In light of the recent “blockchain” naming craze, this morning we said that the inevitable next round of corporate name changes would involve “JP Blockchain” and “Blockchain Sachs”.

While this was supposed to be a joke, as so often happens, it ended up predicting the shape of things to come because as Bloomberg reports, Goldman Sachs – using its pre-blockchain name for the time being – is in the process of setting up a trading desk to make markets in digital currencies such as bitcoin. The bank aims to get the business running by the end of June, if not earlier, two sources said. A third said Goldman is still trying to work out security issues as well as how it would hold, or custody, the assets.

Why the rush to have the world’s first dedicated institutional desk?

For the same reason that while Jamie Dimon was mocking bitcoin, Lloyd Blankfein saw an opportunity: unlike equities which retail investors have largely given up on realizing that equity capital markets are rigged and manipulated by central banks, retail investors are ever more fascinated with crypto – the price trends don’t hurt – so much so that Coinbase now has more users than Charles Schwab. To Lloyd and Goldman this spells one thing: opportunity.

As Bloomberg notes, the move positions Goldman Sachs to become the first large Wall Street firm to make markets in cryptocurrencies, “whose wild price swings and surging values have captured the public’s imagination but given pause to established institutions.”

Already, the bank is among just a few mainstream firms clearing a new breed of bitcoin futures offered by Cboe Global Markets Inc. and CME Group Inc. Citigroup Inc. and Bank of America Corp., for example, have been taking a wait-and-see approach.

Which brings us to the next evolutionary step for cryptos: direct prop and flow trading by the world’s most important bank.

Goldman Sachs is now assembling a team in New York, one of the people said. While the bank hasn’t made a decision where to house the desk, one possibility is that it will operate within the fixed-income, currencies and commodities unit’s systematic trading function, which conducts transactions electronically, two people said. Darren Cohen, in the firm’s principal strategic investments group, is also looking at opportunities, another person said.

 

“In response to client interest in digital currencies, we are exploring how best to serve them,” Michael DuVally, a spokesman, said in a statement.

And since Goldman will be seeking to hook investors in during the inaugural period, guess which way the price of cryptos will move at least in the near future. (hint: not down).

Ironically, in public CEO Lloyd Blankfein has been circumspect. After tweeting two months ago that Goldman was looking at how to deal with bitcoin, in a Bloomberg Television interview just a few weeks ago, he said his bank didn’t need a bitcoin strategy yet because the digital currency is still just developing and volatile.

Surprisingly, it turns out Lloyd was lying.

U.S. equity futures are little changed with the GOP Tax Plan now a done deal and no more daily “pricing in” of tax reform possible, as traders nerviously look to see if others will now be “selling the news”, a preview of which we got yesterday when US equity indexes closed red across the board despite Trump’s biggest legislative win to date, while bonds were spooked by the blowout in government debt needed to fund the giveaways. Having spent more than a year anticipating the bill, its actual passage proved anticlimatic for Wall Street as the Dow, S&P and Nasdaq all closed red.  Indeed, most of the action was in bond markets where yields on U.S. 10-year notes jumped to the highest since March at 2.50 percent, in the process making a bearish break of a key chart level at 2.47 percent, and leading to the biggest 3 day steepening since the Trump election.

In politics, focus now turns to avoiding a government shutdown by Saturday.

An election in Catalonia, which has become a de facto referendum on its independence movement, was another test for European assets late in the year, though there was only modest stress in Spain’s markets and none on the euro. “It (the Catalan election) cannot be ignored going into year-end,” said Orlando Green, European fixed income strategist at Credit Agricole. “But the secession movement has been significantly diminished and would need a decisive move to revive it.”

Speaking of the GOP tax bill, Trump will take his time to make it the “Trump Tax Bill” and not the “Congress Tax Bill” by signing it on January 3rd. In addition, there were comments from President Trump and his chief econ advisor, Gary Cohn, that markets have not fully priced in tax reform. Many, however, disagree, as bond investors are concerned that adding fiscal stimulus at a time of full employment will only reinforce the Federal Reserve’s determination to raise interest rates, thus pushing up short term yields. At the same time, many assume the unfunded tax cuts will lead to an explosion in government borrowing, increasing the supply of new bonds and pressuring prices across the curve. The impact is all the greater as the Fed has begun to unwind its massive bond holdings, as have central banks elsewhere.

Meanwhile, looking forward, House Republican leaders are said to be unsure if there are enough votes to pass the stop-gap measure and avert a shut-down by Saturday, while there is no schedule yet for a vote, according to lawmakers. Furthermore. House Republicans were also said to be arguing with each other over the defense spending level in the stop-gap funding bill.

However, as usual some resolution will be found in the last minute, and markets are not worried. And speaking of markets, in Europe, stocks steadied after two days of declines, with the Stoxx 600 Index rebounding into the green after earlier sliding as much as 0.4% while most of the region’s bonds continued to fall as traders found little reason for renewed optimism going into Christmas. All eyes are on Spain on Thursday, as an election day in Catalonia gives voters another chance to express their view on whether the region should press ahead with its fight to break away.

