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SNBDL Daily Briefing
Report prepared using big data solution Quid
Our take away from the last 24 hours news
As the planet “economy” is heading to IMF and WB meetings, two “stories” are making the news: 1) Eurozone deflation risk, and 2) monetary policy 2.0, post end of QE in the US. These stories are covered through the prism of old text books on one hand, and with a pinch of political activism of the many interest groups which will suffer from what policymakers are saying that they’ll do (please see our previous daily for lawmakers strategy).
A slow Fed in normalising interest rates, would mean 1) a large proportion of “smart money” are likely to look like “dump money” (these have called for quick and urgent rate normalisation while inflation is anything but surprising to the upside since the beginning of the crisis), 2) the carry trade bugs would benefit but at the expense of much constrained macro prudential environment, 3) Pension Fund liabilities would increase (these are already on the rise due to the improvement in life expectancy) which would mean replacement of some fixed income asset by equity – dividend stocks – , private equity – to spot the next Facebook or Twitter – and infrastructure direct investment.
A successful ECB in avoiding deflation, would mean that more than 80% of the market consensus economists have called it wrong and need to find a new job. We are at the very important moment where text book should be revised and instead of looking backward, the central banks have to move forward establishing their own credibility in a world were the mistrust in a speculative bubble (if pessimism was an asset class I would be short these days). This mistrust not only jeopardise the economic future it does as well help extremists groups (extreme right and left) and terrorist organisations to hire their future “talents”. We have expressed unease with how many media have become populistic. Many of our calls have been proven right, though they were going against the consensus, for the simple reason that we consider the public much more smarter (and this is exactly what we see everyday when using big data). We believe that the occupy movements have been hijacked but these movements participants want to use their soft power and avoid getting trapped by interest groups which would benefit from any disorder. Anarchy, as a political system, is outdated in the XXI Century because of the simple fact that every one is getting empowered. It might take time to get rid of each terrorist but make no mistake better starting to clean the books now because the data will be able to spot anyone who have participated in creating disorder and spreading mistrust (the US SEC, along with all regulators, consider dis-information illegal and this time it’s will not stop to financial sanctions).
We take the opportunity to explain the different between dis-inflation and deflation. While deflation is a self sustained decrease in growth and inflation, dis-inflation is the reduction in the rate of inflation. We are genuinely in dis-inflation, but NOT in deflation. We understand that many commentators are making this Economics 101 mistake to speak their own books and have more easing (to benefit from the carry trade, or to create more tension between Germany – France and Italy and destroy any prospect for the EUR to become a reserve currency). The driver of deflation are inexistent. Should France and Italy stick to the structural reforms agenda (“pact de responsibility” in France and Labor and institutional reforms in Italy) the grand bargain would be struck between Target2 creditor countries and their debtors. This clear the way to the EUR to fly as a reserve currency. The overwhelming genuine evidences show that the situation is heading toward this constructive scenario, although one might agree that France and Italy could do more and quickly. However, rushing in transforming two countries which have not reformed for two to three decades would create social tension. These two countries, which I have studied for more than 2 decades, cannot reform at the same speed as Greece or Latvia. Many Austrian economists are pushing for the Greek-style speed of reforms because they genuinely know that such a speed could derail the reforms all together (and achieve their political aim).
President Abraham Lincoln said “You can fool all the people some of the time, and some of the people all the time, but you cannot fool all the people all the time”. Some market participants are better meditating this quote.
“Data dependence” vs. Calendar forward guidance has been the debate amongst fixed income traders/investors since the introduction of the forward guidance as a monetary policy tool. The main issue with data dependency is that the Fed could miss the Goldilock moment at which it should increase rates. In such a case the Fed would have to enter into a very rapid hiking cycle (which would require a very steep yield curve). More than 70% of the economists are saying in sync. the Fed will be too late. I hope that this strong belief has nothing to do with the fact that the Fed is headed by a woman (yes I am also fed up with all the gender comments I have been hearing for the last 2 years when it comes to discuss Fed and Chair Yellen).
