trump are a lot closer aligned and that Pompeo is more likely to have the President’s ear. On a related note, it also appears that Larry Kudlow is now the favourite to replace Gary Cohn based on comments from the President yesterday. That’s perhaps more interesting given that Kudlow and Trump have clashed in the past over tax reform and also the recent tariff announcements. Aside from the 12 minutes of a slightly more positive risk environment following the US CPI report (more on that below), the Tillerson news certainly more than played its part in equity markets dropping from early highs. The S&P 500 finished -0.64% last night after being up as much as +0.67% at one stage. A Reuters story suggesting that Trump was seeking for tariffs of up to $60bn a year on China imports seemed to just extend selling pressure into the evening. Meanwhile the previously untouchable Nasdaq (-1.02%) snapped its 7-day winning run while in Europe the big mover was the export-heavy DAX which tumbled to a -1.59% loss. Moves for bonds were actually a bit more contained. The high-to-low range on 10y Treasuries was 6bps and the yield did fall to the lowest in over a week (2.828%) at one point, however by the end of play they were just 2.6bps lower at 2.843%. The 30y auction was also relatively solid with the highest award to direct bidders since October 2015. In Europe bond markets were broadly 1-2bps lower while the Greenback was well offered with the Dollar index falling -0.26%. Gold (+0.26%) also seemed to benefit from a flight to quality bid. With regards to the CPI data, that in-line +0.2% mom core print meant that the annual rate also held at +1.8% yoy for the third consecutive month. The unrounded reading was +0.182%, so the overall feeling was that it largely mirrored the marginally softer earnings number on Friday. However, momentum is still favouring the hawks with the three-month annualized rate now up to +3.1% and the highest since 2007. The six-month annualized rate is also at a robust +2.5%. That should be comforting to a Fed which is targeting the gradual approach for now though. As a reminder that is the last CPI report that the Fed will see prior to the FOMC meeting next week however they will benefit from the release of the February PPI data today. Expectations for that is also for a +0.2% mom core reading while the headline is expected to show a +0.1% mom rise in producer prices. Here in the UK there were no huge surprises to come from Chancellor Hammond’s Spring Statement. As widely expected the borrowing numbers for the current fiscal year and also the next were revised down. This year was revised down from £50bn to £45bn while next year was revised down from £40bn to £37bn. Headroom relative to the 2% cyclically adjusted borrowing to GDP target by 2020-21 is more or less unchanged versus the November estimate at around £15bn, so not a huge amount more fiscal room. Finally GDP forecasts remain fairly lacklustre and included a cut to the 2021-22 forecast. The 2018 forecast was however revised up one-tenth to 1.5%. Sterling closed up +0.40% last night versus the USD but that appeared to be more USD weakness related to the Tillerson news than anything else. Indeed versus the Euro, Sterling was closer to unchanged. Gilt yields also finished more or less unchanged by the end of play. This morning in Asia, markets have largely followed the negative US lead with the Nikkei (-0.83%), Kospi (-0.51%), Hang Seng (-1.30%) and Shanghai Comp (-0.60%) all down as we type. The latest batch of activity indicators were released in China early this morning. Industrial production in February rose unexpectedly to +7.2% ytd yoy (vs. +6.2% expected; +6.6% previously), as did fixed asset investment (+7.9% yoy vs. +7.0% expected; +7.2% previously) while retail sales were slightly below expectations at +9.7% yoy (vs. +9.8%) from +10.2% in the month prior. The combined Jan and Feb data is meant to smooth out the effects of the Lunar New Year. Meanwhile, the Pennsylvania Congressional District special election in the US is appearing to head for a neck and neck finish. Bloomberg is reporting that Democrat Conor Lamb holds a tiny lead of 579 votes over Republican Rich Sacconne, out of about 227,000 votes cast. Finally in Japan, the BOJ minutes showed most board members believe the bank must “persistently” pursue powerful easing. Notably, during Q&A BOJ Governor Kuroda noted “by combining various tools, it’s possible to shrink the BOJ’s balance sheet at an appropriate pace while keeping markets stable”. Turning back to Europe, another Politico article yesterday suggested that the Bundesbank’s Weidmann is the favourite to replace Mario Draghi as ECB President from October 2019. However the story also suggested that his support was receiving pushback, in part given Weidmann’s vocal opposition to Draghi’s QE policy and his strict enforcement of the EU’s fiscal policies. Other potential German candidates touted include Klaus Regling (current head of the ESM) and Marcel Fratscher (Head of the research institute DIW Berlin). Notably, the swing factor for the candidacy likely depends on the relative support of French President Macron, who has been relatively quiet on this topic. In other news, the OECD has upgraded its forecasts on global economic growth by 0.2-0.3ppt to 3.9% for both 2018 and 2019, with “private investment and trade picking up on the back of strong business and household confidence”. Across countries, growth in the US has been lifted to 2.9% for 2018 (+0.4ppt) and 2.8% for 2019 (+0.7ppt) in part due to the tax cuts and new fiscal spending increases, while the UK’s growth was revised slightly higher to 1.3% in 2018 and 1.1% in 2019. Notably, the agency also warned on protectionism and noted that “an escalation of trade tensions would be damaging for growth and jobs” and that countries should “avoid escalation and rely on global solutions to solve steel excess capacity”. Before we take a look at today’s calendar, we wrap up with other data releases from yesterday. In the US, the February NFIB small business optimism index was above market at 107.6 (vs. 107.1 expected) and marked a fresh high since 1983. The survey also showed that c.1/3 of owners reported raising compensation to retain or attract workers in the month, the largest share in 17 years. In Europe, Italy’s Q4 unemployment rate was in line at 11% and the final reading of Spain’s February CPI was confirmed at 1.2% yoy. Elsewhere, France’s Q4 total payrolls was up +0.3% qoq (vs. +0.2% expected). Looking at the day ahead, we'll get final revisions to February CPI in Germany along with January industrial production and Q4 employment data for the Euro area. ECB President Draghi is scheduled to speak in the morning (8am London time), as well as the ECB’s Coeure, Praet Constancio and then Bank of France’s Governor Villeroy. In the US, it looks set to be another important day of data with February retail sales and PPI, followed by January business inventories. It's worth also highlighting that the European Commission is expected to make comments on US steel and aluminium tariffs to the European Parliament.
Until Trump's Thursday trade war announcement, and last night's shock statement by Kuroda previewing the end of the BOJ's QE, the single biggest event risk was the Italian election this Sunday, March 4 (together with the SPD "grand coalition" referendum held concurrently in Germany whose outcome could seal Merkel's fate). And yet, ahead of the election, investors are feeling especially complacent, with no notable moves in terms of Italy-specific risk assets because, as Reuters noted, "the economy is strengthening and anti-euro sentiment is waning in the single-currency bloc" although many beg to differ. Still, the vote has the potential to throw them a curve ball. Below we comment on some of the key questions surrounding of the election. First, the basics: The Italian election takes place Sunday, March 4. Polls will be open from 06:00 GMT to 22:00 GMT. As results filter through from 22:00 GMT / 17:00 EST Sunday, the most contentious seats are considered in the south. The election will elect the 945 members of the parliament for the 18th legislature – specifically, to select the 630 members of the Camera dei Deputati (lower chamber) and 315 of the Camera del Senato (the Senate/upper house). Note that the electorate does not vote for the PM. The main parties in contention are: Forza Italia (center-right) led by former PM Silvio Berlusconi Democratic Party (center-left, PD) led by former PM Matteo Renzi 5 Star Movement (anti-establishment, M5S) led by Luigi Di Maio – seen as the most market negative outcome. What are the expectations? Reuters has put together a useful poll tracker which can be found at the following website. No single party or coalition is expected to reach a parliamentary majority thanks to the new electoral law (see below). For example, Bloomberg surveyed 15 economists on February 2-7, with 38% expecting a hung parliament, and 33% a grand coalition: What is the most likely outcome? Latest polls point to a hung parliament, where no one party or coalition has a majority to form a government. If this happens, Italian President Sergio Mattarella, will call on parties to form a broader coalition of pre-election adversaries. This could include the ruling centre-left Democratic Party and Silvio Berlusconi's Forza Italia. Analysts see a hung parliament, leading to a broad coalition that includes mainstream parties, as the most positive market outcome because it could result in political stability and policy continuity on Europe. Even in this situation, any uncertainty over the government's make-up could lead to short-term volatility. While unlikely, the most feasible coalition would be center-right (CR), given that M5S has ruled out a coalition. A CR coalition would be formed by Forza Italia, Lega Nord (the anti-south, anti-immigrant Northern League), Fratelli d'Italia (Brothers of Italy) and Noi con l'Italia (Us with Italy). All the polls show the Five Star Movement (M5S) as becoming the single largest party, winning between 27% and 29% of the vote. However risks for EUR have diminished since the party dropped its call for a referendum on the euro in mid-January. A (market positive) surprise would be an outright center-right victory. Will the winner tackle Italy's giant debt pile? Reuters here is laconic: "Probably not." Whatever Italy's next government looks like, the chances that it will push through long-term term structural reforms to improve Italy's economic performance or to tackle the country's debt pile, are low. At 132% of GDP, Italy has the European Union's worst debt ratio after Greece. In fact election pledges could worsen the situation - Bank of Italy Governor Ignazio Visco has cautioned that parties' pledges to slash taxes and hike spending could prove counterproductive since the problem of high debt "cannot be sidestepped." That could increasingly bring investors to view Italy as the euro zone's weak link, making Italian assets vulnerable at times of market uncertainty or during the withdrawal of European Central Bank stimulus. What could surprise markets? As a reminder, this is the first election to take place under a new, untested voting system introduced last year, which makes the outcome particularly uncertain. It is possible that a coalition of centre-right parties, leading in the polls, will win a majority of its own. One surprise would be a centre-right victory, with the eurosceptic League as the biggest party, possibly enabling its leader to become prime minister. Success for the League, which calls the euro a "failed currency," could revive euro break-up fears and widen the gap between Italian and German bond yields. An election outcome that allows the League or the anti-establishment 5-Star Movement to have a central role in government may have the same effect. And if a government is not formed, fresh elections cannot be ruled out Surprise No. 1: The new electoral law One reason why there is elevated uncertainty around Sunday’s election is the newly-approved electoral law called Rosatellum Bis. The new system makes seat projections very difficult and throws historical lessons out of the window. 