Oil Erases Saudi Jawbone Gains Amid China Glut Concerns

via by Tyler Durden on Fri, 13 Jan 2017 12:51:56 GMT

Oil prices rallied the last couple of days on the heels of Saudi jawboning about just how much they cut production, after concerns on US shale production surging. However, prices are falling back as despite near-record imports of crude reported overnight in China, it appears that historical demand has 'glutted' refiners (who exported record product in 2016) leaving a slew of oil tankers stranded off the Chinese coast.

As Reuters reports, China's crude oil imports jumped to a record high in December as refiners stepped up purchases ahead of a possible OPEC deal to cut supply and bolster prices, and as more independent refiners won import permits.

Exports of refined fuel also surged to a new high as the country's giant state refiners shipped more product offshore in the face of a growing domestic surplus, adding to pressure on Asian refining margins.

 

Crude imports hit 36.38 million tonnes in December, data from the Chinese General Administration of Customs showed, or 8.57 million barrels per day (bpd).

 

 

This was up 9 percent from November and well above the previous record of 8.04 million bpd set last September.

Inbound shipments to China rose to a record average of 7.63 million barrels a day in 2016, boosted by the teapots, Bloomberg notes that government data shows. The purchases were one of the factors that helped crude prices recover from their worst crash in a generation. But then, authorities began clamping down on anyone skirting rules.

However, as Bloomberg warns, that demand/import picture is backward-looking, as now a clutch of tankers filled with crude its buyers couldn’t touch revealed the pall of gloom that’s spread over a coveted oil market.

China’s independent refiners, which contributed to the nation’s record purchases from overseas last year, were unable to take delivery of the shipments earlier this month because they hadn’t received government approval on how much they’re allowed to import in 2017. Vessels with oil wereidling off the coast of the eastern province of Shandong, where the plants known as teapots are clustered, according to people with knowledge of matter.

 

“Following the granting of import licenses from the central government, the Chinese teapots represented a new demand segment in the Asian oil market,” said John Driscoll, the chief strategist at JTD Energy Services Pte, who has spent more than 30 years trading crude and petroleum in Singapore. However, “in addition to the infrastructure constraints from Qingdao to Shandong, regulations, credit issues and geopolitical swings can impair their ability to import. The window of opportunity can slam shut as fast as it opened,” he said.

 

The vessels carrying crude that were idling off Shandong were unable to discharge the oil at terminal ports because they weren’t able to clear customs, said the people, who asked not to be identified as they aren’t authorized to speak to the media.

 

“The Chinese government is tightening supervision as some problems emerged with a surge in crude imports by the independent refiners including alleged misuse of the imported oil or evasion of taxes,” Jean Zou, an analyst with commodities researcher ICIS-China, said by phone.

 

China will definitely insist on its policy to liberate the oil market gradually but it also has to review, reassess and solve the consequential controversies.”

Saudi Arabia reportedly reduced output to less than 10 million barrels a day and will consider renewing its pledge to trim supply in six months, according to Energy Minister Khalid Al-Falih. Still, until monthly production data is released, “these claims cannot be verified,” according to Commerzbank AG.

And the end-result is Saudi jawboning is losing its power...

Where's The Outrage?

via by Tyler Durden on Fri, 13 Jan 2017 12:40:35 GMT

Submitted by Roger Barris via Acting-Man.com,

Blind to Crony Socialism

Whenever a failed CEO is fired with a cushy payoff, the outrage is swift and voluminous.  The liberal press usually misrepresents this as a hypocritical “jobs for the boys” program within the capitalist class.  In reality, the payoffs are almost always contractual obligations, often for deferred compensation, that the companies vigorously try to avoid.  Believe me.  I’ve been on both sides of this kind of dispute (except, of course, for the “failed” bit).

 

People are usually struck by the seeming injustice of CEOs running companies into the ground and then getting paid obscene amounts in the form of “golden parachute” type good-bye presents. Often there is no other way to get rid of a bad CEO though –  if his or her employment contract guarantees a large termination benefit, the company may have little choice in the matter. As a rule, private shareholders are bearing the cost of such transactions, and they are in this position voluntarily (after all, they could sell their shares or vote against generous CEO payment packages at shareholder meetings). We realize of course that in the age of crony socialism, one usually has to judge such things carefully on a case by case basis. Still, it is a far cry from the misuse of taxpayer funds, which are appropriated by coercion and offer those bearing the costs no opportunity to “opt out”.

So where’s the liberal outrage with a story like the pension swindle in El Monte, California?  This is about a dying town, with a per capita income of $10,316 and a quarter of its population below the poverty line, that is paying a pension to one of its retired (at the age of 58) city managers of more than $250,000 per year.  Adjusted for inflation.  With medical for him and his wife.  And survivorship benefits.  And to which he contributed nothing.

Or another retired city manager who collects $216,000 per year, allowing him to “take some things off his bucket list” such as golfing at the Old Course at St Andrews.  And it looks like the public is paying for more than just green fees.  His retirement came shortly after he was swept up in an anti-prostitution sting operation.

More broadly, with Trump’s cabinet nominations and his presidency, there is currently an enormous amount of discussion about conflicts of interest in the public sector.  All of these discussions completely ignore the most flagrant example.

 

Squeezed by cronyism

 

Public Sector Union Thugs

Many politicians, especially Democrats, get elected with huge support from public sector unions.  When it comes to negotiating the compensation of public employees, the unionists sit, in essence, on both sides of the table.  The politicians buy the support of the unions with public money.