We explain here why we have been forecasting a rate hike not early than Q1-2016 and we stick to it. First, many fixed income folks, unlike commodity trader, do not analyse enough geopolitics. When they do it’s to act as a buyer of safe heaven (like in September with USD) or as a seller of fixed income, when expecting inflation to go higher start through oil prices (1979 crisis scenario). This time, fixed income investors have been surprisingly more bullish oil prices than commodity trader were. Since we have published our May 2014 strategic portfolio we have been negative on Oil (our first short term target was 90$, before we have been calling for a pause, to reach in a second stage our second target $80 per barrel of WTI – 1st deliverable future -). The risk to our energy call is to the downside. Indeed, we may revise our second target lower depending on how the negotiations with Iran go.
Second, many, including Fixed Income King Bill Gross, have been saying that Central Bank fiscal deficit financing will spur hyper-inflation and a solvency crisis. We have pushed these ideas back because of the simple fact that the US is reducing its deficit and pushing downward inflation – thanks amongst other things to ACA or Obamacare.
Third, many have been considering that the Philipps Curve and the Taylor Rule should apply without questioning it (like a Dogma). But because of robotics, automation and cheap learning (E-learning for instance) the Philipps Curve shape is currently changing. The economies in the West are transforming from consumption to experiences. Unemployed are finding jobs, though they are not yet satisfied with these – as indicated by the elevated partially employed for economic reasons -. Others are creating their own businesses (the start-up of yourself economy) instead of hoping that Corporations will move away from a crony capitalism which have reached all the level of hierarchy. XIX Century economists have explain this as the phenomena through which the worker is willing to “pray whatever god” to keep his job and avoid the stigma of unemployment. This generate a genuine lack of risk taking (better safe than sorry would one say).
These trends are miles away from the Generation X XIX Century style revolution and a pure relation between unemployment and inflation. We have been indicating that while wages of Data Scientists will continue to sky rocket (data scientists are offered $250-300K a year for a first job), wages of bankers (which industry will be much more regulated going forward) are likely to stagnate or decelerate. We took deliberately these two examples because they indicate why some economist, traders, bankers I discuss with, feel much higher inflation than the CPI 2%-inch print. As a successful banker you might like to buy a mansion in Mayfair. But there is a competition for this “luxury property” market which is coming from the new wealthy “start up manager” which pushed for these category of goods or services inflation higher. We cannot call it an asset market bubble because many are not using leverage for paying these houses (which reduces the self fulfilling risk of deleveraging).
However, when it comes to the median inflation basket things are genuinely positive: oil prices and commodity prices reduction will passthrough in the coming months, helping inflation to remain subdued and consumption to resume. Should the Fed hike rates for the benefit of some at the expense of the many? A good question the US public have to decide upon in the next mid-term election (November). We have been worry that the Senate goes to the GOP (and again here were are not supporting one camp against the other) because in such a case the Transparency Bill could have a second life and therefore push the Fed into a genuinely bad path. The Tea Party caucus has been genuinely opened speaking about the need to risk solvency in order to reintroduce the gold standard (a model which could self reinforce deflation like in the 1930s with the consequences we know).
Ebola could cost between $9bn to $32bn depending how credible is the global institutions response according to the World Bank. From a pure economic prospect, (no nice feeling here), by investing $1bn the world could save $23bn. Because$1bn is actually what WHO, UN believe to be sufficient to deal definitely with the outbreak. Any CEO would love to have this difficult question which could bring 23x return. We have been following the ramp-up of this investment, US Pentagon devoted 700mn along with Bill Gates 50mn and other wealthy and NGO institutions. #IceBucketChallenge has showed as that we can be nice, without taking anything from ourselves. We are getting to understand that a Win-Win scenario is not only stable but it’s also generating the most profit. If only we restart believing in ourselves.
In term of response, Canada, US, Britain and others have introduced or are considering temperature screening in Airports and Train stations. We have indicated that one genuine approach would be to use the “health devices” which can track temperature as well as heart rate to map with big data where the risk are and how to stop any outbreak.
Ebola infection has started to spread to Europe. CDC estimated to 100 the number of people who might have been affected in the US. This number is likely to increase in the coming day, before it decelerated. This is the Contagion effect as know in Mathematics. In order to avoid the paranoia, the CDC, as we were expecting, have used the power of social media and @twitter, to : improve the information (fight disinformation) and spur the motivation for social media to help reduce the outbreak. The need to get prepared is very important in a period where our institutions are seen as lacking credibility. We have been indicating that having Russia cut gas delivery to Europe could make any non-lethal flu a cause of paranoia and create more economic headwinds (consumer confidence etc.). But unlike many commentators we consider that our institutions – WHO, CDC and others – are up to the task and mankind is more resilient that many think. The media pressure around Ebola is making it easier to dedicate budget for this fight (Pentagon has dedicated $700mn).
