end

Futures Unchanged In Thin Pre-Holiday Tape; Italian Bank Bailout Lifts European Shares

European stocks halted two days of declines, with the Stoxx 600 fractionally in the green and Italy’s bonds climbing after Monte Paschi requested a bailout and Italy pledged to provide support for its other ailing lenders. S&P futures were little changed among extremely thin volumes while Chinese stocks dropped amid concerns on higher borrowing costs. Oil slid, while gold advanced; bitcoin soared to multi-year highs, rising above $900.

The biggest financial story, in addition to the expected Deutsche Bank and Credit Suisse settlements, was the nationalization of Italy’s Monte Paschi and the country’s backstop of further bailouts with a new €20 billion fund set aside to fund additional bank rescues.  As a result, Italian 10-year bonds lead gains among major European securities after the government said it will plow as much as 20 billion euros ($21 billion) into the country’s banks and Banca Monte dei Paschi di Siena SpA said it will ask for a “precautionary” capital increase. Deutsche Bank AG also rose after the lender agreed to settle U.S. mortgage probes. “It’ll be a relief to investors,” George Boubouras, the chief investment officer of Melbourne-based Contango Asset Management Ltd., told Bloomberg.

Following last night’s nationalization request, Monte Paschi shares have been suspended from trading.

“Banks run the show today,” analysts at Kepler Chevreux said in a note to clients, adding that the newsflow around Italian lenders was turning positive.

Deutsche Bank’s $7.2 billion settlement with the U.S. Department of Justice over toxic mortgage securities sold in the run-up to the 2008 financial crisis was nearly half of the fine initially levied in September. Deutsche Banks shares rose 2.7 percent and are up 86 percent since September lows. Credit Suisse fell 0.6%, giving up earlier gains, after it agreed to pay $5.3 billion to the DOJ to settle similar charges. Barclays became the latest in a long-list of other lenders under investigation to be sued.

The bank sector news helped the Stoxx Europe 600 Index hold this month’s 5.3% rally that has taken it within 1.6% of wiping out its losses for the year.

In the U.S., a rally that took indexes to a record stalled as the Dow Jones Industrial Average neared 20,000 and as trading wound down before December holidays. In the last day of trading before Christmas in Europe, stock volumes were about 40% lower than the 30-day average. , Japanese markets were closed today for Emperor’s Birthday holiday.

The dollar headed into the Christmas break on Friday just over half a percent off highs hit after this month’s U.S. Federal Reserve policy meeting. The dollar is up more than 7 percent against a basket of currencies since lows hit on U.S. election night in November but has been flat for the past week. The dollar index .DXY, hovering near a 14-year high, was marginally lower at 103.03 but remained within striking distance of the week’s 103.65 peak.

In bonds, Italian 10-year yields declined four basis points to 1.81 percent, while German bund yields slid one basis point to 0.25 percent. Treasuries were little changed after 10-year yield climbed two basis points to 2.55 percent on Thursday.

The UK economy expanded at a 0.6 percent pace in the three months to September, faster than the original estimate of 0.5 percent, suggesting there has been no “Brexit” hit to economic activity so far since the June 23 vote to leave the European Union.

* * *

Market Snapshot

• S&P 500 futures unchanged at 2259
• Stoxx 600 up less than 0.1% to 360
• FTSE 100 down less than 0.1% to 7061
• DAX up 0.1% to 11468
• German 10Yr yield down 1bp to 0.25%
• Italian 10Yr yield down 5bps to 1.8%
• Spanish 10Yr yield down 1bp to 1.39%
• S&P GSCI Index down 0.4% to 390.6
• MSCI Asia Pacific down 0.2% to 135
• Nikkei 225 closed
• Hang Seng down 0.3% to 21575
• Shanghai Composite down 0.9% to 3110
• S&P/ASX 200 down 0.3% to 5628
• US 10-yr yield down less than 1bp to 2.54%
• Dollar Index down 0.11% to 102.98
• WTI Crude futures down 0.6% to $52.64
• Brent Futures down 0.6% to $54.74
• Gold spot up 0.2% to $1,131
• Silver spot up 0.1% to $15.82

