Frontrunning: January 17

via by Tyler Durden on Tue, 17 Jan 2017 12:49:40 GMT

• Theresa May pledges clean Brexit break (FT); May Pledges Vote on Brexit Taking U.K Out Of EU’s Single Market (BBG)
• Donald Trump Warns on House Republican Tax Plan (WSJ)
• Trump, Fed Headed for Clash Amid Dollar Surge, Economists Say (BBG)
• China’s Xi Warns Against Trade War in Defense of Globalization (BBG)
• Morgan Stanley Profit Rises on Surge in Bond-Trading Revenue (BBG)
• Germany says NATO concerned about Trump 'obsolete' remark (Reuters)
• Trump, Brexit uncertainty hit stocks and dollar, gold jumps (Reuters)
• BAT agrees takeover of Reynolds in $49.4bn deal (FT)
• Trump team defends health pick Tom Price over ethics charge (Reuters)
• Hyundai-Kia to Invest $3.1 Billion in U.S., Mull New Plant (BBG)
• Russia expects dialogue with Trump on nuclear weapons: Lavrov (Reuters)
• Top Trump trade adviser offshored thousands of jobs (Reuters)
• Be Skeptical of the Fed's Rate Signals (BBG)
• Women's apparel retailer Limited Stores files for bankruptcy (Reuters)
• Women's apparel retailer Limited Stores files for bankruptcy (Reuters)
• China's Oil Collapse Is Unintentionally Helping OPEC (BBG)
• Timeless Ritual to Meet Partisan Rancor at Trump’s Inauguration (BBG)
• In U.N. lawsuit, Ukraine demands Russia end support for separatists (Reuters)
• Samsung chief faces long day as South Korean court weighs arrest warrant (Reuters)

 

Overnight Media Digest

WSJ

- U.S. President-elect Donald Trump criticized a cornerstone of House Republicans' corporate-tax plan, creating another point of contention between the incoming president and congressional allies. http://on.wsj.com/2jiRQSs

- Representative John Lewis, who drew Donald Trump's ire after questioning the legitimacy of the election, didn't mention the president-elect by name as he called on young people to stand up when they perceive injustices. http://on.wsj.com/2jiRwDf

- Prime Minister Theresa May is set to declare in a speech that Britain doesn't want "partial membership" in the European Union "or anything that leaves us half-in, half-out." http://on.wsj.com/2jiUZlp

- As Germany enters an unpredictable election year, anti-immigration politicians have hit out at Chancellor Angela Merkel, but she has stood firm in support of open borders and globalization. http://on.wsj.com/2jiV2h5

- Luxottica, maker of Ray-Ban, has agreed to a merger with French optical-lens maker Essilor, placing its Italian founder at the helm of a globe-spanning colossus with brands gracing European catwalks and California beaches. http://on.wsj.com/2jiSFLk

- Snapchat messaging app creators Evan Spiegel and Bobby Murphy are expected to retain more than 70 percent of voting power in the company. http://on.wsj.com/2jiInuD

- Rolls-Royce Holdings said it had settled a longstanding corruption probe with U.S., British and other authorities at a cost of more than $800 million. http://on.wsj.com/2jiVcoH

- Noble Energy will pay $2.7 billion to buy Clayton Williams Energy in a deal that will give it a combined 120,000 acres of oil-rich property in West Texas. http://on.wsj.com/2jiTFyO

- Although President-elect Donald Trump has called the alliance "obsolete", nearly 300 U.S. Marines landed in Norway on Monday as part of an effort to bolster NATO defenses in the wake of Russia's 2014 moves in Ukraine. http://on.wsj.com/2jiLItv

- Parliament's ethics commissioner started a probe into whether Prime Minister Justin Trudeau violated conflict-of-interest laws when he stayed at a private island in the Bahamas. http://on.wsj.com/2jiKz5g

 

FT

* Britain will not seek a Brexit deal that leaves it "half in, half out" of the European Union, Prime Minister Theresa May will say on Tuesday in a speech setting out her 12 priorities for upcoming divorce talks with the bloc.

* Daily Mail and General Trust Plc have stepped back from talks to create a new joint advertising sales initiative known as "Project Juno," which was launched in 2016.

* British engineering group Rolls-Royce Plc said on Monday that it had reached settlements with authorities in Britain, the United States and Brazil relating to bribery and corruption involving intermediaries, which would result in a series of payments totalling 671 million pounds ($809 million).

