Goldman sachs

Good morning from goldman sachs Asia

Good morning from GS Asia! US equities traded mixed overnight as investors dealt with plunging oil prices and digested a scorching employment data. S&P500 -10bps on more active trading volumes with SPX volumes +3% vs the 20dma, closing -0.23%.

Overnight dollar strength was yet another function of a rates sell-off led by the belly following a strong ADP employment number (+298k vs. +187k expected). While usually a low tier data point, ADP caught attention given the level of focus on Friday’s NFP. This was interpreted as a robust indication that the payrolls print will be in line, thus effectively removing another hurdle to dollar purchases as some had feared that a surprise to the downside would catch the market long. GS has revised our estimate for payrolls to 215k from 190k previously for NFP. Dollar gained against both G10 and EM – with higher yielders in EM particularly under pressure (IDR, TRY, ZAR).

Treasuries sold off on strong labor numbers gibing the market further confidence in a March hike ahead of payrolls, until a strong 10y auction and weaker oil/equities supported fixed income into the close. 10s closed 4.2bp higher at 2.551 and 5s30s 0.3bp flatter at 1.064. In commodities, crude sold off sharply weighing on Energy sector (worst one-session performance in 13 months, falls to lowest level this year). API crude inventories reported +11.6M barrels build yesterday, DOEs +8.2mm (so worse than +1.5mm expected but not as bad as API).

Looking ahead, we’ll have ECB meeting, US Initial jobless claim, China February inflation index. Uttar Pradesh will see release of unofficial exit polls today in the India state election, official results will released on the 11th.

Looking ahead, we’ll have ECB meeting, US Initial jobless claim, China February inflation index. Uttar Pradesh will see release of unofficial exit polls today in the India state election, official results will released on the 11th.

US: Increasing Payrolls Forecast to +215k Following Strongest ADP Report Since 2014; Q4 Productivity Softer than Expected

From GS Research: “Private payrolls in the ADP employment report rose 298k in February, well above expectations and its fastest pace in nearly three years. In past research, we’ve found that large surprises in the ADP report tend to be predictive of the subsequent nonfarm payroll surprise, and we believe the sharp acceleration in today’s report provides additional evidence for a strong employment report this Friday. As a result, we revised up our forecast for nonfarm payrolls by 25k to +215k. Nonfarm productivity growth was unrevised at +1.3% in Q4, somewhat below consensus expectations of +1.5%. Real nonfarm output per hour grew 1.0% over the last year, a bit faster than the post-recession trend pace of +0.75%.”

Employment Report Ahead

From Tim Duy’s Fed Watch: “A surge in hiring coupled with a decline in unemployment would be a red flag for the Fed. If that happens, expect the Fed to be more aggressive this year. It will give them more reason to front load rate hikes, and, if repeated in the next employment report, would open up the possibility of a May hike. Monetary policy is not on a preset course, and gradualism is not a promise, only an expectation.”

US: Wholesale Inventories In Line with Expectations, Q1 GDP Tracking Unchanged at +1.8%

From GS Research: “Wholesale inventory growth was revised down 0.1pp to -0.2% in January (relative to preliminary estimates in the Advance Economic Indicators report). However, December growth was revised up 0.1pp to +1.0%, and the level of January inventories was unchanged on an unrounded basis. The inventory to sales ratio for merchant wholesalers remained flat at 1.29 after drifting down over the last year from its recent peak of 1.37 last January. The report was close to our previous assumptions and did not impact our GDP estimates. Our Q1 GDP tracking estimate remains +1.8% (qoq ar).”

Atlanta Fed trims U.S. first-quarter GDP growth view to 1.2 percent

From GS Research: “The U.S. economy is on track to grow at a 1.2 percent annualized pace in the first quarter following the January data on domestic wholesale inventory, the Atlanta Federal Reserve’s GDP Now forecast model showed on Wednesday. The latest first-quarter gross domestic product estimate was lower than the 1.3 percent growth rate calculated on Tuesday, the Atlanta Fed said on its website.”

US: Obamacare Repeal: Who Knew It Could Be So Complicated?

From GS Research: “House Republicans have released legislation to replace the Affordable Care Act (ACA, or Obamacare) that would reduce spending on health insurance subsidies and repeal most of the taxes used to pay for the program. However, the proposal has already met resistance from conservative lawmakers in the House and Senate, and some centrist Republicans may have concerns. We expect additional changes to be necessary before it can become law. While ACA changes themselves could have meaningful macroeconomic effects, in the near term many market participants are focused on the effect that the health debate has on the prospects for tax reform. For procedural reasons, Congress cannot easily move to tax reform before the ACA issue has somehow been resolved. While passage in the near term cannot be ruled out, events this week suggest that the issue might not be resolved until May or possibly later.”

