Tuesday, February 7, 2017

Tuesday, February 7, Morning Global Market Roundup: Euro, European Bonds Unnerved By French Political Jitters

By Jamie McGeever
Reuters
February 7, 2017

European financial markets struggled with growing economic and political concerns on Tuesday as the euro neared its biggest fall this year and bond yield spreads over Germany reaching the widest in several years.

The dollar sped higher toward its biggest gain in a month against a basket of major currencies after jumping against the offshore Chinese yuan on the fall in Beijing's foreign exchange reserves below $3 trillion for the first time in six years.

European corporate earnings offered investors some cheer even though oil giant BP (BP.L) missed estimates, but failed to completely shrug off the unease fueled by the growing unpredictability of the French presidential election race.

Far-right National Front Leader Marine Le Pen has vowed to fight globalization and take France out of the euro zone, while conservative candidate Francois Fillon on Monday vowed to fight on for the presidency despite a damaging scandal involving taxpayer-funded payments to his wife.

Earlier on Tuesday, Emmanuel Macron, the independent centrist candidate and favorite to win the election, knocked down rumors he has a gay relationship outside his marriage since 2007.

Investors sought the safety of U.S. Treasury and German debt over French and other euro zone bonds, although the dollar's broad rise dulled the allure of gold, the traditional safe-haven asset in times of political and economic uncertainty.

"The political calendar is likely to make some investors sit uneasy on some positions, particularly as the prevailing opinion remains that none of the anti-European parties will have a significant chance of getting close to power," RBC Capital Markets strategists wrote in a note on Tuesday.

"Whilst this is also our expectation, complacent markets will likely face at least one moment where the iron-clad view will be questioned."

The euro fell 0.8 percent to $1.0665 EUR=, its biggest fall since Dec. 15 last year, while the dollar index was up 0.7 percent, its biggest rise since Jan. 6 .DXY.

The premium investors demand for buying French 10-year government bonds FR10YT=TWEB over German 10-year bonds DE10YT=TWEB rose to 78 basis points, the highest level since November 2012. It was 50 basis points only two weeks ago.

"The acceleration of the trend of wider spreads since the start of the year has been widespread and not just confined to France, where obviously the political tail risk is the greatest," said Kenneth Broux, head of corporate research, FX and rates at Societe Generale.

The spread between Italian IT10YT=TWEB and German bonds widened to 202 basis points, the highest in three years, while the Portuguese-German spread hit 390 basis points for the first time in three years also PT10YT=TWEB.

By 0815 GMT, however, these spreads had narrowed by as much as 5 basis points.

The yield on 10-year U.S. Treasuries hovered around a two-week low of 2.40 percent US10YT=RR.

Below $3 Trillion


European stocks held up better, with the FTSEuroFirst 300 index of leading shares up 0.2 percent in early trade at 1431 points .FTEU3.

Chipmaker AMS (AMS.S) rose 16 percent, poised for its best-day ever after the company's fourth-quarter revenue came in at the top end of the chipmaker's expectations. BP was the biggest drag on the broader index, down 2.5 percent.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS fell 0.3 percent, while Japan's Nikkei .N225 closed down 0.35 percent.

Chinese shares .CSI300 .SSEC dropped 0.4 percent ahead of data that showed FX reserves fell for the seventh straight month in January and below $3 trillion for the first time in six years.

The dollar rose 0.5 percent against the offshore yuan CNH=, its biggest rise in three weeks. Concerns remain over the speed at which China has depleted its cash resources to defend the currency. Reserves were almost $4 trillion in mid-2014.

U.S. stock futures pointed to a flat-to-marginally higher open on Wall Street ESc1, after dipping as much as 0.2 percent on Monday.

Oil prices buckled under the dollar's gains, extending their decline following the biggest one-day loss since Jan. 18 on Monday as worries about rising oil supply out of the United States tussled with optimism about output curbs elsewhere.

U.S. crude CLc1 fell 0.5 percent to $52.72 a barrel, after falling 1.5 percent on Monday. Brent LCOc1 fell 0.6 percent to $55.40, after sliding 1.9 percent on Monday.

Gold surrendered some of Monday's strong gains but hovered close to its three-month high hit on the day, easing 0.5 percent to $1,229 an ounce.


Article Link To Reuters:

The New England Patriots Win Shows Why Steve Bannon Gets Prosperity Wrong

By John Tamny
Real Clear Markets
February 7, 2017

No matter who is in the White House, there are always members of the electorate who feel the existing occupant is “trying to wreck the U.S. economy.” This was true for Barack Obama’s presidency, and it will similarly be true for Donald Trump’s.

About Obama’s policies, no doubt many were inimical to prosperity. Economies are merely collections of individuals, and individuals are weakened when more of their work is regulated and taxed away. Whatever one’s opinion of the 44th president, his years in office weren’t defined by stupendous economic growth.

Still, presidents don’t aspire to the office because they want to be average, or fail. They want their years in office to be seen by historians as economically fruitful. Successful economic presidents are broadly seen as “great” in a country like the U.S. that’s full of the ambitious. So while Obama’s economic policies were less than ideal, it seemed a reach for anyone to suggest that he purposely proposed policies meant to render members of the electorate worse off economically. Such a goal would be self-defeating.

Applied to Trump, and his chief policy strategist, Steve Bannon, both have ideas about the policies necessary for prosperity, and both surely believe they’re excellent. Indeed, if the economy falters under Trump, historians will judge both the president and his top adviser negatively. Rightly so, since economic growth is so simple. It’s about removing or reducing the four main governmental barriers to production: taxes (a penalty placed on work and investment), regulation (a tax on production that fails, almost as a rule), floating money values (a tax on trade and investment), along with tariffs (a tax on work).

Trump and Bannon get the first two broadly right, but on money and trade they miss in a big way. Money is merely a lubricant that makes trade (the purpose of our work) and investment (the direction of capital to future wealth creation) more frequent, but Trump’s been explicit in his desire for a weaker dollar that will render both less common. And as workers we’re all importers, by definition (why else would we work?), which means tariffs tax the reason we’re working to begin with.

Trump’s support of tariffs is rooted in a belief that is strongly held by Bannon. An economic nostalgist, or as he puts it about himself, an “economic nationalist,” Bannon believes as Trump does that “Protection will lead to great prosperity and strength.” The latter explains their support of tariffs. They believe barriers to the entrance of foreign goods and services will lead to stronger U.S. companies. Yet on this point these two surely well-meaning individuals get the nature of growth precisely backwards.

To understand why, we need only consider the New England Patriots numerous Super Bowl victories. It was quite literally a lack of protection that made them possible; specifically a vicious hit back in 2001 that forced former Patriots quarterback Drew Bledsoe to the sidelines in favor of Tom Brady. The Patriots were a good team with Bledsoe calling signals, but not a great one. And while no sane individual would ever wish an injury upon anyone, it was Bledsoe’s injury that unexpectedly brought the Patriots prosperous future into an abundant present. Seven Super Bowls later, including five wins, Brady and Patriots head coach Bill Belichick are now properly seen as the best quarterback and head coach in the history of the game.