* The London Stock Exchange has fined UK-based brokerage firm Cornhill Capital for violation of its rules on London's junior market, Aim.

* Britain's Northern Ireland minister called an early election on Monday for March 2 following the collapse of the region's power-sharing government that risks a lengthy period of political paralysis just as Britain prepares for talks to leave the EU.

 

NYT

- President-elect Donald Trump's remarks in a string of discursive and sometimes contradictory interviews have escalated tensions with China while also infuriating allies and institutions critical to America's traditional leadership of the West. http://nyti.ms/2jqMVlf

- Essilor of France said on Monday that it would merge with the Luxottica Group of Italy in a $49 billion deal that would create a giant in the eyewear industry. http://nyti.ms/2iwbmhq

- Seven days before his departure from the White House, President Obama sat down in the Oval Office and talked about the indispensable role that books have played during his presidency and throughout his life. http://nyti.ms/2jZyDsr

- The police in Turkey have arrested the man accused of carrying out a deadly attack on an Istanbul nightclub early on New Year's Day, according to the semi-official Anadolu news agency as well as Turkish news reports. http://nyti.ms/2iBg3l2

- Prosecutors called for the arrest of the Samsung's heir-apparent, Lee Jae-Yong. Prosecutors contend that Lee bribed President Park Geun-hye and one of her confidants in exchange for political favors. http://nyti.ms/2iGttQk

- With tensions escalating between President-elect Donald Trump and prominent black leaders, Trump met privately on Monday with the eldest son of the Rev. Dr. Martin Luther King Jr. on the holiday devoted to the civil rights hero. http://nyti.ms/2jE6fbW

- The FBI arrested the wife of the man who carried out a deadly terrorist attack in Orlando and charged her with obstructing the investigation of the mass shooting, law enforcement officials said. http://nyti.ms/2iwgYZ4

 

Canada

** Montreal's transit authority is pulling new trains built by Bombardier Inc and Alstom SA out of service following an equipment problem over the weekend that forced the shutdown of a subway line for several hours. https://tgam.ca/2j3QQ42

** National Bank of Canada's capital markets arm has hired veteran investment banker Dan Nowlan from rival CIBC World Markets to beef up its client coverage team. https://tgam.ca/2j3VP4N

** Money manager Sentry Investments Inc appointed Phil Yuzpe as its new chief executive, extending its string of senior leadership changes that date back 18 months. https://tgam.ca/2j424Fo

NATIONAL POST

** Adam Waterous, who is leaving his job as global head of investment banking at Scotiabank to start his own private equity company and bet on the next Alberta drilling boom, predicted a very busy year as "legacy" companies continue to restructure and cut costs. http://bit.ly/2j42HPB

** There will be lots at stake in a Calgary court room Wednesday when the various parties in the receivership of Twin Butte Energy gather to hear how the proceeds from a proposed sale of the company will be split up between creditors - if the deal is approved at all. http://bit.ly/2j3RnCL

** Urbanation Inc, which has been tracking the condo sector since 1981, said Monday in its year-end report that Toronto condo rental rates jumped 11.7 per cent in 2016 with the average rental rent in the fourth quarter reaching C$2.77 per square foot per month. http://bit.ly/2j3SToJ

 

Britain

The Times

Rolls-Royce pays 671 million stg to settle bribery claims

Four years of bribery and corruption investigations across five continents have ended with Rolls-Royce Holdings Plc making a 671 million pound ($807.62 million) out-of-court settlement with fraud-busters and international government agencies. The settlement, under which Rolls-Royce will pay the Serious Fraud Office just shy of 500 million pounds, is a record. http://bit.ly/2ivxI2D

The Guardian

Bank of England 'keeping close eye on UK consumer spending'

The Bank of England is keeping a close watch on consumer spending amid signs households are dipping into their savings and amassing debts to keep spending in the face of rising inflation. Mark Carney, the Bank governor, said consumer spending had held up since last summer's vote to leave the EU but he reiterated a warning that living costs were likely to rise on the back of a weak pound and squeeze households' real incomes. http://bit.ly/2jRylzO

IMF upgrades UK forecast but notes Brexit terms are 'unsettled'