As Bloomberg writes this morning, a plunge in German government debt is spurring European stock investors to dump bond proxies, but they are showing little love for the usual suspects that benefit on such occasions – banks. Real estate and utility shares, which typically track debt moves because of their income-like properties, are among the biggest losers on the Stoxx Europe 600 Index on Thursday. Yet a gauge of lenders, that ought to benefit from rising yields, is down 0.2%. Investors are displaying caution, weighing political risks including a key vote in Catalonia where polls close early in the evening.  For the technicians, at the start of the session, the Euro Stoxx 50 fell as much as 0.5% hit by a strengthening euro and investor caution ahead of today Catalonia’s vote. Technical chart shows the index breaking below a bullish trendline started in mid-2016 and testing its 200-DMA; Euro Stoxx 50 has fallen 4.7% since a peak in early November. The Stoxx 50 has so far rebounded from this key support level. Separately, the VStoxx gauge of stock volatility has rebounded from a record low of 10.4 reached just two days ago, on December 19, and is up nearly 30% since then.

Earlier, Asian stocks traded mixed, with stock indexes in Sydney and Seoul declining, while those in Hong Kong and Shanghai rose. Australia’s ASX 200 (-0.3%) and Nikkei 225 (-0.2%) were negative as the Australian benchmark continued to pull back from near-10yr highs, while participants in Japan awaited the final BoJ policy meeting of the year which proved to be anticlimactic. Hang Seng (+0.6%) and Shanghai. Comp (+0.4%) were initially in the red on continued expectations of a more restrained economy as the Central Economic Work Conference statement declared that prudent monetary policy should be kept neutral and that the floodgates of monetary supply should be controlled, although Chinese stocks later showed resilience to outperform the region amid renewed speculation China’s annual GDP growth figure could surpass the 6.7% seen last year. Finally, 10yr JGBs saw some mild short covering which helped prices recover from some of this week’s bond market sell-off, although price action was very mild with an uneventful BoJ policy announcement also largely ignored from some of its recent losses amid a continuation of the pressure across global bond markets and with the 10yr yield rising to its highest since beginning of last month. Furthermore, participants are also tentative ahead of the BoJ policy announcement later.

The bond selloff that took hold this week continued even as Treasuries stabilized, with core European yields rising for a fourth session. Those in the periphery were mostly lower.

In European rates, it remains a sellers market, and with recoveries becoming fainter and less frequent. Bunds have now breached Wednesday’s low (161.58) on their way to a 161.52 base and the next downside chart level looks almost too close (161.49) to evade the clutches of bond bears. Meanwhile, Gilts have extended losses to 23 ticks at 124.13, with 124.07 now targeted as a key Fib retracement. A crumb of comfort perhaps for buyers and intraday or short term jobbers looking to buck the trend is that volumes on this leg down have been paltry even allowing for the time of the year.

In curencies, the dollar was little changed and Treasuries edged higher before the latest reading of third-quarter U.S. economic growth data and a vote to avert a government shutdown. The euro edged higher and sterling pared losses even as data showed U.K. consumer confidence slipped to a four-year low in December.  The yen fell to the lowest in a week as the Bank of Japan maintained its policy stance and Kuroda said there was no need to reconsider the current framework.

Japan’s currency dropped against all except one of its Group-of-10 peers as Kuroda said the central bank will implement additional stimulus if price momentum is weak and policy makers won’t raise rates just because the economy is good. “Our most important goal is to achieve our 2 percent inflation target at the earliest date possible,” the BOJ chief told a news conference. “We won’t raise interest rates just because the economy is improving.” Other highlights from Kuroda’s oress release:

• Don’t see any need to change yield curve now
• Will raise rates if stable 2% inflation becomes certain
• BOJ’s main goal is to achieve the 2% price target

Japan’s 10-year bond yields climbed to the highest level in seven weeks before later erasing the move. “In the environment of rising global yields, the BOJ stance and policy mix, coupled with the still benign and positive risk sentiment, should keep the yen on the back foot,” said Peter Dragicevich, a currency strategist at Nomura Holdings Inc. in Singapore.

South Africa’s rand continued to whipsaw investors, reversing gains of as much as 1.1 percent after the ruling African National Congress agreed to seek a change in the constitution to allow for the expropriation of land without compensation and to nationalize the central bank.

A plunge in German government debt is spurring European stock investors to dump bond proxies, but they are showing little love for the usual suspects that benefit on such occasions — banks. Real estate and utility shares, which typically track debt moves because of their income-like properties, are among the biggest losers on the Stoxx Europe 600 Index on Thursday. Yet a gauge of lenders, that ought to benefit from rising yields, is down 0.2 percent. Investors are displaying caution, weighing political risks including a key vote in Catalonia.

As noted briefly above, in Spain, investors will be watching the outcome of regional elections in Catalonia on Thursday that give voters another chance to express their view on whether the region should press ahead with its fight to break away or remain within Spain. The vote was called in October, when Spanish Prime Minister Mariano Rajoy fired the Catalan government and dissolved the regional parliament in a bid to snuff out the secession movement. With ousted Regional President Carles Puigdemont in self-imposed exile in Brussels, the ballot may do little to settle the bitter division over Catalonia’s bid for independence — and Rajoy’s efforts to stop it. More details here.