The favorite coinage for this corrupt bargain is pension and other retirement benefits since the real cost of the bribery is easily obscured with bogus assumptions, especially about expected investment returns.[1]  The end result is public pension plans that are underfunded by trillions and the occasional bankruptcy in a place like Detroit.

 

The costs of surreptitious vote buying via the detour of public sector unions supporting politicians, who then provide enormous taxpayer-funded benefits to union members have become increasingly obvious to the tax cows in recent years. Ever since the bubble era has begun to be frequently shaken by financial crises, many pension funds had to abandon their fictitious return assumptions. Suddenly it became clear that maintaining the generous benefits and pensions of a great many “civil servants” would require vast sacrifices. Alas, those asked to do the sacrificing can only dream of receiving even remotely similar benefits.

 

This is such a glaring conflict that I have tried to find if there are any laws against it.  So far, I have found nothing.  I have, however, found an Atlantic article by a clearly left-wing journalist who started off very sympathetic to public unions but who had a Damascene moment when he was a reporter in a small California town:

“Over the next couple years, I nevertheless came to see the several downsides of the union’s influence. Contract negotiations were held in private, with the City Council representing Rancho Cucamonga residents and union reps representing the firefighters. This posed a structural problem, for the interests of elected officials weren’t particularly aligned with the public, whereas the union negotiators had a personal stake in whatever compensation package was adopted.

 

“To be more specific, if a City Council member behaved in a fiscally irresponsible manner, it wouldn’t matter for at least a few years, by which time ambitious pols would have moved on to a county post or the state legislature. And lavish compensation packages could easily be obscured by combining what appeared to be a reasonable salary, the only number the public was likely to hear, with exorbitant pay for overtime or over the top fringe benefits.

 

“But if a City Council member crossed the fire union? The consequences were immediate. As soon as the next election rolled around, they’d face a well-financed challenger. On his campaign mailers, he’d be photographed flanked by handsome firefighters. On weekends, friendly guys in fire-coats would go door to door on behalf of their would be champion.  “We’re very concerned that Councilman X is endangering public safety by refusing to do Y,” they might say. Or else, “Challenger Z is a crucial ally in our effort to make this city safer.” The incentives were clear.”

Conclusion

The left goes nuts when a private company is contractually obliged to use its own money to pay off a failed CEO.  Or the leftists dust off their little-used copies of the Constitution and start quoting the Emoluments Clause when there is the prospect of a foreign visitor to the presidential inauguration taking a bag of peanuts from the minibar in a Trump hotel.

But when left-wing politicians collude with their public union supporters to rack up unpayable pension bills in the trillions, we get… crickets.

So I ask…where’s the outrage?

Well – at least someone is outraged. Sorry, “boss” – but you actually have no say in the matter.

Bank Of America Misses Revenues As FICC Disappoints, EPS Beats On Accelerated Expense Reductions

via by Tyler Durden on Fri, 13 Jan 2017 12:25:56 GMT

With much hope placed on bank results, even if yesterday's Morgan Stanley announcement of a cut in IB bonuses hinted not all may be well, moments ago Bank of America said Q4 profit rose 43% as revenue rose less than expected, however offset by rising cost-cuts. Q4 EPS of $0.40, beat expectations of $0.38 despite missing on the top line, reporting revenues of $20.22bn, below consensus of $20.89bn, as trading revenues missed dragged lower by FICC revenue of $1.96bn which missed estimates of $2.12bn. In an attempt to redirect attention from the mixed earnings, the bank also announced it would boost its buyback by $2.5BN from $1.8BN to $4.3BN.

Net interest income rose 6.3% to $10.3 billion, falling short of the $10.6 billion average estimate. Net interest margin was unchanged from three months earlier at 2.23 percent. Investment-banking revenue, which includes dealmaking and underwriting securities in the business run by Christian Meissner, slid 3.9 percent to $1.22 billion, the company said. Last month, Moynihan said he expected those activities would generate $1 billion to $1.2 billion in the fourth quarter. Mortgage revenue almost doubled to $519 million from a year earlier, the bank said. Barclays Plc’s Jason Goldberg had expected the bank to generate $252 million from mortgage banking as fewer consumers take out residential loans, while Macquarie Group Ltd.’s David Konrad estimated $218 million.

While FICC revenue climbed 12% to $1.96 billion, it was short of consensus estimates of $2.1 billion. Equity trading rose 11 percent to $948 million, in line with their predictions. Total revenue rose 2.1% to $20 billion, missing estimates of $20.8 billion. Expenses fell 6% , more than expected, to $13.2 billion as compensation costs dropped 2.6% .

The summary of Q4 results is shown in the table below.

According to CEO Brian Moynihan, BofA is "lending more and seeing historically low charge-offs"; with revenue up "modestly," but EPS grew as BAC continued to manage expenses, create operating leverage. In fact, as it nots in its slideshows, personnel and non-personnel costs declined 3% and 10%, respectively, from 4Q15. That said, the bank also took half a billion out of LT debt costs, while increasing service charges.

CEO Brian Moynihan has been cutting costs for years while contending with persistently low interest rates. The bank last year set a target of $53 billion in annual expenses by the end of 2018, or about 8 percent less than 2015.

Why the modest disappointment? According to CFO Paul Donofrio, the "strong" client activity, good expense discipline created "solid" operating leverage in quarter, however the recent rise in interest rates "came too late" to impact 4Q results. Still, BofA expects a "significant " increase in net interest income in 1Q. It remains to be seen if it gets it.