The International Monetary Fund has upgraded its forecasts for the UK economy this year after the latest signs that businesses and consumers have shrugged off the Brexit vote. Unveiling its new forecasts on the eve of a key speech by Theresa May on the Brexit process, the Washington-based fund also cut the outlook for 2018, reflecting widespread uncertainty over Britain's future outside the EU. http://bit.ly/2jXn6d5

New BT service could end nuisance phone calls

Nuisance calls could largely be eradicated under a new BT service that allows phone users to block firms making the calls, which other telecom firms are expected to follow. Many smartphones already allow users to block numbers after receiving unwanted marketing calls. But the new BT call protect system allows users to block the companies themselves even when they change numbers. http://bit.ly/2ivFCJ8

The Telegraph

Angry Birds maker Rovio opens London gaming studio

The company behind the once-mighty smartphone game Angry Birds is opening its first UK office, tasked with spearheading the development of new multiplayer games. Headquartered in Finland, Rovio Entertainment <IPO-RVEY.N> will hire 20 people over the next two years to a studio in central London where they will design new games separate to the Angry Birds brand. http://bit.ly/2jhAQfw

New radar system for Royal Navy guarantees hundreds of British jobs

A contract to build the radar systems that monitor the skies, land and sea around the Navy's new aircraft carriers will support more than 200 highly skilled engineering jobs in the UK. The Ministry of Defence has signed a 269 million pound deal to begin manufacturing the Crowsnest radar and surveillance system that protects the Queen Elizabeth-class ships currently under construction in Rosyth, Scotland. http://bit.ly/2jq3Cgk

Sky News

City financier seeks Tata Steel pensions role amid solvency row

A former pensions adviser to Boris Johnson is seeking to install himself as a trustee of Tata Steel Ltd's vast British pension scheme amid doubts about the viability of a plan hatched by the company's Indian parent. Edi Truell, a City financier who lodged a bid last year for Tata Steel's UK operations, including the Port Talbot steelworks, has written to the trustees to outline a revamped offer aimed at rescuing the 15 billion pound scheme. Truell is floating a merger of Tata's speciality steel unit and Sheffield Forgemasters. http://bit.ly/2jRrbLV

Tenpin owners look to strike with stock market return

The owners of one of Britain's biggest tenpin bowling alley operators are plotting to score a strike by returning to the stock market less than two years after being taken private. Tenpin, formerly known as Essenden, has hired the investment bank Numis to bowl over investors with a stock market listing later this year. http://bit.ly/2iuGSfG

The Independent

British Airways says 99 percent of flights will operate during next cabin-crew walkout

British Airways says it will cancel only 24 flights during the second round of industrial action by some Heathrow-based cabin crew. Members of the Unite union working for BA's Mixed Fleet operation are to strike from Thursday to Saturday, 19-21 January. The dispute is over what the union calls "poverty pay". http://ind.pn/2jRk1ax

 

 

Why Ciena Corporation Stock Popped 18.3% in 2016

via Motley Fool Headlines by on Tue, 17 Jan 2017 12:43:00 GMT

The telecommunications networking specialist enjoyed a strong year with modest, market-beating growth. Here's what investors need to know.

Why Futures Are Lower: JPMorgan Summarizes The Chaotic Overnight Session

via by Tyler Durden on Tue, 17 Jan 2017 12:16:10 GMT

As traders get to the their desks this morning after a 3-day weekend, only to find a market bombarded by a barrage of overnight news from around the globe even as Theresa May is currently delivering her Brexit speech, (so far the most impotant thing she has said is that both houses of parliament will vote on Brexit, leaving a door open that Brexit may not happen at all), here courtesy of JPM's Adam Crisafulli is a recap of all the chaos that has taken place so far.

Market update – it was a very busy holiday weekend in the US w/a slew of Trump remarks (on foreign and domestic matters), Brexit worries, an update on Chinese growth, OPEC rhetoric, and more.

 

The net result of everything is generally weaker risk asset price action – Asia was weak Mon and mixed Tues while Europe is now tracking down >1% WTD. US futures are off ~12-13 points (about ~55bp).

 

Trump’s remarks on border taxes are the single most important/incremental piece of news from the perspective of US equities (given that tax reform has prob. been driving ~70% of the Trump/Ryan enthusiasm) – ostensibly the absence of border taxes is a “positive” but it also reflects 1) the relatively inchoate nature of the overall tax reform effort (which suggests progress may not come for several months at least) and 2) it suggests the headline corporate rate may not move as low as Ryan (20%) or Trump (15%) want as the border adjustment revenue was a necessary offset.