The most widely spread FALSE belief is that Ebola can mutate easily. This is possible but highly unlikely. In films and TV-shows, scenarists like to make their stories appealing but the reality is sometimes (fortunately) less scary.
From our Thursday Oct. 1st daily
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.
Israel and Palestine continue to head into the right direction.
While Gaza war settle down, recognition of the economic cost increases. As we were expecting, the national coalition between Fatah and Moderate Hamas is taking place. This is likely to increase President Abbas political capital which would help the country to: 1) secure more economic aids – though these aids have to be channelled to the people in need, not to terrorist financing -, 2) increase the pressure on the international community to speed up a two-states solution negotiated with neighbours, 3) be seen as a credible partner with whom Israel can negotiate. As we are heading toward more peace, Hezbollah and Hamas spin-offs are looking to become more barbaric in order to keep their militants (in the Silicon Valley parlance we call this “retaining talents”). While in the short term, the Hezbollah is likely to become more barbaric long-term we may settle agreeing with President Hassan Rohani view, expressed in his UN General Assembly address, Terrorists are in a global coalition, the world should unite to fight them.
But PM Netanyahu said it all during his visit to the US: a nuclear Iran should not come with an increase in the existential threat to Israel. While we are heading to a peace process, Israel needs to secure the goldilock conditions of such a scenario. This goes through a genuine commitment by Ayattolah Khamanei that Israel should continue to flourish in peace, leaving the existential threat to ISIL and the Califat-of-Paper Abu Bakr El Baghdadi. Make no mistake : Israel will never be destroyed. Because, Israel is one of the greatest idea, in my opinion, which human brain invented during our common 13.8bn years history in creating institutions and laws to reduce universe entropy. It has nothing to do with religion or ideology, this is just pure rational thinking and science. The idea of Israel remains me that while facing adversity one move on an try to empower himself to bring: prosperity (in our parlance: jobs, growth, adequate inflation, wealth, solvency etc.). This is what, I believe, Moses did: creating the promised land of prosperity and peace. This is why Israel can never be destroyed. Even Hitler failed, Abu Bakr El Baghdadi is doomed and Ayattolah Khamanei have to play his cards well now. He can empower his people, improve Iran economy and growth, by recognising the obvious. In 20years finance careers I’ve never seen an investment as obvious as this one. [Don’t hesitate to ask for details as usual].
Sweden recognition of Palestine constitute a first step into the right direction. External pressure on Israel, comes as a genuine help for the government to fight its hard liners and bring them to a peace solution. We see this process to last one to two years but we are convinced that peace will happen not because it’s a nice thing but because it’s where economic prosperity lies for Iran, Palestine, and Israel.
As expected, PKK leader is calling for speeding up peace negotiation with Turkey to clear the way toward Turkey ground intervention. However, Turkey continues to say that they would like a ground intervention coalition. As the coalition is negotiating two important issues: 1) dealing with President Assad, and 2) ground intervention, ISIL is striking battles win in Kobani. We do see this win as short term because the coalition is likely to settle on a deal because facing the chaos there is no choice but fighting.
From our Thursday daily briefing:
The likelihood of defeating ISIL continue to increase, though short term ISIL seems winning battles such as Kobani (at the Turkish borders).
Turkey and Canada decided to join the 40 countries coalition to fight ISIL. We were saying that Herve Gourdel beheading (to which we need to add Alan Henning since Friday) and the Philippines militant threat to ham a German were sufficiently evil behaviour in 2014 to create the wake up call that each of us should make something to stop these unacceptable atrocities.
We are surprised by Turkey’s attitude toward Kobani. This attitude could only be explained by the fact that Turkey and Kurdistan have not settle yet on a strategy to defeat Assad without giving too much power to the Kurds (which may ask for an independent Kurdistan). Yesterday, Kurds have been protesting as Turkish ground forces stay out of battle for Kobani. Should Turkey join the Peshmerga fighting forces, it would target Assad as well as ISIL.
