London, October, 1st 2014
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SNBDL Daily Briefing
Report prepared using big data solution Quid
Our take away from the last 24 hours news
Central banks news: Sept. was the best month for the USD. This was the result of the combination of three forces: First, the turmoil from Middle East, to Eastern Europe, to the worries about independences (Scotland, Catalonia, Eastern Ukraine), pushed the dollar “safe heaven premium” higher because the consensus has been much more worry about the consequences of these turmoils than we have been (and we continue to be). In our article, Perception & reality: closing the gap using big data, we’ve highlighted the reasons which support our more constructive (optimistic) views. But as we were indicating, in our note about big data, data and complexity inflation might be a good reason which explain why the consensus find it hard to close the gap and keep calm [food for thoughts: 90% of the data we, Mankind, have created during 13.8billions years of existence, have been created during the last 2years].
Second, we must recognise that vested interests have been successful, so far, in pushing back against, three other forces at play: EU renaissance, Japan exit from 2-decade deflation, and China rebalancing. But our readers might have got some indication that, although risks lies ahead, our subjective probability of 75% that the “constructive scenario” is supported by evidences. However, while these “rebalancing stories” are written in the data we create ever day, the don’t impact “historical data” yet. For example, we are convinced that Robotics (we will circulate a report in the coming hours) is shifting the Philipps Curve to the downside. The overwhelming sell-side economists are using “historical Philipps Curve” to justify a need of a quick hike (or a quick rate normalisation). In the case, they do not focus on the new data, we are likely to diverge in conclusions. This does not mean that we change our views (although our September MtoM is less impressive than August).
Third, as Oil output increase, (our Energy call was our best trade idea in a month where our divergence with the consensus was the widest), the USD strength enables Oil producers to reduce the negative wealth effect (which has political, geopolitical consequences). We have been indicating that a Piketty’s “wealth tax” was taking place throughout the reduction in “indirect or hidden tax” (bad governance reduction). This wealth rebalancing is a sufficient motive to explain that vested interests have been conducting a new era “communication war” to support the introduction of a new Gold-Standard (i.e. the Transparency Bill). However, this force is likely to fade in the face of its genuine negative effect on high frequency economic data.
But, central bankers (FOMC, ECB, etc.) and evidences (high frequency economic data) are shifting to our camp. US Consumer confidence, next Friday NFP (non-farm payroll) and wage growth, on one hand, and the impact of September USD strength, on the other, are likely to provide a genuine support to the view that : the US economy is recovering but not overheating, profit margins are likely to continue to improve (even with higher tax cost – due to the combination of “tax inversion” reform, and OECD – G-20 initiative to change the “double non-taxation” rule), oil prices are likely to continue to plummet (a very positive prospect for both fragile EM countries and for central banks to continue to support the recovery). We continue to see a good value in both stocks, and fixed income, while we see USD strength to reverse in the coming weeks. We have been indicating that Mid-October France parliament discussion of structural reforms and budget will be the go-ahead to Draghi-nomics. By that time, markets is likely to start assessing the consequences of a split government on the US economy and growth. We stick to this timing.
Economic News: “moderate to weak” is our one-word sum-up to the recent global high-frequency data. Brazil is battling with its fiscal situation, Italy postpones budget target to 2017 due to weak economic environment, US high frequency data – e.g. consumer confidence – are turning red, Japan’s factory output, household spending and job market are far from the excesses which would justify the JGB doom scenario. Echoing our “Central Banks News” take away, we see central banks remaining on hold. We don’t see central banks changing their monetary strategy in the short term. The stress built during the last 9 months on the basis of the mistrust in their ability to manage correctly exit the “monetary experiment” (though debt vigilantes continue to push hard) is a sufficient threat to wait, until the storm passes. The global growth stimuli is likely to come from other factors which will contribute to improve the Total Factor Productivity (automation, big data, governance improvement) along with some fiscal stimuli which will support digital infrastructure investments (a needed investments to prepare our global economies to the XXI century challenges).
Ebola: Days after the WHO and the CDC revised upward their estimates for the development of the outbreak to as high as 1.4 millions by beginning 2015, the First Ebola case has been diagnosed in Texas. The 1st patient (i.e. 1st person known affected in a region – not brought affected from other places -) arrived to the US in September 20th from Liberia. The CDC has started an intensive search for anyone who might have come in contact with the patient while the person was infectious. While the spread of Ebola is less viral than Cat pictures on the internet, the fear is likely to edge up before CDC and WHO will show how capable and efficient are these two institutions. We have been discussing Apps and big data which would help report any symptoms to the public. Japan nationals and internet have been very effective mapping real-time the consequence of March 2011 Fukushima nuclear catastrophe. The same tools can be used today, although a very wide understanding of the symptoms is genuinely and urgently needed to make it succeed. We have been saying that even a non-lethal epidemic can spur fear, confidence collapse and economic headwinds. Unlike in the very good film “Contagion”, the tech tools and social media help can be very effective in reducing the spread of the disease and reporting the infectious agents. Doctors, which have been affected in Africa and brought to the US, have been saved. The experimental vaccine, which has a 100% hit ratio for primates, is likely to limit the casualties. Our only genuine fear, is that one of the affected has a political or ideological agenda and tries to spread the disease more widely. To our readers, there is no need to be stressed but please stay safe.
But more importantly, the first US case is likely to intensify, the global coordinated response which have started during the recent weeks. We have highlighted that the global coordination has been intensifying to: 1) fight disinformation (we were talking about it in our recent daily briefings), 2) provide short term medical assistance (France, US, Israel, etc.) with the help of military expertise – when numerous Western African countries are indicating the lack of medical personnel – , 3) provide financial support (wealthy donors, government funding, NGO help etc.), and 4) fast track the Ebola drug trial (the drug has had a very good result in the experimental tests).
Notwithstanding the on-going difficulties, and the short term negative economic effect, we continue to believe that the fight against Ebola will succeed and will clear the way to the increase in Africa investment and economic support (cf. our note “This time for Africa” which stressed that Africa is heading to experience the same development China had experienced when it joined the WTO in 2001 with positive consequences for both Africa and the world economy). The global coordination triggered by the response to the terrorist risk might help responding to the Ebola risk as well (due to the threat a dirty weapon using Ebola virus constitute). We disagree with the bet of Cocoa upward spiral because many analysis assumes the doom-and-gloom scenario which is unlikely to happen. We see the intensification of the worrying rhetoric as a part of the genuine action to keep the subject high in the leaders to do list.
Gaza: As Hamas and Fatah head toward a national coalition, Hamas leadership are distancing themselves away from radical groups, in order to clear the path toward Gaza reconstruction, while President Abbas intensifies his rhetoric against Israel to move ahead with a durable peace solutions. Although President Abbas speech was very hawkish, Opposition Chairman Isaac Herzog told Ynet on Sunday ”you can criticize Abbas, but at the end of the day, we prefer and the Palestinian Authority taking responsibility of Gaza, and we prefer Abbas and the PA’s full security cooperation in the West Bank, ».
Egypt President el-Sisi intensifies the fight against the Muslim Brotherhoods, the political arm of the radical islam fighters (whose fighters include the hard-core liners ISIL and Al Qaeda), Egypt is re-gaining its leading role in the Palestinian – Israeli peace process. The pressure to reduce Israel’s defence budget aims bringing the hawks to consider peace solutions. Furthermore, at last, the terror financiers are brought to justice increase the likelihood to make the current fight against terror much more effective than it has been so far. The social media focus against ISIL is likely to require a total rethinking of communication out the Muslim Brotherhood, as we were forecasting a couple of weeks ago. Indeed, the muslim community push back against “barbaric groups naming their fight in the name of Islam” may back-fire on Muslim Brotherhood political arm. As soon as Muslim Brotherhood will move to condemn ISIL, the end of terror will be close. But Kremlin and Commodity bugs interests groups are likely to postpone such a shift in the strategy.
We are very optimistic (as we have been since the beginning of the Gaza crisis) that : 1) Hamas leadership will break from extremists and will recognise Israel – as Fatah did years ago – (though some radical fractions are already burgeoning with much less financial and arm support), 2) Iran will be instrumental in settling a long-term peace process (as the nuclear negotiation heads toward a civil nuclear Iran), 3) a LT peace process will help the development of Mediterranean sea gas exploitation (as it enables to return to the Israeli – Turkish normalisation, a process which was very close in April but has been postponed by the Gaza crisis).
Fight against ISIL success likelihood increases: Turkey is about to vote for joining the global community fight against ISIL. Turkish military forces are getting ready ahead of parliamentary go-ahead.
The global community military action continue to enjoy a wide support (i.e. UK voted for air strikes, though both SNP and UKIP criticised the move). The support is likely to intensify after the militants beheaded Herve Gourdel (a French citizen abducted in Algeria) and Philippines Militants threatened to harm a German. Threats against US and EU interests have been intensifying on the internet, but the risk is likely to focus on Cyber-Attacks, a domaine where the Western intelligence is less well prepared than for attacks such as 9/11. Turkey and Iran participation to the coalition will be instrumental to secure an important degradation of ISIL. We were saying “Turkey decision to provide asylum to Muslim Brotherhoods is making it difficult to see Turkey joining the coalition is the short term (though President Ergodan is arguing the opposite)” but yesterday news are coming as a positive surprise it increases our probability to degrade ISIL quickly. At the other hand, Iran wants to secure some concession on the Nuclear discussion in exchange of its help (though Iran Quds brigades have already been instrumental in supporting Iraq militaries against ISIL).
The Social media is also joining the fight against the terrorist organisation, Muslims are making #NotInMyName viral to push the view that ISIL is NOT a State NOR represent Islam.
The terrorists organisations are currently in an escalation of violence due to its leadership a fight for Abou Moussab Al Zarkawi legacy. The threats spread on the internet are likely to be a part of ISIL marketing campaign for terror to hire new young westerners. Fortunately for the global coalition fight, the “Murders in Iraq and Syria” known as ISIL, have no ideological leadership and will struggle to hire new fighter should the global community take the fight to the Social Media in genuine coordinated actions to : 1) fight bad governance, to justify 2) reducing mistrust. Unfortunately, mistrust and the “institutions are rotten to their core” mantra is helped by groups as wide as: Extreme right, gold bugs, 2nd amendment supporters and Bitcoin marketers… We are surprised how some “mainstream media” have joined spreading the same “mistrust” message for a clear agenda to avoid improving governance. This pressure is accelerating G-20 actions to push for tax evasion fight (OECD initiative) and improve governance.
The US call to put “boots on the ground” to defeat ISIL might be achieve through the use of regional arm forces (Turkey, Arab countries). This will have the same consequence for the US defence sector (positive for the sector stocks) because weapons and knowledge will be provided by the Western countries (specifically the US).
Oil prices continue to come under pressure (in line with our recent energy update note). However, the situation on the ground continue to be fragile, with a new threats to the security of many countries from Egypt to US. The quickest the West recognises that the fight against ISIL and terrorists necessitate a fight against mistrust which spread not only in the jihadist internet web but also in the extreme right and gold bugs forums, the more the risk of isolated radicalised youth actions will decrease.
The fight against mistrust is likely to accelerate with the global governance improvement. Furthermore, any advance in Iran nuclear talks will help Iran joining the fight against ISIL. The recent news flow out of ISIL indicates that the terrorist organisation is getting isolated and its power is weakening. Furthermore, the recent strikes have reduced Al-Qaeda operatives which were preparing attacks against the West (according to informations out of the intelligence community).
Last but not least, UAE fighter pilot Mariam al-Mansouri shot to fame last week for her role in a US-led bombing campaign in Syria might be a game changer for the Muslim world. It’s becoming a communication war between ISIL (a XVI century like barbaric group for which women are to be rapped, and lands are to be destroyed) and the idea that Muslim Women can be empowered and help defeat the terror. The self-proclaimed Califat calls him name from Abu Bakr (first Califat of Saidouna Prophet Muhamed). It’s a shame to link Abu Bakr, one of the first followers of the Prophet, to Califat Ibrahim who is a muppet in the hand of the interests groups. But Mariam al-Mansouri is remanding Muslims that the first teacher of Coran was a Woman, Prophet’s Saidouna Muhamed daughter.
Russia: Ukrainian situation continues to calm down (BUT NOT deescalate – Merkel recognised that Cold War II has started – a view we expressed in our Feb 27th note -). Ukraine continues to increase its ties with EU and NATO, despite Putin threat last week. The Cease fire in Eastern Ukraine is coming under pressure. Our contacts on the ground are indicating that the situation is very fragile and self-proclaimed Eastern Republics are willing to pursue the pressure.
Lavrov pressed during the weekend the global coalition against ISIL to seek authorisation at the UN security council. Under such a scenario , Russia could use its veto to buy some time to ISIL to strengthen its power, or to provide Assad legitimacy through having him participating to the coalition (which would crack the coalition which “implied” objective is to change the Syrian regime).
The Eastern Ukraine region self proclaimed republics autonomy perimeter continue to be the name of the game. Too much autonomy (the current self proclaimed government are calling for a full fledge independence – which could give legitimacy to Crimea annexation-) would make Ukraine IMF program dead born (as Kiev government would be in the incapacity to deliver on governance improvement and structural reforms). At the other end, an autonomous regions which would bind by the IMF program reform will increase the ability of Kiev government to strengthen the Ukrainian economy along with the governance improvement. Thus, it would increase the likelihood of joining NATO. Russia is unlikely to let this scenario take place without a fight. We continue to see some Ukraine debt restructuring very likely though the timing will depend on the autonomous republics aggression.
Therefore, the Kremlin is putting a lot of emphasis on how badly an isolated Russia would impact the global economy (and specifically would constitute a Eurozone existential threat), while the Russian economy is preparing for this outcome (e.g. Russian corporations are considering spinning of their US subsidiaries, Wealth Fund is considered to be used to self-finance needed infrastructure investment, international experts are rushing to find financial solutions for the New Russia political strategy, outside the West energy deals – e.g. with Turkey – ). From the political spectrum, the opposition is organising itself should oil prices drop sustainably below $75bbl – this scenario is possible should the geopolitical blue sky scenario take place -. But the Kremlin is “threatening” oligarchs to keep them away from joining the opposition. For more analysis on this matter, please see our recent “Russia update note”. Meanwhile, Russia accelerates the construction of Eurasia, which is seen by many analysts (incl. “gold bugs”) as a better replacement of the EU Union (because it enables to avoid improving governance and fight against corruption).
Hong-Kong political reforms protest
Pro-democracy protests gained more traction this weekend. Mainland sticks to its view that any political reform should bind by the “basic law”. We do not see HK and Mainland China governments to accept any substantial change in the short term.
However, unlike with Tian’anmen square protest, we see Chinese leadership being less “harsh” fighting the protests, as we acknowledge Chinese leader fear vis-a-vis social media power. In the medium term, we see China devoting more democratic say in HK. Our forecast is built on the view that the Chinese government is fearing a HK political change to threat its reform agenda. President Xi wants to be seen as the strong man to fight conservatism push back to the reform, specifically ahead of the IV-th Plenum, which will focus on improving governance (which creates an important shift of power from “princelings” to the reformists). After the IV-th Plenum we see President Xi and HK government coming with a middle ground solution, which could take the form of a split designation of leaders. Democracy comes with cost and responsibility. We consider that President Xi long-term objective of political reform to be intact, but he fears that “House of Cards” like politics could jeopardise his aim to avoid the middle-income trap risk should interest groups (Raymond Tusk character in the TV-show) to derail his genuine fight against conservatism and vested interests.