The bank also revised earnings for recent years on Oct. 4 to reflect a change in the way it accounts for certain securities held in its investment portfolio. The move brings it in line with other Wall Street firms and may reduce swings in quarterly earnings, the bank said. The lender also dissolved a business segment created in 2011 to house delinquent mortgages.

Some other highlights:

The bank lowered its provision for credit losses by $76m q/q to $774m, "driven by improved asset quality in commercial portfolio, particularly energy." The net reserve release was $106m vs $38m q/q, driven by better consumer real estate, energy exposures. Reservable criticized commercial exposures $16.3b vs $16.9b q/. Overall credit quality "remain strong," with improvements in consumer and commercial portfolios; net charge-offs $880m vs $888m q/q.

More troubling, the Bank reported misses in key trading metrics, with Q4 trading revenue ex-DVA of $2.91 billion, missing estimates of $3.06 billion, as Q4 FICC revenue (ex-DVA) came in at $1.96bn, also missing estimates of $2.12Bn. This was modestly offset by a small beat in equities trading which in Q4 printed at $948MM, above the $944MM expected.

Looking at the core business, BofA announced that average total loans in the quarter rose by $7 billion, or 3% Y/Y, to $908 billion, as average total deposits rose by nearly double that amount, or 5% Y/Y to $1,251 billion, up from $1,2227 billion in Q3.Total client balances were up 10% to $1.0t. Total mortgage production up 29% q/q to $21.9b. New U.S. card accounts 1.13m vs 1.32m q/q. 21.6 million mobile banking active users, up 16%; 19% of deposit transactions completed via mobile devices

Anyone looking for a big rebound in the bank's net interest income will have to wait: in Q4 NIM printed at $10.3 billion ($10.5 billion FTE), which "reflected the benefits from higher interest rates as well as loan and deposit growth, partially offset by $0.2B in market-related debt hedge ineffectiveness." However, for all the talk of a steeper yield curve, BofA's net interest yield remained flat at 2.23%.

As the chart below shows, the market has been pricing in significant action from NIM, although with 2s30s going nowhere, bank stocks in general, and BofA in particular, appear to be overpriced based solely on this metric.

That said, BofA was optimistic about the future and said it expects NII to "increase approximately $0.6B in 1Q17, assuming rates remain at current levels and modest growth in loans and deposits." The bank also remains "positioned for NII to benefit as rates move higher" noting it expects a "+100bps parallel shift in interest rate yield curve is estimated to benefit NII by $3.4B over the next 12 months, with nearly 75% of the benefit driven by short-end rates." Meanwhile, it was unclear what the MTM loss on securities held for sale was, and will be, as a result of such a steep move in yields.

Perhaps the most notable aspect of BofA's earnings was the continued decline in overhead, as total noninterest expense of $13.2B declined $0.8B, or 6%, from 4Q15, driven by broad-based reductions in operating and support costs, lower litigation expense and improvements in mortgage servicing costs. The bank adds that personnel and non-personnel costs declined 3% and 10%, respectively, from 4Q15

• FTE headcount down 2% from 4Q15 as reductions in support and operations more than offset increases in sales staff.
• Compared to 4Q16, 1Q17 expenses expected to be impacted by approximately $1.3B for annual retirement-eligible incentive compensation costs and seasonally elevated payroll tax costs

Realizing that the future belongs to "digital", BofA included a slide on digital banking trends, in which it was happy to boast that it is #1 in virtually all metrics.

Putting it all in context, the question is has BofA gotten ahead of itself? Well, readers can decide on their own.

Full Q4 presentation below:

 

Why a Roth IRA Conversion in 2017 Might Be Smarter Than Ever

via Motley Fool Headlines by on Fri, 13 Jan 2017 12:23:00 GMT

Find out why this strategy has a big potential benefit this year.

BDCs in 2016: Buyouts, Dividend Cuts, and Shareholder Disappointment

via Motley Fool Headlines by on Fri, 13 Jan 2017 12:07:00 GMT

There weren’t any new listings of high-yield business development companies in 2016.

Futures Rise On Friday 13th Ahead Of Deluge Of Bank Earnings; Dollar Continues To Decline

via by Tyler Durden on Fri, 13 Jan 2017 11:38:12 GMT

European shares rose as Fiat rebounded on hopes concerns about parallel to Volkswagen are overblown, Asian stocks were little as Chinese shares fell to the lowest level of 2017 after poor export data, and U.S. equity-index futures rose ahead of a deluge of bank earnings. The dollar is headed for a weekly loss and gold trades at the highest price in almost two months.

On this supposedly unlucky day it's US bank earnings that are going to be a big attraction with JPM, Wells Fargo and BofA reporting all prior to or at the open. As DB notes overnight, after the Trump trades disappointment this week - which continued yesterday - this will likely impact the overall direction of markets.

The focus this morning however has been the gloomy December trade numbers out of China which were released overnight. In US Dollar terms exports dropped -6.1% yoy in December which is a fair bit more than expected (-4.0% consensus) and also down from -1.6% in the month prior. At the same time imports shrunk to +3.1% yoy (vs. +3.0% expected) from +4.7% and so had the effect of reducing the surplus. A weaker yuan did help to cushion the fall in exports in local currency terms (+0.6% yoy vs. -0.1% expected). The trade surplus was $40.82 billion for December, versus November's $44.61 billion.