A similar scenario helps explain the Atlanta Falcons rise to NFC dominance, and possible Super Bowl victories in the future. While the Falcons were an occasionally good team under former head coach Mike Smith, they only realized their Super Bowl potential when Smith was fired. Dan Quinn was hired to replace Smith in 2015, and two years later his team came within inches of winning it all. Does anyone think the Falcons would have been playing into February of 2017 if Smith were still running the show?

All of which brings us to the business angle of protection (or lack thereof), which helps explain why economies grow. In last Friday's Wall Street Journal, frequent editorial page contributor Andy Kessler noted that the failure rate among Silicon Valley start-ups is roughly 90 percent. Silicon Valley is the most economically prosperous region in the world, yet its economy is defined by a total lack of protection. Businesses fail there with great constancy.

Importantly, the failures are the source of its abundant economic strength. Put in football terms, there aren’t any Bledsoes and Smiths overseeing precious resources without endpoint. Thanks to persistent failure in the Valley, the bad ideas are exposed quickly so that poorly run businesses are rapidly deprived of their ability to ritually misuse what is once again precious. If the businesses in the Valley were protected by governments through bailouts and/or tariffs, what is not working would continue to exist at the expense of much more talented Brady and Quinn equivalents waiting in the wings; their skills wasted thanks to protection.

Even more important, it’s easy to see the predictable results of protection when we shift our gaze to other parts of the United States; Detroit in particular. Detroit was “Silicon Valley” long before the real one, and its impressive economic vitality resulted from a lack of substantial protection from government. Figure that in the early part of the 20th century, over 2,000 carmakers were incorporated. Nearly every single one failed. But far from impoverishing cities like Detroit, this fast, Valley-like failure authored its economic renaissance. Once again, where failure is frequent success becomes more likely simply because the bad are quickly replaced by the good.

Fast forward to the present; Bannon and Trump believe that protection of U.S.-based industries is necessary if the U.S. economy is to grow at faster rates. In truth, their policies promise stagnation if implemented. Protection is once again what calcifies what isn’t working, along the sporting lines of former Alabama Crimson Tide head coach Mike Shula keeping his job forever instead of the school replacing him with Nick Saban.

Bannon and Trump surely mean well, but their stated support of protectionism will, if imposed, visit endless sluggishness on the U.S. economy. We can never forget that failure is our economy’s strength, and if they succeed in restraining failure through artificial, governmental means, Americans will be less likely to know what “winning” is.


Article Link To Real Clear Markets:

BP Annual Earnings Dip To 10-Year Low

By Silvia Amaro
CNBC
February 7, 2017

BP disappointed analysts on Tuesday morning, reporting lower-than-expected net income in the fourth quarter and annual earnings that dipped to at least a 10-year low.

The oil giant said underlying replacement cost profit, which it uses to measure net income, was $400 million for the quarter, an improvement from a year ago, but below the $560 million that analysts polled by Reuters were expecting.

Replacement cost profit is a common accounting measure to report profits in the oil industry which takes into account the fluctuations in the price of oil. For the year, this measure came in at $2.59 billion, which was down from $5.9 billion in 2015. Reuters reported that this metric had hit its lowest in at least 10 years in 2016.

The improved figures from a year ago were due to higher oil prices and significantly lower costs. BP added that it is prepared for any volatility that may affect oil prices in the future.

"We have adapted by cutting our controllable cash costs by $7 billion from 2014 - a full year earlier than planned. Continued tight discipline on costs remains essential," Bob Dudley, BP group chief executive, said in the accompanying press release.

"With our Deepwater Horizon financial liabilities now substantially behind us, BP is fully focused on the future," he added.

The oil company bought Australian gas stations at the end of last year and struck a deal to take a 10 percent stake in one of the largest oil fields in the Middle East.

Such additions are expected to contribute to higher cash flows but only in the longer term.

"Together with the mostly second half start-up of the new upstream projects expected to come onstream in 2017, these significant and strategic additions mean that BP now anticipates balancing its organic sources and uses of cash by the end of 2017 in a Brent oil price environment of around $60 a barrel," the firm said in a statement.

It added that its 2017 outlook was dependent on a variety of different factors that could affect the oil market.

"The actual reported outcome will depend on the exact timing of project start-ups, acquisition and divestment activities, OPEC quotas and entitlement impacts in our production-sharing agreements," it said.


Article Link To CNBC:

Oil Prices Stable, But Kept In Range By Mixed Price Signals

By Henning Gloystein
Reuters
February 7, 2017

Oil was stable on Tuesday after falls the previous session, with markets torn between mixed price indicators that have kept crude range-bound for much of the year.

Brent crude futures LCOc1, the international benchmark for oil prices, were trading at $55.77 per barrel, up 5 cents from the last close.

U.S. West Texas Intermediate (WTI) crude futures CLc1 were up 4 cents at $53.05 a barrel.

The more stable prices came after WTI and Brent fell 1.5 to 2 percent the previous day.

Since the beginning of the year, both crude futures benchmarks have remained within a $5 per barrel price range, suggesting a lack of strong directional price indicators.

"$55 per barrel is quite obviously the pivot point in this market... and it has been for some time," said Matt Stanley, a fuel broker with Freight Investor Services (FIS) in Dubai.

Traders said key price support was coming from an effort by the Organization of the Petroleum Exporting Countries (OPEC) and other producers to cut output by almost 1.8 million barrels per day (bpd) in the first half of 2017.

While OPEC and Russia have together cut at least 1.1 million bpd so far, rising output elsewhere as well as signs of slowing demand growth threaten to undermine these efforts, traders said.

"The number of oil rigs in the U.S. (is) now at the highest level in 14 months, having risen over 20 percent since the OPEC production cut agreement was reached," ANZ bank said on Tuesday.

There are also concerns that U.S. gasoline consumption, a key pillar for crude oil demand, is stalling.

Gasoline stockpiles rose by almost 21 million barrels during the first 27 days of 2017, compared with an average increase of less than 12 million barrels at the same time of year during the previous decade, according to official inventory data, implying either stalling demand or ongoing oversupply.

In China, which is challenging the United States as the world's biggest oil consumer, BMI Research said this week that crude oil import demand would soften during the first half of the year as refinery maintenance results in less demand and as independent refiners were given a lower annual crude import quota.

In a sign of a bloated fuel market, China's refined oil product exports are soaring.

"China's oil product exports continued to surge for its third year in 2016, by 34 percent year-on-year to 48.3 million tonnes," shipping brokerage Banchero Costa said.

"At the same time, China's oil product imports have been sliding downwards, falling about 7 percent year-on-year in 2016 to 27.9 million tonnes," it added.


Article Link To Reuters:

Oil Becoming A Crowded Trade As Hedge Funds Pile In

By John Kemp
Reuters
February 7, 2017

Hedge funds have accumulated a record bullish position in crude futures and options, betting on further price rises, but the lopsided nature of the positioning has become a key source of risk in the oil markets.