Catalonia: We were saying “calls for independence referendum is increasing pressure on both Madrid and EU to move forward to offer better conditions and better narrative to the public. We see PM Rajoy taking constitutional actions to deter Catalonia from conducting the referendum, at a moment where more the referendum is gaining support from the independence forces all over the world. Madrid may accept to open discussion to devote additional autonomy to Catalonia in order to reduce the pressure. This story is likely to push EUR existential threat higher short term, but we consider that EUR is likely to rebound by the end of this year, when these threats will be repriced as less likely.” (daily briefing Sept. 30 2014). Catalonia decision to suspend formal campaign is the first step in our constructive scenario.
PM Modi visit to US: Positive for India economically, Positive for the US in its fight against terror
Emails from the Fed (which constitute an important historical source on how Fed and US government dealt with the Great Financial Crisis), have shown that they have not been elite collusion (very positive to defeat the on-going mistrust). However, after analysing pros-cons, it became evident that refraining from bailing out AIG would have cost much more to our global economy and financial system (which although I believe that it should be reformed is a wonderful social development if one look at it from the Big History prospect – i.e. how Mankind has adapted its organisation to prosper -).
Afghanistan political solutions (at last) cleared the way to a comprehensive agreement. This is very positive for securing peace in the region and defeating the global terrorism (though the global terrorism terminology is a weak definition because its the combination of different groups which have different agenda and ideologies).
Zalando’s IPO is proving that a corporation could combine: 1) profits, 2) return to shareholders, 3) empowering its workers, 4) behaving nicely with consumers. Food for thoughts.
From Sept 30th Daily Briefing:
US Tax inversion: As we were expecting since the announcement of Burger King deal (which has been widely reported as being solely pursuing tax inversion objective) we’ve indicated that this would sign the end of the system. US Treasury took actions to make it harder to execute such deals, while the tax reform seems in limbo due to DC gridlock. Administrative actions taken by Treasury Secretary Lew makes it harder to execute tax inversion but does not derail it entirely. We consider that G-20 initiative to undertake OECD proposal to reform the rule of “double non-taxation” (see our previous daily briefing) will help improve the tax governance (and incidentally the rise in the mistrust in the public institutions – which are seen to be colluding with businesses -). Markets have reacted negatively to the actions taken against tax loopholes, because these are seen to be the only remaining way for Corporations to improve their EPS (while demand continue to be subdued). We disagree with this view because G-20 initiatives to tackle “tax optimisation” will come along with more investments and fiscal stimuli which would help spur more economic demand.
US Economy: high frequency economic data continue to show a mixed message. The widely common economic forecast models have been weak understanding the current economic evolution. We have indicated in our article “Perceptions & realities : closing the gap between the two” that while the growth and inflation continue to be subdued to justify any urgent action from the Fed, there are genuine signs which indicates that growth potential will improve. In a nutshell, big data, technology, energy transition, lower commodity prices and better governance are the driver we see for the creation of goldilock conditions – not too hot, not too cold – which would enable spur sustainable growth and create the conditions for central banks to normalise (in a couple of years) the monetary policy without triggering a new financial crisis or excessive financial bubbles. Gas prices decrease, a reflect of the on-going oil prices decrease, is likely to provide the Fed with some support to postpone acting too quickly normalising monetary policy.
Bill Gross – PIMCO: On Friday, Bill Gross announced that he will leave PIMCO to join Janus. Markets have reacted to the short term fixed income force selling, which may take place, as investors may reconsider their mandate (as a result of the change in management of the funds “U.S. Stocks Rebound on GDP as Bonds Fall on Pimco Concern”). While this pressure is likely to be short lived, it may bring opportunity to go long rates when the market is realising that inflation is subdued and help the Fed to delay normalising rates. There have been many speculations regarding the reason of Mr. Gross departure from PIMCO. We see the shift in Bill Gross rhetoric to defy the Fed, by criticising the Fed attitude – using arguments going from asset frothiness to central bank deficit financing -, as being the most likely good reason of this departure. By being short fixed income since mid last year, PIMCO has reported weak returns spurring an increase in redemptions (which cost PIMCO profits and Bill Gross his job).
EU: the glass half empty view is that unemployment rate is still very elevated (23.3% in August) but it’s coming down, even before EU Commission President elected Juncker’s infrastructure plan, digital initiative, EU Council President elected Tusk’s energy union, are not in place. Though this story combined with Catalonia independence can lead, mistakenly, people to believe that “la Bastille” will be taken in days, we disagree with this view, as those who see a bloody revolution are being hired by ISIL and alike, while the overwhelming youth are working genuinely to improve their lives (alike their ancestors, Youth are adapting to the XXI Century to survive).
From another subject, Russia continue to dream that it’s communication, it’s EU-skeptics allies in the parliament and its fake-cease-fire in Ukraine will help lift sanctions. But the Chancellor Merkel said it all “Merkel Evokes Cold War in Warning of Long Ukraine Crisis”. Chancellor Merkel description is very important because she is amongst the few EU leaders which have experienced the cold war from inside the other camp, she speaks Russian and has a deep understanding of KGB methods.
France starts to reveal 2015 budget measures. Local municipalities spending to be reduce by 3.7bn. More news are due today and tomorrow, we will keep you posted as the information is announced. Designated Economy Commissioner Moscovici Vows to Objectively Examine France’s Budget Deficit. Although the French Assemblee Nationale vote will be close, MPs will do the necessary to avoid the nuclear threat of a “dissolution” (even Fmr. Pres. Sarkozy does not want it because it could trigger a political crisis). The threat is genuinely coming from FN Marine Le Pen which could provide a considerable help to Russia in its struggle to lift sanctions.
China:Manufacturing data support our view that China is soft landing while rebalancing. Labor statistics showed that the manufacturers have started to rebalance their activities away from labor intensive (an objective already stressed by the Chinese leadership). These are in line with the objective to rebalance the economy away from credit driven investment. The government seems fearing that the economic rebalancing has not taken momentum yet although 1) labor intensive manufacturers are relocating in cheaper labor countries, 2) businesses are upgrading their business models, 3) President Xi has conducted many trade – investment agreement with Neighbours (after Premier Li did the same in Africa) to secure investment projects which use Chinese manpower – engineers know-how in this domaine, 4) China is gaining more military presence and has fluxed it mussels – e.g. China “Top Gun” intercept by a US fighter jet -, 5) China has signed many RMB agreement which reinforce the currency usage and prepare its full liberalisation – after Free Trade Zones (FTZ) have proven to be a success -, 6) China has undertaken a genuine fight against bad governance and better regulation – many examples in our recent daily briefings of fight against corruption and bad governance-. We see in FinMin Lou Jiwei comment an indication that not only China wants to create a reserve currency it does want it to be strong when Chinese leaders perceive the heavy pressure place on USD by a category of investors to avoid debasing the currency through deficit financing – although we consider that this worry is misplaced -.
Australia: Australia continues to be seen, by markets, as a derivative to the old Chinese model (i.e. commodity provider). This view explains the high beta between Australian assets and commodity prices (or China demand for commodities). Banks shares are suffering from the combination of the increase perception of increase in risks and additional macro prudential constants to curb housing prices frothiness. Small business defined the “goldilock range” for AUDUSD to be [.90-.94]. This level is much higher than RBA own assessment (based on PPP models). We have been criticising PPP models because they do not factor any structural changes.
These assume that neither China nor Australia are conducting their rebalancing agenda. We do believe that the current weaknesses offers genuine opportunity to benefit from the other drivers to the Australian economy which are not related to commodities. We see the current Australian Dollar weakness to continue at least until the USD start to weaken again when markets will realise that it has beaten too much on a quick rate normalisation. Meanwhile, from our previous daily briefing, we have gathered sufficient support to the view that the drivers of the Australian GDP are moving toward: 1) education, health and finance services provider to Asian neighbours, 2) innovation and digital sector, 3) energy resources export to Japan (the later contributes to our constructive view that the current negative Japan Energy Trade deficit will rebalance in the medium term – reducing Japanese Government bonds solvency risk – ).
Japan: inflation softening along with economic downgrade was widely expected as a result of the 1st VAT hike (cf our strategic note Dec 26th 2013). We see BoJ to keep the bazooka of QQE-2 un-tested until the JPY excessive depreciation and JGB solvency risk came down * investors are still short JGB expecting a Japan crisis *. The 2nd VAT hike will require some stabilisation at the current levels, though we expect that PM Abe will undertake the 2nd hike in steps, because BoJ is unlikely to be sufficiently confident to move ahead with more QQE while JPY is accelerating its depreciation. PM Abe voiced concerned over the JPY rapid depreciation, as he pointed (rightly in our opinion) to the increase in energy cost, which deteriorate further the energy trade deficit – and increase the risk of JGB solvency -. The Prime Minister confirmed in his Diet address to pursue Abenomics 3rd arrow.
However, BoJ might do some adjustment to its monetary program but nothing excessive. The news flow out of this weekend G20 meeting shows that the global community is gently pressing the government and the BoJ to pursue structural reforms, economic rebalancing, solvency improvement (through VAT 2nd hike commitment) and adequate monetary policy (not too hot – to avoid a crisis – not too cool – to avoid derailing the on-going portfolio rebalancing approach -). Japan continues to face heavy public pressure to rebalance its energy reliance to nuclear. While we believe that Japan will continue to press for reopening nuclear plants (when Nuclear Watchdog gives his green light), the medium to long term trend is that Japan will use Trade negotiation with neighbours to secure new energy sources while using this pressure to deregulate and move forward with Abenomics 3rd arrow (please see our Japan update for more on our views). We are not surprise by the fact that Russian news media are reporting the push back to reopening nuclear plans, ahead of Japan-Russian talks (about sanctions, energy agreement, and disputed territories).
Central banks News
Central banks news: Sept. was the best month for the USD. This was the result of the combination of three forces: First, the turmoil from Middle East, to Eastern Europe, to the worries about independences (Scotland, Catalonia, Eastern Ukraine), pushed the dollar “safe heaven premium” higher because the consensus has been much more worry about the consequences of these turmoils than we have been (and we continue to be). In our article, Perception & reality: closing the gap using big data, we’ve highlighted the reasons which support our more constructive (optimistic) views. But as we were indicating, in our note about big data, data and complexity inflation might be a good reason which explain why the consensus find it hard to close the gap and keep calm [food for thoughts: 90% of the data we, Mankind, have created during 13.8billions years of existence, have been created during the last 2years].
Second, we must recognise that vested interests have been successful, so far, in pushing back against, three other forces at play: EU renaissance, Japan exit from 2-decade deflation, and China rebalancing. But our readers might have got some indication that, although risks lies ahead, our subjective probability of 75% that the “constructive scenario” is supported by evidences. However, while these “rebalancing stories” are written in the data we create ever day, the don’t impact “historical data” yet. For example, we are convinced that Robotics (we will circulate a report in the coming hours) is shifting the Philipps Curve to the downside. The overwhelming sell-side economists are using “historical Philipps Curve” to justify a need of a quick hike (or a quick rate normalisation). In the case, they do not focus on the new data, we are likely to diverge in conclusions. This does not mean that we change our views (although our September MtoM is less impressive than August).
Third, as Oil output increase, (our Energy call was our best trade idea in a month where our divergence with the consensus was the widest), the USD strength enables Oil producers to reduce the negative wealth effect (which has political, geopolitical consequences). We have been indicating that a Piketty’s “wealth tax” was taking place throughout the reduction in “indirect or hidden tax” (bad governance reduction). This wealth rebalancing is a sufficient motive to explain that vested interests have been conducting a new era “communication war” to support the introduction of a new Gold-Standard (i.e. the Transparency Bill). However, this force is likely to fade in the face of its genuine negative effect on high frequency economic data.
But, central bankers (FOMC, ECB, etc.) and evidences (high frequency economic data) are shifting to our camp. US Consumer confidence, next Friday NFP (non-farm payroll) and wage growth, on one hand, and the impact of September USD strength, on the other, are likely to provide a genuine support to the view that : the US economy is recovering but not overheating, profit margins are likely to continue to improve (even with higher tax cost – due to the combination of “tax inversion” reform, and OECD – G-20 initiative to change the “double non-taxation” rule), oil prices are likely to continue to plummet (a very positive prospect for both fragile EM countries and for central banks to continue to support the recovery). We continue to see a good value in both stocks, and fixed income, while we see USD strength to reverse in the coming weeks. We have been indicating that Mid-October France parliament discussion of structural reforms and budget will be the go-ahead to Draghi-nomics. By that time, markets is likely to start assessing the consequences of a split government on the US economy and growth. We stick to this timing.
Euro Drops to Two-Year Low Amid Speculation on ECB
The euro fell to the lowest level in two years against the dollar as slowing inflation boosted the case for the European Central Bank to add further monetary stimulus to avert deflation.
The 18-nation currency had its worst quarter since 2010 amid the ECB’s moves to swell its balance sheet and cut borrowing costs to spur growth. Russia’s ruble sank after Bloomberg News reported the central bank is weighing capital controls, and Canada’s dollar weakened as the nation’s economy stalled. The U.S. dollar climbed the most in six years this quarter as the Federal Reserve considers raising interest rates.
“The violence of this euro move has been fairly dramatic,” said Camilla Sutton, head of currency strategy at Bank of Nova Scotia in Toronto. “We’re in this period of broad U.S. dollar strength. It’s fairly hard for almost any currency to strengthen in that kind of environment.”
Euro zone inflation slows in September, weakens euro versus dollar
(Reuters) – Euro zone inflation slowed again in September as some food and energy prices fell, a first estimate showed, reinforcing expectations the ECB will ease policy further and sending the euro to a two-year low.
Eurostat said on Tuesday that consumer prices in the 18 countries sharing the euro rose 0.3 percent year-on-year, less than the 0.4 percent increases seen in August and July. The September reading was in line with market forecasts.
The European Central Bank wants to keep headline inflation at just under 2 percent over the medium term. Persistently low price growth underscores the difficulty of hitting that target while the euro zone economy continues to stagnate.
Greek banks win restructuring plan reprieve in ECB tests – sources
(Reuters) – Greece has won an important concession from the European Central Bank (ECB) that could help its top four lenders pass a landmark review of the euro zone’s banking sector, three sources familiar with the process told Reuters.
The sources said Greece had convinced the ECB to take into account the banks’ restructuring plans in reaching its verdict on their finances, part of pan-European efforts to ensure banks are adequately structured in case of another financial crisis.
The ECB is testing whether banks have properly valued their assets and whether they have enough capital to withstand another financial crisis without taxpayer bailouts. The results will be announced on Oct. 26, before the ECB becomes the euro zone’s banking supervisor on Nov. 4.