On an annual basis, 2016 exports fell 7.7% and imports down 5.5% . The export drop was the second annual decline in a row and the worst since the depths of the global crisis in 2009. It will be tough for foreign trade to improve this year, especially if the inauguration of Trump and other major political changes limit the growth of China's exports due to greater protectionist measures, the country's customs agency said on Friday. It will be tough for foreign trade to improve this year, especially if the inauguration of Trump and other major political changes limit the growth of China's exports due to greater protectionist measures, the country's customs agency said on Friday.  China's trade surplus with the United States was $366 billion in 2015, according to U.S. customs data, which Trump could seize on in a bid to bring Beijing to the negotiating table to press for concessions, economists at Bank of America Merrill Lynch said in a recent research note.

"The trend of anti-globalization is becoming increasingly evident, and China is the biggest victim of this trend," customs spokesman Huang Songping told reporters. "We will pay close attention to foreign trade policy after Trump is inaugurated president,” Huang said. Trump will be sworn in on Jan. 20.

As we have said for years, central bankers can print everything except trade, and that particular omission is starting to become particularly felt in a world which has grown so reliant on globally interconnected supply chains and logistics.

Meanwhile in capital markets, the dollar headed for a weekly loss and gold traded at the highest price in almost two months as investors were concerned that market moves since the U.S. election have gone too far. European stocks and U.S. equity futures climbed and Chinese shares fell after data on exports. The USD was fractionally lower after touching the lowest point in almost a month on Thursday.

The Stoxx Euro 600 Index rebounded from its biggest drop since the end of November as Federal Reserve Chair Janet Yellen reiterated that the U.S. economy is doing well. The Shanghai Composite Index fell to its lowest level of the year, while the Shenzhen Composite slide to the lowest level in 5 months after a crackdown on insurers and as trade data showed China’s overseas shipments remain subdued.

In a week characterized by a reversal in many of the market moves seen since Donald Trump’s election, Friday will see the release of a report on U.S. holiday-season retail sales as well as earnings from Bank of America Corp., JPMorgan Chase & Co., and Wells Fargo & Co. Since Trump’s victory. The scheduled of financial earnings this morning is as follows:

• BlackRock (BLK) 6:30am, Exp. $5.02
• Bank of America (BAC) 6:45am, Exp. $0.38
• PNC Financial Services (PNC) 6:45am, Exp. $1.85
• First Republic Bank (FRC) 8am, Exp. $1.03
• JPMorgan Chase & Co (JPM) 8am, Exp. $1.43
• Wells Fargo & Co (WFC) 8am, Exp. $1.00

"The banking sector will be the major focus," said Naeem Aslam, chief market analyst at Think Markets UK. "With rising interest rates and hopes of more friendly regulation, the shares of these banks have a lot of upside in the coming days."

Overnight, in a town hall meeting, Janet Yellen said that the U.S. economy is doing well, with inflation now pretty close to the Fed’s 2 percent target. The central bank should begin discussing how to shrink its bloated balance sheet this year, according to three regional Fed presidents who stepped up pressure for a debate on when to unwind emergency-era measures that the Fed preferred to postpone.

A snapshot of markets reveals that  the Stoxx Europe 600 Index climbed 0.6 percent at 10:55 a.m. London time, rebounding from a 0.7 percent drop on Thursday. Automakers rose 0.4 percent after tumbling the most since July following U.S. government accusations that Fiat Chrysler Automobiles NV violated pollution laws. Health-care shares rose for the first time in three days after sliding on concern over price pressures under Trump.

The Shanghai Composite Index slid 0.2% in a fourth day of losses, the longest run since October. Overseas shipments dropped 6.1 percent from a year ago in December, China’s customs administration said.

Futures on the S&P 500 Index added 0.2%, on course to erase Thursday’s decline.

In rates, the benchmark 10-year Treasury yield fell one basis point to 2.35 percent, after touching the lowest level since Nov. 30 on Thursday. Bonds fell across Europe, with the yield on U.K. 10-year Gilts climbing two basis points to 1.32 percent and the yield on similar-maturity Greek debt climbing four basis point to 6.8 percent.  The symbiotic dance between the dollar and U.S. Treasury bond yields held firm on Friday. Both headed lower to end a week in which has seen the dollar fall almost 1 percent and yields extend their longest downturn since last summer.

"Bond markets continue to retrace from the yield highs set in the middle of last month," RBC Capital markets rates strategists wrote in a note to clients on Friday. "The latest move (is) seen as a typical 'buy-the-rumor-sell-the-fact' reaction as Donald Trump's pre-inauguration press conference proved to be a disappointment in terms of forthcoming growth boosting policies," they said.

* * *

Market Snapshot

• S&P 500 futures up 0.2% to 2268
• Stoxx 600 up 0.5% to 364
• FTSE 100 up 0.4% to 7323
• DAX up 0.5% to 11575
• German 10Yr yield up less than 1bp to 0.32%
• Italian 10Yr yield up 2bps to 1.91%
• Spanish 10Yr yield up 2bps to 1.42%
• S&P GSCI Index down less than 0.1% to 400.3
• MSCI Asia Pacific up less than 0.1% to 141
• Nikkei 225 up 0.8% to 19287
• Hang Seng up 0.5% to 22937
• Shanghai Composite down 0.2% to 3113
• S&P/ASX 200 down 0.8% to 5721
• US 10-yr yield down 1bp to 2.35%
• Dollar Index down 0.2% to 101.15
• WTI Crude futures down 0.4% to $52.79
• Brent Futures down 0.4% to $55.80
• Gold spot up 0.2% to $1,198
• Silver spot up 0.1% to $16.80