According to Theresa May, ISIL could acquire a dirty weapon. Saudi’s high cleric ceased the opportunity of Hajj pilgrim to call all muslims – Shia, Sunni, Maliki, Wahabi etc. – to defeat the Murderers In Iraq & Syria (known as ISIL). What we commonly name ISIL is not Islam (not I) and not a state (not S). It would be helpful to replace these two letter by “M” for Murderers. I bet that the Jihadists hiring will collapse after this simple action. The fight against the Murderers will be easy should we decrease the number of their new followers. This work like contagion or viral system. The final fight will come along with the genuine actions G-20 is saying it will undertake in Australia to improve governance. This time there is no way to escape with half-backed solution: G-20 needs to get rid of bad governance to reduce the spread of the view that “institutions are rotten to the core” (a view which helps Jihadists to hire youth on the internet). We discussed it since 2009, we have increase the data to track this bad governance since 2012. This power have moved from states to the public. Fortunately, anecdotal evidences (from UK to China) indicate that lawmakers have the same goal reducing bad governance. This is not because that’s a nice thing to do but because this were profits, shareholders values, pensioners interests, workers interests, consumer interests are. PM Abbott has joined the call to stop Hate Preacher from spreading their hate beliefs. But the global community needs to fight these preaches by showing that there are many young muslims which while offered to be hired by Terrorist groups have preferred fighting the hateful ideology, saying that this ideology should not be called Islam (#NotInMyName).
Again, we tend to reduce Entropy, this since our first day 13.8 billions years ago (Oil prices development and the number of violent deaths are an amazing reflect this fact).
Finally, as part of the evidence that data will help fight terror, France 24 broke Sunday that Zabihullah Mujahid (Taliban spokesman) revealed mistakenly his localisation in twitter (here)
European Union’s incoming foreign affairs head Federica Mogherini hinted her strategy with the “bear” Russia: firmness and tact. Actually, we believe that firmness is coming from EU Council President Donald Tusk, while tact needs to come from the EC. EU’s Mogherini hinted that others in Brussels know better to deal with bears (in politics that mean “I know that you have vested interests with Russia”). Many political parties have to drop their support to Russia and start think about EU public interests. Otherwise, many will start questioning whether these are not conducting treason (betraying those who have voted for them). The list is long and no one have interest to name names. In an environment where Iran wants to secure the negotiation without upsetting Russia (a long term ally which have helped provide a back-door to Iran oil), Rouhani said that Iran negotiation should not derailed any political solution with Russia. Unfortunately for Russia this will not help lift sanctions. Because, many commentators are watching: EU should make no mistake, vested interest will not go away with the crimes Russia is responsible for (and that goes beyond annexing Crimea).
From yesterday report
Oil prices plummeting continue to constitute an existential threat to President Putin administration. A policy document of the Islamic State discovered at one of the raids brings forth some alarmingly ambitious plots of the jihadist outfit. The plan includes bribing Russia with access to oilfields in exchange for Iran’s nuclear technology. This document confirmed that ISIL is looking to Russia to increase it force. We have been worry that vested interests would align their force with those of the barbaric. Should they do so, they would be no place to hide. Make no mistake, if ISIL got the technology Putin and Russia (with interest groups which have been supporting them) will be held accountable.
While Russia continue to prepare its isolation (VTB’s says consider that capital control is not the end of the world), Putin stays put and keep his narrative: the cost will be more harsher for EU than for Russia. Unfortunately, for President Putin, facts have no political bias or religion. Russia economy is collapsing and the Saudi oil prices cut, Iran negotiation amongst other thing are pushing oil prices to a free fall spiral and threatening the stability of the government (an Oil price at $75 will push Putin out). In our Energy Update (our call that oil might go as low as $80 for WTI) we’ve highlighted the trends we observe now. These are not only providing a boost to EU (currently mistakenly analysed by many XX Century economists as a deflationary risk) but also increasing the current Russian administration existential threat. We forecasted last February that Russia will have to go through a period of isolation, will create Eurasia by annexing Eastern Europe (we still unsure where the division will take place). We stick to this scenario. However, we are working on an alternative scenario, where the speed of oil prices collapse may over through Putin administration and oligarchs before President Putin reached his messianic goal (many economists agree with the view that some of Russian President speeches are messianic – 2007 Munich is a very telling speech-).