 

Trump’s tone on foreign policy matters (he expressed indifference towards the EU, calling it a vehicle for German interests, and labeled NATO “obsolete”) set off alarm bells throughout Europe (and among participants at Davos); while markets are focused (somewhat myopically) on the financial/economic implications of Trump, the geopolitical risks associated w/not only the President Elect but also various global shifts now underway remain very underappreciated.

Why NetApp, Inc. Stock Popped 34.5% in 2016

via Motley Fool Headlines by on Tue, 17 Jan 2017 12:11:00 GMT

The enterprise storage specialist overcame a tough start to 2016, with one stellar report late in the year. Here's what investors need to know now.

Watch Live: Theresa May's Brexit Speech; Says Both Houses Of Parliament Will Vote On Final Deal

via by Tyler Durden on Tue, 17 Jan 2017 11:52:36 GMT

Having been extensively leaked overnight so as to prevent "market surprises", Theresa May has just begun her speech calling for a "clean Brexit" from the EU. Watch it live below.

Here are the highlights:

• MAY: WE WILL NOT SEEK PARTIAL OR ASSOCIATE MEMBERSHIP OF EU
• MAY: UK LEAVING EU, I WILL SEEK BEST DEAL FOR UK
• MAY: GOVERNMENT WILL PUT THE FINAL BREXIT DEAL TO A VOTE IN BOTH HOUSES OF PARLIAMENT
• MAY: DO NOT SEEK TO ADOPT MODEL ALREADY USED BY OTHER COUNTRIES
• MAY: WILL REMAIN WILLING PARTNERS, ALLIES TRADING PARTNERS
• MAY: DECISION TO LEAVE EU WAS NOT AN ATTEMPT TO HARM EU OR ITS MEMBER STATES
• MAY: VOTE NO LEAVE NO REJECTION OF SHARED VALUES
• MAY: OVERWHELMINGLY IN UK INTEREST THAT EU SUCCEEDS
• MAY: JUNE 23 A MOMENT WE CHOSE TO BUILD 'TRULY GLOBAL BRITAIN'
• MAY: EUROPEANS WILL STILL BE WELCOME IN BRITAIN AND HOPE BRITONS WILL BE WELCOME IN EU NATIONS
• MAY: PRESERVATION OF UK UNION AT HEART OF PLANS

And in an unexpected twist, May also said that she will put the final Brexit deal to a vote in both houses of parliament:

• MAY:  WILL PUT THE FINAL BREXIT DEAL TO A VOTE IN BOTH HOUSES OF PARLIAMENT

Cable is soaring on the news, as suddenly there is a possibiliy Brexit may not happen at all.

US Futures, Dollar Slide; Global Stocks Drop After Trump Comments; May Speech Awaited

via by Tyler Durden on Tue, 17 Jan 2017 11:44:57 GMT

While traders eagerly await Theresa May's speech set to begin in minutes, even if it was largely leaked last night to minimize "market shocks" and set the stage for a big squeeze in cable which at last check was over 100 pips higher overnight, the big catalyst setting today's risk off mood was the previously noted Trump statement, published overnight by the WSJ, in which Trump called the US currency "too strong", and attacked the Border-Tax Adjustment, expected to boost the value of the USD by as much as 15% should it be implemented.

As a result, European shares are sliding, S&P index futures are down 12 points, while the dollar has fallen all of its G-10 peers - with the USDJPY tumbling below 113 for the first time since December, and the USDCNH back under 6.80 - as investors flee the crowded USD trade amid concern for the future of the Trumpflation rally and worries Theresa May may say today that U.K. will leave European Union’s single market. And since the dollar is now a source of risk, traders are suddenly piling into gold, which has risen to $1,218 in early trading, the highest since November 22.

Britain's pound was higher on the day but still close to Monday's three-month lows, while the Japanese yen hit a six-week high as investors sought shelter from the mounting political risk of a week that also includes Trump's inauguration.

"Sterling is trading higher ahead of Theresa May's speech on Brexit but we're expecting a wild ride for the pound today," said Neil Wilson, senior market analyst at ETX Capital.