2/3 of seats are elected under a proportional voting system and the remaining 1/3 elected in a ‘first-past-the-post’ electoral system – this favors the most prominent people in the parties seats in Parliament, and thus has been criticized by the M5S. Each party needs to get at least 3% of votes in both chambers to get into parliament, while coalitions need 10%. Surprise No. 2: Uncertainty! The high number of undecided voters means that polls and projections have to be taken with a pinch of salt. Politico cites recent polls as saying as much as 30-45%of the electorate is undecided. “Around 10mn Italians haven’t decided yet if they will vote and for whom,” Antonio Noto, head of the IPR polling agency said. “That means that the result may change in a substantial way in the last few days before the vote.” Some political commentators have also suggested that tactical voting may be at play – given the PD are expected to be defeated, we may see center-left voting to block M5S. What about Germany's SPD ballot results? A "thumbs-up" for Germany's coalition deal will suggest modest fiscal expansion, adding in turn to better growth and higher inflation. That could hasten the end of the cheap-money era and keep upward pressure on borrowing costs. If Italy's election too passes without major ructions, it will remove a layer of political risk from the calendar and reinforce the case for unwinding ECB stimulus. Focus can then turn to the next ECB chief, a post that changes hands next year. While speculation is of a German - possibly the hawkish Bundesbank chief Jens Weidmann - taking the reins after the departure of "southerner" Mario Draghi - Germany's Social Democrats say they have not discussed backing Weidmann for the role. But any negative surprise outcome from Italy or Germany could encourage the ECB to keep asset purchases in place beyond their September end-date, in turn prompting investors to rethink the timing of rate rises. Does EUR care? Last Friday a Citi spot EUR trader noted: “I still find the whole Italian election fascinating. No one is talking about it (they shouldn’t), but inside everyone is holding back a little bit (they shouldn’t).” To the point, Citi's options desk noted "something remarkable" about the Italian election: the main characteristic of this event is the lack of significant flows in the short dates. Event variance is stable and this chart below from Bloomberg is a case in point. Bottom line: unlike the much more "exciting" French election last year, the Italian election is not a simple one-off event risk for EUR – "it is not a binary event where one result is market positive, the other negative" as Citi puts it. The most likely outcome is that the prolonged period of coalition talks after the election will play out much like the German elections; as a reminder, after the hung parliament in the 2013 election, it took 62 days to elect a government. In other words, Sunday's event, absent a major surprise, will mean auto-pilot continuity for Italy, and Europe.
Прибыль Бундесбанка в 2017 году выросла на 1 млрд евро по сравнению с предыдущим годом и составила до 2 млрд евро благодаря программе количественного смягчения ЕЦБ. Об этом сообщил глава ЦБ Германии Йенс Вайдман, передает собкор Банки.ру в Брюсселе.
ЕЦБ может завершить программу покупки облигаций в этом году, если экономический подъем в регионе продолжится, считает глава Бундесбанка Йенс Вайдман. Об этом он заявил в интервью Bloomberg Television, передает собкор Банки.ру в Брюсселе.
Подписывайтесь на канал: http://goo.gl/Rpsm62 Смотрите видео по Форекс: https://goo.gl/SNF0Ho Информационный партнёр - Finversia-ТV: https://goo.gl/psct2M Пара евро\доллар значительно снизилась в ходе торгов вторника, потеряла более ста пунктов и достигла отметки 1.2240 к окончанию торгов. Индекс настроений в экономике Еврозоны вырос в феврале, как и индикатор делового климата и индикатор настроений в секторе услуг. Экономика в регионе остается на высоком уровне, однако этого уже недостаточно для продолжения роста европейской валюты. Индекс потребительских цен в Германии в феврале еще больше замедлил рост в годовом исчислении, зафиксировав уровень 1.4%. Это очень плохой показатель перед объявлением данных по инфляции в Еврозоне за тот же период. Низкая инфляция остается ключевой проблемой Еврозоны и дальнейшее снижение роста приведет к существенному давлению на евро. Выступая вчера, президент Бундесбанка Йенс Вайдманн заявил, что нормализация монетарной политики потребует времени, а денежное стимулирование необходимо сокращать медленно и вовремя. При этом Вайдманн отметил в своем докладе, который сопровождал годовой отчет Бундесбанка, что повышение процентной ставки ЕЦБ в 2019 году может состояться, однако ужесточение кредитно-денежной политике приведет к высокой волатильности на рынке. В нашем прогнозе предполагаем дальнейшее снижение пары евро\доллар к уровням поддержки 1.2215, 1.2200 и 1.2170.
Глава Центрального банка Германии не исключает возможности занять одну из ключевых должностей в Европейском центральном банке (ЕЦБ) в следующем году. Выступая перед CNBC во Франкфурте во вторник, президент Бундесбанка Йенс Вайдманн сказал: "Моя позиция заключается в том, что все члены Совете управляющих, конечно же, заинтересованы в денежно-кредитной политике и хотят сформировать денежно-кредитную политику. Вот почему мы здесь... Вот почему мы обсуждаем это вместе." Вайдманн уже давно упоминается как потенциальный преемник уходящего президента ЕЦБ Марио Драги. Немецкий экономист является одним из самых "громких" членов Совета управляющих ЕЦБ и критикует медленную нормализацию политики в еврозоне. Например, в октябре прошлого года Вайдманн раскритиковал решение ЕЦБ о продлении программы количественного смягчения (QE). Тем не менее, склонность Вайдмана быть откровенным о влиянии длительного периода денежного стимулирования, особенно по сравнению с несколькими его коллегами, может в конечном итоге повредить его шансам стать президентом ЕЦБ. Итальянец по национальности Марио Драги готовится уйти с поста президента ЕЦБ в конце октября 2019 года. И хотя Вайдманн рассматривается многими как один из претендентов на его замену, факт остается фактом: Германия никогда не занимала ключевой пост в ЕЦБ. Информационно-аналитический отдел TeleTradeИсточник: FxTeam
After flipping to a considerably more bearish view on where developed markets are in the business cycle earlier this month following the spike in average hourly wages, when he commented that everything had apparently changed in just a few days, Bridgewater founder Ray Dalio on Tuesday said during an interview with Bloomberg that central banks, most notably the Federal Reserve and ECB, will enjoy another year of two of the "goldilocks" scenario of strengthening growth and low inflation. “We are in the Goldilocks part of the cycle, where it’s not too hot and not too cold,” he said. “We have growth and we don’t have an inflation problem. That’s the beautiful part of the cycle." But after that period is over, they will struggle to balance growth and inflation, adding that the US is further ahead in the economic cycle than Europe. The importance of getting policy just right during this shift will leave room for a dreaded policy error. "Should we be concerned about inflation? I'd ask you - because it's too low or because it's too high? Isn't it a funny question. There was a lot of concern that it was too low. Should we be concerned that it's too high? We're still struggling to get to 2%. "In Europe is it a problem that there's too much inflation, or too little inflation, I don't know - you never get it perfect but it's pretty good so I'm not concerned. What I am concerned about is, as we get into the later parts of the cycle, the challenge for central banks will be to get it perfectly." "When we have growth and we don't have an inflation problem, that's the beautiful part of the cycle. As we move into the later part of the cycle, which we're moving toward, the breaks start to get applied." In Europe, Dalio expects the European Central Bank will wind down quantitative easing, but might wait to act on interest rates. Dalio famously said during a speech at Davos in January that investors holding cash would be left "feeling pretty stupid" thanks to the combination of low inflation and strengthening growth that is creating a "just right" scenario for markets, adding that economic growth is in the late stage of the cycle, but could still continue improving for another year or two. In a declaration that is puzzling considering Bridgewater's massive Europe short, Dalio expressed admiration for ECB chief Mario Draghi and the European economy more generally - applauding central bankers for guiding it through a "beautiful deleveraging". Draghi, Dalio said, should be "congratulated" for steering Europe through the financial crisis. Notably, Dalio declined to answer questions about Bridgewater's recent $22 billion bet (it has since shrunk modestly) against some of the Continent's biggest companies - a position that has increased from a "tiny" $700 million position in October. As a reminder, here's a breakdown of the companies Dalio is betting against (the number may have changed modestly): The European economy is coming off its best annual growth in a decade. Earlier today, Bundesbank President Jens Weidmann said the ECB could end its massive quantitative easing program - which it has been slowly tapering for a year now - by the end of 2018. He also said a rate hike in 2019 isn't out of the question, per Reuters. And here are Bridgewater's biggest positions: Of course, for all we know, Bridgewater could also have a substantial long position open in Europe via options and other alternatives to equities that regulators wouldn't require it to disclose. Some traders have suggested that Bridgewater's short could be part of a broader macro strategy to bet against global companies that are heavily reliant on their US business - which could be disrupted by the Trump administration's crackdown on trade. Earlier this month, Dalio and Bridgewater co-head of equity sales Bob Prince offered a surprisingly bearish take on market complacency, saying he expected this month's shakeout to continue for the foreseeable future. Dalio later chimed in, writing a LinkedIn post where he declared that everything had changed in the past 10 days. Watch the full Dalio interview below:
The euro is weakening and Dollar Index spiking (back above pre-FOMC Minutes level) following headlines from Buba President Jens Weidmann on ECB rate-hike guidance. When asked about prospects for ECB interest rates, Bloomberg reports that Weidmann pointed to investor expectations built on the economic situation and communication by the central bank. Given the current economic backdrop, expectations for hikes to begin in mid-2019 are “not completely unrealistic,” he said. Weidmann’s comments come as the ECB debates how to wind down QE after September and amend language that currently includes a pledge to keep interest rates unchanged “well past” that time. With the 19-nation economy expanding strongly and confidence increasing that inflation will sustainably pick up, officials have signaled that a shift could come early this year. “This could probably be one part of our discussion -- whether to complement any decision on the asset-purchase program and on communication regarding the asset-purchase program with a bit more specificity with respect to the interest-rate guidance,” Weidmann said in an interview with Bloomberg Television in Frankfurt. “‘Well past’ is a rather vague time dimension so it could be about specifying what well past means.” The reaction was EUR selling, USD buying... We suspect the move is as much technical stop-hunting as fundamental shift as FX algos worldwide sharpen their headline-reading minds on Powell's hearing.