Hedge funds and other money managers had accumulated a record net long position in the three main Brent and West Texas Intermediate (WTI) futures and options contracts equivalent to 885 million barrels by Jan. 31 (tmsnrt.rs/2kiH2WU).

Fund managers added an extra 41 million barrels to their net long position in the seven days to Jan. 31, according to the latest reports published by regulators and exchanges.

Funds now have long positions equivalent to almost 1 billion barrels across the three major contracts, while short positions amount to just 111 million barrels.

The ratio of long to short positions has reached almost 9:1, the most bullish since May 2014, when Islamic State fighters were racing across northern Iraq and the Libyan civil war had halted crude exports (tmsnrt.rs/2jTBZgO).

The crude market is starting to resemble the classic crowded trade in which speculators attempt to position themselves in the same direction in anticipation of a big price move.

There has been no sign of profit-taking although Brent prices have risen close to the $55-60 region most energy market professionals expect to be the average for 2017.

Hedge funds have continued to add long positions even though Brent prices have almost doubled over the last 12 months and are trading near the highest level since July 2015.

And there is no evidence of any new wave of short sales. Combined short positions across Brent and WTI have fallen to the lowest level in seven months.

Fund managers apparently believe output reductions by the Organization of the Petroleum Exporting Countries and other exporters will succeed in draining excess global inventories and pushing prices higher.

Managers are also discounting the threat from renewed drilling in the United States and a likely increase in output from shale producers, at least in the near term.

But every successful trade needs an exit strategy and in this case it remains unclear how and at what price fund managers will manage down positions and try to take profits.

The enormous concentration of hedge fund long positions has emerged as an important source of price risk in the near term (“Predatory trading and crowded exits”, Clunie, 2010).

One-way markets, when traders attempt to position themselves in the same direction, often precede sharp reversals in prices (“Why stock markets crash: critical events in complex financial systems”, Sornette, 2003).

The previous record net long position in oil markets, set in June 2014, preceded the deepest and most prolonged slump in prices for almost 20 years (tmsnrt.rs/2kiSP7t).

And in the last two years, large concentrations of short positions have normally preceded a sharp short-covering rally as managers raced to lock in profits when prices stopped falling.

With so many fund managers now positioned in the same (long) direction, the risk of a rush for the exits, a disorderly liquidation of positions and a correction in prices has risen significantly (tmsnrt.rs/2kiGlNm).


Article Link To Reuters:

Tech's Fight Against Trump's Travel Ban Is A Matter Of Survival

By Leonid Bershidsky
The Bloomberg View
February 7, 2017

Few tech workers come from the seven countries affected by President Donald Trump's entry ban. But the 97 U.S. companies, most of them from the tech sector, that lent their support to the state of Washington's lawsuit aiming to block Trump's executive order, have good reasons to fight it every step of the way.

Iran, Iraq, Libya, Somalia, Sudan, Syria and Yemen aren't huge sources of tech talent, at least according to the imperfect gauge provided by the H-1B visa statistics. This visa type is often used by tech companies to hire engineers. In 2015, only 254 people from the seven countries received such visas, and that number doesn't include a single Somali or Yemeni citizen. Poland alone provided 252 H-1B workers that year, while India, the undisputed champion, sent almost 120,000 such workers to the U.S.

Whatever problems Trump's executive order created weren't insurmountable for the likes of Apple, Google, Facebook, Netflix or PayPal, all signatories to the amicus brief in support of the Washington lawsuit. They could make arrangements for these workers and their families, applying for exceptions or relocating them to overseas subsidiaries. The companies, however, chose to fight the ban anyway, risking blowback from a mercurial president. The obvious reason is laid out in the brief: The executive order came with no warning and created much confusion, so recruits everywhere -- not just in those seven countries -- would be justified in having misgivings about the U.S. now:

Business and employees have little incentive to go through the laborious process of sponsoring or obtaining a visa, and relocating to the United States, if an employee may be unexpectedly halted at the border.

According to the U.S. Census Bureau, 24 percent of the science, technology, engineering and mathematics workforce in computer-related occupations is foreign-born, compared with 16.7 percent of the general U.S. workforce. That's only possible because the U.S. is so strong in the international competition for tech talent.

Last year, Mikkel Barslund and Mathias Busse of the Center for European Policy Studies published a report on European information technology professionals' mobility, based on data from LinkedIn. They found that in 2014, 70,000 such workers left the European Union, and 31,000 of them went to the U.S. -- the biggest magnet for European IT talent. That same year, 19,000 U.S.-based developers moved to the EU.

In part, the outflow is explained by the high salaries good engineers command in the U.S. The median earnings of a foreign-born worker in science, technology, engineering and mathematics (STEM), at $88,496, are significantly higher than a native-born American colleague, who makes $77,368 a year.

But it wouldn't take much to reverse the flow. Europe needs the talent badly.

The European Commission estimates that the continent will have 750,000 unfilled IT jobs by 2020. European nations have already relaxed visa requirements for tech professionals. If the U.S. moves in the opposite direction -- and there are indications that Trump's next move will make it more difficult to get H-1B visas -- European companies and global employers with operations in the EU won't even have to compete on pay. That's one reason it makes sense for the tech companies to draw red lines early on, before the worst happens and they start losing in the competition for talent.

There is, however, a less obvious reason why the most innovative industry in the U.S. must fight any entry bans, regardless of whether the countries on the ban list supply thousands of engineers or just a few.

In their brief, the tech companies quoted Woodrow Wilson, who, in 1901, complained about what he considered the wrong kind of immigration: "multitudes of men of the the lowest class from the south of Italy and men of the meanest sort out of Hungary and Poland, men out of the ranks, where there was neither skill nor energy nor any initiative of quick intelligence." Immigrant-haters say the same today about newcomers from Muslim countries. And yet the positive effect of last century's wave of arrivals did not show up for years.

Ufuk Akcigit of the University of Chicago and two collaborators have just published a paper showing that in fields where foreign-born inventors were prevalent between 1880 and 1940, the number of U.S. patents increased compared with others in 1940-2000.

In 1880-1940, about 20 percent of inventors in the U.S. were immigrants -- some of them likely "out of the ranks"; today, their share is about 30 percent. That makes it likely that the fields in which they work will experience a disproportional innovation boom decades from now. Immigrant creativity is not just a resource for today; it's what has created America's innovation edge, and what will maintain it in the future. And one never knows where the people who lay the foundation of that future edge will come from. Keeping out one Iranian immigrant might cost the U.S. eventual leadership in an entire field.

Of course, the U.S. has established immigration curbs in the past, too. But doing it now, when there's plenty of eager competition for innovators and even for workers who are merely technically competent, is more harmful than it was in Wilson's day.