ECB Raises Savings Banks Focus on Possible Cluster Risk
The European Central Bank will keep a close eye on the risks posed by savings and cooperative banks when it assumes oversight of euro-area lenders in November, Executive Board member Sabine Lautenschlaeger said.
Such banks, prevalent in Germany, Austria and Italy, are usually small and tend to be active locally in business areas that pose little risk, Lautenschlaeger said at a conference in Vienna today. Yet they also form “sectors” whose combined risk is on a larger scale, she said.
“We want to identify those institutions that jointly form a cluster risk for the financial system and hence could become systemic as a group in times of crisis,” Lautenschlaeger said. “We call those virtual groups sectors, and we’ll keep a very close eye on such groups.”
Won Completes Worst Monthly Drop Since 2012 on Fed Rate Outlook
South Korea’s won completed its biggest monthly loss since May 2012 as the dollar strengthened on prospects for higher U.S. interest rates.
The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major counterparts, rallied 6.4 percent this quarter in its best performance in six years. The Federal Reserve indicated it plans to raise borrowing costs in 2015, damping demand for emerging-market assets. Global funds sold $752 million more South Korean stocks than they bought in September, snapping five months of net purchases, exchange data show.
“It’s the strong dollar driving emerging-market currencies weaker everywhere,” said Jeon Seung Ji, a Seoul-based foreign-exchange analyst at Samsung Futures Inc. “The won’s weakness shows Korea is not immune to what’s going to happen in terms of capital outflows as yields in the U.S. move higher.”
UPDATE 1-U.S. dlr share of central bank FX reserves steady in Q2 -IMF
(Reuters) – The U.S. dollar share of global central banks’ currency reserves was a little more than 60 percent in the second quarter of 2014, according International Monetary Fund data released on Tuesday.
The greenback’s share of FX reserves was $3.830 trillion, or about 60.6 percent of total allocated reserves, roughly the same as the first quarter. At the beginning of the financial crisis in 2008, the dollar’s share of global currency reserves was about 63 percent.
Currency holdings of global central banks rose to a record $12 trillion in the second quarter from $11.859 trillion in the first three months of the year.
Global reserves are assets of central banks held in different currencies primarily used to back their liabilities. Central banks have sometimes bought and sold official international reserves to influence exchange rates.
The euro’s share of reserves edged lower to 24.2 percent, totaling $1.527 trillion in the second quarter. In the first quarter, the euro’s share was at 24.4 percent, while at its peak in 2009, its share of allocated reserves was 28 percent.
Dollar Gains Bolster Fed’s Patience on Interest Rates
The dollar’s strongest year since 2008 is a source of growing concern among some Federal Reserve policy makers, who say further gains have the potential to curb economic growth and keep inflation too low.
Atlanta Fed President Dennis Lockhart, New York’s William C. Dudley and Chicago’s Charles Evans have all said in the past week they are watching the dollar as officials debate the timing of the first interest-rate increase since 2006. A strong dollar tends to restrain exports by making them more expensive, holding back growth, while reducing the cost of imported goods.
“We’re going to take that into account, the way it’s affecting the economy in terms of net exports and GDP growth and what it means for our inflationary developments,” Evans told reporters yesterday after a speech in Chicago.
Treasuries Post Worst Month in 2014 as Economy Firms
Treasuries posted their worst month of the year amid speculation the Federal Reserve will signal an increase in interest rates next year as the economic recovery firms.
Benchmark 10-year-note yields rose today before reports this week forecast to show American employers added more than 200,000 jobs in September. Withdrawals from a Pacific Investment Management Co. exchange-traded fund that was run by Bill Gross slowed yesterday after record redemptions the day the star trader left. The European Central Bank may announce further monetary stimulus to avert deflation Oct. 2.
“The Treasury market has responded to the Fed shift in dialog that has tended toward the hawkish side,” said Christopher Sullivan, who oversees $2.3 billion as chief investment officer at United Nations Federal Credit Union in New York. “The data is getting better, but the market and the Fed are waiting to see if the labor market can still improve and if it will bleed over into wage gains.”
Fed’s Powell rejects Treasury-Fed cooperation as threat to central bank independence
(Reuters) – Federal Reserve board member Jerome Powell said on Tuesday he feared any move for the Fed and the U.S. Treasury to cooperate on debt management and other issues would undermine the central bank’s independence and should be avoided.
Powell was responding to research by a team of Harvard economists concluding that the Treasury’s effort to ramp up its sales of longer-term bonds in recent years undercut the Fed’s effort to bring down long-term rates through quantitative easing.
The economists, including former Treasury Secretary Lawrence Summers, suggested the two agencies coordinate – particularly in a crisis – to be sure the government’s debt management plans and the Fed’s monetary policy are in synch.
China Central Bank Eases Mortgage Policy as Home Sales Slump
China’s central bank made it easier for people to qualify for smaller down payments that were previously available only to first-home buyers, as the government seeks to boost the slumping property market.
People applying for a loan to buy a second home may be treated as first-home buyers so long as they have paid off their other mortgage, the People’s Bank of China said in a statement on its website posted today.
The central government is stepping in after regional efforts failed to stem a slide in home sales, dragging down economic growth. Eased mortgage lending will boost homebuyers’ purchasing power, unleashing pent-up demand, Essence Securities Co. said before today’s announcement.
UPDATE 2-India rates kept on hold, central bank warns on inflation
* RBI warns of risks to CPI target of 6 pct by Jan 2016
[RBI] Central bank leaves CRR and SLR unchanged
MUMBAI, Sept 30 (Reuters) – The Reserve Bank of India sent a strong signal on Tuesday that it will refrain from cutting interest rates until it is confident that consumer inflation can be reduced to a target of 6 percent by January 2016.
The Reserve Bank of India policy review statement reinforced Governor Raghuram Rajan’s commitment to tame inflation in a country that has long struggled with prices rising at double digit levels annually, causing most distress for the country’s poor.
The RBI kept its key policy repo rate unchanged at 8.0 percent, as widely expected, and also left its main liquidity levers – the statutory liquidity ratio (SLR) and the cash reserve ratio (CRR) – untouched.
Philippine Peso Posts Biggest Monthly Drop in Two Years on Fed
The Philippine peso completed its biggest monthly drop since May 2012 on concern investors will pull funds from emerging markets as a U.S. economic recovery backs the case for the Federal Reserve to raise interest rates.
The Bloomberg Dollar Spot Index was poised for its best monthly performance in more than two years after data showed U.S. gross domestic product rose at the fastest pace since 2011 last quarter, while retail sales and consumer spending rebounded in August. Bangko Sentral ng Pilipinas raised its benchmark rate on Sept. 11 and said it may take further steps as inflation (PHC2II) risks stay elevated.
“This is a firm dollar environment” amid expectations of interest-rate tightening in the U.S., said Mitul Kotecha, the head of Asia-Pacific foreign-exchange strategy at Barclays Plc. in Singapore. “The generally hawkish stance of the Philippine central bank will give some support to the currency.”
The peso weakened 2.9 percent in September to 44.875 per dollar in Manila, according to prices from Tullett Prebon Plc. It climbed 0.3 percent today, paring its quarterly loss to 2.7 percent.
Economic News
Economic News: “moderate to weak” is our one-word sum-up to the recent global high-frequency data. Brazil is battling with its fiscal situation, Italy postpones budget target to 2017 due to weak economic environment, US high frequency data – e.g. consumer confidence – are turning red, Japan’s factory output, household spending and job market are far from the excesses which would justify the JGB doom scenario. Echoing our “Central Banks News” take away, we see central banks remaining on hold. We don’t see central banks changing their monetary strategy in the short term. The stress built during the last 9 months on the basis of the mistrust in their ability to manage correctly exit the “monetary experiment” (though debt vigilantes continue to push hard) is a sufficient threat to wait, until the storm passes. The global growth stimuli is likely to come from other factors which will contribute to improve the Total Factor Productivity (automation, big data, governance improvement) along with some fiscal stimuli which will support digital infrastructure investments (a needed investments to prepare our global economies to the XXI century challenges).
Brazil Primary Budget Deficit Unexpectedly Widens in August
Brazil’s primary budget deficit unexpectedly widened last month after the government cut taxes and boosted spending before elections, raising the risk of a rate downgrade in the next year.
The budget, which excludes interest payments and includes states, municipalities and government-run companies, reached a deficit of 14.5 billion reais ($5.9 billion) in August, compared with a gap of 4.7 billion reais the prior month, the central bank said in a report distributed in Brasilia today. The median estimate from 15 analysts polled by Bloomberg was for a balanced primary budget. August marked the fourth straight month of a primary deficit, and the gap was the biggest ever for the month.
Moody’s Investors Service this month cut the country’s rating outlook to negative. The agency will be monitoring Brazil’s economy for the next 12-18 months, but there could be a downgrade before that period if conditions deteriorate much further, analyst Mauro Leos said today at a Moody’s conference in Sao Paulo.
CANADA FX DEBT-C$ hits C$1.12 on disappointing economic data
TORONTO, Sept 30 (Reuters) – The Canadian dollar weakened to a more than six-month low against the greenback on Tuesday, piercing resistance at C$1.12 after data showed growth in Canada’s economy stalled in July. The loonie is down nearly 3 percent for the month, putting it on track for its worst month since January when it was caught in a sharp selloff.
For the quarter, the currency has fared even worse and is down 4.7 percent, the biggest decline since the third quarter of 2011.
A big driver behind the loonie’s decline over the last three months has been broad-based buying of the U.S. dollar as the economy south of the border has picked up and the Federal Reserve moves closer to ending its extraordinary stimulus.
At the same time, there has been the growing view that the Bank of Canada will stay on the sidelines longer than the Fed as economic growth in Canada has been lackluster.
Further evidence of a sluggish economy was Tuesday’s catalyst for a weaker loonie after data showed Canada’s economy did not expand in July.
Nikkei slips on weak economic data, posts big monthly gain
TOKYO, Sept 30 (Reuters) – Japanese stocks fell to a one-week low on Tuesday as a one-two punch of weak economic data and a profit warning from Sumitomo Corp knocked out sentiment – but for the month the Nikkei posted its biggest gain since last November. The Nikkei share average fell 0.8 percent to 16,173.52, the lowest closing level since Sept. 24.
For the month, the benchmark rose 4.9 percent helped by the weakening yen and building momentum in the U.S. economy. It was the biggest monthly rise since last November.
Sumitomo Corp nosedived 12 percent after it slashed its annual profit forecast by 96 percent due to losses on a U.S. shale project and sharp declines in iron ore and coal prices. Sumitomo’s woes weighed on other trading houses and steelmakers.
UPDATE 3-Japan’s economy takes another hit as output, spending slump
* Mostly gloomy data reinforce expectations more stimulus needed
* Aug factory output -1.5 pct vs f’cast +0.2 pct
* Household spending -4.7 pct vs f’cast -3.8 pct
* Job market continues to improve, Aug jobless rate falls
* BOJ to review tankan, other data Oct 6-7, no action seen (Adds policymakers’ comments, market reaction, more data, details)
TOKYO, Sept 30 (Reuters) – Japan’s factory output, consumer spending and real wages all fell in August, offering fresh signs of an economy reeling under the hammer-blow of a sales tax hike and keeping pressure on policymakers to deliver more stimulus to revive growth.
Although the Bank of Japan is in no mood to deploy additional easing anytime soon, a run of soft data is raising doubts about the central bank’s conviction that inflation will reach its 2 percent goal by around mid-2015.
On Tuesday, policymakers received another sobering reminder of the enduring impact on the economy from the April 1 sales tax hike to 8 percent from 5 percent – a move meant to curb Tokyo’s swollen debt.
U.S. consumer confidence, home prices show weakness
(Reuters) – U.S. consumer confidence fell in September for the first time in five months and home prices in July rose less than expected from a year earlier, underscoring the unsteady nature of U.S. growth.
Another report on Tuesday showed business activity growth in the U.S. Midwest decelerated slightly in September.
« We’re continuing to effectively struggle, » said Mike Englund, chief economist at Action Economics in Boulder, Colorado. « Some of the optimism that we got in the updraft in consumer confidence in the third quarter was probably a bit overstated. »
Italy pushes back structural budget goal as recession bites
(Reuters) – Italy faces a third consecutive year of economic contraction in 2014 that will slow efforts to bring its budget into balance, Economy Minister Pier Carlo Padoan said on Tuesday.
Padoan confirmed that the government expected economic output to decline by 0.3 percent this year, before growing just 0.6 percent in 2015. The government had previously forecast growth of 0.8 percent in 2014 and 1.3 percent in 2015.
Padoan said privatisation revenues, which the government is counting on to help reduce the public debt, would be slightly below target this year but the shortfall would be made up in subsequent years.
There was no change to the medium-term target of privatisation revenues averaging 0.7 percent of GDP annually over a three year period, he said.
Ebola
Ebola: Days after the WHO and the CDC revised upward their estimates for the development of the outbreak to as high as 1.4 millions by beginning 2015, the First Ebola case has been diagnosed in Texas. The 1st patient (i.e. 1st person known affected in a region – not brought affected from other places -) arrived to the US in September 20th from Liberia. The CDC has started an intensive search for anyone who might have come in contact with the patient while the person was infectious. While the spread of Ebola is less viral than Cat pictures on the internet, the fear is likely to edge up before CDC and WHO will show how capable and efficient are these two institutions. We have been discussing Apps and big data which would help report any symptoms to the public. Japan nationals and internet have been very effective mapping real-time the consequence of March 2011 Fukushima nuclear catastrophe. The same tools can be used today, although a very wide understanding of the symptoms is genuinely and urgently needed to make it succeed. We have been saying that even a non-lethal epidemic can spur fear, confidence collapse and economic headwinds. Unlike in the very good film “Contagion”, the tech tools and social media help can be very effective in reducing the spread of the disease and reporting the infectious agents. Doctors, which have been affected in Africa and brought to the US, have been saved. The experimental vaccine, which has a 100% hit ratio for primates, is likely to limit the casualties. Our only genuine fear, is that one of the affected has a political or ideological agenda and tries to spread the disease more widely. To our readers, there is no need to be stressed but please stay safe.
But more importantly, the first US case is likely to intensify, the global coordinated response which have started during the recent weeks. We have highlighted that the global coordination has been intensifying to: 1) fight disinformation (we were talking about it in our recent daily briefings), 2) provide short term medical assistance (France, US, Israel, etc.) with the help of military expertise – when numerous Western African countries are indicating the lack of medical personnel – , 3) provide financial support (wealthy donors, government funding, NGO help etc.), and 4) fast track the Ebola drug trial (the drug has had a very good result in the experimental tests).
Notwithstanding the on-going difficulties, and the short term negative economic effect, we continue to believe that the fight against Ebola will succeed and will clear the way to the increase in Africa investment and economic support (cf. our note “This time for Africa” which stressed that Africa is heading to experience the same development China had experienced when it joined the WTO in 2001 with positive consequences for both Africa and the world economy). The global coordination triggered by the response to the terrorist risk might help responding to the Ebola risk as well (due to the threat a dirty weapon using Ebola virus constitute). We disagree with the bet of Cocoa upward spiral because many analysis assumes the doom-and-gloom scenario which is unlikely to happen. We see the intensification of the worrying rhetoric as a part of the genuine action to keep the subject high in the leaders to do list.