Министры финансов еврозоны выбрали испанского министра экономики Луиса де Гиндоса в качестве преемника вице-президента Европейского центрального банка (ЕЦБ) Витора Констанцио, что увеличит шансы на то, что пост главы ЕЦБ займет немец, пишет Reuters.
Министры финансов еврозоны выбрали испанского министра экономики Луиса де Гиндоса в качестве преемника вице-президента Европейского центрального банка (ЕЦБ) Витора Констанцио, что увеличит шансы на то, что пост главы ЕЦБ займет немец, пишет Reuters.
Authored by David Stockman via Contra Corner blog, Last week's twin 1,000 point plunges on the Dow were not errors. Instead, these close-coupled massacres, which wiped out $4 trillion of global market cap in two days, marked the beginning of a bear market that will be generational, not a temporary cyclical downleg. What hit the casino wasn't an air pocket; it was a fundamental change of direction, signaling that the three decade long central bank experiment with Bubble Finance has now run its course. Moreover, this epochal pivot is not tentative or reversible in any near-term time frame that matters. That's because the arrogant but clueless Keynesian academics and apparatchiks who run the Fed think they have succeeded splendidly and that the US economy is on the cusp of full-employment. So they're now hell-bent on positioning the central bank for the next downturn. That is, they are reloading their recession-fighting "dry powder" thru interest rate normalization and a second giant experiment----this time in shrinking their balance sheet by huge annual amounts under a regime called quantitative tightening (QT). Needless to say, both the magnitude and the automaticity of this impending monetary shock are being completely ignored by Wall Street in favor of bromides like "the market knows" QT is coming because the Fed has been transparent in its forward guidance. So what? Knowing the steamroller is coming doesn't stop you from getting crushed if you remain in its path. In fact, the $600 billion annualized bond dumping rate incepting in October is a fearsome number; it's larger than the entire $500 billion Fed balance sheet as recently as the year 2000. By your way, that had taken 86 years to accumulate through two world wars, the Great Depression and 9 lesser recessions. Yet that monumental change of dimension has faded from the working knowledge of Wall Street punters and commentators alike only be virtue of the insane 9X expansion to $4.5 trillion that occurred over the subsequent 14 years. Moreover, you can count on the Fed's impending bond selling spree to get a turbo-charge from the bond pits. As we insisted on Fox Business this AM, the fast money will soon figure out that the best way to print profits is to pivot with the Fed. That is, just as they were buying what the Fed announced it would be buying in the tens of billions per month during the era of QE, leveraged traders will start selling what the Fed has announced it will be selling during the new ball game of QT. That will cause the impending bond market yield reset, in turn, to overshoot to the upside. Accordingly, the 10-year yield, which touched another new high at 2.88% early this AM, will be ripping through 3.0% shortly; and then be on its way to 4.0% and beyond. Indeed, that's virtually inevitable. With the ECB, BOE, PBOC and BOJ all moving toward tightening in one fashion or another, the US bond market will have to clear $1.8 trillion of supply during FY 2019, but with little prospect of uptake from foreign central banks or their local bond markets. That's right. The GOP fiscal geniuses now running the government, who inherited $700 billion of red ink for the upcoming year as a bipartisan legacy of decades past, have promptly layered on another $500 billion. That stems from the unfunded tax cut at $280 billion and from $220 billion more flowing from last week's spend-a-thon and the associated rise in interest payments. Indeed, since Congress so dramatically front-loaded the tax-cut, the argument that "growth" will close the gap has been reduced to a bad joke. Even if it boosted GDP growth by a full 1.0 percentage point next year, the gain to GDP would be $200 billion and the associated revenue uptake would be less than $40 billion. In the context of a $4.6 trillion annual spending level, call that a 0.9% rounding error and be done with it. And don't expect that the s0-called growth dividend will catch-up a few years down the road, either. The fact is, FY 2019 will end in month #124 of the current business expansion (incepting in June 2009). That would make it the longest business expansion in recorded history and more than double the average cycle. As we also argued on Fox this AM, if we even reach that point before the next recession hits, it should be considered a minor miracle. After all, the "yield shock" directly ahead is going to throw everything "priced-in" down there on Wall Street into a cocked-hat---including the likelihood that rising rates will rip $20 per share out of S&P 500 earnings (see below). But to think you can go another 3-4 years without a recession is surely delusional; and to expect to get all the way through 2027 without a downturn (a putative 219 month expansion), as do both the current Trump budget and CBO baseline, would be downright inconceivable. In this context, the Fed's resolve to dump $600 billion per year back into the bond pits should not be underestimated. As our colleague Lee Adler pointed out recently, the Fed has so determinedly adverted to auto-pilot with respect to it bond selling campaign that it not only announced it would refrain from commenting about it in its meeting minutes, but has now even stopped publishing the monthly runoff schedule. That get's us to the market's misplaced confidence that after a moderate-sized hissy fit on Wall Street, the Fed and other fellow-traveling central banks will back-off from normalization and QT. The fact that the head of the New York Fed and Goldman plenipotentiary at the central bank, Bill Dudley, pointedly referred to last week's two-day $4 trillion stock plunge as "small potatoes" is perhaps a hint of things to come. In that vein, the next chairman of the ECB in waiting, also left little to the imagination. German Bundesbank President Jens Weidmann called on the European Central Bank Thursday to wind down its giant bond-buying program after September, urging officials not to be distracted by a stronger euro currency or volatility in global financial markets. Here's the thing, however. Wall Street's complacent belief that the auto-pilot shift toward QT will be turned-off and reversed in the event of a recession is badly misplaced. That's because the era of Bubble Finance has turned business cycle causation upside-down. Collapsing bubbles on Wall Street, not credit excesses on main street, are now the trigger for recessions. Accordingly, the Fed and other central banks are now strictly in the mop-up business, as the 2008 crisis so dramatically documented. During the 16 months between the stock market peak in November 2007 and the March 2009 bottom, global market cap plunged from $62 trillion to $26 trillion. The Fed and other central banks were powerless to stop the $37 trillion bloodbath because it was not really triggered until September 2008 after the Lehman collapse; it was then that the C-suites began to jettison excess inventories and labor with nearly reckless abandon. For example, the goods producing sector----mining, energy, manufacturing and construction---is far more cyclically sensitive than the US economy as a whole, where large swath of employment such as government (22 million jobs) and health and education (33 million jobs) are nearly immune to downturns. Thus, when fear ripped through the C-suites in September 2008 owing to collapsing stock prices and stock options, the goods sector dumped inventories and workers like there was no tomorrow. During the 10 months from September 2008 through the following June, more than 2.8 million workers were sacked, which represented 13% of employment at the December pre-recession peak and upwards of 70% of all jobs lost in the good-producing sectors during the entire Great Recession. In January 2009 alone, the sector lost 433,000 jobs or 2% of its payroll. Stated differently, the corporate C-suites of America have been turned into financial engineering joints by 30 years of Bubble Finance. They are driven by short-term stock prices and the massive stock option packages attached to them. Accordingly, when financial bubbles inevitably burst the resulting collapse of stock option values triggers full-on panic. At that point, anything which can possibly pacify the angry gods of the casino gets teed-up for desperate action, thereby giving rise to sweeping "restructuring" plans and drastic liquidation of fixed assets and inventories. In the case of manufacturing, for example, inventories kept building during the first nine months of the statistically declared recession. But after the stock collapse in September 2008, inventories were dumped with malice aforethought. During the next 10 months more than 15% of manufacturers inventories were pitch overboard, causing ricocheting impacts among upstream suppliers and workers. So the question is not whether a weakening economy will cause the Fed to take QT off auto-pilot. Instead, the issue is what might catalyze a continuation and acceleration of last week's stock plunge, thereby triggering the next bout of recessionary mayhem in the corporate C-suites? We think the answer to that question is lurking in plain sight. To wit, the unfolding rise of bond yields in no way will resemble the comforting Wall Street myth that it's already "priced-in". In the case of the S&P 500, for example, the interest expense margin on sales averaged about 3.75% during the 1994-2008 period, and could be taken as the pre-QE and pre-ZIRP baseline. Notwithstanding a veritable tsunami of corporate debt issuance during the past nine years, however, the interest margin in 2016 was only 2.00%. And that was after the amount of corporate debt outstanding had ballooned by more than one-third. Accordingly, the bottom-of-the barrel net interest margin was not due to deleveraging, but, instead, was a function of drastic financial repression by the Fed and other central banks. The latter had become so extreme by 2016, in fact, that upwards of $14 trillion of sovereign debt traded with negative yields and the fundamental benchmark for corporate bonds---the 10-year UST----hit an all-time low of 1.35% in July. And that's where the skunk is hiding in the woodpile. Should the 10-year bond rise to even 3.5% during the year ahead (reflecting a 75% increase from the 2.0% average of 2016), the interest margin on the S&P 500 would revert to at least its 3.75% pre-2008 baseline average. Needless to say, the serious adverse implications for earnings are nowhere baked into the current Wall Street hockey sticks. Thus, during 2016, the pre-tax interest margin on the S&P 500 according to the guru of corporate earnings, Ed Yardeni, amounted to $22.30 per share; and, at an effective tax rate of 26.5%, the after-tax cost was $16.40 per share. By contrast, at a 3.75% interest margin, the pre-tax cost would be $42.50 per S&P 500 share, while at the new lower effective tax rate of about 16%, the after-tax cost would rise to more nearly $36 per S&P 500 share. In a word, that potential $20 per share cost of