Top Headline News

• Paschi Seeks State Aid as Italy Readies $21 Billion for Banks: Monte Paschi recapitalization effort misses bank’s target
• Deutsche Bank, Credit Suisse Settle U.S. Probes as Barclays Sued: Banks pay $12.5b to end probe into sales of toxic debt
• Boeing-Versus-Lockheed Fighter Rivalry Reopened by Trump Tweet: Trump said he wants Boeing to price out F-35 competitor
• Exxon Norway Assets Said to Attract Aker BP, Hitec, Neptune: Offshore oil fields said to be valued at about $1 billion
• Merck’s Ebola Vaccine Found to Protect Against Deadly Virus: Vaccine was studied in trial involving >11,000 people in Guinea
• Fred’s Attracts Activist as Alden Unveils 25% Stake on Deal: Alden also running activist campaign at retailer Pier 1 Imports
• MegaFon to Buy Mail.ru Stake for $740 Million From Usmanov: Wireless carrier gains control of 63.8% of web company’s votes

Looking at Asian markets, stocks traded subdued following the negative lead from the US, where the 20,000 level continued to elude the DJIA, with markets very quiet amid the absence of Japan and ahead of Christmas holidays. 9 out of 11 sectors decline in the MSCI Asia Pacific Index with information technology, materials underperforming and utilities, industrials outperforming “Looking at the last few days, from a technical perspective we’ve seen this move up on lighter volume and it seems like all the buying pressure has been exhausted,” said James Woods, a Sydney-based investment analyst at Rivkin Securities, with regards to the A&P/ASX 200 Index. ASX 200 (-0.3%) was led lower by basic material names after iron prices declined around 4% to a 3-week low, with trade also light ahead of the upcoming 4-day weekend. Shanghai Comp. (-0.9%) and Hang Seng Index (-0.2%) were negative despite the PBoC attempting to ease liquidity concerns by injecting more funds this week, as prospects of tighter regulation on investments by insurers and brokerages dampened risk sentiment. Finally, Japanese markets were shut today for the Emperor’s Birthday holiday. PBoC injected CNY 90bIn 7-day reverse repos, CNY 50bIn in 14-day reverse repos, CNY 5bIn in 28-day reverse repos for a net weekly injection of CNY 375b1n vs. previous injection of CNY 250b1n last week.  PBoC set the mid-point at 6.9463. China is said to regulate alternative investments by brokerages, according to press reports.

Top Asian News:

• Saipan Casino Bond on Hold Risks Future of $7 Billion Resort: Imperial Pacific issuance to fund casino said to be shelved
• World’s Worst Air Has Mongolians Seeing Red, Planning Action: Dec. 26 action set amid smog five times worse than Beijing
• A Goldman You’ve Never Heard of Is Pursuing a Hong Kong IPO: Local electrical subcontractor adopted Goldman name last month

In Europe, the final quiet start before the Christmas break has seen European equities trade higher this morning (Euro Stoxx: +0.2%), with Deutsche Bank (+2.3%) leading the charge after reaching a settlement of USD 7.2bIn with the DoJ (vs. USD 14bIn initially requested). Credit Suisse (-0.6%) also reached an agreement with the DoJ although failed to see quite the same upside, while Barclays (-1.2%) rejected a fine and as such are facing litigation. Today is one of the few days in 2016 where Banca Monte dei Paschi are not leading the way higher/lower across equities…given that they are suspended from trade after failing to raise sufficient funds through their recapitalisation plans and as such will receive state aid. Elsewhere, fixed income markets have continued the subdued trade seen throughout the week. Bunds have traded flat so far today, with Gilt futures seeing modest outperformance, with the move coming in tandem with softness being seen in GBP.

Top European News:

• NN Group to Buy Dutch Rival Delta Lloyd for $2.6 Billion: Delta Lloyd returned to profit in first half after cost cuts
• U.K. Current-Account Deficit Widens; GDP Growth Revised Up: Higher: 3Q trade deficit widnens to 2.8% of GDP, most since 2013
• Brexit Shapes Up to Be ‘Hard’ 6 Months After Vote, Academics Say: EU is playing ‘hardball’ with U.K. in divorce proceedings

In currencies, the euro advanced for a third day against the dollar, adding 0.2 percent to $1.0455. The pound rebounded from the lowest level since Nov. 2 versus the greenback after data showed the U.K. economy expanded more than initially reported in the third quarter. The currency was little changed at $1.2277, after earlier touching $1.2246. Little to note elsewhere as the remnants of the market look to wind down for the Xmas break. The lead EUR/USD and USD/JPY rates are trading in extremely tight ranges, but some very modest USD tiredness to note ahead of the break. Weakness in the commodity currencies also subsides, but little to glean from today’s price action.

