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Daily Agenda: Strong U.S. Jobs Report Puts Fed on Tightrope

BNP announces big cutbacks; Clinton and Sanders turn up the rhetoric; Barclays’ Philippe Gudin on March ECB easing.

The U.S. Labor Department announced 151,000 new jobs were created in January, putting the unemployment rate at 4.9 percent. While overall economic growth has been a slow boil — just ask Wall Street — outside of energy-related sectors and industrial pockets in the Midwest, from the vantage point of many business segments, it’s all systems go. This puts the Fed in a policy conundrum of whether to tighten and slow this down or let the economy ride in cruise control. While the surprise move by Bank of Japan leaders to move to a negative-rate environment helped keep the U.S. Dollar index flat for the week, growing concerns over sluggish growth and deflation abroad drove a rally in global bond markets in recent days. As the week concludes, investors appear to be anticipating that deflation and slow growth will extend accommodation by the globe’s central bankers for the foreseeable future.

BNP announces major changes.France’s largest bank, BNP Paribas, today announced a 52 percent year-over-year decline in earnings for the final quarter of 2015. Including writedowns, total revenues registered at under $750 million, well below consensus analyst estimates. Bank management announced cost-cutting measures and a shift towards less risky fee-based business lines.

Steelmaker to sell shares to cover debt. Media reports today indicate that ArcelorMittal may offer more than $3 billion worth of shares as the Luxembourg–based steelmaker attempts to shore up its capital base in the face of weak global demand and intense competition from Chinese rivals. The company, which booked losses nearing $8 billion in full-year 2015, currently faces $15 billion in debt repayments before 2022.

Clinton challenges Sanders on Wall Street claims. During the Democratic presidential candidate debate in New Hampshire yesterday evening, the rhetoric grew more combative than in the past. Former Secretary of State Hillary Clinton aggressively called out Vermont Senator Bernie Sanders for his claims that her financial ties to Wall Street banks and financiers undermines her legitimacy as a candidate. Sanders responded by reiterating his opposition to the influence of corporate lobbying.

BlueCrest said to be subject of probe by regulators. Bloomberg reported today that the Securities and Exchange Commission has opened an investigation into New York–based BlueCrest Capital Management, the hedge fund firm controlled by Michael Platt. The report, based on unnamed sources, indicates that the move is a preliminary investigation into a potential conflict of interest involving an internal fund that manages partner funds.

Hong Kong booksellers facing charges. Three bookstore owners were confirmed today to be under custody after their disappearance in October. The three sold books satirizing Chinese leaders. Two of the three accused hold European passports. The case has become a focus of protest in semiautonomous Hong Kong.

Warthog to stay. The A-10 Thunderbolt, known lovingly as the “Warthog” by U.S. ground forces, has received a reprieve after a controversial move to retire the plane next year. Secretary of Defense Ash Carter confirmed yesterday that the plane will remain in active service until 2022. Slow, highly maneuverable and massively armed, the A-10 has been the backbone of close air support in recent U.S. military conflicts and leaders within the Army and Marines, as well as members of the House and Senate, most notably Senator John McCain, had accused Department of Defense officials of rushing to retire the aircraft in favor of the controversial F-35, which has been plagued by performance issues and budget overages.

Portfolio Perspective: ECB Watch: More Easing in MarchPhilippe Gudin, Barclays

We expect the European Central Bank to fight a worse-than-expected inflation outlook with additional monetary easing: a 10-basis-point depo rate cut in March followed by another later in the year, possibly as early as June, which would bring the depo rate to –50 bp.

We also expect some changes to the composition of the quantitative easing program in March, Which may include semipublic debt. There is no formal, rules-based, definition of semipublic, but taking entities that are majority-owned by euro-zone governments, we estimate that at least €100 billion ($112 billion) of assets could be added to the pool of potential PSPP purchases. The ECB may also consider the removal of the deposit-rate floor on PSPP purchases, which should support ECB front-end valuations.

Philippe Gudin is the chief European economist with Barclays in Paris.

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