Top News

• Boeing Wins $22 billion order from Indian carrier SpiceJet: order for 205 aircraft includes purchase rights for 50
• Yellen Sees No Serious Short-Term Obstacles for U.S. Economy: says inflation “pretty close” to Fed’s 2% target, doesn’t want to see banking regulations rolled back
• AltaGas, WGL Said to Hold Talks on Merger Topping $5 Billion: WGL was said to be weighing a sale after Iberdrola interest; cos. supply natural gas to customers in North America
• Anadarko Sells Eagle Ford Assets to Focus on Permian, Rockies: Sanchez, Blackstone pay $2.3b for properties in Texas; deal to help Anadarko boost investment in Delaware Basin
• Fiat Rises as Investors Question VW Parallels in Cheating Charge: EPA says Fiat Chrysler used illegal software in 104,000 autos
• Paris Prosecutors Open Probe Into Renault Diesel Emissions
• Mnuchin Start Date Looks Iffy as Congress Scours Wall St. Past: Senate panel to provide seven-day notice for Mnuchin hearing
• KKR to Buy Hitachi Koki for $1.3 Billion as Group Sheds Unit: Japanese conglomerate selling non-core units as it reorganizes
• Pandora Media Rallies as Results Top Estimates, 7% Cut in Jobs Set: the world’s largest online radio service said 4Q results exceeded its forecast; co. eliminating jobs to boost efficiency
• Sirius Chairman Said to Say Still Keen on Buying Pandora: NYP
• Hon Hai, Sharp Considering LCD Plant in the U.S.: Nikkei
• Coty May Eliminate Up to 210 Jobs in Switzerland: Bilan

Looking at regional markets, Asia stocks traded mixed following a negative lead from the US as participants continued to digest Trump's first press conference as President-elect. Nikkei 225 (+0.8%) outperformed to recoup some of yesterday's losses, as JPY-crosses saw upside higher with USD/JPY testing 115.00 to the upside, before dipping to the mid-114 range. ASX 200 (-0.8%) suffered amid underperformance in financials after some less hawkish comments from Fed's Bullard and Lockhart, as they indicated they are more in favour of less than 3 US rate hikes this year. Shanghai Comp (+0.2%) initially suffered from a reduced liquidity operation by the PBoC and uninspiring Chinese trade data, while Hang Seng (+0.4%) was lifted by energy names as oil markets rallied yesterday and also benefited from several Property names reporting positive earnings as well as. 10yr JGBs traded lower amid the risk-on tone in Japan and a disappointing auction for enhanced liquidity, while the curve flattened due to underperformance in the short end.

Top Asia News

• PBOC Said to Boost Yuan Curbs as Banks Told to Balance Flows: lenders to stop transactions unless inflows match outflows
• Takata Said Near $1 Billion Air-Bag Settlement With U.S.: may announce a settlement as soon as Friday
• Nintendo Switch Off to Wobbly Start as Pricing, Timing Unveiled: Price of around $300 more than anticipated, higher than rivals
• Vietnam Recalibrates as Trump and Duterte Upset Strategy: setbacks include TPP trade deal, South China Sea disputes
• Chinese Paper Calls Tillerson’s South Sea Threat ‘Foolish’: editorials offer more pointed response than government

European equities trade in the green (Euro Stoxx 50: +0.8%), with the move higher fuelled by Fiat Chrysler, who trade higher by 3%, with other Auto names initially trading higher in tandem before separate reports suggest the French prosecutor is looking into Renault's (-4.2%) role in the emission scandal. The FTSE MIB is the best performing index in the wake of Fiat's denial, while financials also outperform this morning ahead of a number of high profile US earnings including Wells Fargo, JP Morgan and Bank of America. Fixed income markets have seen the front end of core EGB markets slipping in yields as today is the first time the ECB are able to purchase securities with a yield below the -0.4% deposit rate, with the longer end suffering. Elsewhere, focus looks ahead to DBRS review of Italian sovereign debt after the close today, with some pricing in a downgrade already given the current state of Italian banks. If DBRS were to downgrade Italy, this could have a significant impact on the size of Italian collateral and could see significant flattening of the BTP curve.

Top European News

• VW Pulled Out of Daimler Deal Before Embarking on Diesel Cheat: alliance talks involved discussions of cross shareholdings
• French M&A Fund Bets on Successful Deal in Syngenta Takeover: shares trade at 14% discount to ChemChina takeover offer
• Patek Philippe Chairman Tells Swiss Watch Industry to Slow Down: signs of revival after two years of job cuts on China slowing
• Bang & Olufsen Soars as Profits Are Buoyed by New $11,500 TVs: shares soar to highest level in more than six years after earnings that showed it’s getting better at squeezing profit out of its sales

In currencies,  the Bloomberg Dollar Spot Index lost 0.1 percent after falling 0.5 percent on Thursday. The gauge is down 0.7 percent for the week. Turkey’s lira slipped 0.9 percent after surging 2.8 percent against the dollar on Thursday. The currency is down 4.2 percent this week after touching the lowest point on record. The central bank is implementing measures to force banks to borrow at a higher rate, according to a person with direct knowledge of the matter. The offshore yuan extended gains for a third day. China has asked some banks to stop processing cross-border yuan payments until they balance inflows and outflows, people familiar with the matter said, as authorities step up a campaign to curb a record amount of money leaving the nation in the local currency. The yen traded at 114.60, taking the week’s gain to 2.1 percent, the best performance since the end of July.