Investors are seeking clarity on his policies after campaign pledges on tax cuts and government spending helped lift stocks and the dollar and were deemed positive for economic growth.

“The dollar is the guiding light at this point and all eyes are on the shape U.S. policy will take,” said Fredrik Nerbrand, global head of asset allocation at HSBC Holdings Plc in London. “I would put today’s dollar weakness down to noise rather than a structural shift. If Trump wants to become as growth-generative as he’s planning to be and you don’t have the same fiscal push coming from the rest of the world, then it’s a question of where does the capital flow to. The dollar is the tallest pygmy.”

The twin themes of Brexit and Trump are set for significant developments this week after dominating markets this year and last. The comments from Trump, who will be inaugurated Friday, have left traders guessing at his meaning, while May’s speech is likely to give the clearest view yet of the U.K.’s exit strategy.

As noted yesterday, Prime Minister May is to rule out Britain staying in the European single market in her speech as she makes immigration controls a priority in Brexit talks. She is expected to state Britain should not be "half-in, half-out" of the EU or "hold on to bits of membership as we leave." Her speech is set to begin at 6:45am ET.  "We have taken back all of the move from yesterday morning. The speech has been so well telegraphed that I think people (betting against sterling) realize that is dangerous," said Richard Benson, co-head of portfolio investment with currency fund Millennium Global in London.

Also overnight, BoE Governor Carney stated BoE sees slower UK growth and FX rate over next few years and there is evidence that consumption-led growth is less durable. Carney also commented that the central bank is prepared to act to protect economic growth in the face of Brexit triggered pressures. Carney also reiterated that the MPC has limits to the extent that above target inflation can be tolerated.

As a result of the above, Stoxx Europe 600 Index retreated 0.5 percent, with automakers among the biggest decliners for a second day. The FTSE 100 Index slipped 0.3 percent. Futures on the S&P 500 Index slid 0.6%. U.S. markets were closed Monday for a holiday.

Gold hit its highest in more than seven weeks, and was last trading at $1,213 an ounce, up almost 1 percent on the day XAU=. It has now risen for seven consecutive days. "Gold is going to do very well in the first half of the year due to Brexit concerns, Chinese currency pressure and uncertainty surrounding Donald Trump's policies," said Richard Xu, fund manager at China's biggest gold exchange-traded fund, HuaAn Gold.

Market Snapshot

• S&P 500 futures down 0.6% to 2258
• Stoxx 600 down 0.4% to 362
• FTSE 100 down 0.3% to 7302
• DAX down 0.7% to 11469
• German 10Yr yield down 4bps to 0.28%
• Italian 10Yr yield down 6bps to 1.85%
• Spanish 10Yr yield down 10bps to 1.33%
• S&P GSCI Index up 1% to 403.7
• MSCI Asia Pacific up less than 0.1% to 140
• Nikkei 225 down 1.5% to 18814
• Hang Seng up 0.5% to 22841
• Shanghai Composite up 0.2% to 3109
• S&P/ASX 200 down 0.9% to 5699
• US 10-yr yield down 7bps to 2.33%
• Dollar Index down 0.29% to 100.89
• WTI Crude futures up 1.5% to $53.13
• Brent Futures up 1.1% to $56.48
• Gold spot up 1.1% to $1,216
• Silver spot up 1.3% to $17.03

Top Global News

• Dollar Drops on Trump Comment as Traders Await May: Markets Wrap
• Trump’s Strong Dollar Comment Puzzling Traders, Macquarie Says
• BAT Wins Reynolds With Sweetened $49.4 Billion Buyout Bid
• JPMorgan Wants to Prove You’re Getting the Best Currency Trade
• Sleuthing for Fed Dots Hints at Yellen Plotting Three ‘17 Hikes
• Microsoft Veteran Will Help Run Chinese Search Giant Baidu
• GM Said to Plan $1 Billion U.S. Investment in Nod to Trump
• Trump Said to Meet Boeing CEO a Second Time Over Air Force One
• UBS Chairman Axel Weber Says Mood at Davos Is Too Gloomy