In commodity markets, gold was underpinned by the softer dollar to stand at $1,265 an ounce. Oil prices steadied after rising on a larger-than-expected drop in U.S. inventories and the continued outage of the North Sea Forties pipeline system. U.S. crude futures CLc1 were off 11 cents at $57.97 a barrel, having rallied 53 cents overnight. Brent crude edged back 30 cents to $64.25 a barrel.

Economic data today includes the latest weekly initial jobless claims and the final revision of Q3 GDP.  Nike, Accenture and CarMax are among companies reporting earnings.

Bulletin Headline Summary from RanSquawk

• European equities trade mostly lower across the board (Eurostoxx 50 -0.2%) as relief surrounding progress on US tax legislation is mitigated by concerns over stop-gap measures to avoid a government shutdown
• In FX markets, the USD Index has recovered from sub-93.300 overnight lows
• Highlights include US GDP, PCE, Philly Fed and Canadian CPI

Market Snapshot

• S&P 500 futures up 0.1% at 2,684.25
• STOXX Europe 600 down 0.2% to 387.65
• MSCI Asia Pacific down 0.2% to 171.33
• MSCI Asia Pacific ex Japan down 0.2% to 557.57
• Nikkei down 0.1% to 22,866.10
• Topix up 0.08% to 1,822.61
• Hang Seng Index up 0.5% to 29,367.06
• Shanghai Composite up 0.4% to 3,300.06
• Sensex up 0.06% to 33,796.66
• Australia S&P/ASX 200 down 0.3% to 6,060.36
• Kospi down 1.7% to 2,429.83
• German 10Y yield rose 1.7 bps to 0.422%
• Euro up 0.08% to $1.1881
• Italian 10Y yield rose 2.4 bps to 1.67%
• Spanish 10Y yield rose 0.6 bps to 1.482%
• Brent futures down 0.2% to $64.44/bbl
• Gold spot up 0.02% to $1,265.82
• U.S. Dollar Index unchanged at 93.31

Top Headline News from Bloomberg

• An election in Catalonia Thursday gives voters another chance to express
  their view on whether the region should press ahead with its fight to
  break away or remain within Spain
• U.S. Republicans want to channel momentum from the GOP’s victory on taxes into a push to overhaul the nation’s welfare programs, though some of President Trump’s advisers prefer a less controversial infrastructure plan at the top of his agenda
• House leaders in the U.S. released a plan late Wednesday that would maintain funding for government operations through Jan. 19. The House is set to vote on a bare-bones stopgap funding plan that would avert a government shutdown on Saturday and likely force the Senate to abandon attempts to add other provisions
• Britain’s PM May is flying to Poland to seek a Brexit ally from its new government. May faced a setback on Wednesday as her First Secretary of State Damian Green was forced to resign after an official investigation found that he’d made misleading statements about pornography
• U.K. consumer confidence slipped to a four-year low in December and risks weakening further in 2018, according to a GfK report Thursday
• The Bank of Japan left policy unchanged in 2017’s final meeting, retaining its unprecedented monetary stimulus as it waits for a pickup in stubbornly low inflation

Asia stocks traded mixed after another lacklustre day on Wall St where all majors finished with mild losses despite Congress passing tax reforms, as focus now turns to avoiding a government shutdown by Saturday. In addition, the latest headlines from Washington DC suggested GOP leaders were unsure if they had enough votes to pass the stop-gap measure and that there was no exact schedule yet for a vote. ASX 200 (-0.3%) and Nikkei 225 (-0.2%) were negative as the Australian benchmark continued to pull back from near-10yr highs, while participants in Japan awaited the final BoJ policy meeting of the year which proved to be anticlimactic. Hang Seng (+0.6%) and Shanghai. Comp (+0.4%) were initially in the red on continued expectations of a more restrained economy as the Central Economic Work Conference statement declared that prudent monetary policy should be kept neutral and that the floodgates of monetary supply should be controlled, although Chinese  stocks later showed resilience to outperform the region amid renewed speculation China’s annual GDP growth figure could surpass the 6.7% seen last year. Finally, 10yr JGBs saw some mild short covering which helped prices recover from some of this week’s bond market sell-off, although price action was very mild with an uneventful BoJ policy announcement also largely ignored from some  of its recent losses amid a continuation of the pressure across global bond markets and with the 10yr yield rising to its highest since beginning of last month. Furthermore, participants are also tentative ahead of the BoJ policy announcement later.