Article Link To The Bloomberg View:

Emerging Market Currencies To Slip Once Trump's Economic Plans Are Clearer

By Vuyani Ndaba and Silvio Cascione
Reuters
February 7, 2017

The latest rally in emerging market currencies is unlikely to last long, a Reuters poll showed on Tuesday, with recent gains expected to be curtailed as soon as the economic policies of U.S. President Donald Trump become clearer.

Sentiment has been buoyant since Trump's arrival in the White House last month on hopes that a fresh round of economic stimulus will boost commodities prices and help sustain economic growth, even as trade barriers appear.

But currencies such as the Brazilian real, the Russian rouble and South Africa's rand are nevertheless set to give up gains over the next six months, according to the median forecasts of strategists in the poll taken Feb 2-6.

In six months, the real is expected to lose almost 6 percent to 3.29 per dollar, while the rand is forecast to give up 7 percent to 14.25. Russia's rouble is set to shed 3 percent to 60.90 per greenback, supported by rising oil prices.

Trump has kicked off his first few days in office mostly focusing on foreign policy and immigration and markets are awaiting more detail on his economic policies.

"We are not really seeing any dramatic shift in policy yet from the U.S. that impacts emerging markets in a negative way," said Peter Attard Montalto, an economist at Nomura in London.

"But that should come through (in) the next couple of months when we get the U.S. budget coming together."

With the U.S. economy already bumping up against full employment, Trump's promises on fiscal stimulus and tax reform could quickly spur higher inflation as would imposing tariffs on Mexican imports.

Most Fed officials see three rate hikes this year, a pace considerably faster than in 2016 and 2015. Higher U.S. interest rates usually weaken emerging currencies against the dollar.

João Pedro Resende, an economist with São Paulo-based bank Itaú Unibanco, also mentioned upcoming elections in Europe as a potentially risky event for emerging currencies in general, especially in France, where candidate Marine Le Pen promises to leave the currency union. The first-round vote will be in April.

Even the Mexican peso has gained in recent weeks, bouncing off record lows after it was bruised by Trump's rhetoric on the North American Free Trade Agreement (NAFTA), which he has threatened to ditch, and his promises of building a wall funded by a hefty border tax.

With most strategists betting that Mexico will fend off a credit rating downgrade in 2017, the peso is expected to stay stronger than its record low of 22 per dollar despite some losses projected for the next 12 months, the poll showed, with chances of a short squeeze soon.

The lira TRYTOM=D3, already one of the worst performing emerging market currencies this year, is expected to see more pain ahead, with strategists putting it at 3.88 in the next 12 months, from 3.67 now.

The lira is down around 4 percent this year, adding to double-digit declines last year and the year before. It has been hit by concerns about a slowing economy, political uncertainty, and the central bank's ability to tame inflation given that President Tayyip Erdogan is opposed to higher interest rates.


Article Link To Reuters:

White House Memo Confuses Wall Street On Fate Of Fiduciary Rule

By Sarah N. Lynch and Elizabeth Dilts 
Reuters
February 7, 2017

Conflicting signs from the White House have left brokerage firms and lobbyists unsure whether a controversial rule governing retirement advice will ever be put in place, but they are taking no chances and complying anyway.

President Donald Trump's Friday memorandum ordered the Labor Department to review the so-called "fiduciary" rule, which requires brokers to put their clients' interests first when advising them about 401(k) plans or individual retirement accounts.

But that call for a review was significantly weaker than an earlier draft, seen by Reuters, that requested a 180-day delay in the scheduled April 10 effective date of the rule, which is already on the books.

Trump's memo did not go as far as White House early guidance to reporters that the memo would ask the department to "defer implementation" of the rule.

It is not clear to Washington insiders just how quickly or easily the Labor Department can delay implementation of the rule.

And while most expect there will eventually be a delay, it still is not clear to Wall Streeters who have already started changing their business models whether they can count on a deferral or reversal of the regulation.

“There’s confusion because it injected a whole lot more noise into the system with very little specificity about what is to come,” said Michael Spellacy, the head of PWC's wealth management consultancy, who said he spent most of his weekend on the phone with the heads of 35 U.S. brokerages they are advising discussing the memo and its implications.

Legal experts say the Labor Department likely will have to undertake a formal rulemaking process in order to delay the rule's implementation - a process that cannot happen overnight, and that may be further delayed by the lack of a permanent Labor Secretary.

Trump's choice to be Labor Secretary, Andrew Puzder, has seen his own confirmation indefinitely postponed in the Senate amidst delays with his ethics paperwork.

One other possible wrinkle that could impact the rule's implementation, meanwhile, is a pending legal challenge in a federal court in Texas.

Last week, the judge said she plans to rule no later than Feb. 10.

The fiduciary rule is separate from the banking rules that were put in place after the 2008 financial crisis. Trump has also ordered a review of the 2010 Dodd-Frank reform.

Expecting A Delay, But Complying Anyway


In the meantime, lawyers are advising their financial services clients to continue preparing for the upcoming deadline.

"What is clear from the memo is that we don't have certainty yet," said Michael Kreps, an attorney with the Groom Law Group.

The White House did not explain why it scaled back its memo, but legal experts say it was most likely changed because the prior version may have violated the Administrative Procedures Act - a federal law that governs the rulemaking process.

That law requires public notice and a comment period before changes to a rule can be made.

Had Trump proceeded with the original plan for a 180-day delay, the change could have been vulnerable to legal challenges.

Legal experts say the Labor Department has a few possible options.

It can issue what is known as an "interim final rule," which would immediately delay the effective date while seeking comments from the public on why a delay is justified.

Or, it can issue a proposed rulemaking to delay the rule's compliance deadline, give the public 30 days to comment, and then issue a final rule.

A Labor Department spokeswoman reiterated on Monday that the department is reviewing its legal options to delay the rule, but declined to elaborate.

Kenneth Laverriere, an attorney at Shearman & Sterling, said he fully expects the rule to be delayed eventually, though it will come after companies have already spent a lot of money to comply.

Three of the biggest U.S. brokerages, Bank of America Corp’s (BAC.N) Merrill Lynch, Morgan Stanley (MS.N) and Wells Fargo Advisors (WFC.N), said Friday’s memo will not change compliance plans the firms already have in place.

Of those, Bank of America intends to adopt the most aggressive changes with its plans to scrap selling brokerage IRA accounts starting in April.

"The genie is certainly out of the bottle," Laverriere said.


Article Link To Reuters:

There Is No Dodd-Frank Loan Drought

By James Saft
Reuters
February 7, 2017

Evidence that Dodd-Frank Act regulation is making lending conditions tighter is thin on the ground, at least for the vast majority of the U.S. economy.

President Donald Trump on Friday kicked off what he said would be a major restructuring of the post-crisis legislation governing everything from banks to capital markets to consumer financial protection, justifying the effort by arguing that Dodd-Frank made loans too hard to get.

“We expect to be cutting a lot out of Dodd-Frank because, frankly, I have so many people, friends of mine, who have nice businesses who can’t borrow money. They just can’t get any money because the banks just won’t let them borrow, because of the rules and regulations in Dodd-Frank,” Trump said Friday while meeting with corporate executives.