rising yields is nowhere "priced-in". For that matter, not even a fraction of that amount is embedded in the Wall Street hockey sticks--if any at all. As we said, knowing that the steamroller is coming, does not mitigate the bodily mayhem of remaining in its path. And most especially, not when the steam-roller is being operated by central bankers who are oblivious to the epic bubbles and wild-west speculation that has been fostered throughout the warp-and-woof of the financial system after nine years of massive money printing and decades of central bank "puts". In that context, it is fair to say that everybody has been picking up nickels in front of the steamroller----the legendary pros and homegamers alike. For instance, Ray Dalio, who is the godfather of the risk parity trade, which is among the most sophisticated short vol trades, was celebrated by the media on January 23 for saying at Davos that, "If you're holding cash, you're going to feel pretty stupid." What a difference 10 days can make. Undoubtedly, even some of his investors are wondering exactly what part of the anatomy he is holding now----given that during February to-date, the risk parity trade is down by 5%. "About 10 days ago, that’s where I thought we were. However, recent spurts in stimulations, growth, and wage numbers signaled that the cycle is a bit ahead of where I thought it was." This is just another way of saying that Bubble Finance has sown the seeds of its own destruction by causing foolish action on both ends of the Acela Corridor. With the budget now on automatic pilot and borrowing accelerating at unprecedented rates for the tail-end of a business expansion, it is only a matter of time before the bond market "yield shock" triggers carnage in the risk trades. Last week's ETF/ETN explosion on the vol trade was only the tip of the iceberg. The real size in vol shorts was lodged in the much bigger positions represented by hundreds of billions invested in risk parity, vol control, naked puts, and CTA trend following strategies. As one astute hedge fund trader, Eric Peters, observed over the weekend: Relative to the aggregate of all other forms of volatility selling, they’re (ETFs) not big, just really painful. They make for good headlines too. So the question now is whether the pain/spark of their blowup is enough to ignite bigger structural volatility shorts?” (A) “This is the equivalent of the June 2007 Bear Sterns moment. In this scenario, market participants see the VIX ETF/ETN complex implosion as an isolated event sparked by poorly constructed products. Once investors really understand how they were constructed, they gain comfort in the ‘superiority’ of the strategies that they currently use to sell volatility (uncapped variance, risk parity, vol control, put selling, etc). They feel smart. And continue selling. Until a more widespread volatility unwind inevitably unfolds - probably tied a bit more closely to the economy and QE exits by the ECB/BOJ.” (B) “This VIX ETF/ETN spark ignites other structural volatility shorts over the coming days/weeks, driven by a critical mass of risk managers across the financial industry not wanting to be the last to de-risk. Selling of risk assets increases volatility and this sparks more selling of risk assets in a reflexive way. In this scenario, visions of the ETF/ETN blowup makes value investors more patient in buying the dip. And with a new Fed governor, you don’t get a swift response. It’s bombs away for risk asset prices.” Either way, the day traders will be the last to get the word---especially since more than half of today's fund mangers have been in the business less than nine years (i.e. the got their long pants after the 2008 meltdown). As one 29-year old certified millennial and London fund manager, Ben Kumar, told Bloomberg, After $3 trillion was erased from global stocks in a week, he’s weighing whether to buy on the dip now—or wait a bit longer. “I don’t even think that this move is a wake-up call,” he said on Tuesday.....“I haven’t worked in a different era to this one, but who says we’re going back to the old era? We'd bet most surely we are.
The last two hours of trading on Friday aside, when a violent short squeeze coupled with unsubstantiated speculation by JPMorgan that the quant deleveraging and selling is finally over send the Dow Jones soaring over 600 points in under an hour, the stock market remains especially volatile and vulnerable to even the smallest shifts in sentiment. Meanwhile, as Bank of America's derivatives team writes, the bank's proprietary Critical Stress Signal (CSS) was triggered to "Risk-off" on 8-Feb-18, with 13 components rising by more than 0.5 standard deviations in a 10-day period. Looking at the internals of the index, it's a familiar story: there was an eruption in equity vol which promptly cascaded across stock markets, while keeping other asset classes relatively insulated. However, as we showed over the past two days, there have been distinct instances of contagion from stocks to credit, rates, FX and even commodities, and as equity vol is sliding, X-asset vol continues to rise. From BofA's perspective, equity skew, or the price of equity tail protection, and the shock to US equity vol this week, were the real stress outliers... ... but it was a follow-on from FX and credit risks in recent days that tipped the signal into risk-off territory. Further to the lack of a broader market selloff, while concerns over rates risks are the common narrative, the stress in rates components have remained relatively subdued thus far. However, as BofA notes, further instability in rates and credit, along with CB reactions to this stress remain key to monitor, in our view. The good news: the more isolated the risk remains within equity, the more easily we expect it will reverse. The bad news: the lack of a response is due to investor expectations that should conditions deteriorate, central banks will step in. Which bring us to the punchline of the BofA report: according to BofA strategists, the CSS was designed to identify tipping points in cross-asset risk – "the point at which stress momentum keeps building and risk-assets suffer." Paradoxically, beginning in 2013 with the taper tantrum, the Critical Stress Signal has been a remarkable contrarian indicator, as it has closely aligned with the timing of central banks either verbally or physically intervening to calm markets. In other words, the worse things got for the market, the greater the likelihood that central banks step in and support it. Or, as Michael Hartnett puts it, "markets stop panicking the moment central banks start panicking." As seen in the chart below, this very moment is when one or more central banks should reassure the market that all shall be well. It also explains the violent BTFD moments at the tail end of any selloff as algos and human traders scrambled to frontrun central bank intervention following a market selloff, creating a self-fulfilling prophecy of market rebounds which no longer needed central banks to bail them out: the mere precedent was sufficient. The problem - for investors - is that the precedent may no longer be sufficient as policy intentions are now far more nebulous when it comes to the probability of an imminent central bank intervention, either verbal or physical. As BofA admits, "since the last stress signal in 2016, rates and inflation expectations have increased, we have a new Fed chair, and CB rhetoric appears more hawkish, creating uncertainty over where the “CB put” strike sits today." And that's the $6.4 trillion question: at what level - if any - in the S&P will central banks step in? So far, there have been no clues or hints as to the answer. Worse, actual statements by central bankers have been decidedly non-interventionist: last week, as investors finally woke up to the likelihood that central bankers are serious about pulling back stimulus this year to control inflation, Bank of England Governor Mark Carney declared on Thursday that he may even need to raise interest rates faster than previously thought. “There will be ups and downs in financial markets,” Carney told reporters in London. “What’s happened in volatility markets is not an entirely surprising development.” Adding to the rate volatility - and equity selloff - the BOE effectively put investors on alert for another increase perhaps as soon as May by lifting its forecasts for economic growth and saying inflation will remain above its 2 percent target. "It will be likely to be necessary to raise interest rates to a limited degree in a gradual process, but somewhat earlier and to a somewhat greater extent than what we had thought in November. Domestic inflationary pressures are likely to firm", Dudley said. This sentiment was echoed in Europe, where ECB speakers also brushed aside the sell-off by continuing to debate how to end their bond-buying program, which is currently set to run until September. "Policy makers should not allow ourselves to become unsettled by the decline in equity prices we have just witnessed,” Bundesbank President Jens Weidmann said in Frankfurt. The ECB continues to pump tens of billions of liquidity into the euro area, creating the false impression of an economic recovery even as it distorts asset prices around the globe to an unprecedented degree. Yet Weidmann said in his speech that “if the expansion progresses as currently expected, substantial net purchases beyond the announced amount do not seem to be required.” * * * But most concerning of all were statement made by Fed officials, such as ex-Goldmanites Bill Dudley and Robert Kaplan, both of whom poured cold water on any expectation of an imminent intervention: “More volatility in the markets, and maybe addressing some of the excesses and imbalances in the markets, by having a little more volatility, may be a healthy thing,” Dallas Fed President Robert Kaplan told Bloomberg TV on Thursday. FED'S KAPLAN SAYS IT'S HEALTHY THAT THERE IS MKT CORRECTION — zerohedge (@zerohedge) February 7, 2018 One day later, Philly Fed president Patrick Harker said equity volatility makes sense based on yields, effectively capping stocks as long as yields keep rising, in the process pushing up volatility. Fed’s Harker Says Equity Volatility Makes Sense Based on Yields. And there is the greenlight for the next crash — zerohedge (@zerohedge) February 8, 2018 Finally, outgoing NY Fed president Bill Dudley completed the trifecta stating that he is not at all worried the recent market drop will have an impact on the economy. First Harker now this: DUDLEY SAYS DECLINE IN EQUITY MARKET TODAY NO ECON IMPLICATIONS Fed really wants a stock drop — zerohedge (@zerohedge) February 8, 2018 Meanwhile, despite Friday's afternoon's miraculous bounce, the mood remains gloomy. For UBS Group AG Chairman Axel Weber, a former ECB policy maker, that’s nothing to fear. "The market has shown an unprecedented level of complacency,” he told Bloomberg Television. “A correction was waiting to happen." The bigger question is when does the correction become a crash. Because if so far it has been the expectation that central banks will step in any minute now which has prevented the equity rout from going systemic, a few more days of silence by central banks, and last week's sharp selloff will seem like a dress rehearsal to the 10 years of pent-up mean reversion that may slam global capital markets as normalization finally kicks in.