Obama Informed of First Ebola Case Diagnosed in United States: White House
WASHINGTON, October 1 (RIA Novosti) – US President Barack Obama has been informed of the first Ebola case diagnosed in the country, the White House said Tuesday evening.
« The President has been briefed by the Centers for Disease Control and Prevention (CDC) Director Dr. Tom Frieden about the recently-diagnosed case of Ebola in Dallas, Texas, » the press service said.
CDC vows to stop Ebola ‘in its tracks’ as first U.S. case spreads fear
The U.S. Centers for Disease Control and Prevention on Tuesday confirmed the first Ebola case diagnosed in the United States, triggering an intensive search for anyone who might have come in contact with the patient while the person was infectious.
The patient, who has not been identified for privacy reasons, was placed in isolation Sunday at Texas Health Presbyterian Hospital in Dallas, federal officials said at a news briefing.
They declined to provide the patient’s nationality, saying only that the person traveled from Liberia to visit family, arriving in the U.S. on Sept. 20. They also refused to release the patient’s travel itinerary, saying that the individual did not pose a risk to others until developing symptoms on Sept. 24.
Ebola outbreaks in Nigeria, Senegal, appear contained- CDC reports
CHICAGO, Sept 30 (Reuters) – Efforts to contain the Ebola outbreaks in Nigeria and Senegal appear to have succeeded, even as the virus continues to spread in the hardest-hit West African countries of Guinea, Liberia and Sierra Leone, U.S. and African health officials said on Tuesday.
In Nigeria, no new cases of Ebola have occurred since August 31, « suggesting that the Ebola outbreak in Nigeria might have been contained, » according to one of three reports released on Tuesday by the U.S. Centers for Disease Control and Prevention.
In Senegal, healthcare workers have contained Ebola after a single case was confirmed on August 29. The man has since recovered.
U.N. opens headquarters to fight Ebola in Ghana
DAKAR, Senegal – The U.N. mission to combat Ebola opened its headquarters on Monday in Ghana, where it will coordinate international aid to assist West Africa to combat the accelerating crisis.
This outbreak has spiraled into the worst ever for Ebola, and the World Health Organization says it is has linked more than 3,000 deaths to the disease. Even that frightening figure is likely an underestimate of the true toll, said WHO. Liberia, Sierra Leone and Guinea have been hit hardest. Senegal and Nigeria have also been touched, but have not reported a new case in weeks.
In back-to-back speeches at the United Nations on Monday, the foreign ministers of Liberia and Sierra Leone described the terrible toll Ebola has taken on their efforts to lift their people from poverty and recover from civil wars and pleaded with the international community to continue to sending much-needed aid.
Bill Gates praises U.S. response to Ebola epidemic
Washington (CNN) — One of the world’s most successful innovators and philanthropists defended the U.S. response to the deadly Ebola epidemic Monday, saying he doesn’t think the government waited too long to act.
Bill Gates, speaking at a discussion hosted by the website Politico, said he was thrilled when President Barack Obama decided to invest resources in containing the virus as it threatened to spread from West Africa into other regions and continents.
« Was there some other government who took decisive action before we did? Was the data really clear? » Gates asked during the discussion. « Is there someone else who’s research is going to give us the vaccine that will be the key to making sure this outbreak doesn’t happen again? The U.S. is the leader on being able to move into areas like this and help out. »
China Provides $833,000 in Supplies to Ghana, West Africa to Battle Ebola: Reports
MOSCOW, September 30 (RIA Novosti) – China has provided $833,000 worth of equipment and medical supplies to Ghana to help its fight against the Ebola epidemic, in addition to provisions and aid to other suffering West African countries, Xinhua news agency reported.
« We are grateful to China for the leading role it is playing in the fight against Ebola in the sub-region, » Deputy Finance Minister Cassiel Ato Forson, who signed for Ghana, was quoted as saying by the news agency on Monday.
China’s aid to Ghana will include Personal Protective Equipment (PPEs), beds and sanitizers among other essential supplies, according to Xinhua. China will also provide $1 million in funds, $2 million worth of grain and food, and trained specialists to Liberia, Sierra Leone and Guinea.
Thousands of Ebola orphans shunned by relatives: UNICEF
Dakar (AFP) – Thousands of children who have lost parents to the west African Ebola epidemic risk are being shunned by frightened and suspicious relatives, the UN children’s fund said on Tuesday.
The outbreak has claimed more than 3,000 lives this year in Guinea, Liberia and Sierra Leone, and UNICEF estimates around 3,700 children have lost at least one parent — with the number expected to double by mid-October.
« Ebola is turning a basic human reaction like comforting a sick child into a potential death sentence, » Manuel Fontaine, UNICEF’s regional director for west and central Africa, said in a statement.
In west African society, bereaved children are usually taken in by a member of the extended family.
Gaza
Gaza: As Hamas and Fatah head toward a national coalition, Hamas leadership are distancing themselves away from radical groups, in order to clear the path toward Gaza reconstruction, while President Abbas intensifies his rhetoric against Israel to move ahead with a durable peace solutions. Although President Abbas speech was very hawkish, Opposition Chairman Isaac Herzog told Ynet on Sunday ”you can criticize Abbas, but at the end of the day, we prefer and the Palestinian Authority taking responsibility of Gaza, and we prefer Abbas and the PA’s full security cooperation in the West Bank, ».
Egypt President el-Sisi intensifies the fight against the Muslim Brotherhoods, the political arm of the radical islam fighters (whose fighters include the hard-core liners ISIL and Al Qaeda), Egypt is re-gaining its leading role in the Palestinian – Israeli peace process. The pressure to reduce Israel’s defence budget aims bringing the hawks to consider peace solutions. Furthermore, at last, the terror financiers are brought to justice increase the likelihood to make the current fight against terror much more effective than it has been so far. The social media focus against ISIL is likely to require a total rethinking of communication out the Muslim Brotherhood, as we were forecasting a couple of weeks ago. Indeed, the muslim community push back against “barbaric groups naming their fight in the name of Islam” may back-fire on Muslim Brotherhood political arm. As soon as Muslim Brotherhood will move to condemn ISIL, the end of terror will be close. But Kremlin and Commodity bugs interests groups are likely to postpone such a shift in the strategy.
We are very optimistic (as we have been since the beginning of the Gaza crisis) that : 1) Hamas leadership will break from extremists and will recognise Israel – as Fatah did years ago – (though some radical fractions are already burgeoning with much less financial and arm support), 2) Iran will be instrumental in settling a long-term peace process (as the nuclear negotiation heads toward a civil nuclear Iran), 3) a LT peace process will help the development of Mediterranean sea gas exploitation (as it enables to return to the Israeli – Turkish normalisation, a process which was very close in April but has been postponed by the Gaza crisis).
Iran rejects Israel PM accusations
Iran yesterday rejected as baseless accusations levelled by Israeli Prime Minister Benjamin Netanyahu that it poses a greater threat to the world than the Islamic State jihadist group.
Speaking on Monday at the UN General Assembly, Netanyahu said that « to defeat ISIS and leave Iran as a threshold nuclear state power is to win the battle and lose the war ».
Netanyahu also described the IS jihadists who have captured chunks of territory in Iraq and Syria and Hamas, the Islamist militant movement that largely controls Gaza, as « branches of the same poisonous tree ».
Iran’s deputy ambassador to the United Nations, Khodadad Seifi, dismissed the accusations as part of Israel’s campaign to undermine negotiations on his country’s nuclear programme.
« The remarks made by the Israeli regime’s premier include baseless allegations against the Islamic Republic of Iran and are basically made with the aim of … justifying the crimes the regime recently committed against Palestinian civilians, » said Khodadad, quoted by Fars news agency.
Abbas, Netanyahu trade accusations at the UN
UNITED NATIONS (AP) — Palestinian President Mahmoud Abbas and Israeli Prime Minister Benjamin Netanyahu attacked each other in speeches before world leaders at the U.N. General Assembly. Here is look at some of their remarks:
‘No peace till Netanyahu no longer in power in Israel’
The Israelis and the Palestinians will see no peace while Benjamin Netanyahu remains in power, Charles Kogan from the Belfer Centre for Science and International Affairs told RT, commenting on the Israeli PM’s speech to the UNGA comparing Hamas to ISIS.
Israeli Prime Minister Netanyahu addressed the UN General Assembly Monday, drawing attention to Iran and its nuclear program, which is considered by Israel a bigger threat than ISIS.
“Make no mistake – ISIS must be defeated. But to defeat ISIS and leave Iran as a threshold nuclear power is to win the battle and lose the war, » Netanyahu said.
Israel to Build ‘Smart’ Fence Around Gaza: Reports
MOSCOW, September 30 (RIA Novosti) – Israeli government decided to construct a « smart » fence around the Gaza Strip in order to ensure the safety of the citizens of Israel, the local media reported Tuesday.
« Work has already begun in [Gaza Belt] communities, » said an unnamed officer in the Southern Command, as quoted by Israel National news portal. « The goal is to become more alert to infiltrations as they happen on the ground, in face of threats from [nearby] Gaza – and there are many of them, » the source added.
According to the Israeli media, the fence will be equipped with an alarm system to alert the regional authorities in case of infiltration attempts. There are similar fences in Israel’s Judea and Samaria.
The decision to build a fence was made by the country’s Defense Minister Moshe Ya’alon following the latest escalation of Israeli-Palestinian conflict which began in June this year after Israel laid the blame for the death of three Israeli teenagers on Hamas, a radical Palestinian Islamic organization and the de facto authority in Gaza. In response, Israel launched its operation « Protective Edge. »
Iraq & Syria
Fight against ISIL success likelihood increases: Turkey is about to vote for joining the global community fight against ISIL. Turkish military forces are getting ready ahead of parliamentary go-ahead.
The global community military action continue to enjoy a wide support (i.e. UK voted for air strikes, though both SNP and UKIP criticised the move). The support is likely to intensify after the militants beheaded Herve Gourdel (a French citizen abducted in Algeria) and Philippines Militants threatened to harm a German. Threats against US and EU interests have been intensifying on the internet, but the risk is likely to focus on Cyber-Attacks, a domaine where the Western intelligence is less well prepared than for attacks such as 9/11. Turkey and Iran participation to the coalition will be instrumental to secure an important degradation of ISIL. We were saying “Turkey decision to provide asylum to Muslim Brotherhoods is making it difficult to see Turkey joining the coalition is the short term (though President Ergodan is arguing the opposite)” but yesterday news are coming as a positive surprise it increases our probability to degrade ISIL quickly. At the other hand, Iran wants to secure some concession on the Nuclear discussion in exchange of its help (though Iran Quds brigades have already been instrumental in supporting Iraq militaries against ISIL).
The Social media is also joining the fight against the terrorist organisation, Muslims are making #NotInMyName viral to push the view that ISIL is NOT a State NOR represent Islam.
The terrorists organisations are currently in an escalation of violence due to its leadership a fight for Abou Moussab Al Zarkawi legacy. The threats spread on the internet are likely to be a part of ISIL marketing campaign for terror to hire new young westerners. Fortunately for the global coalition fight, the “Murders in Iraq and Syria” known as ISIL, have no ideological leadership and will struggle to hire new fighter should the global community take the fight to the Social Media in genuine coordinated actions to : 1) fight bad governance, to justify 2) reducing mistrust. Unfortunately, mistrust and the “institutions are rotten to their core” mantra is helped by groups as wide as: Extreme right, gold bugs, 2nd amendment supporters and Bitcoin marketers… We are surprised how some “mainstream media” have joined spreading the same “mistrust” message for a clear agenda to avoid improving governance. This pressure is accelerating G-20 actions to push for tax evasion fight (OECD initiative) and improve governance.
The US call to put “boots on the ground” to defeat ISIL might be achieve through the use of regional arm forces (Turkey, Arab countries). This will have the same consequence for the US defence sector (positive for the sector stocks) because weapons and knowledge will be provided by the Western countries (specifically the US).
Oil prices continue to come under pressure (in line with our recent energy update note). However, the situation on the ground continue to be fragile, with a new threats to the security of many countries from Egypt to US. The quickest the West recognises that the fight against ISIL and terrorists necessitate a fight against mistrust which spread not only in the jihadist internet web but also in the extreme right and gold bugs forums, the more the risk of isolated radicalised youth actions will decrease.
The fight against mistrust is likely to accelerate with the global governance improvement. Furthermore, any advance in Iran nuclear talks will help Iran joining the fight against ISIL. The recent news flow out of ISIL indicates that the terrorist organisation is getting isolated and its power is weakening. Furthermore, the recent strikes have reduced Al-Qaeda operatives which were preparing attacks against the West (according to informations out of the intelligence community).
Last but not least, UAE fighter pilot Mariam al-Mansouri shot to fame last week for her role in a US-led bombing campaign in Syria might be a game changer for the Muslim world. It’s becoming a communication war between ISIL (a XVI century like barbaric group for which women are to be rapped, and lands are to be destroyed) and the idea that Muslim Women can be empowered and help defeat the terror. The self-proclaimed Califat calls him name from Abu Bakr (first Califat of Saidouna Prophet Muhamed). It’s a shame to link Abu Bakr, one of the first followers of the Prophet, to Califat Ibrahim who is a muppet in the hand of the interests groups. But Mariam al-Mansouri is remanding Muslims that the first teacher of Coran was a Woman, Prophet’s Saidouna Muhamed daughter.
Kurds backed by coalition air strikes claw back territory claimed by Islamic State militants
Kurdish peshmerga troops backed by warplanes have made advances against the Islamic State (IS) group on three fronts in northern Iraq, reclaiming land they lost to the jihadists in recent months.
A senior source in the peshmerga said forces had entered the town of Rabia on the Syrian border, north of Iraq’s jihadist-controlled second largest city of Mosul.
Forces backed by artillery and warplanes were also attacking Zumar, about 60 kilometres north-west of Mosul near the reservoir of Iraq’s largest dam, a key battleground between the Kurds and the jihadists.
Both Rabia and Zumar were areas the peshmerga seized in the chaos that followed the jihadists’ capture of Mosul in early June.
U.S. Crude Futures Slide Most in 22 Months; Brent Falls
West Texas Intermediate crude slid the most in 22 months and Brent reached a two-year low as ample supply shielded the market from the risk of disruption due to the conflict in the Middle East.
Futures slumped 3.6 percent in New York and 2.6 percent in London. OPEC oil production increased in September, led by a rebound in Libyan output to the highest level in more than a year, a Bloomberg survey showed today. Both benchmarks capped their biggest quarterly declines in more than two years. WTI may approach $90.63 after breaking below $91.50, according to Bloomberg First Word oil strategist Eric D. Pradas.
“We are going to continue to see lower prices as we go forward,” said Tariq Zahir, a New York-based commodity fund manager at Tyche Capital Advisors. “Fundamentally we are just very well supplied. The dollar continues to get stronger and it’s adding pressure to oil.”