In commodities, the diesel emissions scandal has been reignited and further fuelled by the possible involvement of Renault, so the commodity market is perhaps looking to the palladium vs platinum relationship for reaction. Otherwise, focus will be on Gold over the session ahead, which sees the key US retail sales release impacting on the USD to some degree. Prices have dipped back under USD1200 in the meantime, but with room for further USD correction, fresh upside in the yellow metal still possible. Oil held near $53 a barrel were pretty stable after a mid-morning dip; WTI dropping 50-60 cents, but still comfortably away from the USD50.00 mark — bolstered by last year's OPEC agreement on production - and after its biggest two-day gain in almost six weeks as Saudi Arabia said it cut output even more than required by an OPEC deal.

Looking at the day ahead, the highlight is likely the December retail sales report where the market consensus for headline sales is running at +0.7% mom, while the core is expected to come in at +0.4% mom. Also due out is the December PPI report where the consensus there is for a +0.3% mom rise in the headline. Business inventories for November and  the preliminary University of Michigan consumer sentiment survey for this month follow later on. Meanwhile the Fed’s Harker is scheduled to speak again at 9.30pm ET. The other big focus is clearly those aforementioned US bank earnings reports.

* * *

US Event Calendar

• 8:30am: PPI Final Demand MoM, Dec., est. 0.3% (prior 0.4%)
• 8:30am: Retail Sales Advance MoM, Dec. est. 0.7% (prior 0.1%)
• 9:30am: Fed’s Harker Speaks on Economic Mobility in Philadelphia
• 10am: Business Inventories, Nov., est. 0.6% (prior -0.2%)
• 10am: U. of Mich. Sentiment, Jan. P, est. 98.5 (prior 98.2)
• 1pm: Baker Hughes rig count

Bank Earnings:

• BlackRock (BLK) 6:30am, $5.02
• First Horizon National (FHN) 6:37am, $0.25
• Bank of America (BAC) 6:45am, $0.38
• PNC Financial Services (PNC) 6:45am, $1.85
• First Republic Bank (FRC) 8am, $1.03
• JPMorgan Chase & Co (JPM) 8am, $1.43
• Wells Fargo & Co (WFC) 8am, $1.00

DB's Jim reid concludes the overnight wrap

On this supposedly unlucky day it's US bank earnings that are going to be a big attraction with JPM, Wells Fargo and BofA reporting all prior to or at the open. After the Trump trades disappointment this week - which continued yesterday - this will likely impact the overall direction of markets. The remainder of the US banks will report next week while the corporate calendar will also kick into gear which may all be a welcome distraction. In addition we also got an announcement yesterday that UK PM Theresa May will detail some of her Brexit plans at a long-awaited speech next Tuesday, so that should be something to look forward to as well. The focus this morning however has been the December trade numbers out of China which were released a few hours ago. In US Dollar terms exports dropped -6.1% yoy in December which is a fair bit more than expected (-4.0% consensus) and also down from -1.6% in the month prior. At the same time imports shrunk to +3.1% yoy (vs. +3.0% expected) from +4.7% and so had the effect of reducing the surplus. A weaker yuan did help to cushion the fall in exports in local currency terms (+0.6% yoy vs. -0.1% expected).

Equity markets in China were initially weaker following the data but have since recovered with the Shanghai Comp currently +0.12%. The Nikkei (+0.85%) has rebounded while the Hang Seng is also +0.45% although there’s losses currently for the Kospi (-0.51%) and ASX (-0.95%). The other focus overnight has been on comments from Fed Chair Yellen. She was largely positive, saying that “unemployment has now reached a low level, the labour market is generally strong and wage growth is beginning to pick”. The Fed Chair also said that Dodd- Frank bank regulation made “important changes” and that she would not want to see it “rolled back”. There were no comments made around policy outlook.

Back to yesterday. Perhaps the most interesting story to emerge was the balance sheet unwinding comments to come out of the Fed. Some of it came from Philadelphia Fed President Patrick Harker who said that the Fed can start  considering stopping balance sheet reinvestment and later start unwinding the balance sheet when the Fed funds rate gets to 100bps. In addition, St Louis Fed President James Bullard said that the “committee may be in a better position to allow reinvestment to end or to otherwise reduce the size of the balance sheet”. So if you share the FOMC median 3 rate hikes this year view then this could be a 2017 story although in reality the Fed talk probably won’t get serious until the Fed funds rate gets to 100bps. You’d imagine that this debate will also be greatly influenced by political pressures but it’s certainly one to keep an eye on.

Speaking of tapering, the ECB minutes of the December meeting were released yesterday. The text suggested that there was a fair bit of debate and differing views amongst policy members. Indeed the debate was over continuing at the €80bn pace for an additional six months or extending the programme for nine months at a €60bn pace – which the Bank eventually settled on. It was revealed that a “few members voiced an initial preference for the first option....while expressing readiness to join a consensus forming on the second option”. At the same time while the text also revealed that “very broad support emerged  among members” for the second option, there were “arguments also put forward in support of a shorter purchase horizon, namely limited to six months, at a rescaled pace of purchases of €60bn”. Some members “could not support either of the two options....in view of their well known general scepticism regarding APP and public debt purchases in particular”. On a related noted, German Finance Minister Wolfgang Schaeuble also said yesterday that the ECB should start unwinding its ultra-loose monetary policy this year.