U.S. stock index futures turn negative in an illiquid, volatile session as investor sentiment has yet to stabilize amid doubts whether the U.S. equity selloff is over as yields remain just south of the critical 2.85% level. S&P E-mini contracts slid 0.1%, while the VIX is up 1% to 28.1 after 2 days of declines. Including fair value, the Dow is expected to have an implied open of over 200 points lower while the S&P will open around 2,665. Meanwhile, in this post-VIX ETP world, liquidity remains non-existent, as this chart from nanex shows. It's not just the US however which can't find its footin, as all risk-related assets trade under pressure in a generally muted session following yesterday's whipsawed session which saw stocks spend much of the day in the green, only to slide at the close. European equity losses hit ~1.0% as the mining sector underperforms while banks are supported by decent earnings reports from Commerzbank, SocGen and UniCredit. In terms of sector specifics, the financial sector is the outperformer with earnings from the likes of Commerzbank (+2.4%), SocGen (+4.1%), UniCredit (+2.6%) and Zurich Insurance (+3.8%) lifting the sector with Swiss Re (+3.8%) also lending a helping hand near the top of the SMI after news that Softbank could acquire a stake in the Co. Elsewhere, GSK (+2.3%) has been supported by news that Novartis’ launch of their Advair copy will be delayed. In terms of bourses, the CAC (-0.3%) has seen some modest outperformance, with domestic earnings from Total (+1.8%), Pernod Ricard (+2.2%) and Publicis (+3.8%) capping losses. Earlier, shares in Japan closed higher after a turbulent session while China’s stocks fell for a third day, even as Hong Kong equities climbed. Australia's ASX 200 (+0.2%) was lower for most of the day as weakness in the commodity complex weighed on mining names, however, the index then gradually pared losses as strong Chinese Imports provided some encouragement. The Nikkei 225 (+1.1%) outperformed with corporate earnings back in the limelight, while Hang Seng (+0.4%) and Shanghai Comp. (-1.4%) ignored strong trade data and were indecisive after the PBoC skipped open market operations for the 11th consecutive occasion, and with heavy losses seen across the big 4 banks in the mainland. The biggest highlight of the overnight session, however, was the yuan which, as we reported overnight, fell the most since the currency’s devaluation in August 2015 after China reported a much narrower-than-expected trade surplus as imports jumped. According to Reuters, China has resumed its Qualified Domestic Limited Partnership plan after a two-year halt, granting licenses to about a dozen global money managers that can raise funds in China for overseas investments. Increasing imports and investment overseas both contribute to a weaker currency, and the result was a sharp plunge in the Yuan, a move which may again be criticized by Trump as indicative of currency wars. "Selling of offshore yuan has spurred short covering of the dollar,” said Ko Haruki, head of the financial solutions group at CIBC World Markets (Japan) in Tokyo. "The dollar’s gain against the yuan is lifting dollar-yen, which had also seen short covering as the Nikkei 225 stayed in positive territory." In other words, in today's interlinked market, the plunge in the Yuan, ended up boosting Japanese stocks by way of a dollar, that traded higher much of the overnight session. Meanwhile, the all important catalyst for the recent equity selloff, U.S. 10-year Treasuries, were steady after Senate leaders unveiled a bipartisan deficit busting deal while weak demand at Wednesday's 10Y auction pushed the yield back toward the recent four-year high. At the same time, the pound drifted higher before a Bank of England rate decision, and the euro weakened as ECB member Jens Weidmann said the central bank will monitor the impact of the currency on inflation. USD continues to find support across G-10, with ZAR and TRY particularly weak; yuan in focus after overnight selloff, which was driven by narrower trade surplus and increased outbound investment reports. A summary of key macro moves, courtesy of Bloomberg: EUR/USD reached a two-week low of 1.2232 amid broad dollar strength; BBDXY rose for a second day and earlier reached its highest since Jan. 23 GBP/USD slips for fifth day, headed for its worst run in 11 months USD/JPY climbed, as the yen tracked the plunge in the yuan Yield on 10Y Treasuries little changed; dollar-curve bear steepened with 30Y underperforming In commodities, WTI and Brent crude futures have seen relatively sideways trade overnight and this morning as prices remain in close proximity to yesterday’s lows seen in the wake of the ramp up in US production shown via the DOE’s with output above 10mln bpd and perhaps more crucially, above that of Saudi Arabia. Elsewhere, latest reports confirm that the Forties pipeline has now resumed operations. In metals markets, spot gold is trading lower as the yellow metal succumbs to the firmer USD, while copper’s attempt to nurse losses during Asia-Pac trade was restricted by the risk averse tone in its largest consumer China. Bulletin Headline Summary from Ransquawk European bourses trade lower across the board in sympathy with the pull-back seen on Wall Street yesterday DXY has rallied above 90.000 and as far as 90.500. Nzd/Usd has pared some losses to trade back over 0.7200 Looking ahead, highlights today include the BoE rate decision and a slew of speakers including ECB’s Villeroy, BoE Governor Carney, Fed’s Harker, Fed’s Kashkari, BoC’s Wilkins Market Snapshot S&P 500 futures down 0.1% to 2,665.0 STOXX Europe 600 down 0.3% to 378.89 MSCI Asia Pacific up 0.3% to 173.47 MSCI Asia Pacific ex Japan up 0.09% to 566.67 Nikkei up 1.1% to 21,890.86 Topix up 0.9% to 1,765.69 Hang Seng Index up 0.4% to 30,451.27 Shanghai Composite down 1.4% to 3,262.05 Sensex up 1% to 34,405.30 Australia S&P/ASX 200 up 0.2% to 5,890.70 Kospi up 0.5% to 2,407.62 Gold spot down 0.6% to $1,309.95 U.S. Dollar Index up 0.3% to 90.53 German 10Y yield rose 1.9 bps to 0.764% Euro down 0.3% to $1.2233 Brent Futures down 0.09% to $65.45/bbl Italian 10Y yield fell 3.8 bps to 1.682% Spanish 10Y yield rose 1.1 bps to 1.426% Top Overnight News from BBG Fed’s Kaplan: 3 hikes this year is appropriate; best way to continue expansion is to remove accommodation Reuters: China revives QDLP outbound investment scheme; licenses granted for some funds to raise money in China for investment overseas ending a 2-year halt, according to people familiar Japanese investors dumped U.S. sovereign bonds for a third month in December, taking sales last year to the highest in a decade. Total withdrawals for 2017 were 3.83 trillion yen, the most since 2007, when they offloaded 3.98 trillion yen. They were net buyers between 2014 and 2016. Senate leaders in the U.S. announced a bipartisan two-year budget agreement Wednesday that would provide nearly $300 billion in additional funding, a crucial step toward averting a Friday government shutdown The European Commission is struggling to translate the U.K.’s Brexit pledges on Ireland into a legally binding text, even before they present it to the U.K. in negotiations, according to people familiar with the EU side. New Zealand’s central bank held interest rates at a record low and projected they will stay there until mid-2019 as inflation remains subdued amid slower economic growth. Federal Reserve Bank of San Francisco President John Williams said he isn’t altering his view on the U.S. economy or preference for a continued gradual rate hike path after several days of volatile markets. “The risks seem to be moving toward the likelihood of more inflation, and that’s a good thing,” Federal Reserve Bank of Chicago President Charles Evans says The greenback gained as much as 0.9% against the offshore yuan, while advancing 0.3% against the yen to 109.61 after earlier being down as much as 0.2%. The Nikkei 225 index climbed 1.1% China’s yuan sank the most since the aftermath of the shock devaluation in August 2015. Reuters reported that the Chinese government will relax controls on investment fund outflows. China’s trade surplus figures missed estimates and speculation policy makers will step up efforts to rein in gains, pressured the yuan Franklin Templeton bond chief, Michael Hasenstab, is doubling down on bets that Treasuries are doomed due to rising rates. He’s been loading up on wagers that protect against a spike in yields in his $38 billion flagship Global Bond Fund. The move has pushed average duration in the portfolio to the shortest on record. The German grand-coalition agreement helped pare peripheral spreads versus bunds to the lowest since 2010, which should allow Greece to resume plans for a 7Y EUR note, Commerzbank analysts said in a note today BOE Governor Mark Carney may be less reassuring if he signals more tightening today amid expectations the central bank will upgrade its quarterly outlook Asian equity markets traded mixed with the region somewhat cautious