WTI for November delivery fell $3.41 to end at $91.16 a barrel on the New York Mercantile Exchange, the lowest settlement since May 1, 2013. It was the biggest one-day loss since November 2012. Prices have lost 13 percent this quarter, the most since June 2012. The volume of all futures was 70 percent above the 100-day average.
New coalition airstrikes target ISIS near Syria-Turkey border
BEIRUT — U.S.-led coalition airstrikes targeted Islamic State of Iraq and Syria (ISIS) fighters pressing their offensive against a Kurdish town near the Syrian-Turkish border on Tuesday in an attempt to halt the militants’ advance, activists said.
The frontier town of Kobani, also known by its Arabic name of Ayn Arab, and surrounding villages have been under attack by ISIS, also called ISIL, since mid-September. The fighting has forced some 150,000 Kurds to flee to Turkey in what has been one of the largest single exoduses in Syria’s civil war, now in its fourth year.
It was not immediately clear how effective Tuesday’s airstrikes were in slowing the Islamic militants’ advance. Over the past few days, the extremists have pushed to within three miles of Kobani and have begun hitting it with mortars and artillery shells.
Turkey Seeks Syria Troop Mandate Citing Assad, Islamist Threats
Turkey will seek parliamentary approval for possible military action in Syria and Iraq, citing security risks from President Bashar al-Assad’s government as well as Islamic State militants.
Legislation was submitted to parliament late yesterday that renews existing mandates for military action outside Turkey’s borders, without committing the country to any specific steps, according to the official Anadolu news agency. It also allows foreign troops to use Turkish territory.
The bill will be debated tomorrow, Deputy Prime Minister Bulent Arinc said after a six-hour cabinet meeting attended by army chiefs. It says that threats to national security along Turkey’s southern borders have “seriously increased as a result of recent developments,” according to Anatolia.
Man arrested in Australia over funding US fighter in Syria: Police
A man was arrested in counterterror raids in Australia on Tuesday, with police alleging he was sending money to a US national fighting with a « terrorist » group in Syria.
The arrest came days after a terror suspect was shot dead in Melbourne after stabbing two police officers, and amid concerns about Australians fighting alongside jihadists in Iraq and Syria.
Police said a 23-year-old man, who they did not name, was charged with intentionally making funds available to a « terrorist organisation », knowing that it was a terrorist group. They did not name the group.
Australian Federal Police assistant commissioner Neil Gaughan said the accused had allegedly transferred about Aus$12,000 (US$10,500) to a US citizen who travelled to Syria to fight.
« We are acutely aware that to participate in overseas fighting, funds are required. In this case we will allege that the man was funding someone from the US, » Gaughan said.
« However, who is being funded makes no difference. Providing funding is equally criminal as actually travelling to participate. »
Gaughan said the arrest had been triggered by the belief that the man was allegedly preparing to send more funds.
AP INTERVIEW: US should hit all militants in Syria
UNITED NATIONS (AP) — Syria’s foreign minister said Monday that the U.S.-led bombing campaign should be expanded to target other militant groups besides the Islamic State group, noting that the fight against terrorism has aligned the Syrian regime with its Western and Arab opponents in a fight against a common enemy.
U.S. and Afghanistan sign vital, long-delayed security pact
KABUL — The United States and Afghanistan on Tuesday signed a vital, long-delayed security deal that will allow nearly 10,000 American troops to remain in Afghanistan beyond the final withdrawal of U.S. and international combat forces this year.
The Bilateral Security Agreement (BSA), and a separate pact signed with NATO, permit the continued training and advising of Afghan security forces, as well as counterterrorism operations against remnants of al-Qaeda. The signing of the documents comes as Taliban insurgents are increasing their attacks in an effort to regain control in anticipation of the combat troops’ departure.
A Major Syrian Kurdish City Is About To Fall To ISIS — And A Massacre Could Follow
PARIS (Reuters) – A Syrian Kurdish leader called on Tuesday for Western states to provide weapons to his forces fighting Islamic State in the besieged Syrian border town of Kobani, warning that his fighters were outgunned and risked massacre if help did not arrive soon.
Saleh Muslim, head of the Kurdish Democratic Union Party (PYD), which has close links to the Kurdistan Workers’ Party (PKK) in Turkey, said that his calls for arms had so far been rebuffed by the United States and European nations, blaming Turkey for obstructing his efforts.
« We are asking everybody who can help us to provide weapons to the people fighting against tanks and artillery, but nobody is doing anything. There will be many who are martyred, » he told Reuters during a diplomatic mission to Europe.
« We have sent messages to the Europeans and the United States, but I think there are obstacles… Turkey and other countries are preventing this because they don’t want the Kurds to be able to defend themselves. »
Turkey deploys tanks to Syria border as lawmakers weigh action against Islamic State group
MURSITPINAR, TURKEY – Turkey on Monday deployed tanks and armored vehicles to reinforce its border with Syria amid escalating violence by the Islamic State group, as parliament was set to consider whether to authorize military action against the jihadists.
The army moved tanks and armored vehicles to the border town of Mursitpinar, which lies across from the key Kurdish town of Ain al-Arab, after some stray bullets hit Turkish villages, sparking retaliation from Turkey’s military under its rules of engagement.
The government said Monday it would shortly submit motions to parliament authorizing the armed forces to take action in Iraq and Syria, so Ankara can join the U.S.-led coalition against the IS fighters.
“The motions have not yet been sent to parliament. They may come tomorrow (Tuesday),” parliamentary speaker Cemil Cicek was quoted as saying by NTV television.
Poster girls for jihad: young women raised in West joining militants
Hundreds of young women and girls are leaving their homes in Western countries to join Islamic fighters in the Middle East, causing increasing concern among counterterrorism investigators.
Girls as young as 14 or 15 are travelling mainly to Syria to marry jihadis, bear their children and join communities of fighters, with a small number taking up arms. Many are recruited on social media. Women and girls appear to account for about 10 per cent of those leaving Europe, North America and Australia to link up with jihadist groups, including Islamic State (IS).
France has the highest number of female recruits, with 63 in the region, which is about 25 per cent of the total, and at least another 60 believed to be considering the move.
McCain: Ground troops needed to fight ISIL
Americans would support sending more U.S. troops to fight the Islamic State if U.S. strategy in the region were clearer, Sen. John McCain, a longtime critic of President Obama’s foreign policy, said Monday. And without more specialized troops, he said, the U.S. mission against the Islamic State will fail.
« I wish the president would stop saying we’re not going to have combat troops on the ground, » McCain said in an interview with USA TODAY. « In support roles, in special forces roles, intelligence, and particularly (in) target acquisition, we can have people there. »
Airstrikes are insufficient to end the threat posed by ISIS, McCain said. « But I don’t think it’s necessary to have large combat units … Because I don’t think we have to, number one, and the more we do send in, the higher likelihood of casualties. »
Islamic State: Arab female F-16 pilot stirs debate in Muslim world (+video)
UAE fighter pilot Mariam al-Mansouri shot to fame last week for her role in a US-led bombing campaign in Syria. While Americans hailed her pluck, for Arabs it’s more complicated.
JERUSALEM — Last week Mariam al-Mansouri, a F-16 pilot from the United Arab Emirates, was introduced to the world. Smiling out from under her helmet and hijab after launching air strikes in Syria, part of a US-led campaign against Islamic State, her image went viral.
For some Americans, she was a sort of Katharine Hepburn meets Amelia Earhart who had shattered prevalent stereotypes of Arab women. A popular Internet meme reads: “hey ISIS. you were bombed by a woman. have a nice day.”
Her mission has aroused considerable “you go girl” sentiment in the Arab world as well, from Twitter to newspaper editorials.
“This woman has overcome obstacles and challenges with her determination and capability,” mused @BoZayed_9399, whose Twitter handle uses a Gulf term for father, suggesting he has roots in the region. Another tweet mockingly contrasted her feat with a Saudi sheikh’s opposition to women driving a car, saying it would damage their ovaries.
Special Report: Islamic State uses grain to tighten grip in Iraq
(Reuters) – For Salah Paulis, it came down to a choice between his faith and his crop.
A wheat farmer from outside Mosul, Paulis and his family fled the militant group Islamic State early last month. The group overran the family farm as part of its offensive that captured vast swathes of territory in northern Iraq. Two weeks later, Paulis, who is a Christian, received a phone call from a man who said he was an Islamic State fighter.
“We are in your warehouse. Why are you not here working and taking care of your business?” the man asked in formal Arabic. “Come back and we will guarantee your safety. But you must convert and pay $500.”
When Paulis refused, the man spelled out the penalty. “We are taking your wheat,” he said. “Just to let you know we are not stealing it because we gave you a choice.”
Other fleeing farmers recount similar stories, and point to a little-discussed element of the threat Islamic State poses to Iraq and the region.
The group now controls a large chunk of Iraq’s wheat supplies. The United Nations estimates land under IS control accounts for as much as 40 percent of Iraq’s annual production of wheat, one of the country’s most important food staples alongside barley and rice. The militants seem intent not just on grabbing more land but also on managing resources and governing in their self-proclaimed caliphate.
Syria’s Assad Says Countries Feeding Terrorism Unable to Fight It: Reports
BEIRUT, September 30 (RIA Novosti) – Terrorism in Syria cannot be combated by the countries, which feed it, Syrian President Bashar Assad said Tuesday.
« Combating terrorism cannot be carried out by states that contributed to establishing terrorist organizations, provided them with logistic and material support, and spread terrorism around the world, » Syria’s SANA news agency quoted Assad as saying at the meeting with the Secretary of the Supreme National Security Council of Iran Ali Shamkhani.
The Syrian leader also emphasized that the fight against the extremist ideology, nurtured by certain regional powers, is as important as combating those who commit actual acts of violence and destroy the historic and cultural heritage.
Iran’s Shamkhani reaffirmed Tehran’s support for Damascus’ war on terrorism and the territorial integrity and sovereignty of Syria.
Syria has been fighting various rebel and extremist groups since the civil war broke out in 2011. The Islamic State (IS) group has seized vast areas across war-torn Syria and Iraq and proclaimed a caliphate in June 2014. Washington launched airstrikes against the insurgents in August, following the group’s advance on northern Iraq.
In September, the United States, along with Bahrain, Jordan, Saudi Arabia, Qatar and the United Arab Emirates, launched attacks against the IS and other terrorist groups on the Syrian territory. Washington has said it notified Syria of the attacks, but has not requested any formal permission for military action.
Russia
Russia: Ukrainian situation continues to calm down (BUT NOT deescalate – Merkel recognised that Cold War II has started – a view we expressed in our Feb 27th note -). Ukraine continues to increase its ties with EU and NATO, despite Putin threat last week. The Cease fire in Eastern Ukraine is coming under pressure. Our contacts on the ground are indicating that the situation is very fragile and self-proclaimed Eastern Republics are willing to pursue the pressure.
Lavrov pressed during the weekend the global coalition against ISIL to seek authorisation at the UN security council. Under such a scenario , Russia could use its veto to buy some time to ISIL to strengthen its power, or to provide Assad legitimacy through having him participating to the coalition (which would crack the coalition which “implied” objective is to change the Syrian regime).
The Eastern Ukraine region self proclaimed republics autonomy perimeter continue to be the name of the game. Too much autonomy (the current self proclaimed government are calling for a full fledge independence – which could give legitimacy to Crimea annexation-) would make Ukraine IMF program dead born (as Kiev government would be in the incapacity to deliver on governance improvement and structural reforms). At the other end, an autonomous regions which would bind by the IMF program reform will increase the ability of Kiev government to strengthen the Ukrainian economy along with the governance improvement. Thus, it would increase the likelihood of joining NATO. Russia is unlikely to let this scenario take place without a fight. We continue to see some Ukraine debt restructuring very likely though the timing will depend on the autonomous republics aggression.
Therefore, the Kremlin is putting a lot of emphasis on how badly an isolated Russia would impact the global economy (and specifically would constitute a Eurozone existential threat), while the Russian economy is preparing for this outcome (e.g. Russian corporations are considering spinning of their US subsidiaries, Wealth Fund is considered to be used to self-finance needed infrastructure investment, international experts are rushing to find financial solutions for the New Russia political strategy, outside the West energy deals – e.g. with Turkey – ). From the political spectrum, the opposition is organising itself should oil prices drop sustainably below $75bbl – this scenario is possible should the geopolitical blue sky scenario take place -. But the Kremlin is “threatening” oligarchs to keep them away from joining the opposition. For more analysis on this matter, please see our recent “Russia update note”. Meanwhile, Russia accelerates the construction of Eurasia, which is seen by many analysts (incl. “gold bugs”) as a better replacement of the EU Union (because it enables to avoid improving governance and fight against corruption).
Merkel Evokes Cold War in Warning of Long Ukraine Crisis
Chancellor Angela Merkel said the European Union and the U.S. may be facing a long confrontation with Russia over Ukraine, citing the 40 years it took East Germany to escape communist control.
Merkel, who grew up in former East Germany, signaled determination to uphold EU sanctions on Russia in comments in Berlin yesterday that underscored the fraught relationship with President Vladimir Putin, whose actions in the Ukrainian crisis she says are rooted in a Cold War mentality.
“I don’t see any change at the moment regarding Russia’s position,” Merkel said. “We needed 40 years to overcome East Germany. Sometimes in history one has to be prepared for the long haul, and not ask after four months if it still makes sense to keep up our demands.”
Ukraine prosecutor opens criminal case against Russian officials
(Reuters) – Ukrainian state prosecutors said on Tuesday they had opened a criminal investigation against a Russian law enforcement agency, accusing it of supporting separatist and « terrorist » groups in the east of the country.
The move appeared to be a tit-for-tat response to a criminal case launched on Monday by Russia against « unidentified representatives of Ukraine’s senior political and military leadership », National Guard and nationalist organizations, in which it accused them of committing « genocide ».
The two legal investigations will further ratchet up tensions between the two ex-Soviet neighbors and put pressure on a ceasefire agreed on Sept. 5 between Kiev’s forces and pro-Russian separatists that has been marred by daily skirmishes and artillery shelling.
Ukraine cease-fire pressured by pro-Russia attacks, weapons buildup
Ukrainian Energy Ministry Not Satisfied With Berlin ‘Winter Plan’ on Gas
KIEV, September 30 (RIA Novosti) – The Ukrainian Energy Ministry said Tuesday it had three reasons to object the “Winter Plan” on gas, endorsed by Russia and the European Commission during the ministerial gas meeting in Berlin last Friday.
The plan envisages that Kiev repays of $3.1 billion of its gas debt to Russia and pays in advance to Gazprom for the delivery of five billion cubic meters of gas at the price of $385 per 1,000 cubic meters, with a discount of $100. The plan, intended to reduce risks for transit of Europe-bound Russian gas via Ukraine, is to be in place until late March.
Kiev, however, rejects Russia’s offer of the $100 gas-price discount in the form of an export-duty exemption and wants the contract price to be reduced instead.
Ukraine also wants to agree the debt repayment schedule, as well as terms and schedules of future gas deliveries.
Kiev also insists on amending the current gas contract with Russia in order to formally authorize the reverse deliveries of Russian gas to Ukraine from Europe.