Moving on. In terms of markets and as highlighted earlier, it was another day of generally unwinding Trump trades following the disappointment at the lack of substance in his press conference. The big mover gain was the Greenback with the Dollar index falling -0.37% to take it to -1.51% since Trump spoke on Wednesday although it has recovered modestly this morning. Emerging markets were the big beneficiaries of yesterday’s weakness with currencies in Turkey (+2.82%), South Africa (+1.79%), Colombia (+1.78%) and Chile (+1.26%) in particular standing out. EM equities (+1.12%) also had a decent day. Equity markets were weaker across the pond although in fairness did recover a bit into the close. The S&P 500 finished -0.21% after being down as much -0.93% while the Nasdaq Biotech index recovered similarly to finish +0.36% following that sell off on Wednesday. Markets in Europe did however come under more pressure however with the Stoxx 600 closing -0.65% although the FTSE 100 (+0.03%) managed to eke out a positive return and in doing so capped a fairly incredibly 13th consecutive daily gain – extending the record streak.

There was a bit of corporate news too to digest. Fiat Chrysler shares fell steeply after the automaker became the latest to be accused by the EPA of violating pollution laws on diesel vehicles. According to the FT the group could face a fine of as much as $4.6bn. Meanwhile Amazon announced that they are to add 100k full time jobs in the US over the next 18 months which will likely put them in Trump’s good books ahead of his inauguration. There was, however, plenty of focus on the fact that the hires could come at the expense of the bricks and mortar retailers in the US.

Elsewhere, in rates 10y Treasury yields touched an intraday low of 2.305% yesterday which is the lowest yield since the end of November, before paring much of that into the close to finish only a shade lower on the day at 2.363%. Sovereign bond markets in Europe also ended up on the firmer side (10y Bund yields falling 1.4bps to 0.307%). In the commodity complex Oil got another boost after Saudi Arabia announced that it had cut production even more than required by the OPEC deal. WTI edged back up to $53/bbl (+1.45%) after hitting as low as $50.71/bbl earlier in the week. Gold (+0.32%) also continued its urge to take the YTD move past +4% already.

Before we wrap up, there wasn’t a huge amount to take away from yesterday’s economic data. In the US a boost from higher energy prices saw the import price index rise +0.4% mom in December and so putting the YoY rate at +1.8% which is the highest since March 2012. Initial jobless claims came in at 247k last week which is up from the very low 237k reading the week prior. Finally the December monthly budget statement revealed a slightly wider than expected $27.5bn deficit. Meanwhile in Germany we learned that Germany’s economy grew 1.9% in calendar year 2016 which is a little bit more than what the consensus expected (of 1.8%). Our economists in Europe noted that growth was strongly tilted towards consumption thanks to several tail winds (refugee crisis, low inflation, labour market strength), while slowing exports weighed on private equipment investment. They also note however that with several tail winds fading and a workday effect weighing, GDP growth looks set to slow in 2017 to 1.1%. In other news, Euro area industrial production was confirmed as rising a much better than expected +1.5% mom in November (vs. +0.6% mom expected).

Looking at the day ahead, this morning in Europe it’s particularly quiet with no significant data due out although expect there to be some focus on the BoE’s credit conditions and bank liabilities survey, due out at 9.30am GMT. This afternoon in the US the calendar is a fair bit busier however. The highlight is likely the December retail sales report where the market consensus for headline sales is running at +0.7% mom, while the core is expected to come in at +0.4% mom. Also due out is the December PPI report where the consensus there is for a +0.3% mom rise in the headline. Business inventories for November and  the preliminary University of Michigan consumer sentiment survey for this month follow later on. Meanwhile the Fed’s Harker is scheduled to speak again at 2.30pm GMT. The other big focus is clearly those aforementioned US bank earnings reports.

UK Labour Leader Jeremy Corbyn Accused Of "Collaborating With Russia" For Wanting Peace

via by Tyler Durden on Fri, 13 Jan 2017 11:10:00 GMT

Submitted by Mike Krieger via Liberty Blitzkrieg blog,

Welcome to “everyone I disagree with works for Putin,” the UK version.

UK Labour leader Jeremy Corbyn sits on the polar opposite of the political spectrum in most respects from U.S. President elect Donald Trump, yet they are both being accused of the same blasphemy — wanting peace with Russia. Here’s what I’m talking about, from The Independent:

In an interview with BBC Wales today, Mr Corbyn said it was “unfortunate that troops have gone up to the border on both sides”.

 

He added: “I don’t want to see any more troops deployed on the borders between Nato and Russia, I want to see a de-escalation, ultimately a de-militarisation and better relationships between both sides of it... there cannot be a return to a Cold War mentality.”

This is precisely the sort of sober commentary I’d want to hear from an elected leader at such an unnecessarily charged and dangerous moment, yet Mr. Corbyn was attacked for it in a manner quite familiar to us Americans…

The Conservative Armed Forces Minister Mike Penning has accused Jeremy Corbyn of “collaborating with Russia” in response to comments that British troops about to be deployed to Estonia were there to “escalate tensions” between Russia and NATO.

 

Mr Penning said the comments made on Wednesday by a spokesperson for Mr Corbyn showed that Labour “cannot be trusted with Britain’s national security”.

 

Mr Penning said: “Britain has Nato’s second biggest defence budget and plays a leading role in the alliance. It is unprecedented for a leader of the opposition to attack the defensive deployment of British troops in Nato territory.

 

“These comments suggest that the Labour leader would rather collaborate with Russian aggression than mutually support Britain’s Nato allies. As with Trident, everything Labour says and does shows that they cannot be trusted with Britain’s national security.”