In commodities, gold edged higher in London trading, adding 0.3 percent to $1,131.74 an ounce. It’s still set for a seventh week of declines. West Texas Intermediate crude for February delivery in New York fell 0.6 percent to $52.66 a barrel.

US Event Calendar

• 10am: New Home Sales, Nov., est. 575k (prior 563k)
• 10am: U. of Mich. Sentiment, Dec. F, est. 98.0 (prior 98.0)
• 1pm: Baker Hughes rig count

3a)THAILAND/SOUTH KOREA/:

none today

b) REPORT ON JAPAN

c) REPORT ON CHINA

i)Late  THURSDAY night/FRIDAY morning: Shanghai closed DOWN 29.40 POINTS OR 0.94%/ /Hang Sang closed DOWN 61.44  OR 0.28%. The Nikkei closed /Australia’s all ordinaires  CLOSED DOWN 0.29% /Chinese yuan (ONSHORE) closed UP at 6.9458/Oil ROSE to 52.43 dollars per barrel for WTI and 54.47 for Brent. Stocks in Europe: ALL MIXED.  Offshore yuan trades  6.9512 yuan to the dollar vs 6.9458  for onshore yuan.THE SPREAD BETWEEN ONSHORE AND OFFSHORE WIDENS A BIT AS  MORE USA DOLLARS ARE ATTEMPTING TO LEAVE CHINA’S SHORES /

end

4 EUROPEAN AFFAIRS

Monte dei Paschi

Deutsche Bank Settles With DOJ: Will Pay $3.1 Billion Civil Penalty (AND 4.1 BILLION RELIEF TO CONSUMERS= 7.2 BILLION PENALTY)

With analyst expectations/hopes in the $2 to $5 billion range (against the initial $14 billion fine), Deutsche Bank said it has reached settlement with US authorities to pay a $3.1 billion civil penalty (and provide $4.1bn in relief to consumers). Removing considerable uncertainty about Deutsche’s capital position, one wonders how much this remarkably low-ball settlement had to do with Donald Trump’s current loan re-negotiations with the “world’s most systemically dangerous bank.”

As a reminder, the Wall Street Journal noted that DB’s attorneys had privately suggested that a $2 – $3 billion settlement with the DOJ was probably in the ballpark.  Meanwhile, wall street analysts had estimated settlements in the $2-$5 billion range.  Any fines paid pursuant to current negotiations would be in addition to the $1.9 billion already paid in 2013 to settle other U.S. claims related to mortgage-backed securities.

Per the table below, as of June 30, DB had reserved a total of €5.5 billion for civil litigation and regulatory penalties on it’s balance sheet.

And so this lower than expected penalty has sent US equity futures higher…

As Bloomberg reports, Deutsche Bank said it has reached a $7.2 billion agreement to resolve a years-long U.S. investigation into its dealings in mortgage-backed securities, removing a major legal hurdle for the bank.

Deutsche Bank will pay a $3.1 billion civil penalty and provide $4.1 billion in relief to consumers under a settlement in principle with U.S. authorities, which was announced by the Frankfurt-based bank in a statement early Friday. The deal compares with the Justice Department’s opening request of $14 billion, which the firm has said it expected to whittle down.

While the agreement removes significant uncertainty hanging over Deutsche Bank, Germany’s biggest lender remains under Justice Department investigation in several other matters and also faces potentially expensive civil suits. Chief Executive Officer John Cryan has made resolving major litigation a priority as he seeks to restore confidence in the Frankfurt-based lender.

The Obama administration is pressing to wrap up investigations of Wall Street firms for creating and selling the subprime mortgage bonds that fueled the 2008 financial crisis. Authorities have already extracted more than $46 billion in fines from six U.S. financial institutions over their dealings in mortgage-backed securities. Bank of America Corp., which had the largest such settlement, agreed to pay $16.7 billion over bonds that were worth four times what Deutsche Bank’s bonds were worth.

While Obama’s legacy played its part, no doubt; we just can’t help but wonder how much the fact that, as Bloomberg reports, the bank is trying to restructure some of Trump’s roughly $300 million debt as part of an attempt to reduce any conflict of interest between the loan and his presidency, according to a person familiar with the matter.

Normally, the removal of a personal pledge might lead to more-stringent terms. But there is little normal about this interaction. Trump’s attorney general will inherit an investigation of Deutsche Bank related to stock trades for rich clients in Russia — where Trump says he plans to improve relations — and may have to deal with a possible multibillion-dollar penalty to the bank related to mortgage-bond investigations.

Whatever terms a restructured loan might include, they will reflect the complex new relationship spawned between Germany’s largest bank and its highest-profile client. Ethicists say this concerns them.

“When you have political appointees making decisions about banks that the president owes a lot of money to, it looks terrible,” said Richard Painter, a law professor at the University of Minnesota who was the chief ethics lawyer for President George W. Bush. “The U.S. government is dealing with regulatory and criminal issues with the big banks all the time, and if he owes them a lot of money, there might be an incentive to favor less regulation and less enforcement for the banks.”

Deutsche Bank declined to comment.

Even better news, Deutsche Bank expects to record a pretax charge of about $1.17b in 4Q.

So between Obama’s legacy and Trump’s loan mods, the department of Justice settled for 22c on the dollar of their original demand? That is around 10% of 2016’s revenues… “cost of doing business”?

Where did the number come from? That’s easy…

View image on Twitter

Follow

Carl Lantz @CarlLantz

hmm…back in October Moody’s had $3.1B penciled in for DB as a bond-positive number.

8:46 PM – 22 Dec 2016

5. RUSSIAN AND MIDDLE EASTERN AFFAIRS

Hijacked Libyan Airplane With 111 Passengers Lands In Malta, Suspect Threatens to Blow Up Plane

Up to two hijackers, described as being “pro-Gaddafi,” have seized control of Afriqiyah Airways flight 8U209 in Libya, forcing the Airbus A320 plane to land in Malta. The suspected hijackers of the airliner with 111
passengers aboard have threatened to blow up the plane on the runway at
the international airport in Malta, the WSJ reports.

The airliner, a Airbus A320, landed at Malta’s Luqa airport at 1030 GMT, according to Flightradar24.

View image on Twitter

Follow

Flightradar24 ✔@flightradar24

Hijacked Afriqiyah Airways flight diverted to Malta https://www.flightradar24.com/data/aircraft/5a-onb#bf8c3ad …

6:04 AM – 23 Dec 2016

• 656656 Retweets
• 170170 likes

The plane, an Afriqiyah Airways flight to Tripoli from Sabha, was diverted by a passenger who demanded to be flown to the Mediterranean. In a statement, Malta airport authorities confirmed that there has been “an unlawful interference” at the airport and that emergency teams have been dispatched to the site.

“The pilot reported to the control tower in Tripoli that they were being hijacked, then they lost communication with him,” a security official from Mitiga airport in Libya told Reuters. “The pilot tried very hard to have them land at the correct destination but they refused.”

Follow

Mete Sohtaoğlu @metesohtaoglu

#Libyan plane with 118 passengers on board lands in #Malta ‘with two hijackers on board’

6:18 AM – 23 Dec 2016

• 33 Retweets
• likes

There are conflicting reports as to how many hijackers are on board the flight, with some media outlets indicating two while the Times of Malta report there is only one suspect involved. Described as being “pro-Gaddafi,” the hijacker is reportedly in possession of a hand grenade and has threatened to blow up the plane if demands are not met, although the nature of these demands are not yet known. It’s reported that Libyan and Maltese authorities are in negotiations with the hijackers.

All Libyan carriers are banned from flying to the European Union under the bloc’s so-called aviation safety blacklist. The EU took the step two years ago because of concern that political turmoil in the country meant safety oversight by Libyan aviation officials couldn’t be assured.

Afriqiyah Airways has been the victim of Libya’s political unrest before. In 2014 attacks by militias on Tripoli Airport destroyed and damaged several of its planes. Four years earlier some of its planes were similar destroyed at Tripoli’s airport in fighting. The airline has a fleet of six active planes, all made by European plane maker Airbus.