Ukraine President is taking the “good governance bill” to the floor. This on one hand increase the likelihood of our scenario that Ukraine – West will become a new Poland but it increases short term the risk of more actions of “bad governance agents: the self designated Eastern Republics”). I wonder what kind of economic prospect will have these Russian federation satellite. Old USSR satellite (Latvia and Bulgaria) are fighting political crisis spur by the widely spread mistrust in their government. Like during the Cold War, Russia continue to use the spread of disinformation (in the internet). But we see these posturing likely to fail, should EU Commission President pursue his genuine plan to change EU narrative (more jobs, more investment – specially in digital -). The emergence of new media companies helped by big data is likely to be another leap in defeating the disinformation and mistrust spread.
Hong-Kong political reforms protest: Events are developing as we were expecting
Pro-democracy protests have decided to change their strategy and open talks. 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. China wary of HK protests ease pain of Macau Casinos (a pain organised by China to reduce corruption). This is 100% in line with our first comment on HK protests please find below some of what we were saying yesterday.
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.
We do agree with the view that HK Occupy is not about democracy but about inequality. We do see the objective of Occupy to create the conditions to speed up reforms rather derailing them. We have been saying that Tea Party, Oligarchs and Russia have highjacked the movement for which we support the objective but not the actions. But many are fooling themselves when thinking that the populists movements want to change the current trend. Can anyone trust Russia’s Putin and Gold Bugs Tea Party in the fight against corruption? Really?
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. However, Artur Mas uses the threat of going ahead with the referendum, though the constitutional court has specified that’s un-constitutional. This threat is urging PM Rajoy to act which he did in Saturday by opening discussion of some kind of PM Cameron solution to Scotland independence call (i.e. more fiscal autonomy). Catalonia government will decide by October 15 on whether to hold referendum. We see the most likely scenario to be some deal with Madrid which would : 1) help Artur Mas to claim victory – he would have secured more autonomy – and 2) help PM Rajoy to de-escalade the tension over Catalonia. We see the next region to start a fight for more autonomy to be Bavaria (Germany’s most wealthy region which is pushing Alternative fur Deutschland – AfD – anti-EZ party wants to reduce its contribution to other regions – “lazy” EZ members states, in their parlance -. Business interest (Football Clubs) are starting to indicate the cost of a secession. Novo-Russia continue to support Catalonia, as a secession could help justify Crimea. Many have been talking about war in the East, the War against Russia is also taking place in Catalonia. The relations between populists parties in EU and Russia speaks volume. Czar Putin should make no mistake EU is one and indivisible. Populism is a cancer, EU is recovering from it.
New events in St Louis are resuming racial tension. This tension is no different from Occupy HK or other militants who feel that : 1) new technologies are leaving them behind, 2) inequality is at unacceptable level, 3) they need to speak loud to genuinely be a soft power. This tension is natural when it’s hard to find any new medias explaining that the US institutions are not rotten to the core. We are more constructive than the consensus on these matter because many evidences are showing that Gen X use of social media is indirectly pressing government to improve governance. This trend is likely to yield to more constructive Win-Win scenarios.
We have been covering the US using mainly 6 axes: 1) immigration reforms, 2) tax reforms – tax inversion, 3) institutional mistrust, 4) net neutrality, 5) mid-term election, 6) new gold standard. Today we focus on Institutional mistrust, as we are fed up of how this mistrust is derailing growth.
Institutional mistrust: In order to reduce the widely spread mistrust, Twitter sued FBI and DOJ to release NSA information requests regarding surveillance of its users. Let’s start by indicating that it does not need to be NSA to get a large sense of who is thinking what and supporting whom on twitter. This is the most fascinating thing I’ve been working on since I joined Twitter. A specific research work will be published in the coming weeks. It will show that not only we know localisation, but also we know what people believe in, what camp they are working for. We have already spotted one or two spies as well… At SNBDL we like to say: if you’re cheating on your partner, tell him the truth. There is no way you can hide it in a globally shared data. When it comes to privacy – security balance, we have been indicating many times that the “Casablanca Test” said it all (this is the name given by the US Supreme Court).
Economy: While job creation continue to be well supported, the wages are muted. This is the most exciting story because the Fed can continue to support job creation while the US economy is rebalancing. We understand those who want quick rate normalisation rational, but this rational is not for the benefit of the many – because inflation is subdued and is likely to continue to be -. In the housing sector, the US is confirming the trend that it’s heading toward “Germanisation” *becoming Germany with housing*. Indeed, income and wealth inequality is pushing many americans to consider renting. When one can carry books, music, films, paperwork, IDs etc. on one small devise such as a phone or a tablet, renting become a genuine solution to focus one’s wealth to empower oneself.