Top Asian News

• BOJ Maintains Stimulus as Inflation Lags Behind Growth
• China’s Didi Cashes Up to Go Global in Next Stage of Uber Battle
• Indonesia Wins Fitch Rating Upgrade Months After S&P Move
• Hong Kong Dollar Tumbles to Weakest Level in Nearly Two Years
• China’s Yuan Breaks Out of Narrow Range to Hit Three-Month High
• China Gas Shortage This Winter Means Boon for Diesel Demand
• Melbourne Pedestrians Hit by SUV in ‘Deliberate’ Act, Police Say
• Noble Group Gets Breather With Waiver as Debt Talks Drag On

European equities trade mixed as relief surrounding progress on US tax legislation is mitigated by concerns over stop-gap measures to avoid a government shutdown in Washington. Across the Atlantic in Europe, events continue to settle down with the only notable event for traders being today’s Catalonian election which is seen as more of a proxy for the independence campaign than a vote on domestic issues and legislation. In terms of sectors, modest underperformance has been seen in telecom and utility names with individual movers on the light side as stock specific newsflow dries up heading into year-end.

Top European News

• Iberdrola Is Said to Consider Sale of Engineering Assets
• BASF Says Brudermueller to Succeed Bock as CEO at Chemical Giant
• ECB Loses Sway in Sweden With Riksbank Looking for Stimulus Exit
• U.K. Posts Lowest November Budget Deficit Since 2007 on Tax
• Ukraine Detains Suspected Russian Spy From Within Cabinet Office
• Uber’s Loss in Europe Shows Trans-Atlantic Split Over Technology
• Renault Is Said to Be Considering Successors to Ghosn as CEO

In FX markets, the USD Index has recovered from sub-93.300 overnight lows, but remains largely unimpressed by the passage of the tax reform bill through Congress as the focus swiftly shifts to more immediate financial matters and the looming threat of a Government shutdown. Hence, the DXY looks prone to more downside pressure towards 93.000 while unable to mount a sustained return to 93.500+ levels. Eur/Usd has slipped back from peaks just above 1.1900, having respected or rejected further gains beyond a key chart fibo around 1.1904 after clearing resistance at 1.1863 late on Wednesday. Cable remains unable to maintain 1.3400 status or higher amidst the latest UK political upheaval. AUD and NZD holding just below recent recovery highs around 0.7660 and 0.7000 vs the US Dollar respectively, with the Kiwi deriving some support from stronger than consensus GDP data overnight, and upgrades to the previous quarter.

In commodities, WTI and Brent crude futures have pulled away from best levels to move into negative territory with reports from Ineos suggesting that repairs on the Forties pipeline are going well and work will be completed by Christmas. Elsewhere, the metals complex has been fairly uneventful with gold giving up its mild early gains, copper trading sideways amid an indecisive risk tone. Closure of Libyan oil ports (Es Sider, Zueitina and Brega) due to bad weather – sources.

Looking at the day ahead, we’ll get the third and final revision for Q3 GDP in the US, while the October FHFA house price index and November leading index will also be out across the pond. In Europe December confidence indicators in France and November public sector net borrowing data in the UK are due. Also worth keeping an eye on will be the regional elections in Catalonia.

US Event Calendar

• 8:30am: Philadelphia Fed Business Outlook, est. 21, prior 22.7
• 8:30am: GDP Annualized QoQ, est. 3.3%, prior 3.3%; Personal Consumption, est. 2.3%, prior 2.3%; Core PCE QoQ, est. 1.4%, prior 1.4%
• 8:30am: Initial Jobless Claims, est. 233,000, prior 225,000; Continuing Claims, est. 1.9m, prior 1.89m
• 8:30am: Chicago Fed Nat Activity Index, est. 0.5, prior 0.7
• 9am: FHFA House Price Index MoM, est. 0.4%, prior 0.3%
• 9:45am: Bloomberg Consumer Comfort, prior 51.3; Economic Expectations, prior 53
• 10am: Leading Index, est. 0.4%, prior 1.2%

DB’s Jim Reid concludes the overnight wrap

Welcome to the shortest/longest day of the year depending on where you are. It
might feel like the latter to me as I had a rare night out last night and I’m struggling
to keep my eyes open typing this. To be honest though after a large meal and a few
beers I felt exhausted and excused myself at a sociable time so I could collapse in
bed. What the 20, 25, 30 and maybe 35 year old version of me would have made
of such behaviour is anyone’s guess. Problem is I’m doing the same thing again
on Saturday with a different crowd and I’m already feeling tired thinking about it.
Two nights out a year on my own is too much these days.

Talking of sleepiness, bond markets have certainly woken from their 2017
slumber as we hit the home stretch of the year. Indeed 10 year US Treasuries
nudged up against 2.50% last night (closed 2.497%), +3.3bp higher on the day
and +10.3bp over two days. For all the talk about bond yields being resolutely
anchored, and with many in the market struggling to work out what could drive
yields higher, it’s interesting that there have only been 11 trading days in 2017
where US 10 year yields have closed higher than last night’s levels.

For comparison, Bund yields have closed higher 92 days in 2017 but this would
have been 191 had we calculated on Monday night before we moved from
around 0.3% to the 0.403% close last night (+2.7bp on the day). Elsewhere, Gilts
slightly underperformed (+4.6bp) while the US 2s10s steepened c3bp to 63.9bp
yesterday.

We went through the main reasons for the sell-off yesterday but the final passing
of the US tax bill by the Senate and then the revote by the House meant that
Mr Trump got his tax bill delivered to him by Xmas. Although expected now for
a few days, the final passage seemed to add another reason for the sell off to
continue. Notably, President Trump is expected to sign the bill into law on 3
January to ensure automatic spending cuts to Medicare and other programs
don’t take effect.