Former Goldman Sachs President Gary Cohn, now serving as director of the National Economic Council, stood behind Trump as he signed the executive order and later reinforced the loan argument.

“Today banks do not lend money to companies. Banks are forced to hoard money because they're forced to hoard capital and they can't take any risk. We need to get banks back in the lending business. That's our number one objective,” Cohn said later on Friday.

Banks, of course, are lending money to companies, as a quick look at the statistics bears out; commercial and industrial (C&I) loans are now higher as a percentage of economic output than they’ve been since the 1980s, when the capital markets were far smaller and the economy more reliant on direct finance via banks.

Credit card and auto lending is at or near record highs and mortgage loans outstanding are in shouting distance of their pre-crisis high.

The Trump administration view also doesn’t accord with the closely watched Federal Reserve Survey of Senior Loan Officers. Banks spent most of the time since Dodd-Frank became law loosening rather than tightening standards for C&I loans to large and middle market firms. The same is true for C&I loans to small firms.

Terms on lending for commercial real estate have been getting steadily tighter, according to the Fed, which perhaps explains Trump, a developer himself, hearing about this from his friends. That tightening may be a good thing, as regulators have expressed concern over the past two years about commercial real estate as a potential source of stress.

Not Too Big To Lend

Another outright canard is any assertion that Dodd-Frank, which was intended to address the perils of too-big-to-fail banks, has clamped down on them so tightly as to impair their ability to intermediate capital.

Lending in constant dollar terms at Citigroup was up 6 percent in 2016, a year when the overall U.S. economy only grew 1.6 percent. C&I loans growth was similarly robust at JP Morgan ChaseN>, though overall loan portfolio growth was slowed by its decision to allow its student loan portfolio to dwindle.

A look at the bank loan market also shows credit is ample, and, relatively speaking, cheap.

The average yield for issuers issuing today in the leveraged loan market, for three-year money, on first-lien institutional term loans is 4.5 percent so far in 2017, more than two whole percentage points lower than a year ago, according to data from Thomson Reuters LPC. This level has not been seen since 2004. And it isn’t just buy-out or M&A loans which are being made; lending for working capital last year was higher than in any year since 2007, according to Thomson Reuters LPC.

There is evidence that Dodd-Frank regulatory constraints may be limiting leveraged buy-out loans, but this is in part a function of high equity prices which themselves drive higher leverage to make the deals possible. It is, again, far from clear from a market or banking safety point of view that these constraints are a bad thing.

Relatedly, the volume of the riskiest loans, those with an all-in spread of 500 basis points or more above LIBOR, collapsed last year, to just $20 billion from $106 billion in 2015, according to data from S&P Global Market Intelligence.

The stated purpose of loosening lending also doesn’t accord well with House Republican preferences for tax reform, or the Trump pre-election proposals, which detailed plans to eliminate debt service cost tax deductions, in what would be a massive change.

Why worry about loan availability if you are about to make lending much, much less attractive?

If Trump does both, loosening Dodd-Frank but getting rid of the write-off for borrowing costs, banks will find loan demand sinks like a stone, while equity issuance increases.

None of this is to say that Dodd-Frank works on its own stated terms. Nor do we know what Trump and his cohorts will propose or carry out.

Company credit availability is not the problem, and solving non-existent problems has a way of creating new and worse ones.


Article Link To Reuters:

Harvard’s Record $1.2 Billion Haul Erased By Investment Losses

U.S. colleges raise record $41 billion in fiscal 2016; Less than 1% of colleges raised 27% of all donations.


By Janet Lorin
Bloomberg
February 7, 2017

Harvard University raised $1.2 billion from donations, a record for the world’s richest college. The haul was erased by $2 billion in investment losses and spending.

Harvard’s take was the most by any U.S. university as colleges collected an unprecedented $41 billion in fiscal 2016, the New York-based Council for Aid to Education, which tracks university giving, said in a survey released Tuesday. Stanford University was ranked No. 2, with $951 million, marking only the second time in 12 years that Stanford failed to outpace Harvard in fundraising.

The total was up almost 2 percent from the previous year. The top 20 schools accounted for 27 percent of all donations, once again concentrating the wealth among the richest schools. The same 20 institutions raised about 2 percent less than last year.

Wealthy Donors


Fundraising totals show how the richest colleges’ appeals to wealthy donors can help offset weak endowment returns. U.S. college endowments declined 1.9 percent on average, according to an industry survey. Congress is considering a bill requiring donors to wealthy schools set aside a portion of their gift for financial aid or risk losing their tax deduction.

“When investment earnings for colleges are down, they’re also down in portfolios for wealthy individuals and foundation and donor-advised funds,” said Ann Kaplan, the survey’s director. “When one of these sources loses wealth, generally on the whole, they all lose ground at the same time.”



Funds in the survey count money received, and don’t include pledges. Most of the contributions, about 60 percent, funded current operations. Gifts to build the endowment are about a quarter of the reported gifts, according to Kaplan. Most schools end their fiscal year in June.

Harvard, with a $35.7 billion endowment, beat its previous record of $1.16 billion two years ago, the only year Stanford didn’t come out on top since 2004.

Funding Operations


“It is hard to overstate the importance of philanthropy to the university,” Patrick McKiernan, a Harvard spokesman, said in a statement. Distributions from the endowment contributed to 36 percent of university operating revenues and gifts for current use represented 9 percent.

Stanford has the fourth-largest endowment at $22.4 billion. Donations helped offset Stanford’s modest investment loss, in addition to “a strong increase in value” of campus real estate held by the school. About 15 percent of the endowment is made up of real estate holdings off campus leased to companies, hotels and other firms, according to the school. Stanford’s fiscal year ends in August, and its fund captured two strong months of performance.



The University of Southern California came in third, with $667 million in donations, followed by Johns Hopkins University, with $657 million; the University of California-San Francisco with $596 million; and Cornell University at $588 million.

Donations from individuals declined from the previous year. Those from alumni dropped 8.5 percent and by 6 percent from non-alumni, while giving from corporations grew by almost 15 percent. Support from foundations and other organizations was also up, according to the survey. Gifts for financial aid have been steady at about 16 percent for about a decade.

About 950 schools responded to the survey, and the group used data to estimate a total for institutions that didn’t respond.


Article Link To Bloomberg:

How Trump Will Save Europe

It’s not too late to turn the tables on its populist shake-up.


By Mark Leonard and Vessela Tcherneva
Politico EU
February 7, 2017

In his first weeks in office, U.S. President Donald Trump has demonstrated that the threat he presents to European interests has not been overstated. There is good news, however. His antipathy toward the European Union is so “yuge” that it could end up reigniting the faltering bloc’s sense of common purpose.