following the subdued lead from Wall St. where price action was choppy and all majors closed in the red. ASX 200 (+0.2%) was lower for most of the day as weakness in the commodity complex weighed on mining names, and with industry giant Rio Tinto also pressured after investors bought the rumour and sold on the news of a strong earnings report. However, the index then gradually pared losses as strong Chinese Imports provided some encouragement. Elsewhere, Nikkei 225 (+1.1%) outperformed with corporate earnings back in the limelight, while Hang Seng (+0.4%) and Shanghai Comp. (-1.4%) ignored strong trade data and were indecisive after the PBoC skipped open market operations for the 11th consecutive occasion, and with heavy losses seen across the big 4 banks in the mainland. Finally, 10yr JGBs were marginally lower with demand subdued amid gains in Japanese risk assets, while the 30yr JGB auction also failed to provide support despite increased demand and higher accepted prices. PBoC skipped open market operations and was net neutral on the d Top Asian News China’s Yuan Plunges Most Since Aftermath of Devaluation in 2015 BOJ’s Suzuki Is Monitoring Impact of Monetary Easing on Banks China Jan. Exports Rise 6.0% Y/y in Yuan Terms; Est. 2.6% Australia’s Lowe Sees No ‘Strong Case’ for Near-Term Rate Move Turkey’s Big Year for IPOs Is Off to an Underwhelming Start Everything’s a Sell in China After $660 Billion Equity Wipeout China trade from CapEco: Trade appears strong but seasonal effects muddy the waters. Chinese trade beat expectations at the start to 2018. But seasonal volatility means that we won’t get a clear reading on the pace of foreign shipments until next month. Export growth edged down from 7.4% y/y in December to 6.0% last month in renminbi terms (the Bloomberg median was 2.6%, our forecast was 0.0%). Adjusting for a rise in export prices, we estimate that growth in export volumes dropped from 6.9% y/y to 5.2%. It is surprising that growth in outbound shipments didn’t decline by a wider margin given that Chinese New Year falls later this year than last, which should have meant that less of the pre-holiday rush to meet orders took place in January. We estimate that export volumes rose around 3% m/m in seasonally adjusted terms last month, reaching an all-time high. This suggests that strong foreign demand – the global manufacturing PMI remained close to a seven-year high in January – has continued to support shipments of Chinese goods. Meanwhile, import growth jumped in January, from 0.9% y/y to 30.2% (Bloomberg 5.3%, CE 6.0%). Adjusting for price effects, we estimate that growth in import volumes also surged, from -3.9% y/y to 26.0%. A pick-up was expected given that more of the build-up in inventories ahead of the pre-New Year rush should have taken place in January this year relative to 2017. But as with exports, the outturn exceeded expectations. We estimate that, even after stripping out seasonal factors, import volumes jumped 15% m/m last month, more than reversing a 7.2% fall in December. On the face of it then, the data point to a very strong start to the year for Chinese trade. But the figures need to be treated with caution since although we have done our best to adjust for shifts in the timing of Lunar New Year, it is not always possible to iron out these distortions entirely. The picture will become clearer once we are able to average across the data for first two months of the year. We think export growth will rise further in February but expect import growth to drop back sharply as the seasonal base effects reverse. European equities (Eurostoxx 50 -0.6%) trade lower across the board in sympathy with the broader pull-back in risk around the globe today and in the US on Wednesday. In terms of sector specifics, the financial sector is the outperformer with earnings from the likes of Commerzbank (+2.4%), SocGen (+4.1%), UniCredit (+2.6%) and Zurich Insurance (+3.8%) lifting the sector with Swiss Re (+3.8%) also lending a helping hand near the top of the SMI after news that Softbank could acquire a stake in the Co. Elsewhere, GSK (+2.3%) has been supported by news that Novartis’ launch of their Advair copy will be delayed. In terms of bourses, the CAC (-0.3%) has seen some modest outperformance, with domestic earnings from Total (+1.8%), Pernod Ricard (+2.2%) and Publicis (+3.8%) capping losses. Finally, Talk Talk (-10%) are enduring a difficult morning of trade after announcing a GBP 200mln share placement. Top European News TDC Soars After News of a Cash Takeover Bid From Giant Funds May Said to Plan Instant Split From Some EU Rules After Brexit Merkel’s Fourth Term Now Rides on Germany’s Changing Rust Belt Zurich Delivers on Dividend Pledge as Insurer Slashes Costs In currncies,the Nzd/Usd has pared some losses to trade back over 0.7200 from a circa 0.7175 low overnight after the RBNZ stood pat on rates as widely expected, but surprised with a broadly dovish accompanying statement and additional comments projecting a further downturn in the Kiwi on a TWI basis. While maintaining guidance for tightening from Q2 next year, Governor Spencer and his assistant McDermott cautioned that the next move could be a cut or hike. Hence, the Aud/Nzd cross has rebounded above 1.0800 again and almost touched 1.0900 at one stage, as Aud/Usd keeps its head above 0.7800 despite RBA governor Lowe RBA Governor Lowe stating that the RBA does not see a strong case for raising interest rates in the near term. Elsewhere, Usd/Jpy has climbed towards the top of a broad 109.00-110.00 range amidst a renewed pledge from BoJ head Kuroda to continue with powerful QE to achieve price stability as it remains some way from reaching the inflation target. Eur/Usd has also broken out from recent trading parameters, partly on ECB claims that the US is keeping the Dollar weak, but mainly as the Greenback gleans more of a yield advantage. The headline pair has bounced in advance of a series of key chart supports in the 1.2222-27 area, but may not get close to decent option expiry strikes between 1.2300-10 (1.35 bn). Sterling is holding up relatively well in the run up to a potentially more hawkish BoE post-meeting QIR with Cable above 1.3850 and Eur/Gbp sub-0.8850 vs 0.8900 and over of late. Note, option pricing suggests a big market move on the event, 120 pips either way. Usd/Cad still hovering just below 1.2600 as Canadian President Trudeau repeats that no NAFTA deal is better than the wrong one, while Usd/Chf is sitting near the top of a higher 0.9425-50 band having pushed through strong tech resistance at the lower end. Usd/Cny has bounced firmly on a much smaller than forecast Chinese trade surplus and reports about relaxed capital controls – hence the DXY has rallied above 90.000 and as far as 90.500. In commodities, WTI and Brent crude futures have seen relatively sideways trade overnight and this morning as prices remain in close proximity to yesterday’s lows seen in the wake of the ramp up in US production shown via the DOE’s with output above 10mln bpd and perhaps more crucially, above that of Saudi Arabia. Elsewhere, latest reports confirm that the Forties pipeline has now resumed operations. In metals markets, spot gold is trading lower as the yellow metal succumbs to the firmer USD, while copper’s attempt to nurse losses during Asia-Pac trade was restricted by the risk averse tone in its largest consumer China. North Sea Forties crude oil pipeline has restarted. Looking at the day ahead, the BoE should be the highlight today with the MPC meeting due around midday. The latest inflation report will be released alongside this and Governor Carney will then follow with his press conference. Away from that, the December trade data is out in Germany and the latest weekly initial jobless claims data in the US are also due. The Fed's Kashkari and Harker are also slated to speak in the afternoon at separate events, while the ECB's Mersch, Praet and Villeory will speak. AIGand CVS Health are due to report earnings. US Event Calendar 8am: Fed’s Harker Speaks on Economy: Outlook and Impact for College 8:30am: Initial Jobless Claims, est. 232,000, prior 230,000; Continuing Claims, est. 1.94m, prior 1.95m 9am: Fed’s Kashkari Speaks in Moderated Q&A 9pm: Fed’s George Speaks on the Economy DB's Jim reid concludes the overnight wrap Has the phrase “healthy correction” ever been used more than it has over the past 24 hours? Given that the VIX traded above 50 on Tuesday (a level it hasn’t closed at since March 2009) I’d hate to see what an unhealthy correction looks like. Having said that markets are broadly adhering to the script of what normally happens after the largest VIX spikes seen on record. As a reminder on Tuesday night we published a quick note showing what happens 1 week, 1 month and 3 months after the largest 10 VIX spikes in history. Basically the VIX usually rallies over all subsequent periods but equities tend to be higher the week after but on average fall 3 months later. The reverse is true for bonds. Things