Over in Spain, Catalonia will hold its regional election today with polls showing
neither side will win a clear majority. Bloomberg noted the median results of the
seven surveys published on the final day of polling showed the separatist bloc
could get 47% of the votes and those against independence could get 44%. On
an individual party basis, the pro-Spain Ciudadanos Party could win 23% of the
votes, then closely followed by the pro-separatist party Esquerra Republicana at
22%. Indeed it feels like a neck and neck race.

In Japan, the BOJ has left its monetary stimulus on hold – as widely expected.
Notably, the vote on continuing asset purchases was unanimous but the vote on
rates was 8-1 with the new member Mr Kataoka dissenting. There could be more
clues for 2018 as Governor Kuroda will hold a press conference at 3:30pm (Tokyo
time, 5:30am UK time and as we go to print).

This morning in Asia, markets are mixed. The Hang Seng (+0.45%) and China’s
CSI 300 (+1.0%) are both up while the Nikkei (-0.07%) and Kospi (-1.56%) are
down, with the latter impacted by weakness in Samsung’s share price (-3.2%) as
we type. Treasuries are slightly firmer with UST 10y trading c1.5bp lower.

Now recapping other markets performance from yesterday. US bourses
softened with the S&P 500 (-0.08%), Dow (-0.11%) and Nasdaq (-0.04%) all
marginally lower. Within the S&P, losses were led by real estate and utilities with
partial offsets from the energy and telco sector. European markets also retreated,
with the Stoxx 600 (-0.68%), DAX (-1.11%) and FTSE (-0.25%) all down, partly
impacted by the higher EUR and weakness in tech (-1.11%) stocks. The VIX fell
for the first time in three days to 9.72 (-3.09%).

Turning to currencies, the US dollar index and Sterling dipped 0.09% and 0.07%
respectively, while the Euro strengthened 0.26%. In commodities, WTI oil rose
0.92% following EIA data showed that US oil stockpiles fell the most in four
months. Elsewhere, precious metals edged 0.3% higher (Gold +0.31%; Silver
+0.34%) and other base metals also increased modestly (Zinc +0.41%; Aluminium
+0.72%; Copper +1.23%).

Away from the markets and onto China, where its’ Central Economic Work
Conference (CEWC) has now concluded. Our China economist noted the press
release sends conflicting messages. It reiterates the importance of maintaining
stability, which suggests the economic growth target will stay at 6.5%. However,
it also indicates that the fiscal policy stance will not be as supportive as in
2017. While the central government deficit may stay near 3% of GDP, the
statement talked of strengthening “local government debt management”. The
statement also suggests that containing financial risks ranks at the top of policy
priorities, together with poverty reduction and environmental protection. Overall,
our economists maintain their view that growth will slow in 1H given the tighter policy stance, and the government will loosen policy in Q2. Refer to the link for
more details.

Over in Germany, Ms Merkel’s CDU/CSU bloc and SPD have put out a joint
statement noting exploratory talks to form the next Government will begin on
7 January, with the aim of reaching a preliminary agreement by 12 January. It
was unclear whether the talks will focus on a grand coalition or a minority led
government, although party officials noted “good discussions in an atmosphere
of trust”. Earlier on, Norbert Lammert, the former president of Germany’s lower
house of Parliament for Ms Merkel’s CDU during 2005 to 2017 seemed less
convinced, he noted “the constant declarations that there will definitely be a
grand coalition are the surest way to stop one”.

In the US, negotiations to avoid a partial government shutdown from this
Saturday are evolving without firm offers from either side. That said, Senate
Majority Leader McConnell didn’t seem to be too worried. He noted a shutdown
is “not going to happen” as “we’ll work it out, we always do”. Elsewhere, when
asked if the tax bill will pay for itself, House speaker Ryan noted “nobody knows
the answer to that question, because that’s in the future”. Looking into 2018, he
added that Congress will focus on “getting people from welfare to work” and give
the States more flexibility with Medicaid.

Turning back to Brexit. In response to EU Chief negotiator Barnier’s earlier
comments of no cherry picking of rules for Brexit talks, particularly for financial
service firms, the BOE Governor Carney argued that was too negative, noting that
“I don’t accept that just because it has not been done in the past, it can’t be done
in the future”. After all, “the City of London is actually the banker for Europe”
as UK’s PM May noted in her parliamentary address yesterday. Elsewhere, PM
May’s effective deputy Damina Green has resigned, adding to the recent turnover
in her cabinet.

Before we take a look at today’s calendar, we wrap up with the other data
releases from yesterday. In the US, the November existing home sales were
above market and rose 5.6% mom to 5.81m (vs. 5.53m expected) – the highest
in c11 years. Across Europe, Germany’s November PPI was a tad below
expectations at 0.1% mom (vs. 0.2%) and 2.5% yoy (vs 2.6%). Elsewhere, the
UK’s December CBI retail report survey was in line at 20. In Sweden, the Riksbank
left its cash rate on hold at -0.5% as was widely expected. The Bank confirmed
that its QE bond purchase programme will end but still pledged support for the
debt markets into early 2019, with the bank planning to reinvest c65bn Kronor
in returns and front-load investments from maturing debt. The Bank continues to
forecast a gradual rise in its policy rate from the middle of next year.