The challenge is plain: Trump is not just the first U.S. president who doesn’t actively support the EU; he has also made clear that its disintegration would advance U.S. interests. His stance on global trade, the Paris climate deal and the Iran nuclear deal threaten to unpick key elements of global governance. His back-and-forth on NATO and his coziness with Russian President Vladimir Putin are deeply worrying for the future of European security. And his temporary travel ban on visitors from seven majority-Muslim countries has sown chaos, undermining the international management of the refugee crisis and fanning the flames of Islamic extremism.

Trump has taken office at a time when Europe is drifting away from “integration” in response to a rise of nationalist sentiment across the Continent. The conventional wisdom is that the elections this year — in the Netherlands, France, Germany and possibly Italy and Spain — will further erode EU cooperation and deepen divisions. And yet, it’s not too late for Europe to turn its fortunes around — if, that is, it wakes up to the scale of its challenges.

Complacency among the establishment and its supporters is, after all, one of the driving forces behind the rise of populist sentiment in Europe. With Trump in the White House issuing erratic executive orders, complacency becomes more difficult; the dangers of populism are there for all to see.

There are encouraging signs that the political momentum is shifting in this direction. In Austria, for example, the far-right Freedom Party was defeated in presidential elections. And in France, centrist candidate Emmanuel Macron is leading the polls ahead of elections in Spring. Europe must encourage these trends.

"As Europe wakes up to the dangers, it may become more willing to make compromises."

The news coming from Washington in the past days resonated strongly in Europe. Using petitions, open letters, and social media — or simply by taking to the streets — thousands of Europeans protested Trump’s controversial “Muslim ban.”

It is still unclear how much of his agenda Trump will be able to push through. But it is not impossible that divisions between the EU’s member countries will begin to pale in comparison to the existential threat of an increasingly likely Trump-Putin era. As Europe wakes up to the dangers, it may become more willing to make compromises — on Russian sanctions and refugee allocation, for example — and to finally develop a coherent foreign policy.

As they craft the transatlantic doctrine for the age of Trump, European states must avoid giving in to fear and seeking out bilateral deals with the U.S. Europe must not allow itself to be divided and conquered; doing so would weaken everyone involved. British Prime Minister Theresa May’s unseemly rush to meet the new president is not an example to follow.

Instead, the EU must speak with one voice to defend international agreements and basic human rights, including the right of refuge. Making declarations after Council summits is not enough. EU leaders should coordinate their efforts in order to present a united front on trade and on getting the best possible consular protection for dual citizens.

The biggest challenge will be to revolutionize European security cooperation, as a new wave of terror attacks would push voters to nationalist and populist parties. European law enforcement and intelligence agencies have, until now, relied heavily on a successful cooperation with their U.S. counterparts. But intelligence sharing between European countries has lagged, and so an ambitious plan for better European intelligence cooperation must become a top priority.

Similarly, Europe has a pressing need to stabilize its immediate periphery — especially the Western Balkans, Eastern Europe and North Africa. This will require a common policy on security. This is not to say the EU needs a “European army.” But as a mid-term goal, European forces should work to synchronize military capabilities, technologies, defense systems and nuclear deterrence. Ultimately, common European military action must be grounded in the diverse domestic politics of its key member countries and include non-EU countries like Norway, Turkey and, later, the U.K.

Ironically, the deeply Euroskeptic U.S. president and his ally in the Kremlin may provide the push Europe needs to finally resolve its biggest crises. If nothing else, these two erratic, strong-men show-offs will provide a strong incentive to keep Europe’s alliance alive, so that its members can weather the storm together.


Article Link To Politico EU:

These Are The Charts To Watch For A Stock Market Dip In February

S&P 500 is stuck in the middle of a major resistance level.


By Sue Chang
MarketWatch
February 7, 2017

Market sentiment is at a nearly three-year high, the economy is chugging along and earnings are bouncing back. So what could go wrong? Apparently, quite a bit.

Stephen Suttmeier, technical research analyst at Bank of America Merrill Lynch, on Monday forecast a potentially tough month for the S&P 500 given the market’s historically subdued performance in February.

“Last week started off wobbly and finished strong, but the tactical risk reward may not be favorable with the S&P at projected resistance at 2,285-2,300,” said the strategist in a report.

Resistance refers to a price point where the balance between supply and demand tips in favor of supply or sales.

On Monday, the S&P 500 SPX, -0.21% fell 4.86 points, or 0.2%, to close at 2,292.56, the midpoint of Suttmeier’s resistance level, and the Dow Jones Industrial Average DJIA, -0.09% dropped 19.04 points to end at 20,052.42.

In the longer term, Suttmeier expects the large-cap index to punch through 2,400 around mid-2017, but it will have to overcome the mounting selling pressure in the wake of the 7% rally following the U.S. presidential election.

The strategist recommended watching the following charts for an early warning signal on a February selloff.

What to watch for: Trendline

The year-to-date uptrend line — red dashes on the chart — decisively breaking below 2,272 and 2,267, intraday lows from Feb. 1 and Jan. 30 respectively.



What to watch for: Momentum


In addition to the S&P 500’s uptrend line, Suttmeier is watching the uptrend lines on the daily Williams Percentage Range and the relative strength index. Both momentum indicators are holding steady but if they falter, it will be another red flag.



What to watch for:
The CBOE 3-month Volatility Index/CBOE Volatility Index ratio falling below 1.17.

“The VXV/VIX has been overbought for the most part since mid-November and the S&P 500 has grinded higher. It would take a decisive move below 1.17, similar to the bearish late August/early September signal, to suggest the risk of a deeper decline in the S&P 500,” said Suttmeier in a note.

The CBOE Volatility Index VIX, +3.65% is widely referred to as the “fear index” and measures expectations for volatility over the next 30 days.



What to watch for:
Bank of America Merrill Lynch’s Volume Intensity Model, which measures the short-term volume of rising stocks adjusted for total market volume, known as accumulation, is outpacing distribution or volume of falling stocks. If this flips, time to worry.



VIGOR — Bank of America’s longer-term volume indicator — has recently hit a record. “This resembles the bullish setup for VIGOR from early 2013 and favors buying U.S. equities on dips,” the strategist said.




Article Link To MarketWatch:

Channeling Steve Jobs, Apple Seeks Design Perfection At New "Spaceship" Campus

By Julia Love 
Reuters
February 7, 2017

Inside the original Macintosh computer, Apple co-founder Steve Jobs inscribed the signatures of his team, revealing his deep concern for even the hidden features of his products.

His last work – Apple Inc's (AAPL.O) sprawling new headquarters in Cupertino, Calif. - will be a fitting tribute: a futuristic campus built with astonishing attention to detail. From the arrangement of electrical wiring to the finish of a hidden pipe, no aspect of the 2.8 million-square-foot main building has been too small to attract scrutiny.

But constructing a building as flawless as a hand-held device is no easy feat, according interviews with nearly two dozen current and former workers on the project, most of whom would not be named because they signed non-disclosure agreements.

Since Apple unveiled its plans in 2011, the move-in date has slowly receded: Jobs' initial projection was 2015, but this spring now seems most likely, according to people involved in the project. A lengthy approval process with the city contributed to the delay.