China: February export growth surprises on the downside and imports on the upside

From GS Research: “Exports (USD denominated.): -1.3% yoy in February (GS: +8%, Bloomberg consensus: +14%). January: +7.9% yoy. The apparent weakness in export data seems to be inconsistent with (1) signs of stronger global growth (our global leading indicator is at a multi-year high), and (2) strong early readings of exports from neighboring economies such as Korea. Several factors might be at work, including: The strength in global data has been more evident in terms of survey than hard data so far. The level of external demand may not be quite as strong as it may appear, though clearly it has improved; Chinese New Year distortions; there was no sudden change in it to explain the dramatic change in export growth in any given month.”

What to make of the China Trade Deficit? Our Trader’s Take (GS Sales & Trading)

From GS Trading: “Following yesterday’s upside surprise in FX reserve number, the trade data today seems to be painting a slightly different picture with a trade deficit driven by strong import. While Chinese New Year holiday has probably had seasonality impact on the data, the recent import numbers have consistently surprised to the upside. Offshore market took it as a signal for the currency to depreciation vs USD as the more obvious response, driving USDCNH above USDCNO for most of the afternoon session. Onshore market’s response seems to be much less aggressive in comparison, with onshore spot sitting close to the CFETS basket implied. I think part of the market took the strong import number has a sign of strength in the sense that it reflects strong domestic demand and supportive of infrastructure projects, especially given commodities seems to be a big component of the import growth alongside activities from Free Trade Zone. In any case, I find the trade data today difficult to interpret on its own given the holiday noise.”

ECB preview – The Governing Council to look through higher headline inflation, at least for now

From GS Research: “We expect the ECB to leave its key policy rates unchanged at the upcoming March Governing Council meeting. We also do not expect any changes to the Asset Purchase Programme (APP). Economic activity has firmed in recent months. Much of this has been anticipated by the ECB in its December and January assessment. Uncertainty stemming from politics (e.g., in France) and global factors (e.g., around trade) has risen recently. Headline inflation has increased more than foreseen and has hit 2%, owing to rising energy and food prices. But core inflation remains subdued, as expected by the ECB.”

Dutch elections — Increased fractionalisation in parliament, but a mainstream government remains the most likely outcome

From GS Research: “The Netherlands will hold an election for the 150 seats in the House of Representatives on March 15. Seats are determined by proportional representation. We do not expect the populist anti-immigration and anti-EU PVV to become part of any government. The current polls point to this outcome, as does our model prediction based on macro-economic outcomes. We expect a protracted period of negotiations among five or six parties to form a coalition government. While this would be a market-friendly outcome insofar as it dampens stability risks to the Euro area, the new coalition government is likely to be fractured and less coherent compared with recent Dutch administrations.”

EU: Strong rebound in German and Spanish IP in January, as expected

From GS Research: “German IP rose by +2.8%mom in January, as expected, reversing a large decline in December (Cons: +2.7%mom). In a second positive signal, the December decline in German IP was revised to -2.4%mom, from -3.0%mom. In a separate release, Spanish IP rose by +0.3%mom in January. Both German and Spanish IP data support survey-based indications of underlying Q1 growth momentum in the Euro area. Today’s data pushed RETINA’s median estimate of Euro area Q1 GDP growth up by 0.2pp to +0.9%qoq.”

Macron’s French Bandwagon Gathers Pace With Cross-Party Support

From BBG: “Emmanuel Macron is starting to pick up endorsements and goodwill for his presidential bid from across France’s fractious political landscape. Former Paris Mayor Bertrand Delanoe — a Socialist — entered the fray Wednesday stating that he is unequivocally backing the 39-year-old candidate rather than his party’s nominee, Benoit Hamon. Dominique de Villepin, a former center-right prime minister, said he won’t be voting for his party’s candidate either and praised Macron’s audacity and democratic credentials. Robert Hue, a former Communist Party leader, also spoke positively of Macron. And the list goes on.”