Looking at the day ahead, all eyes will be on BOJ Governor Kuroda’s press
conference which you’ll know more about by the time you read this. Away from
that we’ll get the third and final revision for Q3 GDP in the US, while the October
FHFA house price index and November leading index will also be out across the
pond. In Europe December confidence indicators in France and November public
sector net borrowing data in the UK are due. Also worth keeping an eye on will
be the regional elections in Catalonia

A 32 year old Australian citizen of Afghan descent with a history of drug problems has been arrested in Melbourne, Australia after a white Suzuki SUV was driven into a crowd of downtown Christmas shoppers at around 4:40pm. Fourteen people were injured, some critically. “There was no attempt to brake, no attempt to swerve” said witness Jim Stoupas. The BBC reports one victim was a child of preschool-age with head injuries who was taken to Royal Children’s hospital in serious condition.

Witness Chris Gath told The Age he saw 60 to 100 people crossing the intersection when a car travelling at up to 70km/h (43 MPH) headed for the crowd.

After the incident, several bystanders stepped in to restrain the driver, who was known to police – while another man was arrested and let go after he was determined not to be involved. Local police commander Russell Barrett said it was a “deliberate act,” though he stopped short of calling it terrorism, saying “The motivations are unknown,” and that they “don’t at this time have any evidence of intelligence to indicate a connection with terrorism.”

Footage circulating online shows two police officers dragging a man in a white shirt and jeans away from the passenger side of the crashed SUV. He appears to be unconscious while officers slap him and search his pockets before handcuffing him.

Driver described by police as an “Australian citizen of Afghan descent”

Australian police stand near crashed SUV (Louis Ascui / Reuters)

Commander Russell Barrett media conference: 

As The Age reports:

Sue from Walker’s Doughnuts on Elizabeth Street told radio station 3AW that she heard screams before she saw “people flying everywhere“.”We could hear this noise. As we looked left, we saw this white car, it just mowed everybody down,” she said. “People are flying everywhere. We heard thump, thump. People are running everywhere.”

 

A young mother who was at the scene with her young daughters told radio station 3AW they fled as the car ploughed into pedestrians.”I didn’t want the kids to see anything,” she said. “We just ran. “I wanted to get the girls out of there so we ran into the closest building.

 

Chris Gath said he was standing at the 7-Eleven on the corner of Flinders and Elizabeth streets with a coffee in hand when he heard screaming. “I heard it first and then I turned around and saw lots of bodies on the floor. “I saw a car ploughing into many people and bodies flying everywhere.”

Members of the public stand behind police tape after the drivers were arrested: 

Approximate location of the incident: 

In the aftermath, witness Jim Stoupas said “I saw probably five to eight people on the ground with people swarming around them [to help]. Within a minute, I think, there were police on site, so it was very, very speedy.”

Another witness, Lachlan Read, told the Herald Sun the whole incident lasted about 15 seconds.

“He has gone straight through the red light at pace and it was bang, bang, bang. It was just one after the other“

Footage of the aftermath from above:

https://www.facebook.com/plugins/video.php?href=https%3A%2F%2Fwww.facebook.com%2F7newssydney%2Fvideos%2F1935317146492409%2F&show_text=0&width=560

Prime Minister Malcom Turnbull kindly tweeted “thoughts & prayers” to the victims and those treating them:

This marks the second vehicle plowing attack in Melbourne this year. In January, six people were killed and over 30 injured when a car was driven up a foot path near Thursday’s incident. The driver was arrested and the incident was ruled not terrorism-related.

View image on Twitter

Victoria Police

✔@VictoriaPolice

If members of the public have video or images which might assist police with their investigation into the Flinders Street incident they are encouraged to upload them here → http://australiauploadserviceweb.cloudapp.net 

end

Mexico

The Peso plummets on news of minister Gutierrez

(courtesy zero hedge)

As the yield curve rolls over again and credit crumbles, stocks just wanna go higher because… well that’s what stocks do…

Small Caps were squeezed higher once again led by Financials and Energy stocks (Utes weakest) – stocks were weak again into the close… (Trannies ramped to unch at the close) – weakness started around the Catalonia vote…

Futures show the open was dumped again… and bid again…but weak into the close…

NOTE -Small Cap ramp today was all about getting green for the month…

Another short squeeze at the open BUT is it now out of ammo?

There have been 374 trading days without a 5% or greater pullback, the second longest streak since 1928. This is pretty remarkable considering that 5% pullbacks have occurred, on average, 3x per year since 1928.

Banks were up notably today as FANG stocks sank again…

High-Tax companies outperformed once again…

Credit markets continue to flash warning lights…

And as professionals have been selling high yield debt, they have also been selling into any intraday strength in stocks…

The Bond Bloodbath is over.. for now. 30Y outperformed notably on the day…

After 3 chaotic days in the yield curve, just as we noted yesterday, both the 30Y yield level and the 2s30s curve turned around at critical resistance levels (FOMC meetings).