Apple has not revealed the total price tag, but former project managers estimate it at about $5 billion - a figure CEO Tim Cook did not dispute in a 2015 TV interview. More than $1 billion was allocated for the interior of the main building alone, according to a former construction manager.

For all the time and money sunk into the project, some in the architecture community question whether Apple has focused on the right ends. The campus is something of an exception to the trend of radically open offices aimed at fostering collaboration, said Louise Mozingo, a professor and chair of the Department of Landscape Architecture and Environmental Planning at U.C. Berkeley. Its central office building – a massive ring of glass frequently likened to a spaceship – could be a challenge just to navigate, she noted.

"It's not about maximizing the productivity of the office space, it's about creating a symbolic center for this global company," she said. “They are creating an icon.”

An Apple spokeswoman declined to comment for this story.

World's Largest Piece Of Curved Glass


Tech companies have long favored generic office parks, which allow them to lease and shed space through booms and busts. Jobs’ unveiling of what's formally known as Apple Campus 2, months before his death, marked a new chapter in Silicon Valley architecture.

When completed, the campus will house up to 14,200 employees, according to the 2013 project description. The main building – which boasts the world's largest piece of curved glass – will be surrounded by a lush canopy of thousands of trees. Little remains from the cement-laden campus Apple acquired from Hewlett-Packard, though the iPhone maker preserved a century-old barn that remained intact as the land passed from tech giant to tech giant.

But what was most striking to those who worked on the project was Apple managers' insistence on treating the construction of the vast complex the same way they approach the design of pocket-sized electronics.

Apple's in-house construction team enforced many rules: No vents or pipes could be reflected in the glass. Guidelines for the special wood used frequently throughout the building ran to some 30 pages.

Tolerances, the distance materials may deviate from desired measurements, were a particular focus. On many projects, the standard is 1/8 of an inch at best; Apple often demanded far less, even for hidden surfaces.

The company's keen design sense enhanced the project, but its expectations sometimes clashed with construction realities, a former architect said.

"With phones, you can build to very, very minute tolerances," he said. "You would never design to that level of tolerance on a building. Your doors would jam."

The project, which generated about 13,000 full-time construction jobs, took a toll on contractors. The original general contractors, Skanska USA and DPR Construction, left after work began, which construction experts called a rare development for a project of such scale. The reasons for the departures are unclear, and neither Apple nor the firms would comment.

Faithful To Design Principles


Apple's novel approach to the building took many forms. Architect German de la Torre, who worked on the project, found many of the proportions - such as the curve of a rounded corner - came from Apple's products. The elevator buttons struck some workers as resembling the iPhone's home button; one former manager even likened the toilet's sleek design to the device.

But de la Torre ultimately saw that Apple executives were not trying to evoke the iPhone per se, but rather following something akin to the Platonic ideal of form and dimension.

"They have arrived at design principles somehow through many years of experimentation, and they are faithful to those principles," de la Torre said.

Fanatical attention to detail is a key tenet. Early in construction, Apple managers told the construction team that the ceiling - composed of large panels of polished concrete - should be immaculate inside and out, just as the inside of the iPhone’s audio jack is a finished product, a former construction manager recalled.

Thus, each of the thousands of ceiling panels had to win approval from both Apple's in-house team and the general contractor, once at the shop and then again at the construction site.

"The things you can’t see, they all mattered to Apple,” the former construction manager said.

One of the most vexing features was the doorways, which Apple wanted to be perfectly flat, with no threshold. The construction team pushed back, but Apple held firm.

The rationale? If engineers had to adjust their gait while entering the building, they risked distraction from their work, according to a former construction manager.

“We spent months trying not to do that because that’s time, money and stuff that’s never been done before,” the former construction manager said.

Time and time again, Apple managers spent months perfecting minute features, creating a domino effect that set back other parts of the project, former construction managers say.

Signage required a delicate balancing act: Apple wanted all signs to reflect its sleek, minimalist aesthetic, but the fire department needed to ensure the building could be swiftly navigated in an emergency.

Dirk Mattern, a retired deputy fire chief who is representing the Santa Clara County Fire Department on the project, estimated he attended 15 meetings that touched on the topic.

"I’ve never spent so much time on signage," he said.

Like A Painting 


When Apple tapped general contractors Holder Construction and Rudolph & Sletten to finish the main building in 2015, one of the first orders of business was finalizing a door handle for conference rooms and offices.

After months of back and forth, construction workers presented their work to a manager from Apple’s in-house team, who turned the sample over and over in his hands. Finally, he said he felt a faint bump.

The construction team double-checked the measurements, unable to find any imperfections – down to the nanometer. Still, Apple insisted on another version.

The construction manager who was so intimately involved in the door handle did not see its completion. Down to his last day, Apple was still fiddling with the design - after a year and a half of debate.

When construction wraps, the only fingerprints on the site will be Jobs'. Workers often had to wear gloves to avoid marring the delicate materials, said Brett Davis, regional director of the District Council 16 union for painters and related crafts.

"It's like a painting that you don't want to touch," he said. "It's definitely going to be something to see, if they let you in."


Article Link To Reuters:

AMD Jumps Again, Stock May Now Be Getting Into Frothy Territory

Investors need to see how new products fare.


By Therese Poletti
MarketWatch
February 7, 2017

Shares of chip maker Advanced Micro Devices Inc. have been on a tear since the company reported better-than-expected earnings last week, in a report that was drowned out by earnings from tech behemoth Apple Inc.

In the past five days, its shares are up nearly 28%. On Monday alone, AMD’s AMD, +11.36% stock soared 11.36%. A positive story in Barron’s, with the headline “AMD’s Revival is for Real,” and comments by CNBC’s Jim Cramer provided the most fodder for traders, but there was also an unconfirmed report that it will license its graphics chip designs to partner/frenemy Intel Corp. INTC, -0.68% when its deal with Nvidia Corp. NVDA, +2.56% ends in March. Shares of AMD topped the most active gainers on Monday, and outperformed the S&P 500 SPX, -0.21% and the Dow Jones Industrial Average DJIA, -0.09%

An AMD spokesman declined to comment on the rumors of another licensing deal with Intel. (AMD already licenses the core x86 chip design from Intel.)

Last week, several analysts raised their earnings estimates and price targets on AMD, the perennial No. 2 to Intel. AMD has a history of ups and downs, including financial woes, management issues and product execution problems. But as MarketWatch has noted in a previous column, many investors are counting on a new product family, known as Zen, to help it regain lost share in the server market, a fast-growing field where it has not been a player for the past few years.

Betsy Van Hees, an analyst with Loop Capital Markets, has a buy rating on AMD and raised her price target to $12 last week. But she noted that she also has a new tone of cautiousness, because of concerns that the stock is now “priced to perfection.”

“Although AMD had an impressive year of beats and raises in 2016, we believe the bar has been set very high in 2017 with AMD having no room for error,” she said.