* * *

Looking at regional markets, Asian stocks traded mostly lower following the US market closure for Martin Luther King Jr. Day and negative lead from Europe due to hard Brexit concerns. ASX 200 (-0.9%) conformed to the downbeat tone and broke below the 5700 amid declines in financials as all Big 4 banks traded with losses after similar weakness in their European counterparts. Nikkei 225 (-1.5%) underperformed to plummet below the 19,000 level as JPY strengthened. In China, Shanghai Comp (+0.1%) saw choppy trade after the PBoC's outstanding FX funds declined for the 14th straight month which suggested continued capital outflows. Furthermore, a firm CNY 330b1n injection failed to support as increased liquidity efforts are widely expected ahead of the Lunar New Year holiday later this month, while the Hang Seng (+0.6%) outperformed and traded with gains following some encouraging earnings reports. Finally, 10yr JGBs saw uneventful trade and edged minimal gains despite a risk averse tone and better than prior 20yr auction results. PBoC injected CNY 100bIn in 7-day reverse repos and CNY 230b1n in 28-day reverse repos. (Newswires) PBoC set CNY mid-point at 6.8992 (Prey. 6.8874).

• Top Asian News
• Yen Unlikely to Draw Japan Into Conflict With Trump, Sinai Says
• Samsung Succession in Disarray as Lee Criminal Case Advances
• Tata Group Said Planning to Raise Stakes in Key Listed Units
• Vietnam’s Premier to Raise Foreign-Investor Caps on Banks
• Asahi Thirsty for More Overseas Deals After SABMiller Purchases
• Cash Ban Gives India Gold Lovers No Way to Buy Wedding Rings

European bourses are broadly trading in the red as markets await UK Prime Minister May's press conference at 1145GMT. Rolls Royce are among the best performers in Europe today after the Co. settled its bribery investigation and confirmed it will pay GBP 671 min. Elsewhere in the FTSE 100 British American Tobacco have agreed their merger with Reynolds American for USD 59.64 per share and also trade  higher this morning. Fixed income prices have moved higher in line with the risk off theme this morning, led by a 6.4bps decline in the French 30-year. Looking ahead, today sees the German Schatz auction, while Gilts have outperformed as traders and investors anticipate PM Mays's speech.

Top European News

• German Investor Confidence Surges as Economic Momentum Picks Up
• Bank Bosses Prep Plans to Move Abroad as May Signals Hard Brexit
• U.K. Inflation Surges to Fastest in 2 1/2 Years as Pound Slumps
• European Auto Sales Jump to Nine-Year High as Renault Gains
• Zurich Cuts Technology Spend as Greco Seeks $1.5 Billion Savings
• Carlsberg Cold War Analyst Says New Russia Status a Game Changer
• Deutsche Bank May Withhold 90 Percent of Bonuses, NY Post Says
• EU Parliament Votes on New Chief as Six Candidates Vie for Post

In currencies, the Bloomberg Dollar Spot Index lost 0.7 percent at 10:34 a.m. London time, set for the lowest level in a month.  The pound rose 0.7 percent to $1.2133, erasing an earlier decline. The euro climbed 0.6 percent to $1.066. The yen traded at 113.26 per dollar, up 0.8 percent. The currency has strengthened 3.2 percent over seven sessions. All eyes will be on UK PM May's key speech on Brexit but unlike the jitters experienced in early Monday, GBP has recovered some ground in the meantime, but some are discounting this down to market mechanics as we close the gap left by Asian markets yesterday. We saw Cable dipping below 1.2000 at the time, but tentative gains saw a London close around the 1.2040-50 area, with buyers taking the pair up to highs just shy of 1.2200 before the latest drop back. This has come in line with USD weakness across the board, with notable losses in USDJPY taking us below 113.00, as recent Trump rhetoric on USD strength has been underlined by his advisers speaking in Davos at the present time. Protectionist talk on China's devaluation of the Yuan has also sparked fresh concerns on what may lie ahead after his inauguration this Friday, and this points to nerves spreading into the equities markets with the European bourses generally lower on the day so far. Elsewhere, EUR/USD has been pushed back into the upper 1.0600's, and calls for a test on the 1.0700-1.0800 are back on the table with the ECB meeting on Thursday also adding to the mix of risk event this week.