Ford Cuts Forecast as Russia Turmoil Outshines U.S Gains
Ford Motor Co., the second-largest U.S. automaker, said it will miss a profit forecast for 2014 as weakening sales in Russia, deflation in South America and recall costs in North America reduce income.
Pretax profit will be $6 billion in 2014, as much as $2 billion less than originally forecast, Ford told investors yesterday. Ford said it will have $1 billion of warranty and recall expenses this year. The company’s shares fell 7.5 percent, the most in three years, closing at $15.11.
“I was shocked at the amount of money the recalls are costing them,” Michelle Krebs, senior analyst for AutoTrader.com, said in an interview. “We could see the other things coming with how South America and Russia were deteriorating.”
Will October rattle markets more than usual?
While often a scary month, this October has an especially long list of demons for markets to contend with—from the major shift in U.S. monetary policy and a global economic slowdown to a host of percolating geopolitical hazards, from Kiev to Hong Kong to Brasilia.
This week alone, there is a European Central Bank meeting Thursday, where it is expected to detail its asset-backed purchase program, coming just as the Fed is stepping back. There is also the September employment report Friday, a key data point for the Fed, and there are general elections in Brazil over the weekend.
Markets enter the month on a wave of heightened volatility, and are already showing signs of being spooked by the Fed and concerns about European and Chinese growth.
Russia’s Cyber Warfare Is Scarier Than Its ‘Weapons’
With Australia increasing its sanction against Russia and with rumours saying that Russian President Vladimir Putin is banned from attending the G20 in Brisbane, the government is risking the country’s cyber security to the powerful attacks of the infamous Russian hackers.
Writing for the Australian Financial Review, Alastair MacGibbon reminds the government about how Estonian and Georgian computer systems crashed down at the time when Russian nationalists and intelligence found that they obstruct Russian interests. For three weeks in April 2007, all significant computer systems in Estonia were disrupted as a Soviet-era WWII memorial statue of a Russian soldier in Tallinn was being moved. Georgia, on the other hand, was attack for many times from July to August 2008 due to a conflict with Russia on South Ossetia.
Russia Stocks Trim Quarterly Drop as Deutsche Lifts Rusal
Russian stocks gained for the first time in four days, paring this quarter’s drop, as exporters climbed and Deutsche Bank AG raised United Co. Rusal to buy.
The dollar-denominated RTS Index (RTSI$), which slid into a bear market yesterday for the second time this year, added 0.5 percent to 1,132.08 by 2:54 p.m. in Moscow. The Micex Index (INDEXCF) climbed 0.7 percent to 1,417.65, led by a 1.4 percent advance in natural gas exporter OAO Gazprom. Rusal rallied 3.4 percent as Deutsche Bank said the weaker ruble and improved aluminum-price forecasts benefit the world’s biggest producer of the metal.
The RTS’s 17 percent slide this quarter, the worst in three years, pushed its 14-day relative strength index to 32 yesterday, just shy of the 30 level that signals to some analysts a security is oversold. Russian shares, under pressure from U.S. and European sanctions, retreated after AFK Sistema’s billionaire owner Vladimir Evtushenkov was put under house arrest Sept. 16 amid a probe into alleged money laundering.
Hong Kong
Hong-Kong political reforms protest
Pro-democracy protests gained more traction this weekend. Mainland sticks to its view that any political reform should bind by the “basic law”. We do not see HK and Mainland China governments to accept any substantial change in the short term.
However, unlike with Tian’anmen square protest, we see Chinese leadership being less “harsh” fighting the protests, as we acknowledge Chinese leader fear vis-a-vis social media power. In the medium term, we see China devoting more democratic say in HK. Our forecast is built on the view that the Chinese government is fearing a HK political change to threat its reform agenda. President Xi wants to be seen as the strong man to fight conservatism push back to the reform, specifically ahead of the IV-th Plenum, which will focus on improving governance (which creates an important shift of power from “princelings” to the reformists). After the IV-th Plenum we see President Xi and HK government coming with a middle ground solution, which could take the form of a split designation of leaders. Democracy comes with cost and responsibility. We consider that President Xi long-term objective of political reform to be intact, but he fears that “House of Cards” like politics could jeopardise his aim to avoid the middle-income trap risk should interest groups (Raymond Tusk character in the TV-show) to derail his genuine fight against conservatism and vested interests.
Hong Kong protesters jeer Chinese flag
HONG KONG — With turned backs and loud jeers as the Chinese flag was flown over the harbor, protesters on Wednesday kicked off the National Day holiday they hope will see the biggest display yet of their mass civil disobedience campaign for greater democracy.
Student leader Joshua Wong, the 17-year-old founder of the influential Scholarism protest movement, led 30 people who turned their backs on the flag near the government’s official flag-raising ceremony in the Wanchai district, « to show our disagreement towards the CCP (Chinese Communist Party), especially for the decision made on political reform in Hong Kong, » he said.
The party’s restrictive plans for the 2017 election for Hong Kong’s leader sparked weeks of occasional protest culminating in a mass occupation of several key business areas.
Hong Kong protesters stockpile supplies for long haul
Tens of thousands of pro-democracy protesters extended a blockade of Hong Kong streets on Tuesday, stockpiling supplies and erecting makeshift barricades ahead of what some fear may be a push by police to clear the roads before Chinese National Day.
Riot police shot pepper spray and tear gas at protesters at the weekend but withdrew on Monday to ease tension as the ranks of demonstrators swelled.
Protesters spent the night sleeping or holding vigil unharassed on normally busy roads in the global financial hub.
Throughout the night, rumours rippled through crowds of protesters that police were preparing to move in again. As the sun rose many remained wary, especially on the eve of Wednesday’s anniversary of the Communist Party’s foundation of the People’s Republic of China in 1949.
« Many powerful people from the mainland will come to Hong Kong. The Hong Kong government won’t want them to see this, so the police must do something, » Sui-ying Cheng, 18, a freshman at Hong Kong University’s School of Professional and Continuing Education, said of the National Day holiday.
Is US being weak – or careful – on Hong Kong protests?
As pro-democracy protests continue in Hong Kong, critics are calling for US sanctions on China. But, as long as the demonstrations remain largely peaceful, some US-China experts counter that the US is right to take a cautious approach, especially publicly.
Hong Kong protests holding strong through lightning, rain
Little sign of momentum flagging as ‘umbrella revolution’ enters its 6th day
‘We are not afraid of riot police, we are not afraid of tear gas, we are not afraid of pepper spray. We will not leave until Leung Chun-ying resigns.’
– Lester Shum, Hong Kong student leader
As concern mounted over how the standoff might eventually end, Chinese President Xi Jinping, who has taken a hard line against any perceived threat to the Communist Party’s hold on power, vowed in a National Day speech to « steadfastly safeguard » Hong Kong’s prosperity and stability.
Catalonia
Catalonia: We were saying “calls for independence referendum is increasing pressure on both Madrid and EU to move forward to offer better conditions and better narrative to the public. We see PM Rajoy taking constitutional actions to deter Catalonia from conducting the referendum, at a moment where more the referendum is gaining support from the independence forces all over the world. Madrid may accept to open discussion to devote additional autonomy to Catalonia in order to reduce the pressure. This story is likely to push EUR existential threat higher short term, but we consider that EUR is likely to rebound by the end of this year, when these threats will be repriced as less likely.” (daily briefing Sept. 30 2014). Catalonia decision to suspend formal campaign is the first step in our constructive scenario.
Catalonia suspends formal campaign on Spain independence vote
(Reuters) – Catalonia’s regional government said on Tuesday it would temporarily suspend campaigning for a vote on independence from Spain, after Madrid filed a legal block to the referendum.
Spain’s central government argues that the vote, called by Catalan leader Artur Mas for Nov. 9, would breach the country’s rule of law because it would be held in Catalonia alone, rather than in the whole of Spain.
The Constitutional Court suspended the planned referendum on Monday after the government filed its legal appeal, a move Catalan officials now want to try and overturn.
The legal suspension of Catalonia’s plans had been expected for months, although Mas defied Madrid by calling the vote anyway, and is still pushing for ways for it to go ahead.
« In the next few hours we will file our arguments to overturn the suspension of the vote, » Francesc Homs, spokesman for the Catalan government, told reporters on Tuesday. « Although we have withdrawn our campaign, we are not pulling out. »
With official campaigning halted for now, secessionist grassroots movements, which have swelled in recent years in the wealthy northeastern region and set the political agenda there, are likely to take center stage.
A Reuters reporter saw hundreds of people braving driving rain outside Barcelona’s town hall on Tuesday evening to protest at the Constitutional Court ruling and demand the right to vote.
Spain ‘s Catalonia region heeds top court, halts independence vote plans but vows to press on
MADRID – The regional government of Catalonia says it will heed a decision by Spain’s top court suspending its plans to hold an independence referendum but vows to continue efforts to hold a vote.
Regional government spokesman Frances Homs said Tuesday the Catalan government would present arguments in defense of the Nov. 9 referendum and seek to have the suspension lifted.
The Constitutional Court agreed Monday to study appeals challenging the legality of the referendum that were filed by the Spanish government. The decision automatically suspended the vote and campaigning until the court makes a ruling.
Pro-secession supporters have called for demonstrations outside town halls later Tuesday to protest the suspension.
Polls suggest most Catalans favor holding the vote, but are roughly evenly split on independence.
US News
PM Modi visit to US: Positive for India economically, Positive for the US in its fight against terror
Emails from the Fed (which constitute an important historical source on how Fed and US government dealt with the Great Financial Crisis), have shown that they have not been elite collusion (very positive to defeat the on-going mistrust). However, after analysing pros-cons, it became evident that refraining from bailing out AIG would have cost much more to our global economy and financial system (which although I believe that it should be reformed is a wonderful social development if one look at it from the Big History prospect – i.e. how Mankind has adapted its organisation to prosper -).
Afghanistan political solutions (at last) cleared the way to a comprehensive agreement. This is very positive for securing peace in the region and defeating the global terrorism (though the global terrorism terminology is a weak definition because its the combination of different groups which have different agenda and ideologies).
Zalando’s IPO is proving that a corporation could combine: 1) profits, 2) return to shareholders, 3) empowering its workers, 4) behaving nicely with consumers. Food for thoughts.
From Sept 30th Daily Briefing:
US Tax inversion: As we were expecting since the announcement of Burger King deal (which has been widely reported as being solely pursuing tax inversion objective) we’ve indicated that this would sign the end of the system. US Treasury took actions to make it harder to execute such deals, while the tax reform seems in limbo due to DC gridlock. Administrative actions taken by Treasury Secretary Lew makes it harder to execute tax inversion but does not derail it entirely. We consider that G-20 initiative to undertake OECD proposal to reform the rule of “double non-taxation” (see our previous daily briefing) will help improve the tax governance (and incidentally the rise in the mistrust in the public institutions – which are seen to be colluding with businesses -). Markets have reacted negatively to the actions taken against tax loopholes, because these are seen to be the only remaining way for Corporations to improve their EPS (while demand continue to be subdued). We disagree with this view because G-20 initiatives to tackle “tax optimisation” will come along with more investments and fiscal stimuli which would help spur more economic demand.
US Economy: high frequency economic data continue to show a mixed message. The widely common economic forecast models have been weak understanding the current economic evolution. We have indicated in our article “Perceptions & realities : closing the gap between the two” that while the growth and inflation continue to be subdued to justify any urgent action from the Fed, there are genuine signs which indicates that growth potential will improve. In a nutshell, big data, technology, energy transition, lower commodity prices and better governance are the driver we see for the creation of goldilock conditions – not too hot, not too cold – which would enable spur sustainable growth and create the conditions for central banks to normalise (in a couple of years) the monetary policy without triggering a new financial crisis or excessive financial bubbles. Gas prices decrease, a reflect of the on-going oil prices decrease, is likely to provide the Fed with some support to postpone acting too quickly normalising monetary policy.
Bill Gross – PIMCO: On Friday, Bill Gross announced that he will leave PIMCO to join Janus. Markets have reacted to the short term fixed income force selling, which may take place, as investors may reconsider their mandate (as a result of the change in management of the funds “U.S. Stocks Rebound on GDP as Bonds Fall on Pimco Concern”). While this pressure is likely to be short lived, it may bring opportunity to go long rates when the market is realising that inflation is subdued and help the Fed to delay normalising rates. There have been many speculations regarding the reason of Mr. Gross departure from PIMCO. We see the shift in Bill Gross rhetoric to defy the Fed, by criticising the Fed attitude – using arguments going from asset frothiness to central bank deficit financing -, as being the most likely good reason of this departure. By being short fixed income since mid last year, PIMCO has reported weak returns spurring an increase in redemptions (which cost PIMCO profits and Bill Gross his job).
Ahead of talks Modi, Obama say ‘Chalein saath saath’
@narendramodi Tweet: With President @BarackObama. We had a wonderful meeting and talked about a wide range of issues.
« We have a vision that the United States and India will have a transformative relationship as trusted partners in the 21st century, » said the paper, « Chalein Saath Saath: Forward Together We Go ».
It read a bit like a joint statement, but was minus the officialese of one and, crucially, came ahead of the talks, instead of after, as the densely worded documents do typically.
« Together, we will combat terrorist threats and keep our homelands and citizens safe from attacks, while we respond expeditiously to humanitarian disasters and crises, it added.
US President Barack Obama and Prime Minister Narendra Modi have for the first time interacted digitally to come out with a joint editorial.
External Affairs Ministry Spokesperson said both Prime Minister Modi and President Obama have written a joint editorial in a US newspaper to be published Tuesday.
Officials on both sides have been very secretive about the joint op-ed and have not even disclosed the name of the newspaper that will publish it.
FEW SIGNS OF PROGRESS AS OBAMA MEETS INDIA’S MODI
WASHINGTON (AP) — President Barack Obama showered praise on India’s new prime minister in an Oval Office meeting Tuesday that sought to infuse new energy into the two countries’ sluggish relationship. Yet for all the pomp and pageantry, there were few signs that Obama and Narendra Modi had resolved vexing issues that have often kept the two democracies at arm’s length.
Following their first formal meeting, Obama hailed Modi for his energetic approach to addressing India’s challenges since taking office. The president singled out the prime minister’s focus on addressing « the needs of the poorest of the poor, » as well as making India a source of peace and stability in the region.
« We have so much in common, it is critical for us to deepen and broaden the existing framework and partnership that already exists, » Obama said.
Modi, speaking through a translator, said he expected the economic partnership between the U.S. and India to « grow rapidly in the coming years. » He offered optimism that the two governments could work through trade disputes and obstacles to nuclear energy cooperation with American companies.
The visit « has reinforced my conviction that India and the United States are natural global partners, based on our shared values, interests and strengths in the digital age, » said Modi, who was elected with broad support in May pledging to help reform India’s economy.
Secret Service director promises full security review after White House breach
Just 18 months after taking the helm at the Secret Service, Director Julia Pierson spent hours Tuesday on Capitol Hill facing sharp questioning from House lawmakers incensed about a recent security breach at the White House and the misleading information the agency initially released about it.
After the hearing, top lawmakers on the House Oversight and Government Reform Committee said they would request that the Department of Homeland Security impanel a team of independent investigators to conduct a comprehensive probe of the agency.