were adhering to this script for most of the day (especially in Europe) but a late US equity sell-off provided some renewed jitters to markets. The VIX did fall 7.5% to 27.73 but the S&P 500 fell -0.50% - well off the day’s highs of +1.21% just before Europe’s strong close (more below) and including a near 1% drop in the last 20 minutes of trading. Activity remains high and according to Bloomberg volume on US exchanges exceeded 9 billion shares for a fourth straight day after surpassing that total just once in the past seven months. The reversal seemed to stem from a disappointing 10 year Treasury auction which lifted yields around 8bps from the lows for the session (+3.4bps on the day to 2.837%) and perhaps also because of the Senate’s additional spending plans (more below). Given the turmoil this week it is very telling that 10yr US yields are back to where they were at payroll Friday’s close having climbed 19.1bps from Tuesday’s lows. Very soon we’ll start building up to next Wednesday’s US January CPI print and although the importance of one number should be downplayed in theory, in reality it’s fair to say that this will be an incredibly closely watched number for global markets. A higher than expected print will likely extend the volatility and probablycause risk to sell-off whereas an in-line or softer print will be very risk positive. We’ve got no idea about where one number is going to come in but we’d expect inflation to more often beat on the upside in 2018. Interestingly DB’s Alan Ruskin yesterday highlighted that over the last 25 years, January core CPI m/m% was lower than Dec core CPI m/m% on only 5 occasions. The Feb core CPI was higher than January core CPI on only 6 of the last 25 occasions. He points out that there is a bias in the seasonally adjusted data for a bump up in January m/m% relative to both December and February. Food for thought. In the US, Senate leaders have announced a bipartisan two year budget deal – including c$300bn of new spending and suspension of the federal debt ceiling until March 2019. The agreement is expected to extend the government funding until 23 March while the lawmakers refine details on the longer term plans. Looking ahead, the bill will be voted on in the Senate today and then move to the House, where it is not certain that it will pass. House Minority leader Ms Pelosi noted she won’t back the bill without a commitment from Speaker Ryan to allow an open debate on the immigration issues, similar to the promise made earlier by Senator McConnell. In Germany, Ms Merkel and the SPD have reached an agreement to form the next coalition government, with the SPD likely to gain the finance and foreign affairs ministry posts as part of the concession (as per Bloomberg). Notably, the SPD has held these two ministries before, back in the 2005-2009’s grand coalition government. For now, Ms Merkel has reaffirmed her commitment to a “solid” fiscal policy and noted “you can only spend the money you have…I’m not worried at all”. In view of the SPD gaining many of the key Government positions and their previously stated desire to create a United States of Europe by 2025, the result could boost the potential for a deeper EU integration as proposed earlier by France’s President Macron where he advocated a joint budget and common finance ministers for the region. Looking ahead, the deal needs to be approved by the SPD’s 463k rank and file members, where confirmation is not certain. This morning in Asia, markets are mixed but firming as we type. The Nikkei (+1.22%), Kospi (+0.74%) and Hang Seng (+0.77) are all up whilst the China’s CSI 300 (-0.89%) is lower. Datawise, China’s January trade surplus was less than expected at $20.3bn (vs. $54.7b) as a strong rise in imports (36.9% vs. 10.6% expected) outpaced exports growth (11.1%). Elsewhere, in his first public speech since joining the BOJ’s board, Mr Suzuki noted the central bank must continue with easing for a while as inflation is still far from the BOJ’s 2% target. Now recapping other market performance from yesterday. As mentioned earlier, US bourses fluctuated during the day before closing lower (S&P -0.50%; Dow -0.08%; Nasdaq -0.90%). Within the S&P, modest gains in the telco and financials were more than offset by losses from energy and tech stocks. European markets were all up and rebounded c2%, in part playing a catch up to the positive US lead from the prior day. The Stoxx 600 rose for the first time in seven days and printed the largest gain since June 2016 (+1.97%), while the DAX (+1.60%) and FTSE (+1.93%) also rose. The VSTOXX fell 29% back to April 17 levels (21.37). Over in government bonds, core 10y bond yields rose 3-5bp (UST +3.4bp; Bunds +5.2bp; Gilts +3bp) while peripherals outperformed, with yields down 1-4bp, in part boosted by the potential for tighter EU integration post the German coalition talks. Turning to currencies, the US dollar index firmed for the fourth consecutive day (+0.75%), while the Euro and Sterling weakened 0.91% and 0.49% respectively. In commodities, WTI oil dropped 2.52% following the latest EIA data showed a rise in US crude inventories and domestic oil output. Elsewhere, precious metals weakened c1% (Gold -0.44%; Silver -1.64%) and other base metals also retreated (Copper -2.1%; Zinc -1.56%; Aluminium +0.32%). Away from the markets and onto the four Fed speakers. On the recent US equity sell off, they all seemed to be taking it in their stride. The Fed’s Dudley noted that “having a bump like this has virtually no consequences on my view of the economic outlook”. The Fed’s Kaplan added these corrections “can be healthy” and has little implication for the US economy. Then the Fed’s Williams noted “I don’t see any of the movements in asset prices of late to fundamentally change my view of the economy”. Elsewhere, the Fed’s Evans noted the US economy is “firing on all cylinders” and believe the recent equity selloff was “an outsized response”. Moving onto rates and inflation. Mr Williams who is a voter this year said “we should have a gradual increase in rates this year and next…right now, I’m not taking any signal” from the data, although he also added “even four rate hikes is very gradual”. Elsewhere Mr Evans has reaffirmed his views of keeping rates flat until mid-18 in order to assess the incoming inflation data. Although he also added “suppose inflation picks up more assuredly….then we still could easily raise rates another three or even four times in 2018 if that were necessary”. Finally, Mr Kaplan noted that “we are likely to overshoot full employment and it would be wise to be removing accommodation in a patient and balance manner”. Back in the UK and ahead of today’s BOE, DB’s Oliver Harvey argues that it will be difficult for the Bank to out-hawk current market pricing at this meeting. While the Bank is unlikely to push back against the tighter path implied by the market forward curve, they think that it is still too difficult for it to signal confidence in a May hike given ongoing risks about Brexit transition, the wedge between domestic and external demand and limited evidence of an overheating labour market. Staying in Europe, the European Commission has upgraded its GDP growth forecasts for the Euro area. Growth for 2018 is now 2.3% (+0.2ppt from previous) and 2% for 2019. Elsewhere, inflation is expected to be marginally higher to 1.5% this year but unchanged at 1.6% for 2019. The EC forecasts UK growth to slow to 1.4% this year and 1.1% next year (DB expects growth of 1.3% and 1.5% respectively). Elsewhere, the ECB’s Lautenschlaeger noted price trends justify ending the QE program this year. Before we take a look at today’s calendar, we wrap up with other data releases from yesterday. In the US, the December consumer credit was lower than expected at $18.5bln (vs. $20.0bln), but prior revisions meant annual growth was up 5.4% yoy. Following a stronger November reading, Germany’s December IP fell a bit less than expected at -0.6% mom (vs. -0.7%), leading to an annual growth of 6.5% yoy. In France, the December trade balance deficit narrowed to -EUR3.5bln (vs. -EUR4.9bln) - the smallest deficit since May 2016. A rebound in exports boosted annual growth to 4.1% yoy whereas imports rose 3.0% yoy. In the UK, the January Halifax house price index fell -0.6% mom (vs. 0.2% expected) leading to an annual growth of 2.2% yoy (vs 2.4% expected). Finally, Italy’s December retail sales was lower than expectations at -0.1% yoy (vs 1%). Looking at the day ahead, the BoE should be the highlight today with the MPC meeting due around midday. The latest inflation report will be released alongside this and Governor Carney will then follow with his press conference. Away from that, the December trade data is out in Germany and the latest weekly initial jobless claims data in the US are also due. The Fed's Kashkari and Harker are also slated to speak in the afternoon at separate events, while the ECB's Mersch, Praet and Villeory will speak. AIGand CVS Health are due to report earnings.