In commodities, gold climbed 1.1 percent to $1,215.51 per ounce, extending its winning streak to seven days, the longest since November. Spot gold prices are at the highest since Nov. 22. Crude oil added 1.8 percent to $53.29 a barrel.  Bloomberg’s commodity index rose for a fifth day, heading to the highest close since July 1. Oil markets have somewhat slipped back from the limelight in the commodity complex, but it is enough to say that the USD50.00 handle looks comfortable in WTI, with the backdrop of the OPEC agreement serving as a firm prop. Instead, the focus is on Gold, and while today's drivers are coming from USD softness, the safe haven aspect may come into play as some of D. Trump's protectionist rhetoric begins to unnerve the markets. Base metals could move the other way given the infrastructure spending implications — in both the US and China — but some near term consolidation seen in the likes of Copper as USD weakness translates into higher commodity prices across the board.

Looking at the day ahead, in the US the sole release is the NY Fed’s empire manufacturing survey. Away from the data, clearly the big focus today will be on UK PM Theresa May’s hotly anticipated Brexit speech. Also due to speak today are the Fed’s Dudley and Williams. We’ll also get the latest quarterly earnings report from Morgan Stanley, prior to the open. If that wasn’t enough, the annual World Economic Forum gets underway in Davos today where a number of key speakers are scheduled including China President Xi Jinping. So that is also well worth keeping half an eye on. Finally the European Parliament will begin the process for electing a new president today.

* * *

Jim Reid concludes the overnight wrap

Unsurprisingly markets have been spending the best part of the last 24 hours preparing themselves for Prime Minister Theresa May’s hotly anticipated Brexit speech today. The Sunday Times story served up the first few clues that May will signal plans for a ‘hard Brexit’ today. This morning the newswires are dominated by references to leaked reports from May’s planned speech, all of which is helping to further underscore a potential hard line stance strategy from the UK government.

The stories suggest that May will set out a 12-point plan for Brexit which includes gaining control of Britain’s borders, preserving the Union, signing major free trade deals, taking the UK out of the jurisdiction of the European courts and maintaining workers’ rights. Significantly though, the PM is expected to say that this will not involve “partial membership of the EU, associate membership of the EU, or anything that leaves us half-in, half-out”. In addition the leaks suggest that May will also say that “we do not seek to adopt a model already enjoyed by other countries” and “we do not seek to hold on to bits of membership as we leave”.

Instead it’s expected that the PM will say that “we seek a new and equal partnership between an independent, self-governing, Global Britain and our friends and allies in the EU”. Sterling closed down -1.11% yesterday at $1.205 after briefly testing the waters below $1.200 although it has actually pared some of those losses this morning and is hovering around $1.208. Implied overnight volatility in Cable has also spiked to 27% as we type versus 10% on Friday and is at the highest level since the BoE cut rates back in August. As a prelude to today’s speech, this morning DB’s Oliver Harvey published a short note highlighting some of the other key questions that the market will be looking for answers for. Oliver notes that the speech is expected at 11.45am GMT this morning so strap in and prepare to hold onto your hats.

Leading into this and coming off the back of what was a broadly risk-off session in Europe yesterday with those Brexit concerns at the forefront, it’s been a much more mixed session for Asian equities this morning. While there are further losses for the Nikkei (-0.71%), Shanghai Comp (-0.50%) and ASX (-0.85%) we have seen gains for the Hang Seng (+0.44%) and Kospi (+0.44%). US equity futures are currently -0.26% while 10y Treasury yields have rallied just over 3bps.

Back to yesterday. Indeed, despite the US holiday it was a fairly rough start to the week for European equity markets yesterday with the likes of the Stoxx 600 and DAX closing -0.81% and -0.64% respectively. The FTSE 100 (-0.15%) outperformed relatively speaking boosted by the Sterling weakness but finally closed in the red for the first time since December 21st. In doing so that brings to an end a remarkable and record run of 14 consecutive days of gains and in which the last 12 were record highs for the index. Meanwhile rates benefited from the risk off moves yesterday with 10y Gilt yields in particular ending the day down 5.2bps at 1.308%. Gold (+0.45%) extended its positive start to the year and has now closed the day up in 10 of the 11 trading sessions in 2017 so far. Meanwhile credit markets were a touch wider while it was interesting to see the first Tier 3 sterling bond issue from the UK insurance sector yesterday when Phoenix Group priced a £300m bond, according to the FT.

Elsewhere we didn’t really know what to expect from BoE Carney yesterday however in the end his speech ended up being a bit of a non-starter. He did say that “recently there have been signs of continued solid consumer momentum domestically and a stronger growth outlook globally” and at the same time that the British consumer appears to be “looking through Brexit-related uncertainties”. From a policy standpoint, Carney said that the “MPC will monitor developments in the light of its inflation tolerance and will explain its assessment and policy stance accordingly”. He also suggested that there are “limits to the extent to which above-target inflation can be tolerated”.