The tense grilling followed days of revelations about security breaches that have triggered mounting criticism of the elite law enforcement agency, which is charged with protecting the president, his family and visiting foreign leaders.
Pierson sat stone-faced as several members of the House committee declared that they had lost confidence in her stewardship. Some went further, depicting the Secret Service as adrift and plagued by shortcomings after a cascade of security breakdowns that allowed a knife-wielding veteran believed to be suffering from post-traumatic stress disorder to hop the White House fence, enter through an unlocked door and dash deep into the executive mansion before being stopped.
U.S. signs pact to keep troops in Afghanistan past 2014
(Reuters) – Officials from Afghanistan and the United States on Tuesday signed a long-delayed security agreement to allow American troops to stay in the country after the end of the year, filling a campaign promise by new President Ashraf Ghani.
National security adviser Hanif Atmar and U.S. Ambassador James Cunningham signed the bilateral security agreement in a televised ceremony at the presidential palace, one day after Ghani was inaugurated.
« As an independent country … we signed this agreement for stability, goodwill, and prosperity of the our people, stability of the region and the world, » Ghani said in a speech after the signing.
Ghani’s predecessor, Hamid Karzai, had long refused to agree to the deal, souring his ties with the United States. Karzai cited his anger over civilian deaths and his belief that the war was not fought in the interests of his country.
Cunningham said the pact showed the United States remained committed to Afghanistan, where foreign forces have helped provide security since the 2001 toppling of the radical Islamist Taliban government over its sheltering of planners of the Sept. 11 attacks.
« It is a choice by the United States to continue cooperating with our Afghan partners on two important security missions: training and equipping Afghan forces and supporting cooperation against terrorism, » Cunningham said.
Afghan president’s ascension paves way for signing of U.S. military pact
KABUL – Afghanistan swore in Ashraf Ghani Ahmadzai as its second elected president on Monday, embarking on a new era with a national unity government poised to confront a resilient Taliban insurgency by signing an agreement with the United States that would guarantee a continuing American military presence.
As Hamid Karzai left the political stage, the new president was locked into an uneasy partnership with his defeated rival, Abdullah Abdullah, who became the country’s first chief executive. With a hug for the cameras, both sides appeared determined to reach across factions and avoid a descent into an abyss similar to what has happened in Iraq, where the government’s failure to mend lingering sectarian divisions following a full U.S. withdrawal helped give rise to the brutal Islamic State group.
White House moves to deal with child migrant issue
(Reuters) – The White House announced its intention on Tuesday to establish refugee processing in Honduras, El Salvador and Guatemala to try to deter unaccompanied children from resorting to crossing the U.S.-Mexico border on their own.
The announcement was made in a memorandum to U.S. Secretary of State John Kerry that also said the admission of up to 70,000 refugees to the United States in fiscal year 2015 is justified by humanitarian concerns.
Over the summer, President Barack Obama struggled to contain a border crisis where tens of thousands of children from Guatemala, El Salvador and Honduras showed up illegally, often without parents or relatives, at the Texas border.
Some U.S. lawmakers had recommended the step that the White House took on Tuesday, saying that establishing refugee application programs in the three Central American countries was key to defusing the border crisis.
The 70,000 would be allocated among refugees who are judged to have specific humanitarian concern. Of these, 4,000 would be from Latin America and the Caribbean, the White House said.
Of the total, 2,000 refugee slots were not allocated to a particular region. The memo authorized the State Department to accept up to a total of 2,000 people from Cuba, Eastern Europe and the Baltics, Iraq, Honduras, Guatemala and El Salvador.
Bring your own: California bans single-use plastic bags
SACRAMENTO, Calif. — Gov. Jerry Brown has signed legislation imposing the nation’s first statewide ban on single-use plastic bags, driven to action by a buildup of litter and damage to aquatic ecosystems.
A national coalition of plastic bag manufacturers immediately said it would seek a voter referendum to repeal the law, which is scheduled to take effect in July 2015.
Under SB270, plastic bags will be phased out of large grocery stores starting next summer and convenience stores and pharmacies in 2016. The law allows grocers to charge a fee of at least 10 cents for using paper bags.
State Sen. Alex Padilla, D-Los Angeles, credits the momentum for statewide legislation to the more than 100 cities and counties, including Los Angeles and San Francisco, that already have such bans.
UPDATE 4-U.S. judge holds Argentina in contempt over bond payment plan
(Reuters) – In a rare move, a U.S. judge held Argentina in contempt on Monday, saying the country is taking « illegal » steps to evade his orders in a longstanding dispute with hedge funds over defaulted debt.
A source at Argentina’s central bank nevertheless said the country plans to deposit an interest payment at a local bank on Tuesday, in direct defiance of U.S. District Judge Thomas Griesa’s admonitions.
Griesa, who has overseen the litigation in New York for years, put off a decision on whether to impose sanctions on the South American country, which defaulted in July for the second time in 12 years after failing to reach a deal with the hedge funds.
But he issued a clear warning that Argentina must stop efforts to get around his rulings by making payments locally.
« These proposed steps are illegal and cannot be carried out, » Griesa said, his voice rising, during a court hearing in lower Manhattan.
Those steps, he said, include legislation Argentina passed that would allow it to replace Bank of New York Mellon Corp as trustee for some restructured debt with Banco de la Nacion Fideicomiso while allowing a swap of that debt for bonds payable in Argentina under its local laws.
Fed Didn’t Want to Make 2008 AIG Bailout Loan, Lawyer Says
Sept. 30 (Bloomberg) — The Federal Reserve Board of Governors didn’t want to bail out American International Group Inc. with an $85 billion loan, preferring that the insurer find a savior in the private marketplace, the Fed’s top lawyer told a judge.
“We were telling AIG we were not interested in making this loan,” Scott Alvarez, the Fed’s general counsel, testified in the lawsuit brought by Maurice “Hank” Greenberg’s Starr International Co.’s lawsuit alleging the U.S.’s assumption of 80 of AIG’s equity was illegal. “We did everything we could to encourage them to pursue other options.”
The Fed board would “just as soon not have made this loan if they could have avoided it,” Alvarez testified.
In the days leading up to the mid-September 2008 bailout, Donald Kohn, the vice-chairman of the Fed at the time, “was generally discouraging” to AIG officials about prospects for a central bank lifeline “because he believed they should pursue a private sector solution,” Alvarez testified.
Alvarez also told the court he “had no doubt” that the Fed had the legal authority to take an equity position in a company as it did with AIG.
Alvarez made his comments during cross-examination by Justice Department lawyer Scott Austin after more than nine hours of questioning by Starr’s lawyer, David Boies. Starr lawyers had estimated that Alvarez would be on the witness stand for 2 1/2 hours at the nonjury trial at the Federal Court of Claims in Washington.
Zalando Valued at Up to $6.8 Billion in Online Retailer IPO
Sept. 30 (Bloomberg) — Zalando SE priced its initial public offering near the top end of its range, valuing Europe’s largest online fashion retailer at as much as 5.35 billion euros ($6.8 billion), kicking off the biggest week in German technology stock sales in a decade.
The shares were priced at 21.50 euros a piece, raising 605 million euros by selling as much as 11.3 percent of share capital, the company said late yesterday. The offering is one of Germany’s most significant e-commerce IPOs to date.
Zalando’s start of trading Oct. 1 and the Frankfurt debut of Rocket Internet the following day marks a coming of age for Europe’s startup industry and a coup for the Samwer brothers, the Berlin entrepreneurs who control e-commerce holding company Rocket. Zalando, started by the Samwers in 2008, is a product of the Rocket startup mill.
Demand for e-commerce stocks is heating up after Alibaba Group Holding Ltd. rose 38 percent in its trading debut this month in the biggest initial public offering of all time. The company overtook Amazon.com Inc. as the world’s largest online retailer by market capitalization.
Zalando had marketed the shares at a range of 18.00 euros to 22.50 euros a share.
Europe News
EU: the glass half empty view is that unemployment rate is still very elevated (23.3% in August) but it’s coming down, even before EU Commission President elected Juncker’s infrastructure plan, digital initiative, EU Council President elected Tusk’s energy union, are not in place. Though this story combined with Catalonia independence can lead, mistakenly, people to believe that “la Bastille” will be taken in days, we disagree with this view, as those who see a bloody revolution are being hired by ISIL and alike, while the overwhelming youth are working genuinely to improve their lives (alike their ancestors, Youth are adapting to the XXI Century to survive).
From another subject, Russia continue to dream that it’s communication, it’s EU-skeptics allies in the parliament and its fake-cease-fire in Ukraine will help lift sanctions. But the Chancellor Merkel said it all “Merkel Evokes Cold War in Warning of Long Ukraine Crisis”. Chancellor Merkel description is very important because she is amongst the few EU leaders which have experienced the cold war from inside the other camp, she speaks Russian and has a deep understanding of KGB methods.
France starts to reveal 2015 budget measures. Local municipalities spending to be reduce by 3.7bn. More news are due today and tomorrow, we will keep you posted as the information is announced. Designated Economy Commissioner Moscovici Vows to Objectively Examine France’s Budget Deficit. Although the French Assemblee Nationale vote will be close, MPs will do the necessary to avoid the nuclear threat of a “dissolution” (even Fmr. Pres. Sarkozy does not want it because it could trigger a political crisis). The threat is genuinely coming from FN Marine Le Pen which could provide a considerable help to Russia in its struggle to lift sanctions.
CEE POWER-Spot up on less nuclear, renewables
* Serbian water levels forecast mainly unchanged
* Russia gas flows via Ukraine normal on Tuesday
* Unplanned outages in Poland fall to 450 megawatts
PRAGUE, Sept 30 (Reuters) – Less nuclear and thermal supply along with low wind and solar generation levels in the region lifted central European spot prices on Tuesday, traders said.
On regional exchanges, electricity for Wednesday rose half a percent to 45.29 euros ($57.15) per megawatt hour in the Czech Republic, gained 4 percent to 47.81 euros in Slovakia and climbed 9 percent to 50.61 in Hungary where data showed cross border capacity from Slovakia was limited.
Wind generation in Germany was forecast to drop to 1 gigawatt for Wednesday from 1.7 GW a day earlier with solar production falling about 1 GW to 3.4 GW, according to Thomson Reuters Point Carbon data.
« Wind is low, there is an outage in Germany and nuclear plants in France are offline, which is making this region tighter as well, » one trader said.
Europe’s Youth Unemployment Stats Are Still Horrific
The Eurozone’s youth unemployment rate is eye-watering. Figures out Tuesday put the rate at 23.3% this August.
The figure has not even dropped by a percentage point since its peak in February last year. That’s a nightmare for the Eurozone’s governments, and the future of their economies.
Youth unemployment in some countries is still of the charts (they literally would not fit on the chart below). Greek unemployment for people aged under 25 is still at 51.5%, it’s now second to Spain, which comes in at 53.7%.
But the bloc is hugely divided. Germany and Austria have youth unemployment rates of just 7.6% and 8.2%, respectively.
EU to Review Ukraine Ceasefire Tuesday, Possibly Provide Grounds to Lift Russia Sanctions
BRUSSELS, September 30 (RIA Novosti) – The Permanent Representatives Committee of the European Union (Coreper) is expected to meet Tuesday to review the implementation of the ceasefire regime in Ukraine.
On September 30, the committee is expected to review the implementation of the peace plan in Ukraine based on the assessment made by the European External Action Service (EEAS). Depending on the results of the review, the European Commission and the EEAS could propose to amend, suspend or lift sanctions imposed on Russia.
European Council President Herman Van Rompuy said earlier this month that the European Union has « always stressed the reversibility and scalability of our restrictive measures. »
On September 25, the foreign ministers of the Group of Seven leading industrialized nations, comprising Canada, France, Germany, Italy, Japan, the United Kingdom, the United States, and the European Union High Representative, said the economic sanctions against Russia could be lifted if the ceasefire in eastern Ukraine holds.
The European Union, alongside the United States, has introduced several rounds of sanctions against Russia over its alleged involvement in the Ukrainian crisis, an allegation Moscow has denied. The latest batch of sanctions targeted Russian energy and defense companies.
Wildlife Populations Halved in Last 40 Years by ‘Human Consumption and Degradation’
World wildlife populations have decreased by more than 50% in the last 40 years.
According to the 2014 Living Planet Report by the Zoological Society of London (ZSL), the overall decline stands at 52%. Terrestrial species and marine species declined by 39% from 1970 until 2010.
The report, produced in collaboraiton with WWF and the Global Footprint Network, also found that in the same time frame, freshwater species declined by 76%.
The results were produce after researchers used the Living Planet Index (LPI) – which measures trends in thousands of vertebrate species populations – to analyse the health of over 10,000 populations of more than 3,000 species.
The most dramatic regional LPI decrease occurred in South America, followed closely by the Asia-Pacific region.
« The biggest recorded threat to biodiversity globally comes from the combined impacts of habitat loss and degradation, driven by unsustainable human consumption, » the report said. « The impacts of climate change are becoming of increasing concern. »
China News
China:Manufacturing data support our view that China is soft landing while rebalancing. Labor statistics showed that the manufacturers have started to rebalance their activities away from labor intensive (an objective already stressed by the Chinese leadership). These are in line with the objective to rebalance the economy away from credit driven investment. The government seems fearing that the economic rebalancing has not taken momentum yet although 1) labor intensive manufacturers are relocating in cheaper labor countries, 2) businesses are upgrading their business models, 3) President Xi has conducted many trade – investment agreement with Neighbours (after Premier Li did the same in Africa) to secure investment projects which use Chinese manpower – engineers know-how in this domaine, 4) China is gaining more military presence and has fluxed it mussels – e.g. China “Top Gun” intercept by a US fighter jet -, 5) China has signed many RMB agreement which reinforce the currency usage and prepare its full liberalisation – after Free Trade Zones (FTZ) have proven to be a success -, 6) China has undertaken a genuine fight against bad governance and better regulation – many examples in our recent daily briefings of fight against corruption and bad governance-. We see in FinMin Lou Jiwei comment an indication that not only China wants to create a reserve currency it does want it to be strong when Chinese leaders perceive the heavy pressure place on USD by a category of investors to avoid debasing the currency through deficit financing – although we consider that this worry is misplaced -.
China final Sept HSBC PMI steady on firmer global demand but risks remain
(Reuters) – China’s vast factory sector showed signs of steadying in September as export orders climbed, a private survey showed on Tuesday, easing fears of a hard landing but pointing to a still-sluggish economy facing considerable risks.
The final HSBC/Markit Manufacturing Purchasing Managers’ Index(PMI) hovered at 50.2 in September, unchanged from the August reading which was a three-month low, but lower than a preliminary reading of 50.5.
A sub-index measuring new export orders, a gauge of external demand, expanded to a 4-1/2-year-high of 54.5, though domestic demand appeared soft. The 50 mark separates expansion from contraction in activity on a monthly basis.
More worrisome, the survey showed further weakness in the job market, with the sub-index for manufacturing employment shrinking for the 11th consecutive month, which is bound to concern China’s Communist leaders.
The world’s second-largest economy has stumbled this year as a slowdown in the housing market further weighs on softening domestic demand.