Заметки на полях: Пока я, и вы, занимались выборами, в мире произошло много всего интересного. Давайте попробуем обозначить самое важное из текущего, а в качестве звукового фона можно послушать писки политических клоунов, проклинающих судьбу, оплакивающих несостоявшиеся московские гешефты и узнавших себя в моем скромном вчерашнем тексте. Я тут даже пари заключил, что кое-кто из них не сдержится и отреагирует.Итак, нафиг клоунов, смотрим, что происходит в реальном мире.1. На 100% главная тема, это серьезный конфликт по линии США - Европа. Это очень приятная и перспективная новость для нас и, конечно же, для наших китайских партнеров. На практическом уровне этот конфликт выражается в трех конкретных сюжетах:1.1. Фактический срыв переговоров по "Трансатлантическому партнерству". Пользуюсь случаем передать большой привет всем, кто мне многократно писал о том, что его неизбежно подпишут ибо так сказал Белый Дом. Не получилось у американцев сломать нетарифные барьеры рынка ЕС и, самое главное, провалился план по подчинению европейской исполнительной, судебной и законодательной власти американским частным судам по механизму ISDS. Евросоюз, прежде всего Германия и Франция, смогли выдержать очень серьезное давление и сохранить за собой ключевые механизмы, которые в будущем могут быть использованы для восстановления полноценного суверенитета. Тут не стоит ожидать особо резких движений и вооруженных восстаний, но и улюлюкать с галерки тоже не надо. Они сейчас находятся в позиции, аналогичной той, в которой находилась Россия 17 лет назад. Пройти путь до полного суверенитета сложно, но можно и они делают по нему первые и самые трудные шаги. 17 лет назад в аналогичный вариант в России тоже никто не верил, но даже то, что мы имеем сейчас казалось абсолютной фантастикой три года назад.1.2. Европа, как правильно заметил хороший английский юрист Дмитрий Гололобов, устроила себе аналог дела ЮКОСа. Это налоговое дело корпорации Apple, которую взяли за вымя и предъявили налоговых претензий на 13 миллиардов евро. Аналогия с ЮКОС-ом очень правильная в том смысле, что европейцы пытаются доказать на практике, что они имеют право собирать дань (налоги) на своей территории. Если выражать мысль совсем прямолинейно, то европейцы выясняют "кто здесь власть" и американской стороне это сильно не нраву.Ответ американцев последовал незамедлительно. Прокуроры выписали и так дышащему на ладан Дойче Банку штраф в 14 миллиардов долларов за неправедное поведение в 2008 году. Европейцы не отступают, Дойче Банк заявил, что платить не будет, а Еврокомиссия оштрафовала МакДональдс на 500 миллионов долларов за неуплату налогов. Буквально сегодня, Еврокомиссия подняла ставки выше и заявила, что "это только начало(!)" - https://www.rt.com/business/359995-apple-tax-penalty-eu/Наблюдая со стороны, можно сказать, что в шахматных терминах происходит что-то вроде:1. e2-e4 d7-d52. e4:d5 Фd8:d53. Kb1-c3...Прогноз: Продолжение бодрого рубилова с сохранением стратегической инициативы белых (ЕС)1.3. Связка Германия+Франция продолжает попытки продавит создание собственной европейской армии, для того чтобы на следующем (очевидном для всех) ходу заявить, что "нафиг нам это НАТО". Пока получается плохо, но на фоне Брекзита, инициатива вполне имеет шансы на жизнь, что очень печалит наших польских, прибалтийских, болгарских и других соседей.2. Трамп идет вровень с Клинтон и это тоже очень хорошая новость. Даже по мнению ультраклинтонита Нейта Сильвера и его аналитиков, Трамп радикально сократил свое отставание от Клинтон и имеет положительную динамику. По его модели, которая учитывает еще несколько факторов помимо опросов, шансы сейчас 42% на 58% в пользу Клинтон, но с учетом лютой ангажированности составителя модели, это скорее указывает на 50/50.Кстати, книжку Сильвера The Signal and the Noise: The Art and Science of Prediction я очень рекомендую любому, кто интересуется реальным моделированием политических процессов и прикладной прогностикой (я все еще работаю над постингом рекомендованных книг и он уже приобрел абсолютно неприличные размеры)3. Сюжет с Дойче Банком достоин отдельного внимания так как он связан с ситуацией в Германии в целом. Дойче Банк - это европейский Леман и Bear Stearns в одном флаконе. С одной стороны у Дойче явные проблемы с капиталом и они начались несколько лет назад. Дефицит капитала - огромный - http://www.agefi.com/ageficom/marches-et-produits/detail/edition/online/article/dans-un-communique-publie-mardi-zew-linstitut-de-recherche-economique-allemand-connu-pour-son-indicateur-de-sentiment-annoncait-les-resultats-de-son-propre-stress-test-des-banques-432907.htmlАмериканский штраф - это просто вишенка на торте. По качеству активов, главный банк Германии - это так называемый "зомби банк", то есть банк, который с высокой долей вероятности обанкротился бы, если бы его не поддерживали на плаву искусственным образом. Рынки периодически накрывает волна паники по поводу того, что Дойче может просто повторить судьбу Лемана, и тогда мало не покажется никому. Этой же логикой, видимо, руководствуются и американцы, когда бьют в эту болевую точку Германии. Однако, я не из тех, кто думает, что Дойче дадут умереть. Это невозможно по экономическим и, тем более, по политическим причинам. Меркель проигрывает местные выборы одни за другими, и уже ее коллеги по партии начинают размышлять не стоит ли задобрить избирателей ее отставкой. Если на фоне ползучего политического кризиса и кризиса с беженцами, начнет рушиться главный банк страны, на который намертво завязана немецкая экономика, то Меркель будет готова на любые жертвы и на любые уступки ради того чтобы ее бывший подчиненный и нынешний враг Йенс Вайдман напялил на себя черный цилиндр Барона Самёди (https://ru.wikipedia.org/wiki/%D0%91%D0%B0%D1%80%D0%BE%D0%BD_%D0%A1%D1%83%D0%B1%D0%B1%D0%BE%D1%82%D0%B0) и поднял из могилы Дойче Банк с помощью вливаний свежих евро из немецкого ЦБ. Да, весь мир увидит, что банк - зомби, но на предвыборный период – сойдет.4. Главная интрига на монетарном фронте - что будет делать ФРС после выборов в США. После недавнего небольшого приступа паники, рынки вроде успокоились благодаря обещаниям членов ФРС ничего не поднимать в сентябре, но вот декабрь - это совсем другое дело. Президент Трамп вполне может попробовать еще раз включить "долларовый пылесос", и резко поднять ставки (на что он собственно и намекал в одном из своих выступлений), а президент Клинтон вообще может попробовать двинуть ставки в минус в 2017 из-за того что для реализации ее геополитических амбиций придется перейти на такие стимулы экономики, которые по действию будут сильно напоминать ту дрянь, которую жрут американские олимпийцы. По сему: позицию на сохранение ставок на текущем уровне сохраняю (в виде позиций по фьючерсам на Fed Funds) на сентябрь и в пятницу можно будет рассмотреть аналогичную позицию на ноябрь. А вот что будет в декабре (и как это повлияет на развивающиеся рынки, в том числе на нас и на Китай) - не знает, думаю, никто.Это была первая часть геополитического обзора. В следующей, рассмотрим, что у нас интересного происходит на другом краю света: Китай, Япония, Дальний Восток РФ и вообще, как у нас дела с "поворотом на Восток". Спойлер: дела у нас налаживаются.
Существует реальная опасность того, что разделение Европы на два уровня станет постоянным. Как человеческие, так и финансовые ресурсы будут привлекаться в центр, в то время как периферия будет находиться в постоянном кризисе. Но периферия кипит от негодования, пишет на сайте Project Syndicate всемирно известный инвестор Джордж Сорос.Покинуть еврозону нужно не слабым странам, а самой сильной - Германии Джордж Сорос: Несчастья Европы начались не по чьему-то злому умыслу. Скорее всего, причина кроется в отсутствии последовательной политики. Как в древнегреческих трагедиях, заблуждения и полное отсутствие понимания имеют непреднамеренные, но роковые последствия. Германия, как крупнейший кредитор, несет наибольшую ответственность, но она отказывается брать на себя дополнительные обязательства. В результате все возможности урегулирования кризиса были упущены. Кризис распространился из Греции в другие страны с дефицитом платежного баланса, в конечном счете ставя под вопрос само выживание евро. Так как распад еврозоны принесет серьезный ущерб, Германия всегда выполняет тот минимум, который необходим для поддержания союза.Не так давно канцлер Германии Ангела Меркель поддержала президента ЕЦБ Марио Драги, оставляя президента Бундесбанка Йенса Вайдмана в стороне. Это позволит ЕЦБ пресечь рост стоимости займа для стран, которые следуют программе экономии под руководством "тройки" (МВФ, ЕЦБ и Европейской комиссии). Это спасет еврозону, но это же и шаг к вечному разделению Европы на кредиторов и должников.Рано или поздно должники будут вынуждены покинуть двухуровневую Европу. Если в результате начавшегося беспорядка еврозона распадется, общий рынок и ЕС исчезнут, оставив Европу в гораздо худшем состоянии, чем было до объединения, вследствие возникшего взаимного недоверия и враждебности. Чем позже произойдет распад, тем хуже будут последствия. Пришло время рассмотреть альтернативы, которые до этого казались немыслимыми.На мой взгляд, лучшим образом действий было бы поставить Германию перед выбором: либо взять в свои руки создание политического союза с честным разделением бремени, либо покинуть еврозону.Так как все накопленные долги деноминированы в евро, все зависит от того, кто останется во главе валютного союза. Если Германия выйдет, евро будет падать. Страны-должники восстановили бы свою конкурентоспособность, их долги уменьшились бы в реальном выражении, и, при наличии ЕЦБ в их распоряжении, угроза дефолта испарилась бы. А стоимость заимствования упала бы до уровня, сопоставимого с уровнем Великобритании.Страны-кредиторы, напротив, понесут потери от своих исков и инвестиций, деноминированных в евро, и столкнутся с жесткой конкуренцией на внутреннем рынке со стороны прочих стран-участниц еврозоны. Масштабы потерь будут зависеть от степени обесценивания евро, а, следовательно, они будут заинтересованы в том, чтобы сдержать обесценивание.После первоначального беспорядка конечным результатом будет исполнение мечты Джона Мейнарда Кейнса: международная валютная система, в которой как кредиторы, так и должники заинтересованы в поддержании стабильности. А Европа сможет предотвратить надвигающуюся депрессию.Те же результаты были бы достигнуты с меньшими потерями для Германии, если бы Германия решила играть роль великодушного гегемона. Это подразумевает создание предлагаемого Европейского банковского союза; установление более или менее равных экономических условий для стран-кредиторов и должников при организации Фонда сокращения задолженности и в конце концов при переводе всех долговых обязательств в еврооблигации; а также стремление к номинальному росту в 5%, чтобы таким образом Европа смогла преодолеть чрезмерное долговое бремя.Что бы Германия ни решила, руководить или уйти, любая альтернатива будет лучше, чем создание неустойчивой двухуровневой Европы.