European Views: UK — Budget 2017: Reduced deficits, near-neutral measures

From GS Research: “In his 2017 Budget, the Chancellor made near-neutral fiscal announcements for 2017/18 and retained his plans to tighten fiscal policy by around 2% of GDP through 2021/22. The OBR has been cautious in its assessment of the underlying macroeconomic outlook, upgrading near-term GDP growth but downgrading growth beyond 2018. The Chancellor now expects to borrow £24bn less between 2016/17 and 2021/22 than he expected in November’s Autumn Statement, leaving him with around 1% in headroom (relative to his fiscal targets) to loosen fiscal policy should the need arise. On specific policy measures, the Chancellor announced additional spending on education and social care, but additional national insurance contributions for the self-employed.”

U.K.’s May Fights Back After Another Brexit Law Defeat in Lords

From BBG: “U.K. Prime Minister Theresa May is fighting back against Brexit rebels in her ruling Conservative Party as she steps up her battle to start the formal process of pulling Britain out of the European Union. The premier fired government adviser Michael Heseltine after he led a 13-strong revolt in the House of Lords, helping to inflict a second Brexit-bill defeat on May in a vote on Tuesday. The upper chamber rewrote May’s draft law to guarantee Parliament a “meaningful vote” on the outcome of exit talks, potentially vetoing any final agreement and stopping the premier walking away without a deal. May’s team insisted they would seek to delete the changes made by unelected members of the upper house when the bill returns to the House of Commons, probably next week.The focus now switches to identifying how many Conservative rebels in the Commons will be prepared to defy the premier and vote to keep the amendments.”

UK economy is slowing down: S&P Global Ratings

From CNBC: “This year will see a be a “gradual softening” of demand this year from both U.K. business and households, according to the financial research team at Standard & Poor’s Global ratings. In a new report published Wednesday, the ratings agency said it was witnessing weakening demand for business loans as well as a slowdown of the rampant consumer spending that powered the U.K.’s economic growth in 2016. In an accompanying press release, S&P noted that the Bank of England Credit Survey for the fourth quarter of 2016 painted a picture of diminishing corporate financing, despite ultra-easy lending terms. And for consumers, S&P said robust yearly growth numbers masked some recent weakness. S&P said it expected the Bank of England to “look through” inflation and “keep rates low for long, despite a material upward revision to growth.”

Japan: Revised 4Q real GDP up to +1.2% mainly on capex

From GS Research: “The Japanese government’s second estimate for Oct-Dec (4Q) 2016 real GDP came in at +1.2% qoq annualized, a slight upward revision from +1.0% in the preliminary reading. We note that Jul-Sep real GDP was revised downward to +1.2%, from +1.4%, so GDP over the past two quarters has been smoothed to +1.2% growth. By category, private consumption was +0.2% qoq annualized in the second estimate. While this represents a slight upward revision from 0.0% in the preliminary estimate, private consumption is almost flat. This is the highest growth rate since Jan-Mar 2014 (+9.4%) before the consumption tax hike. Capex’s contribution to GDP rose to +1.3 pp, from +0.6 pp in the preliminary estimate.”

Japan: January inbound spending second highest on record due to Lunar New Year bump

From GS Research: “According to the January 2017 balance of payments data, the non-adjusted current account came in only just positive at +¥65.5 bn (Jan 2016: +¥590.1 bn). Japan recorded a trade deficit for the first time in a year of -¥853.4 bn, as exports slowed to +2.9% yoy (Dec: +6.6%) and imports increased sharply by +10.0% yoy (Dec: -3.3%). However, this was partly due to the Lunar New Year, and we expect a return to a trade surplus in February. Travel receipts in the services account, which reflect consumption by foreign visitors to Japan, rose 15.6% yoy in January to ¥317.5 bn, the second-highest reading after July 2016 (¥326.8 bn). The number of foreign visitors from China and Hong Kong rose 32.7% and 48.4% yoy, respectively, due to the Lunar New Year being earlier than last year. This offset a decline in spending per visitor, helping maintain total inbound consumption at a high level, with some monthly variation.”

Japan: February Economy Watchers Survey: Slight deterioration in both household and corporate activity DIs 

From GS Research: “In the Economy Watchers Survey of workers, the overall current conditions DI for February 2017 printed at 48.6, a decline of 1.2 points from January. The household activity DI came to 47.3, a drop of 1.5 points from January, marking a third straight monthly decline from the November peak. The retail DI fell sharply again by 3.1 points vs. January, and the dining DI also declined 1.4 points. Inbound consumption was strong, but consumption appears to have been weak as a whole. In the Economy Watchers Survey of workers, the overall current conditions DI for February 2017 printed at 48.6, a decline of 1.2 points from January. The household activity DI came to 47.3, a drop of 1.5 points from January, marking a third straight monthly decline from the November peak. The retail DI fell sharply again by 3.1 points vs. January, and the dining DI also declined 1.4 points. Inbound consumption was strong, but consumption appears to have been weak as a whole.”