AMD is set to launch three major chips in the first half of this year: A desktop processor called Ryzen based on its new Zen family architecture; graphics processing chips called Vega; and server chips also based on the new Zen architecture, with a processor called Naples. “We believe over the course of AMD’s long history that this is the first time the company has ever embarked upon such an aggressive endeavor to ramp three new products in such a short amount of time,” Van Hees wrote.

The results from all these product launches are not going to be evident overnight, noted Stacy Rasgon, an analyst with Bernstein Research. “Investors are going to want to see the fruits of the company’s labors translate into meaningful financial upside,” Rasgon wrote last week. “Additionally, given likely channel dynamics it will probably be 2018 before we know if gains, if any, are sustainable. This still requires a leap of faith we’re not quite ready to make.”

AMD’s management, under Chief Executive Lisa Su, who joined AMD in October 2014, has made huge strides in building credibility again on Wall Street. Now, the next question is whether those same kind of gains can be made again in the corporate computing market. With its shares now surging past many analysts’ current price targets, it might wise to proceed with some caution.


Article Link To MarketWatch:

Asia Stocks, Euro Pressured By Economic, Political Uncertainty

By Nichola Saminather
Reuters 
February 7, 2017

Appetite for Asian stocks and the euro ebbed on Tuesday as a rising tide of economic and political concerns added to anxiety over expectations China's foreign exchange reserves fell again in January.

European stocks look set for sluggish start, with financial spreadbetter CMC Markets expecting Britain's FTSE 100 .FTSE to open up 0.1 percent, France's CAC 40 .FCHI 0.1 percent lower and Germany's DAX .GDAXI to be little changed.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS was fractionally lower, while Japan's Nikkei .N225 closed down 0.35 percent.

Chinese shares .CSI300 .SSEC dropped 0.4 percent ahead of data expected to show that foreign exchange reserves fell for the seventh straight month by about $10.5 billion to $3 trillion in January.

But some economists said reserves may have actually risen due to tighter controls on moving money out of the country, as well the impact of a weaker dollar.

Nevertheless, as foreign exchange reserves linger at around $3 trillion, concerns remain over the speed at which China has depleted its cash resources to defend the currency.

Overnight, both U.S. and European stocks dropped.

Wall Street dipped as much as 0.2 percent, led lower by the energy sector as oil prices fell, with investors still waiting for details of U.S. President Donald Trump's economic policies.

"The market's tone has been one of risk-off, as political fallout in both Europe and the United States is weighing on investor resolve, imposing an unpalatable risk on investor sentiment," Stephen Innes, senior trader at OANDA in Singapore, wrote in a note.

Declines in European shares came on the heels of the French presidential campaign launch of far-right National Front Leader Marine Le Pen on a platform pledging to fight globalization and take France out of the European Union.

French stocks .FCHI lost 1 percent, and yields on 10-year French government bonds hit their highest level since September 2015.

"Despite the reaction in the French yields, polls show Le Pen would finish runner-up by a wide margin to either Independent Emmanuel Macron or Republican Francois Fillon," James Woods, global investment analyst at Rivkin Securities in Sydney, wrote in a note.

The euro EUR=EBS fell 0.3 percent to $1.0714 on Tuesday, after dropping as much as 0.7 percent the previous day to a near one-week low before recovering to close down 0.3 percent.

The dollar added about 0.1 percent to 111.845 yen JPY= on Tuesday, recovering some of its 0.8 percent loss from Monday.

The dollar index .DXY, which tracks the greenback against a trade-weighted basket of its peers, was steady at 99.907, retaining its small gains of almost 0.1 percent from Monday.

The Australian dollar AUD=D4 reversed earlier losses to rise 0.25 percent to $0.7679 after the Reserve Bank of Australia kept interest rates on hold at a record low 1.5 percent as expected, and played down a recent soft patch in economic growth as a temporary hiccup.

The New Zealand dollar NZD=D4 jumped 0.5 percent to $0.7363, after earlier touching a near a three-month high of $.0.7375.

Reserve Bank of New Zealand Governor Graeme Wheeler said on Tuesday he would not seek a second term when his current term ends on Sept. 26. Deputy Governor Grant Spencer will fill in for six months while a permanent replacement is sought.

Oil prices inched higher on Tuesday after posting their biggest one-day loss since Jan. 18 on Monday, as worries about rising oil supply out of the United States tussled with optimism about output curbs elsewhere.

U.S. crude CLc1 gained 0.1 percent to $53.07 a barrel, after falling 1.5 percent on Monday.

Global benchmark Brent LCOc1 also advanced 0.2 percent to $55.82, reclaiming some of Monday's 1.9 percent loss.

Gold surrendered some of Monday's strong gains but hovered close to its three-month high hit on the day.

Spot gold XAU= slipped 0.2 percent to $1,234.16 an ounce, after surging 1.3 percent on Monday.


Article Link To Reuters:

China Will ‘Keep Bleeding Money’

By Huileng Tan 
CNBC
February 7, 2017

Despite China's efforts to curb capital outflows, the country "will keep bleeding money," a foreign exchange strategist said Tuesday.

The world's second largest economy was expected to release foreign-exchange reserves data for January on Tuesday.

Economists polled by Reuters said China's FX reserves likely fell about $10.5 billion in January, roughly a quarter of the drop seen in December, leaving them hovering around the closely-watched $3 trillion level.

UBS' foreign exchange strategist Wayne Gordon said China's foreign exchange reserves will likely fall to $2.7 to $2.8 trillion by the end of the year, with USD/CNY reaching 7.2.

The Chinese currency has been under pressure in the last year as Chinese conglomerates snap up U.S. and European companies, while Chinese individuals purchase U.S. real estate amid political uncertainties and expectations of a weaker yuan.

The USD/CNY fix was little changed at 6.8604 on Tuesday from 6.8606 on Monday. On the spot market, the pair is up 4.4 percent from a year ago.

President Donald Trump pledged to label China a "currency manipulator" during his campaign trail, although he has not yet done so.

Gordon said he expected Trump will likely utter the words eventually just as he and his administration had been calling out on Japan and Germany, but the move is unlikely to prompt China to change its current strategy.

"If you have a weaker currency, things that are more exogenous to just the politics of exchange rates begin to work a bit more in favour of (certain outcomes), for example capital flows out of China, which is really what's putting a lot of pressure on the yuan over the last year or so," he told CNBC's "Street Signs."

China is working hard to support its currency, selling U.S. Treasurys at a record pace and putting in tighter regulations to control capital outflows. The measures are likely not enough to support the leakages, he added.

Analysts expect downward pressure on the Chinese yuan to resume if the U.S. continues to hike interest rates, as it will likely trigger fresh capital outflows from emerging economies.

China reported that its foreign exchange reserves fell for a sixth straight month in December, declining by $41 billion for the month, to $3.011 trillion, the lowest since early 2011. At their peak, reserves reached around $3.99 trillion in mid-2014.


Article Link To Reuters: