Treasury Yields Tumble – Erase CPI-Spike, As Stocks Rebound

Stocks are mounting a modest comeback after the pre-open dump…

but hotter than expected import prices have sparked significant buying in the long bond, which has now erased all yield gains from the CPI spike…

The early spike in the dollar has hit resistance and is rolling over…

 

As we detailed earlier, when commenting on recent moves in the market, Nomura’s Charlie McElligott correctly said that the culprit for the sharp move higher in stocks was the ongoing recent drop in the USD:

I REALLY think that it was the USD breakdown which provided the most relief for US equities.  The Bloomberg Dollar Spot index sits on the cusp of breaking-down to a new 3.5 year lows with a frightening amount of room to fall (no support til 1065—the 76.4% retracement of the 5 year BBDXY rally—which is another -4.5% move). 

Well, following today’s barrage of data, which showed both housing starts and permits coming in way “hot”, and core import prices surging at the highest pace in 6 years, the dollar – which earlier had slumped to 3 year lows against its major peers – found a bid, in line with our musing earlier in the day…

… and with minutes to go until the market open, the BBG Dollar Index was at session highs.

And in kneejerk response, S&P futures – which no longer track 10Y yields but the dollar – erased earlier gains and traded at session lows, with Dow Futures down as much as 97 points, while S&P futures were down 7 points.

As Bloomberg adds, “the torrid recovery in American equities looked set to falter Friday as investors look ahead to a three-day weekend in the U.S. The S&P 500 remains 5 percent below its Jan. 26 record. The slowdown in the Treasury selloff eased concern that higher borrowing costs would hinder equities as economic growth accelerates. “

So as a result of the latest regime shift, keep an eye on the dollar to determine which way futures will be trading, unless of course, the algos switch correlation pairs again, and resume trading in sync with yields instead of the USD.

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Somalia’s Al-Shabaab kill 3 teachers in Kenya

Al-Shabaab crossed the Somali-Kenya border in the early hours of this morning, attacking a school and leaving three teachers dead, the Anadolu Agency reported.

Speaking on condition of anonymity, a local police officer confirmed the death of the three teachers. One of the police vehicles responding to the attack was struck by an improvised explosive device (IED) planted by the group.

“We’re not sure what their motive was, but they attacked the school early in the morning, killing three teachers and wounding a couple of others, who are suffering from gunshot wounds,” a senior police officer from the Wajir County told the Anadolu Agency.

“The militants planted improvised explosives on the road leading to the school, making it hard for ambulances and our teams to reach the place faster,” the officer continued.

Read: Al-Shabaab attack military base near Mogadishu

In Kenya, the group have conducted scores of attacks in a bid to call upon the Kenyan government to withdraw its troops from Somalia. Back in April 2015, Al-Shabaab killed more than 140 students from Garissa University, in northern Kenya.

In 2012, Al-Shabaab pledged allegiance to Al-Qaeda, triggering brutal attacks on Somalia’s civilian population.

A new report published this week by the Combating Terrorism Centre (CTC) at United States West Point, titled: “Targeted Terror: Suicide Bombers of Al-Shabaab”, claims the group conducted 155 suicide operations resulting in the killing of some 2,218 people between September 2006 and October 2017. The analysis concluded that the suicide attacks are “highly targeted” at degrading members of the African Union Mission in Somalia (AMISOM). The authors, Jason Warner and Ellen Chapin claim that Al-Shabaab, unlike other terrorist groups, “attempt to avoid targeting non-combatant civilians”.

Read: UK calls for UN to ‘praise’ Saudi coalition over Yemen aid

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Egypt’s Sisi meets with US defence chief

Egypt’s President Abdel Fattah Al-Sisi met yesterday with US Central Command chief Joseph Votel to discuss bilateral “military cooperation”, the president’s office said in a statement.

Al-Sisi and Votel met in Cairo where they addressed “ways to push and advance military cooperation between Egypt and the United States,” the statement added.

They also spoke about recent military and political developments in the Middle East in light of the crises in the region.

Al-Sisi stressed “the importance of strategic relations between Cairo and Washington, especially with regard to military cooperation, in light of the current circumstances that the region is going through which require the combining of all efforts to confront challenges that threaten the entire region’s security and stability.”

With an annual $1.3 billion assistance package, Egypt is the second largest recipient of US military aid after Israel. The aid programme has persisted since Egypt signed a peace treaty with Israel in 1979 and it was only interrupted with a partial cut under US President Barack Obama, following a military coup that then-defence minister Al-Sisi led against Mohamed Morsi, Egypt’s first democratically elected president.

Read: Leading US Senator criticises Sisi for political crackdown in Egypt

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Israel: Protesters call for ‘crime minister’ Netanyahu to step down

Israeli demonstrators gathered in Tel Aviv today to urge Prime Minister Benjamin Netanyahu to resign after police recommended he be charged with bribery in two corruption cases.