Malta’s President Marie-Louise Coleiro tweeted to appeal “for everyone to remain calm and follow official updates.”

end

6.GLOBAL ISSUES

Your early morning currency/gold and silver pricing/Asian and European bourse movements/ and interest rate settings FRIDAY morning 10:00 am

Euro/USA   1.0456 UP .0018/REACTING TO  + huge Deutsche bank problems + USA election:/TRUMP WINS THE ELECTION/USA READY TO GO ON A SPENDING BINGE WITH THE TRUMP VICTORY/ITALIAN REFERENDUM DEFEAT/AND NOW ECB TAPERING BOND PURCHASES/USA RAISING RATES

USA/JAPAN YEN 117.31 DOWN 0.208(Abe’s new negative interest rate (NIRP), a total DISASTER/SIGNALS U TURN WITH INCREASED NEGATIVITY IN NIRP/JAPAN OUT OF WEAPONS TO FIGHT ECONOMIC DISASTER/KURODA:  HELICOPTER MONEY  ON THE TABLE AND DECISION ON SEPT 21 DISAPPOINTS WITH STIMULUS/OPERATION REVERSE TWIST

GBP/USA 1.2259 DOWN .0023 (Brexit by March 201/UK government loses case/parliament must vote)

USA/CAN 1.3503 UP .0023 (CANADA WORRIED ABOUT TRADE WITH THE USA WITH TRUMP ELECTION/ITALIAN EXIT FROM EU)

Early THIS FRIDAY morning in Europe, the Euro ROSE by 18 basis points, trading now WELL BELOW the important 1.08 level RISING to 1.0448; Europe is still reacting to Gr Britain BREXIT,deflation, announcements of massive stimulation (QE), a proxy middle east war, and the ramifications of a default at the Austrian Hypo bank, an imminent default of Greece, Glencore, Nysmark and the Ukraine, along with rising peripheral bond yield further stimulation as the EU is moving more into NIRP, and now the Italian referendum defeat AND NOW THE ECB TAPERING OF ITS PURCHASES/ THE USA’S NON tightening by FAILING TO RAISE THEIR INTEREST RATE AND NOW THE HUGE PROBLEMS FACING TOO BIG TO FAIL DEUTSCHE BANK + THE ELECTION OF TRUMP IN THE USA+ AND TODAY MONTE DEI PASCHI NATIONALIZATION / Last night the Shanghai composite CLOSED DOWN 29.40 0r 0.94%     / Hang Sang  CLOSED DOWN 61.44 POINTS OR 0.280%   /AUSTRALIA IS LOWER BY 0.29% / EUROPEAN BOURSES ALL MIXED 

We are seeing that the 3 major global carry trades are being unwound. The BIGGY is the first one;

1. the total dollar global short is 9 trillion USA and as such we are now witnessing a sea of red blood on the streets as derivatives blow up with the massive rise in the rise in the dollar against all paper currencies and especially with the fall of the yuan carry trade. The emerging market which house close to 50% of the 9 trillion dollar short is feeling the massive pain as their debt is quite unmanageable.

2, the Nikkei average vs gold carry trade ( NIKKEI blowing up and the yen carry trade HAS BLOWN up/and now NIRP)

3. Short Swiss franc/long assets blew up ( Eastern European housing/Nikkei etc.

These massive carry trades are terribly offside as they are being unwound. It is causing global deflation ( we are at debt saturation already) as the world reacts to lack of demand and a scarcity of debt collateral. Bourses around the globe are reacting in kind to these events as well as the potential for a GREXIT>

The NIKKEI: this FRIDAY morning CLOSED FOR THE HOLIDAYS 

Trading from Europe and Asia:
1. Europe stocks ALL MIXED 

2/ CHINESE BOURSES / : Hang Sang CLOSED DOWN 61.44 OR 0.280%   Shanghai CLOSED DOWN 29.40 POINTS OR 0.84%   / Australia BOURSE IN THE RED /Nikkei (Japan)CLOSED FOR HOLIDAYS/  INDIA’S SENSEX IN THE GREEN

Gold very early morning trading: $1131.80

silver:$15.77

Early FRIDAY morning USA 10 year bond yield: 2.541% !!! UP 0 IN POINTS from THURSDAY night in basis points and it is trading JUST BELOW resistance at 2.27-2.32%. THE RISE IN YIELD WITH THIS SPEED IS FRIGHTENING

 The 30 yr bond yield  3.115, DOWN 1 IN BASIS POINTS  from THURSDAY night.

USA dollar index early FRIDAY morning: 103.00 down 9 CENT(S) from THURSDAY’s close.

This ends early morning numbers FRIDAY MORNING

And now your closing FRIDAY NUMBERS