And the 2s30s curve tumbled over 6bps today (one of the biggest flattening days of the year), turning on a dime at the FOMC Minutes levels from Nov…

The Dollar was somewhat chaotic today ending the day unchanged (down on the week)…

EURUSD ramped after the Catalonia election results showed the separatsist in the majority..

Interesting how flat the Dollar Index has been given the surge in Yuan..

Copper and Crude continue to lift this week

Cryptocurrencies carnaged with Bitcoin Cash battered (XRP and XCU were up large)…

Bitcoin has been on a serious down-trend since CME futures were unleashed (and has collapsed the futures premium to spot)..

Gold continues to converge back higher to Bitcoin (relatively)…

Authored by Alan Dershowitz via The Gatestone Institute,

The Trump team is probably not going to seek to fire Special Counsel Robert Mueller. To do so would be to provoke Trump’s crucial supporters in Congress. Instead, they seem to be seeking to discredit him and his investigation.

This is apparently designed to achieve two possible results: the first is to put pressure on the Special Prosecutor to lean over backwards in order to avoid any accusation of bias against Trump and his team. Mueller cares deeply about his reputation for integrity and will want to emerge from this process with that reputation intact. Accordingly, he may err – consciously or unconsciously – in favor of Trump in close cases so that the public will regard him as unbiased and fair-minded.

(Image source: Kit Fox/Medill/Flickr)

This is a classic tactic used by lawyers, athletic coaches, business people and others in how they deal with decision makers. The great Red Auerbach, former coach of the Boston Celtics, once told me that when he screams loudly at officials, he generally gets the next close call in his favor. I have heard the same from baseball managers regarding balls and strikes.

This is a somewhat risky strategy in the context of law, because attacking the decision maker could also backfire. Whoever thinks about using this tactic should understand the particular decision maker against whom it is directed. Mueller seems like an appropriate target because of his concern for his reputation for fairness.

Even if this tactic were not to work, the attack on Mueller gives the Trump team some legal weaponry in the event of an indictment or a recommendation for impeachment. If a significant portion of the country believes that the Special Counsel was unfair, this could help in legal proceedings before judges or jurors.

So attacking Mueller may appear to be a win-win tactic for the team – certainly a lot better than firing Mueller. Fortunately for the Trump team, Mueller has played into their hands by his sloppiness in conducting the investigation. He has been incautious with his choice of personnel – too many of them seem biased against Trump, not only by their backgrounds, but by their tweets and messages. When you go after a President, you must be Caesar’s wife – above suspicion or reproach. Mueller seems to be failing the Caesar’s wife test. Moreover, the manner by which he acquired emails and other documents from the Trump transition team may raise some legal questions. The same may be true if he used the questionable dossier against Trump as a basis for securing warrants.

All in all, the Trump team is in a better position continuing to challenge Mueller than trying to get rid of him as the Special Counsel.

This is not a game, of course. Lives and liberty are at stake, but gamesmanship has always been part of our legal system, for better or worse.

Mueller can improve his situation in several ways. First, he should appoint an ethics expert to advise him – a former judge who is beyond reproach. Names like George Mitchell, Louie Freeh, and Justice David Souter come to mind. That advisor could assure him in going forward there will be no more embarrassing revelation of messages or emails that create the appearance, if not the reality of bias. He must also be more careful in how he obtains evidence. The last thing he should do is give ammunition to defense attorneys to challenge his evidence gathering methods.

In setting out this analysis, I am not taking sides. I am simply sharing my 50 years of experience as a criminal defense lawyer who has seen the criminal justice system up-close, warts and all. As James Madison wrote in Federalist 51 “Perhaps everyone will agree that if we were all angels, no state would be necessary, and if angels were the governors, they would require neither internal nor external constraints to ensure that they governed justly.” Neither the Trump team nor the Mueller team are angels. They are human beings with human limitations. But an investigation of a president must be as close to angelic as any human endeavor can be. Otherwise the public will not have confidence in the results.

Now that Republicans have finished patting themselves on the back for passing the first comprehensive tax reform bill in 31 years, and which hopes to stimulate the economy my rewarding those least likely to spend…

… members of Congress are shaking off their hangovers and confronting the reality that that the leadership is still nowhere near a consensus on the continuing resolution package that must be passed by midnight Friday (or early morning Saturday at the latest) to avert a holiday shutdown.

Initially, Republicans were planning to include a separate authorization that would keep the Pentagon funded through September, but that idea was scrapped after the leadership discovered the bill would be dead-on-arrival in the Senate, where Republicans must win at least eight Democratic votes to circumvent a filibuster. House Speaker Paul Ryan said earlier this week that Republicans would attach an $81 billion disaster-relief aid package to the CR, thereby combining two legislative priorities into one. But that plan has also been abandoned.