Police said on Tuesday enough evidence had been found for Netanyahu to be charged, saddling the four-term premier with one of the biggest challenges to his long dominance of Israeli politics.

Netanyahu, 68, denies wrongdoing in both cases and has said nothing will come of the police investigations. It is now up to the attorney general to determine whether to press charges against him.

Around 1,000-2,000 protesters rallied in a Tel Aviv square, some with signs saying “crooks go home” and “crime minister”.

“We think the prime minister should immediately disqualify himself and resign,” said Shlomit Bar, 63, a retired music teacher. “He cannot be any longer the prime minister of Israel.”

Netanyahu: What happens next?

“From a moral standpoint, this is a disgrace to the state of Israel, where a prime minister is suspected of such serious crimes,” said Oren Simon, one of the protesters. “He should go home. Enough.”

A poll published on Wednesday showed almost half of Israel’s electorate believe the police rather than Netanyahu.

Netanyahu is currently entangled in four political scandals: Case 1000 which involves allegations that the PM and his wife accepted illegal gifts from businessmen; Case 2000 which accuses Netanyahu of attempting to buy favourable newspaper coverage; Case 3000, also known as the “submarine scandal”; and Case 4000, in which a close associate of Netanyahu is suspected of providing confidential information to Israel’s largest telecoms company.

New Israel election poll places Yair Lapid ahead of Netanyahu

The prime minister’s wife, Sara Netanyahu, has also been accused of using public funds for private expenditure in the prime minister’s households. Only 20 per cent of respondents to the recent survey believe she is innocent.

It could be months before the attorney general makes a decision on whether to charge him.

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Bitcoin’s Correlation With Wall Street Continues to Prove Itself

It is extremely clear that there is a high level of correlation between bitcoin and the stock market on Wall Street. According to a new report “On a 90-day basis, the correlation between the daily percent returns of the cryptocurrency and the S&P 500 is 33 percent, the highest since the cryptocurrency started gaining public attention in January 2016.” The previous high of the last two years was only at around 19%, which is much lower.



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The long run shows a negative 1% correlation, which means that these industries are highly correlated. The correlation factor has been increasing substantially, which means that many investors have possibly switched investments between crypto and the stock market. Towards the end of December, bitcoin managed to surge above $19,000, leading it to the highest the price had been since the coins inception. After the announcement of futures contracts from CME and its competitor CBOE, bitcoin managed to drop substantially, which many see as a fraudulent drop in the price, controlled by a select few individuals.

The issue with this lies in the fact that many got into the crypto industry only so that they could find an alternative to the stock market. If bitcoin is following that same price action, it essentially defeats the purpose of investing in bitcoin instead of stocks. As the stock market took its most recent dip, bitcoin also dipped below $6,000. This price action scared many investors, which led to quite a large selloff across both industries. As the industry on cryptocurrency is still relatively in its infant stages, many investors are hoping that this tight correlation will slow down slightly, so both markets can continue to grow independently of one another. Only time will tell what happens to the industry on crypto.

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Israel ministers to consider bill ‘annexing’ Jordan Valley

Israel’s Ministerial Committee for Legislation will consider on Sunday a bill that would see Israeli law formally applied to the Jordan Valley region of the occupied West Bank, reported Arutz Sheva.

According to MK Sharren Haskel (Likud), who proposed the legislation: “The support we are receiving in the international arena from our friend the United States proves that there has not been and will not be a better time.”

“In the dynamic reality that changes at every moment, who knows what will each day will bring. We have a rare opportunity to approve the proposal before the end of the current Knesset session,” Haskel said yesterday.

“The bill to apply Israeli law to the Jordan Valley is the key to true stability and coexistence. On both the right and left, there is agreement on the security importance of our eastern border,” she added.

Arutz Sheva noted that it is unclear whether Prime Minister Benjamin Netanyahu “will allow the vote on the bill to go through”, having recently prevented a vote by the ministerial committee on a different bill seeking the annexation of settlements in the occupied West Bank.

Read: Israel evicts 30 families from Jordan Valley for settlement expansion

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Report: Iran currency reaches record low amid Trump threats

The Iranian rial has reached an unprecedented low against the US dollar reaching 5,000 rials per dollar due to unrest in the country and threats made against its economy by America.

According to the BBC, “all things started with Donald Trump taking over the US presidency, and with every word from the new US president, the Iranian currency would be shaken. But the real decline occurred after the first public threat from Trump in September, last year in which he said the nuclear deal with Tehran could be cancelled.”

“The economic rule says; the higher the demand, the higher the price. However the Iranian rule says: The more Trump speaks, the more the Iranian currency is affected negatively,” the report added.

In October, the Iranian currency broke the 4,000 rial barrier against the dollar on the black market, while the central bank’s exchange rate reached more than 3,400 rials per dollar.

Iranian state television reported yesterday that the central bank will raise deposit rates to bolster the value of the Iranian rial after it dropped to the record low.

Read: Iran’s Rouhani submits conservative 2018 budget as US tensions overshadow economy

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