U.S. and South Korea Rebuff China’s Proposal to Defuse Korea Tensions

From NYT: “China tried unsuccessfully to calm newly volatile tensions on the Korean Peninsula on Wednesday, proposing that North Korea freeze nuclear and missile programs in exchange for a halt to major military exercises by American and South Korean forces. The proposal was rejected hours later by the United States and South Korea. “We have to see some sort of positive action by North Korea before we can take them seriously,” Nikki R. Haley, the United States ambassador to the United Nations, told reporters after a Security Council meeting in New York on the escalating Korea crisis. Standing beside her, Cho Tae-yul, the South Korean ambassador, said, “This is not the time for us to talk about freezing or dialogue with North Korea.””

Taiwan: February exports sharply up 27.7% yoy mostly on China and ASEAN with seasonal noise, significantly above consensus 

From GS Research: “Taiwan’s export growth accelerated to +27.7% year-on-year in February from 7.0% in January, significantly above consensus (consensus: +16.4%; GS forecast +19.0%), primarily due to distortions of lunar New Year holidays. In seasonally-adjusted terms (taking into account floating lunar calendar holidays), exports fell 6.6% from a month ago, retreating from a rise of 6.0% in the previous month. Combining exports in January and February, Taiwan’s exports grew 16.2% yoy (10.2% in local currency terms), up modestly from 14.0% in December. By major destinations, the strength in exports (in year-on-year terms) came mainly from China and ASEAN.”

Trump talks infrastructure with Musk, developers

From RTRS: “U.S. President Donald Trump met with business leaders on Wednesday including Tesla Inc Chief Executive Elon Musk and real estate developers, as the administration seeks partnerships with the private sector to boost infrastructure spending. During his presidential campaign, Trump said he would push for a $1 trillion infrastructure program to rebuild roads, bridges, airports and other public works projects, but he has not presented a specific plan. Major real estate and private equity executives attended the meeting, including developer Richard LeFrak, Vornado Realty Trust Chief Executive Officer Steve Roth, and Apollo Global Management co-founder Josh Harris, the White House said.”

House Speaker Paul Ryan says ‘I have no doubt we’ll pass’ Obamacare replacement

From CNBC: “House Speaker Paul Ryan on Wednesday said, “I have no doubt that we’ll pass” the Republican leadership’s bill to repeal and replace major parts of the Affordable Care Act, “because we’re going to keep our promise.” Ryan also said that he expected that the nonpartisan Congressional Budget Office would release a “score” of the bill at “the beginning of next week,” before the legislation is brought to a vote before the full House of Representatives. That score would estimate both the costs and revenues for the federal government from the bill, as well as the number of people likely to end up having health coverage after it is enacted.”

Republicans Give Rich Investors a Tax Break in Obamacare Revamp

From BBG: “House Republicans have a plan to remake the U.S. health-care system—with a perk for wealthy investors. Included in their proposal to repeal and replace the Affordable Care Act is a tax break for the wealthy. The average hit from the NIIT doesn’t get beyond three figures unless you’re in the top 1 percent of earners. The tax casts a wide net, though. Investors must pay that additional 3.8 percent on proceeds that include capital gains, dividends, interest, royalties, rental income, and passive business income. Eliminating the NIIT, introduced to help pay for health-care expansion under Obamacare, would reduce government coffers as the Trump administration is seeking budget cuts in many departments and as the cost of repealing and replacing Obamacare is in the spotlight.”

China the manipulator? So far Trump hasn’t made good on his currency threat—and it might not matter if he did

From Politico: “When Donald Trump raged against China on the campaign trail, he made one very specific threat, over and over: He promised to officially label China a currency manipulator. In fact, he promised he’d do it on his first day in office. As plenty of observers have noted, 47 days have come and gone, and nobody has labeled China a manipulator of anything. Treasury Secretary Steven Mnuchin even backed off Trump’s promise late last month, saying that Treasury was going “through its process” of looking at currency manipulation. But if Trump actually decided to do it, could he? And more importantly, would it even matter?”



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