The fact that Jeremy Corbyn is being attacked in exactly the same manner as Donald Trump tells us all we need to know. Namely, that if you disagree with the neocon/neoliberal establishment’s foreign policy, this makes you an agent of Vladimir Putin. Absurd and childish? Certainly, but that’s what they’re going with. Which is extremely important to recognize.

Those of us opposed to a continued insane push for more imperial overseas militarism must understand this isn’t a partisan issue. There is an entrenched establishment in power, and they laugh at Republican/Democrat or Conservative/Labour distinctions. These people are totally united in their thirst for confrontation with Russia.

Ok, fine, so what do we do about it? The reason I’m pointing all of this out is to stress the importance of unity. I see too much ego strutting and preening in the alternative media world today. Too many people who seem more focused on their own fame and status, and appear too preoccupied with picking stupid fights with others to see the bigger picture of what’s really at stake. The time for pettiness is over, the time for unity has arrived.

We need to isolate the big issues we all agree in order to successfully take on a well organized, bipartisan establishment. As I noted on Twitter the other day.

Politics today should be seen in the following way.
Imperial interests vs. the interests of the American people.
These do not overlap much.

— Michael Krieger (@LibertyBlitz) January 6, 2017

Here's how to win. Pick the issues 80% of us agree on vs. the neocon/neoliberal status quo. Ignore the rest until they are defeated.

— Michael Krieger (@LibertyBlitz) January 6, 2017

Here are 2 examples of issues that unite us, rather than divide us.
Opposition to:
1) Revolving door cronyism/corruption.
2) Militarism.

— Michael Krieger (@LibertyBlitz) January 6, 2017

If we are divided and conquered with petty fights by demanding conformity on all the issues we care about, we are doomed. I don’t want to convince you that I’m right about everything, I want to win. To win, we must unite.

My 2016 Budget Challenge: Can a Paint Job Help an Old House Pass a Re-Fi Appraisal?

via Wise Bread by Max Wong on Fri, 13 Jan 2017 10:30:36 GMT

[Editor's Note: This is the latest episode in Max Wong's journey to find an extra $31,000 in a single year. Read the whole series here.] We paid off our home equity line of credit two years early! It was a Festivus miracle. Kind of. Earlier this year, we failed to refinance the mortgage of Dinky...

Best Money Tips: Master These Money Skills Before Your 30s

via Wise Bread by Amy Lu on Fri, 13 Jan 2017 10:00:20 GMT

Welcome to Wise Bread's Best Money Tips Roundup! Today we found articles on money management skills that you should master before your 30s, habits of successful introverts, and superfoods for healthy eating in the winter. Top 5 Articles 5 Money Management Skills to Master Before your Thirties...

Financial Times Editorial Seeks Restrictions On Free Speech To Stop False News "Propaganda War"

via by Tyler Durden on Fri, 13 Jan 2017 10:00:00 GMT

Submitted by Michael Shedlock via MishTalk.com,

A pair of articles by the Financial Times offers quite the take on disinformation hypocrisy.

I suggest the Financial Times look into the mirror if it wants to understand where the problem is.

Worse yet, to stop the spread of fake news, the FT editorial board wants restrictions on freedom of speech.

Yesterday, in The Threat Posed by Putin’s Cyber Warriors the FT was so worried about “disinformation” that it proposed restrictions on freedom of speech.

“The Russian state is far from alone in using hacking as a form of espionage. What distinguishes Moscow’s activity is the malicious way it appears to be using the information garnered and disseminating fake news to further pollute the political atmosphere. The timing of leaks during the US election looked calculated to weaken Hillary Clinton, the Democratic candidate,” claims the FT editorial view.

After railing against “fake news” the editorial view went on to propose restrictions on free speech.

“Berlin is considering imposing hefty fines on media outlets that spread false and malicious information. This may seem an undue restriction to freedom of speech but in the context of a propaganda war designed to undermine western democracy, it may be necessary to do more than enforce existing laws on libel and incitement.”

FT Purveyors of Fake News

That was yesterday. Today, the Financial Times spread fake news. Please consider Trump blasts US intelligence on Russia dossier.

Actually it’s the subtitle I want you to consider.

The subtitle “President-elect acknowledges Moscow hacked election” is a blatant lie.

Trump did not admit Moscow hacked the “election”.

Let’s consult the press conference transcript.

As far as hacking, I think it was Russia. But I think we also get hacked by other countries and other people. And I — I can say that you know when — when we lost 22 million names and everything else that was hacked recently, they didn’t make a big deal out of that. That was something that was extraordinary. That was probably China.

 

But remember this: We talk about the hacking and hacking’s bad and it shouldn’t be done. But look at the things that were hacked, look at what was learned from that hacking.

 

That Hillary Clinton got the questions to the debate and didn’t report it?

Key Differences

Trump never said Russia hacked the “election”. He did not even say Russia hacked anything. He said he “thinks” Russia hacked [the DNC].

1. Hacking the “DNC” is not quite the same as hacking the “election”.
2. “Think they did” is not the same as “did”.

The Financial Times should know the difference, especially in this heated environment.

By the way, the DNC was “hacked” by anyone. Someone at the DNC exposed their password in a phishing expedition.

And now we have Democrat Senators all wanting an investigation into a proven bogus dossier given to the FBI by Senator McCain.

To top it off, the FT wants to restrict freedom of speech to prevent the spread of fake news.

Who is to be the judge of fake news?

If the FT editorial board has an ounce of sense, it will immediately take back its preposterous stance.