Away from this and over at the ECB, the Bank released its latest CSPP holdings data yesterday. Following a holiday-impacted first week, total holdings last week were reported at €54.01bn which implies net purchases settled during the week of €2.17bn. That works out to a €434m daily run rate which is well ahead of the €355m average since the programme. So in other words it appears that buying is back to pre-holiday levels and still going strong.

Before we move onto what is a fairly packed day ahead, yesterday the IMF also released their latest global growth forecasts. The fund maintained their 3.4% forecast for global growth in 2017 made in November, while also leaving their 3.6% forecast for 2018 as is. For the US and reflecting the impact of the Trump administration, the fund now expects growth of 2.3% in 2017 and 2.5% in 2018 which is a cumulative 0.5% upward revision. For the UK, the fund revised up their growth forecast by 0.4% in 2017 to 1.5% but revised down 2018 by 0.3% to 1.4%. Finally growth in China this year was revised up 0.3% to 6.5%, but the fund continues to expect a slowdown in 2018 to 6.0%.

Looking at the day ahead, this morning in Europe the early data comes from France where we’ll get the November budget balance. The focus then turns to the ECB’s bank lending survey, which as a reminder was a bit soft last quarter although the rebound for the sector into year-end may help to firm it up. The UK will then report December inflation numbers where the consensus is for a +0.3% mom rise in headline consumer prices. Later on we’ll then get the January ZEW survey in Germany. Over in the US this afternoon the sole release is the NY Fed’s empire manufacturing survey. Away from the data, clearly the big focus today will be on UK PM Theresa May’s hotly anticipated Brexit speech. Also due to speak today are the Fed’s Dudley (at 1.45pm GMT) and Williams (at 11pm GMT). We’ll also get the latest quarterly earnings report from Morgan Stanley, prior to the open. If that wasn’t enough, the annual World Economic Forum gets underway in Davos today where a number of key speakers are scheduled including China President Xi Jinping. So that is also well worth keeping half an eye on. Finally the European Parliament will begin the process for electing a new president today.

Highlights From Xi Jinping's Davos Speech: Attacks Protectionism, Praises Free Trade, No Intention To Devalue Yuan

via by Tyler Durden on Tue, 17 Jan 2017 11:22:09 GMT

In a speech that struck all the right platitudes with this pro-globalization audience, Xi Jinping, the first Chinese president to attend Davos, slammed protectionism, voicing his support for free trade, and saying he has no intent to boost China's competitiveness through Yuan devaluation.

Here are the key highlights:

• China has no intention of boosting its competitiveness by devaluing the RMB, still less will it launch a currency
  • China is expected to import $8TN of goods in the coming 5 years
  • China to attract $600BN of foreign investments in 5 years
  • China to make $750BN of outbound investments
  • China will keep its door wide open
• Many of the problems troubling the world are not caused by economic globalization
• No one will emerge as a winner in a trade war
• The international financial crisis a result of excessive pursuit of profits & lack of financial supervision, not globalization
• He says protectionism is like to "locking oneself in a dark room"
• We must face the challenges of climate change, aging population, and address the negative impact of automation on jobs
• We must release its positive impact and rebalance the process of economic globalization
• Lay out issues restraining global growth as follows: i) lack of robust driving forces, ii) inadequate governance system, iii) uneven global development
• Globalization has become "Pandora's box" in eyes of many, but world economic problems not results of it
• Economic globalization is a double-edged sword and we must adapt to and guide it
• The most pressing task world faces now is to get global economy out of recession
• World economy remains sluggish for quite some time while new path for growth remains elusive
• Stresses importance of #innovation as a key driving force of growth for individual countries & global economy
• Make a full use of opportunities brought by globalization, but work together before challenges

Bottom line: China, a fervent supporter of free trade and globalization due to its still quasi-mercantilist economy, has sided with the Davos elite and remains on collision course with Trump's protectionist policies. It is still unclear who, if anyone, will blink first.

8 World Currencies That Took a Hit in 2016

via Wise Bread by Tim Lemke on Tue, 17 Jan 2017 11:00:10 GMT

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