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JP Morgan says it is time to re-enter into hedges against recession risk

The firm recommends hedging against risks of a recession

Recession
  • Recommends raising holdings in cash, government bonds
  • Raises cash holdings to neutral from underweight
  • Advises long USD against EUR and AUD as a hedge
I reckon their reasoning is that last week’s market performance was a harbinger of things to come. In the note here, they say that global growth is “not out of the woods yet” after some improvement in Chinese data. But in this context, it makes me wonder why favour the dollar over the yen?
Anyway, I don’t believe markets are in full fear mode just yet about concerns of a recession. Sure, last week was certainly a good kick in the back side but given the way market participants are looking for any last ditch of hope to hang on to (trade optimism, PMI bounces etc) we may only start to see some real flows into haven assets in H2 2019 – when things are less bright than they are now.

Trump: China deal moving along nicely, US economy is looking very strong

Trump conjures up an all-in-one tweet

He’s talking up the economy while sounding upbeat on the China and USMCA deals, and at the same time taking a snipe at the Fed labeling the central bank’s actions as “unnecessary and destructive”.

Despite the unnecessary and destructive actions taken by the Fed, the Economy is looking very strong, the China and USMCA deals are moving along nicely, there is little or no Inflation, and USA optimism is very high!

Certainly an interesting start to the day at the very least. If anything else, it goes to show that this whole Trump vs the Fed debate isn’t going anywhere any time soon.

Italy said to cut 2019 GDP growth forecast to 0.1% from 1.0%

Bloomberg reports

  • Italy said to target GDP growth of 0.3% to 0.4% for 2019
  • Italy said to see wider 2019 budget deficit at 2.3% to 2.4%
This has been rumoured for a while now, with reports emerging last week and overnight. That said, it’s enough to give markets a bit of a nudge lower with Italy’s FTSE MIB now falling by 0.5% on the day.
Growth forecast cuts are becoming a thing now across the Eurozone, with Germany also suffering a similar fate earlier today here.
Cuts

Japan’s Nomura to cut $1bn in costs and shut 20% of branches

Nomura said it would cut $1bn in costs over the medium term, and close 30 of its 156 domestic retail branches, after Japan’s biggest brokerage and investment bank recorded large losses in the April to December 2018 period.

The plans to streamline operations involve an unspecified number of job cuts at Nomura’s US and European operations in what the company described as a “radical simplification of its operating model”.

The plans to close Japanese brokerage branches represents a key moment for Nomura, whose domestic network has long been regarded as the backbone of the business and among the last areas that would be subjected to the kind of severe cost cutting that has been carried out in its overseas operations.

In a presentation to investors on Thursday, Nomura set out plans to turn around its business, which has been struggling at home and abroad. The plan aims to build a wholesale business that “delivers consistent pre-tax income of $1bn”.

Nomura incurred a net loss of $907m between April and December 2018, its worst performance since the financial crisis. (more…)

Brexit: The way into the EU will be the way out

Edward Heath allowed a cross party vote to get in

There is a perfect sense of symmetry that the way into the EU should also be the way out: namely through cross party consensus. In 1973, when I was still just a twinkle in my father’s eye, Edward Heath allowed a cross party vote on Britain entering into the EU. Party politics were momentarily placed to one side and Britain was in. Now Theresa May formally offers a cross party approach to Jeremy Corbyn to get us out.  See the details here that Adam reported on at the time. It is worth following the link if only to see the sight of Jeremy Corbyn dressed as Obi Wan Kenobe.

Edward Heath allowed a cross party vote to get in

The GBP has rallied on the news as Theresa May tried to ‘break the logjam’. One thing Theresa May is particularly gifted at is the ability to weather a storm. As Trump seems to be immune to controversy – there is accusations about Trump everywhere and even his golf is reported to be highly dubious. Here is one report by the Guardian, but there are a few around. The writer concludes, with the completely unsurprising statement, ‘Somebody should point out that the way Trump does Golf is sort of the way he does a presidency, which is to operate as though the rules are for other people’. Shock, horror? No, everyone kind of knows it already and no-one is surprised. I think that is part of the reason Trump has weathered the storms of payments to lawyers and his relationship or otherwise with Stormy Daniels etc. No surprise from anyone, not least Trump. In a similar way, the rejection that would normally crush another politician doesn’t seem to hurt Theresa May. You know the images we have seen of Theresa May wandering alone around Europe telling the EU 27, ‘we are making progress’ and ‘nearly there’. Only for May to turn back to good old Blighty and face another slap in the face with a rejected deal. There are calls for her to resign, coups from the Tory party, exasperation from Europe and May…just shrugs it off and comes back. It is a little bit like the guy who asks the girl to marry him, but she says, ‘No’. So, he decides to swallow all pride and ask again, again and again. Publicly, regularly and without shame. He wants the girl and that’s all he thinks about. At heart I think this is what drives May. She wants to serve her people and this is the way she is convinced will best help them deliver on their decision. Whether right or wrong, she seems correctly motivated.

 

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Nikkei 225 closes higher by 0.05% at 21,724.95

Tokyo’s main index closes near flat levels in mixed session

Tokyo's main index closes near flat levels in mixed session

Asian equities are generally mixed as risk sentiment appears to be indecisive on the new day. Wall Street ended overnight trading with gains but not as great as they should have been and that is leading to a less optimistic mood to start the new day.

Treasury yields are slightly lower across the curve while US equity futures are trading flat at the moment. Meanwhile, the Hang Seng index is down by 0.5% but the Shanghai Composite is up by 0.6% on the day.
That just basically underscores the prevailing mixed tone in markets and that is leading to a bit of a quiet start for currencies as well in the European morning.

WSJ: Trump may announce plans for a summit with Xi Jinping on Thursday

Wall Street Journal with perhaps a bit more light on why Trump is meeting with China’s Vice Premier today

Trump may announce plans for a summit with China’s President Xi Jinping on Thursday when he meets with the country’s vice premier
  • signalling that contentious trade talks between the two countries may be nearing conclusion
  • An announcement of a summit date is “likely” to come while Mr. Trump meets with the Chinese leader’s special envoy, Vice Premier Liu He, at the White House on Thursday, according to an administration official, but discussions remain fluid and those plans could change.