Now, the leadership is scrambling to whip up enough votes to push the CR through the Senate. According to the Hill, Speaker Paul Ryan met with Mark Meadows, the leader of the Freedom Caucus, several members of his faction last night, and managed to flip several ‘no’ votes to ‘yes’ after promising to reauthorize a controversial surveillance program that was due to expire. Still, some conservative Republicans are digging in their heels and insisting that the defense spending measures must be included in the final bill – or else.

Following the meeting with Meadows, Republicans hammered out a draft of the bill during a conference late Wednesday. In its present form, the CR would delay cuts to defense and nondefense spending, reauthorize the controversial surveillance program, and include funding for a popular children’s health-insurance program, per Bloomberg.

House leaders released a plan late Wednesday that would maintain funding for government operations through Jan. 19 and delay cuts to defense and non-defense spending known as sequestration. It includes extra funds for some Pentagon expenses and health programs, as well as $2.85 billion to keep the Children’s Health Insurance Program running through March, with some conditions.

 

The government surveillance activities authorized by a section of the Federal Intelligence Surveillance Act would be reauthorized until just Jan. 19, rather than the full reauthorization sought by the Justice Department.…The last provision of the bill would waive the automatic cuts to some mandatory federal programs, which would kick in because of the deficit impact of the tax overhaul passed this week. That spending cut trigger is known as PAYGO, for pay-as-you-go, and waiving it would make it easier for President Donald Trump to sign the tax legislation passed this week before the start of 2018.

Still, the message from conservative Republicans is clear: Defense spending or bust.

Rep. Scott DesJarlais, a member of both the Freedom Caucus and the Armed Services Committee, said he wants to force GOP leaders to send the Senate a long-term extension of defense spending. “We’re doing our troops a real disservice. … I think it’s going to take a couple volleys. I don’t think this thing will whip out to where the votes are there for what leadership’s proposing,” he told reporters Wednesday evening.

 

“So I think us – and you – are in for a long week. I don’t expect to get out of here until Friday or Saturday,”he added.

 

Rep. Bradley Byrne (R-Ala.), a member of the House Armed Services Committee, said he was “bitterly disappointed” and would oppose a stopgap bill that didn’t fund defense programs through the year.

 

Freedom Caucus member Rep. Ted Yoho (R-Fla.) also said he was a “lean no.”

In one example of how pro-defense Republicans often clash with their libertarian-leaning colleagues, some Republican members say the surveillance program extension that was added to win the votes of several armed-services committee members is, ironically, a nonstarter for skeptics of the American security state.

Meanwhile, some conservatives were also concerned that the CR includes language to temporarily extend a surveillance program authorized by section 702 of the Foreign Intelligence Surveillance Act (FISA). “If they took [the] FISA extension off the CR, I would hold my nose and vote for it,” said Rep. Louie Gohmert (R-Texas), another member of the Freedom Caucus.

 

Meadows, who wants to see long-term reforms to the spying program, said he secured a commitment from leadership that there would eventually be a standalone vote on a long-term FISA reauthorization and that his group would be allowed to offer requested amendments.

To be sure, some Republicans were more amendable to compromise because they didn’t want the party to squander the goodwill generated by its monumental victory on tax reform. One Republican Rep went so far as to ask: “Is this really the hill we’re going to die on?” – referring, of course, to the controversy surrounding defense spending.

“I think there are a lot of people who are going to spend their time tonight really thinking about whether or not this is the hill we’re going to die on,” Rep. Matt Gaetz (R-Fla), a member of HASC, said coming out of Ryan’s office. “We just had this great moment on tax reform.”

 

“I think they’re going to get the votes,” he added.

In the House, the CR will likely face unanimous Democratic opposition because it doesn’t address a host of Democratic priorities, including immigration, money for the opioid crisis and a boost for non-defense spending caps.

Furthermore, Republicans definitely don’t have the votes to counter a filibuster in the Senate. And with defense hawks and conservative lawmakers joining together in opposition, it’s unlikely the CR in its current form could even pass the House.

So with the clock running out, the House Rules Committee is set to meet early Thursday morning to prepare both the CR and the disaster relief bill for floor votes later in the day.

But given the sheer number of competing interests needing to be squared, it’s likely that an eventual vote on the CR will go down to the wire. Mitch McConnell and Paul Ryan have repeatedly promised that a Christmas shutdown will be averted, even if the political brinksmanship must continue into the early hours of Saturday morning, or even beyond…

At this point, it’s still not clear why Ryan and McConnell are so confident. President Donald Trump has reportedly mused that a shutdown could benefit Republicans as voters would blame Democrats for opposing the essential funding bill.

Early in the week, anxiety over a government shutdown appeared to ebb as the short-term Treasury Bill market began to ‘normalize’, but following the tax-reform ‘win’, President Trump is accusing Democrats of trying to force a government shutdown…

…And the Bill curve has shifted notably more inverted…

While there are obviously year-end liquidity impacts involved too, it appears market anxiety is building as perception grows that Dems may move to stunt the Republicans’ momentum from their ‘victory’ on taxes.

Authored by Mike Shedlock via www.themaven.net/mishtalk,

A program that allows gov’t to collect data without a warrant expires this year. Paul opposes a “long-term” extension.