With the property market expected to cool further, economists believe policymakers will have to roll out more stimulus measures in coming months to meet the government’s 2014 growth target of around 7.5 percent.
« Overall, the data in September suggests that manufacturing activity continues to expand at a slow pace, » said Qu Hongbin, chief economist for China at HSBC
Hong Kong shares fall to 3-mth low on pro-democracy protests, China inches down
* HSI -1.2 pct, H-shares -1.0 pct, CSI300 -0.1 pct
* Shanghai Composite to have biggest quarterly gain since Q4 2009
* Trading volumes dim ahead of one-week China holiday
* China coal sector jumps on tax change
HONG KONG, Sept 30 (Reuters) – Hong Kong shares sank to a three-month low on Tuesday, ahead of holidays, as investors steered from risk as they wondered when the city’s worst unrest in decades would end and what China’s response would be.
Tens of thousands of pro-democracy protesters blocked Hong Kong streets on Tuesday, in one of the biggest political challenges to Beijing since the Tiananmen Square crackdown 25 years ago.
« At a minimum, such political ructions this time offer a concrete catalyst for investors to reduce Hong Kong exposure on increasingly adverse macroeconomic considerations in any case, » Nomura said in a research note.
Will Hong Kong Protests Disrupt Financial Path to China?
Chinese, Indian troops withdraw from border standoff
BEIJING, Sept. 30– China and India have completed the withdrawal of troops from a standoff at the border on Tuesday, the Chinese Foreign Ministry said in a press release.
The two sides have reached a consensus on properly resolving the recent standoff between the frontier defense troops at the border between the two countries, according to the Foreign Ministry.
« On Sept. 30, the frontier defense troops of the two countries completed simultaneous withdrawal according to the steps formulated by the two sides and restored peace and tranquility in the area, » the press release said.
The two sides will continue to communicate on issues relating to maintaining peace and tranquility of the border areas through the China-India border consultation and coordination mechanism, the press release said.
According to the Foreign Ministry, both sides understand that friendly cooperation conforms with their common interests and peaceful and tranquil borders are important for the growth of bilateral relations.
The press release said the two sides have the determination, wisdom and capability to jointly maintain peace and stability of the border areas to create a sound environment for the expansion of bilateral relations.
Australia News
Australia: Australia continues to be seen, by markets, as a derivative to the old Chinese model (i.e. commodity provider). This view explains the high beta between Australian assets and commodity prices (or China demand for commodities). Banks shares are suffering from the combination of the increase perception of increase in risks and additional macro prudential constants to curb housing prices frothiness. Small business defined the “goldilock range” for AUDUSD to be [.90-.94]. This level is much higher than RBA own assessment (based on PPP models). We have been criticising PPP models because they do not factor any structural changes.
These assume that neither China nor Australia are conducting their rebalancing agenda. We do believe that the current weaknesses offers genuine opportunity to benefit from the other drivers to the Australian economy which are not related to commodities. We see the current Australian Dollar weakness to continue at least until the USD start to weaken again when markets will realise that it has beaten too much on a quick rate normalisation. Meanwhile, from our previous daily briefing, we have gathered sufficient support to the view that the drivers of the Australian GDP are moving toward: 1) education, health and finance services provider to Asian neighbours, 2) innovation and digital sector, 3) energy resources export to Japan (the later contributes to our constructive view that the current negative Japan Energy Trade deficit will rebalance in the medium term – reducing Japanese Government bonds solvency risk – ).
A man has been charged with sending funds to overseas terrorist groups including Islamic State (IS) after more than 100 federal and state officers raided properties across Melbourne.
Hassan El Sabsabi, 23, from Seabrook was arrested for allegedly providing $12,000 to a US citizen fighting in Syria.
He was charged with six counts of intentionally making funds available to the terrorist organisations IS and Al Qaeda affiliate Jabhat al-Nusra.
El Sabsabi appeared briefly in the Melbourne Magistrates Court, which heard investigators had intercepted hundreds of phone calls and text messages and had collected more than 25,000 pages of material.
Australian Federal Police (AFP) Assistant Commissioner Neil Gaughan said the arrest came after a tip off from the FBI.
« The search warrants were the culmination of an eight month investigation which began following information provided by the United States Federal Bureau of Investigation, » he said.
The Assistant Commissioner said they had acted because there was concern the man was about to make another transaction to the man in Syria.
Police said they believed the man was acting alone.
There is no information or intelligence to indicate that this man was involved in planning an attack.
Small business’ Australian dollar sweet-spot higher than RBA would like
Most small- and medium-sized businesses say the exchange rate « sweet spot » falls somewhere between US90¢ and US94¢, despite the desire of the Reserve Bank of Australia to see the local currency fall further.
A Commonwealth Bank survey found 200 SMEs were most comfortable when the local currency was trading in the US90¢ and US94¢ range. The businesses also predicted the Australian dollar would trade at about US91¢ by the end of the year.
The findings come as the RBA has blamed the stubbornly strong Australian currency for being a drag on growth.
While the dollar took a steep tumble of nearly 7 per cent in September down to US87.50¢ on Tuesday afternoon, it still remains above the RBA’s preferred level.
RBA governor Glenn Stevens said last year the dollar should be about US85¢, and many observers presume his preferred level would be even lower in light of falling commodity prices.
The report showed Australian businesses had come to terms with the high exchange rate, CBA currency strategist Joseph Capurso said.
« It just goes to show that Australian businesses have been able to adjust to the very high exchange rate in the past four or five years, » Mr Capurso said.
« The Reserve Bank for six months or so said 85 to 90 [US] cents is roughly [where] they would like to see it. Businesses are saying they can deal with it a bit higher than that. »
The overwhelming number of businesses also said the currency had no impact on their business plans over the next 12 months. Nearly one in four exporters and importers said the currency had no effect on their workforce or investment plans.
Building Family Opportunities program expansion aims to help 350 long-term unemployed get jobs
UP to 350 long-term unemployed outer suburbs residents will be helped to find a steady job through the $2 million expansion of a State Government program.
Premier Jay Weatherill today opened one of two new offices for the Building Family Opportunity program, saying the scheme already had proven long-term unemployment could be overcome when the right supports were put in place.
“The BFO program is about wrapping services and supports around families, including those
who experience intergenerational unemployment, with the ultimate goal of finding and keeping
a job,” he said.
“Families that face disadvantage can have multiple barriers in their way when it comes to
finding work – this might be drug or alcohol use, domestic violence, lack of personal transport,
or no training or experience.
“BFO provides intensive support and helps families clear these barriers one by one, sticking
with families in the long term.”
Mr Weatherill said more than 400 people had found work through the program since it started in 2010 and more than 800 people had entered training programs.
UPDATE 3-News Corp to buy real estate website operator Move for $950 mln
(Reuters) – Rupert Murdoch’s News Corp will buy Move Inc, the owner of property websites such as realtor.com, for about $950 million to expand its digital marketing business as advertising revenue from its print business dwindles.
The deal is the second large acquisition in the online real estate market this year as property website operators struggle to turn rising revenue into consistent profitability.
Top U.S. real estate website operator Zillow Inc bought smaller rival Trulia Inc for $3.5 billion in July.
CRT Capital analyst Neil Doshi said the online real estate market remained largely fragmented and there was room for more consolidation.
News Corp, which owns the Wall Street Journal, the New York Post and newspapers in the UK and Australia, said it would pay $21 per share for Move, a premium of 37 percent to the stock’s Monday close.
Move shares rose to $20.93 in early trading on the Nasdaq, while News Corp shares were down about 1 percent at $16.67.
New Zealand News
New Zealand: Fontera payout cuts fuel concerns over NZ economic prospects. This increases the pressure on new PM Key Cabinet to accelerate rebalancing the economy and reforms. We have been indicating that NZ has already started a genuine shift toward new Tech agriculture, health and education services directed to Asian neighbours. The fact that PM Key secured another term supports our constructive scenario on NZ.. This constructive scenario narrative is currently overshadowed by the “search for yield” (or interest rates differential) and RBNZ fight against excessive carry trade effects.
Occupy Central goes global: Solidarity protests planned for dozens of cities worldwide
Solidarity protests are planned in more than 30 cities around the world this week in support of ongoing pro-democracy protests in Hong Kong.
Occupy Central entered its third day in the city on Tuesday, with much of Causeway Bay, Admiralty, Central and Mong Kok paralysed by hordes of peaceful protesters.
Police reaction has been considerably softer since tear gas and pepper spray were used heavily on Sunday night, attracting widespread condemnation both from Hong Kong and around the world.
Demonstrations were held in multiple cities across the globe on Monday as expat Hongkongers and sympathisers voiced their support for the so-called “Umbrella Movement”, named for the tool protesters are using to shield themselves from both the baking heat and police pepper spray.
Is the Kiwi dollar at risk of a free fall?
The New Zealand dollar’s precipitous drop, triggered by the central bank’s disclosure that it had intervened aggressively in the FX market, has investors questioning whether it faces a free fall.
On Monday, the kiwi dollar plunged nearly 2 percent to a 14-month low of $0.77 against the U.S. dollar, after data showed the Reserve Bank of New Zealand (RBNZ) sold a net 521 million New Zealand dollars in August. The sale – the largest in seven years – was a bid to lower the exchange rate, which has been a headwind for exporters.
With the RBNZ on a campaign to weaken the New Zealand dollar, the currency is appears to be a one-way bet over the longer-run, say strategists, but declines are likely to be orderly and gradual.
« Clearly, the risks are heavily skewered to downside, but I’m not expecting a free fall, » Ray Attrill, global head of FX strategy at National Australia Bank (NAB) told CNBC on Tuesday.
Japan News
Japan: inflation softening along with economic downgrade was widely expected as a result of the 1st VAT hike (cf our strategic note Dec 26th 2013). We see BoJ to keep the bazooka of QQE-2 un-tested until the JPY excessive depreciation and JGB solvency risk came down * investors are still short JGB expecting a Japan crisis *. The 2nd VAT hike will require some stabilisation at the current levels, though we expect that PM Abe will undertake the 2nd hike in steps, because BoJ is unlikely to be sufficiently confident to move ahead with more QQE while JPY is accelerating its depreciation. PM Abe voiced concerned over the JPY rapid depreciation, as he pointed (rightly in our opinion) to the increase in energy cost, which deteriorate further the energy trade deficit – and increase the risk of JGB solvency -. The Prime Minister confirmed in his Diet address to pursue Abenomics 3rd arrow.
However, BoJ might do some adjustment to its monetary program but nothing excessive. The news flow out of this weekend G20 meeting shows that the global community is gently pressing the government and the BoJ to pursue structural reforms, economic rebalancing, solvency improvement (through VAT 2nd hike commitment) and adequate monetary policy (not too hot – to avoid a crisis – not too cool – to avoid derailing the on-going portfolio rebalancing approach -). Japan continues to face heavy public pressure to rebalance its energy reliance to nuclear. While we believe that Japan will continue to press for reopening nuclear plants (when Nuclear Watchdog gives his green light), the medium to long term trend is that Japan will use Trade negotiation with neighbours to secure new energy sources while using this pressure to deregulate and move forward with Abenomics 3rd arrow (please see our Japan update for more on our views). We are not surprise by the fact that Russian news media are reporting the push back to reopening nuclear plans, ahead of Japan-Russian talks (about sanctions, energy agreement, and disputed territories).
Japan volcano: Search suspended as eruption intensifies
Efforts to recover the bodies of at least 24 climbers have been suspended again after the eruption on Japan’s Mount Ontake intensified.
A BBC correspondent near the mountain on Tuesday said the volcano was shooting out even more ash, smoke and rocks than before.
At least 36 people are thought to have died in Saturday’s unexpected eruption.
Dozens of other people were injured in the incident on the mountain, which is about 200km (125 miles) west of Tokyo.
Hundreds of firefighters, police and troops have been involved in search operations.
Twelve bodies have been recovered so far. Another 24 are reported to be on the mountain, including five more located on Monday.
Japanese authorities only declare fatalities once the body has been examined by a doctor.
Luck, instinct determined fates of volcano hikers
TOKYO (AP) — Huge boulders falling from the sky. Billowing gray smoke that cast total darkness over the mountain. Volcanic ash piling on the ground and fumes filling the air.
Japan’s Output Unexpectedly Slumps as Retail Sales Rise
Japan’s output unexpectedly fell while stronger retail sales and an improving job market showed resilience in the world’s third-biggest economy as Prime Minister Shinzo Abe weighs another sales-tax increase.
Industrial production declined 1.5 percent in August from July, compared with the median estimate of economists surveyed by Bloomberg News for a 0.2 percent gain. Retail sales increased 1.9 percent and the jobless rate slid to 3.5 percent.
The data underscore headwinds for manufacturers as the yen trading near a six-year low fails to lift output, even as domestic demand crawls back after a blow from April’s tax hike. Abe’s government has signaled it’s prepared to boost stimulus to help consumers and businesses weather any further increase in the levy next year.
North Korea proposes Japan abduction talks in Pyongyang
TOKYO (Reuters) – North Korea has told Japan it would not pass on findings from an investigation into the fate of Japanese people abducted by North Koran agents and proposed that Japan sends representatives for talks, Japan’s prime minister said on Tuesday.
The fate of Japanese people abducted and taken to North Korea decades ago to help train spies has soured relations between the two countries and Japan’s prime minister, Shinzo Abe, has made a resolution of the dispute a top priority.
A senior Japanese Foreign Ministry official, Junichi Ihara, met Song Il-ho, North Korea’s ambassador for normalisation of ties with Japan, on Monday in China for an update on the North’s investigation.
« Ambassador Song said a scientific and objective investigation was being carried out steadily, but that the probe was in an initial stage and there were no concrete results to report, » Abe told reporters.
« Also, the North Korean side asked director-general Ihara to come to Pyongyang and meet with the members of the special investigation committee face-to-face for the detailed status of the probe, » Abe said.
Japan eased some sanctions on North Korea in July in return for the North reopening its investigation and said it expected an initial report to come out between late summer and early autumn, prompting hopes for progress.
Japan Former Prime Ministers Call for Nuclear-Free Country During Rock Festival: Reports
MOSCOW, September 30 (RIA Novosti) – Former Japanese Prime Ministers Junichiro Koizumi and Morihiro Hosokawa have taken to the stage as anti-nuclear campaigners during the country’s No Nukes 2014 rock festival, the Japan Times reported Tuesday.
« We must create a country where nuclear power generation is zero, » Koizumi shouted onstage to some 2,500 people attending the event, according to the newspaper.
« Let’s develop our country without nuclear power, » he added.
Both former prime ministers expressed their strong opposition to nuclear power generation during the event held on September 29 to September 30, the Japan Times reported.
Koizumi spoke with reporters about the dangers of nuclear power plants particularly in natural disaster-prone Japan stating, « In Japan, earthquakes, tsunami and volcanic eruptions could occur in various locations. It’s a country that’s not allowed to have nuclear power plants, » he stressed.
Though Koizumi and Hosokawa do not have any plans to take part in the gubernatorial election in Fukushima Prefecture on October 26, both feel hopeful of the country’s anti-nuclear mentality trending.
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