President Obama gave a speech on the Economy to help Democrats to keep the Senate majority. The speech did not come with any new news. However, the agenda presented could be derailed and even create a doom scenario should GOP won the Senate majority. It would jeopardise reforms (when China and EU are reforming) such as immigration, education, infrastructure etc. The doom scenario would take place should they resumed their aim to impeach the US President. We are not siding here against GOP from any ideological prospect. We do believe that it’s in GOP interest to loose, to focus on it’s internal civil war against the Tea Party. The GOP without Tea Party can be a very important driver to bi-partisan reforms agenda. With the Tea Party, not only GOP threatens the US economy but it does also threaten its own future. Remember : GOP abolished slavery. It’s now seen as in a War against Women. We disagree with Mohamed El-Erian view that mid-term elections are a non-even for markets. Mr. El-Erian explains in a private communication that he does not see GOP dragging its feet into a non-sense economic politics (gridlocks). We disagree with this because Tea Party is far from being rational and its objective is to help its own financial supporters interests: Commodities (through Koch industries which has “invested” $125m in this mid-term ads so far) and Gold bugs (ask if you disagree with this we can share with you tens of thousands of website and evidences).
US Tax inversion: Salix Pharmaceuticals Ltd , citing a « changed political environment, » said on Friday it had scrapped a deal with Italy’s Cosmo Pharmaceuticals SpA that would have allowed it to shift its tax base from the United States to Europe.
From Sept 26th Daily Briefing: 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.
EU: Patrick Modiano, Literature Nobel Prize win creates an unique opportunity to remember the atrocities which took place during Nazi occupation. It could be an unique opportunity to avoid following those political activists which gained coverage recently, which are calling for ending the EU (EU-Skeptics). UKIP and Front National, to point to those two EU-Skeptics, rhetoric are no different from what EU was hearing before WW-II.
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). Although PM Valls said out loud “My government is pro-business” (he translated it in English because in literal translation is sound like a french lover talk), many media continue to bash France and EU (even Mickey needs a bailout). But the same story about Euro-Disney shows that US corporation are still believing in EU and EZ (let’s face it the 2 – wake up call have pushed leaders to change the course – it’s the EC commission of the last chance -). Italy is winning its way to Labor market reform. This is likely to clear the way from more institutional reforms to defeat bad governance (or corruption). Furthermore, EU leaders are considering speeding up funds for job recovery support. The most important single data today comes from Switzerland, which after a long negotiation, is agreeing to share banking secrecy data – it’s the first step in dealing with privacy-security issues -.
Ahead of Br-exit negotiation, Britain is fighting against bad governance in Finance. This is as a game changer as has been President Xi actions to fight corruption. We are constructive on EU scenario because policymakers are taking the right decision.
UK LibDem has recovered from the “Sorry”-Gate. Back then, we have analysed Vice PM Nick Clegg apology to be the next big thing in politics. Creating more trust with the public and the strategy seems going the right direction.
China: Continuing data out of China confirm that the country is soft landing while rebalancing. Labor statistics have been showing 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. “BHP Billiton has raised the stakes in the ongoing war of attrition in global iron ore with a plan to slash costs and lift production” confirms our view that commodity companies are starting to adapt to the new normal, while China is cutting the road to nowhere and excessive bureaucracy (China removes 160,000 phantom staff on payroll, China Today). Acknowledging that there is “phantom staff” out loud is an event for those who have been following China for years (this could have cost some China Today’s managers their jobs a couple of years ago).
Furthermore, the west is helping China to change it’s “narrative” from being anti-democracy (China has not gone back on its agreements with Britain over the future of Hong Kong, whose autonomy is far greater than what Britain expected three decades ago, a former aide to late British Prime Minister Margaret Thatcher has said.).
Furthermore, Premier Li is undertaking a state visit to EU. This is likely to bring more collaboration with the West, while China will be offering a back-door to Russia energy at a moment when : President Putin is challenged by plummeting oil prices and sanctions are making harder for the energy sector (finance projects and investments).
The government continues to fear 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 [while becoming environmental friendly], 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 recent 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 struggles with the labor statistics glitches. Treasurer Hockey offered the private sector to check the information and help to correct that data. While this information does not change drastically our view that the RBA will stay put (due to the fear of a housing bubble, which the central bank is dealing with through macro prudential tools). However, the glitches reduces the “view” in the market that countries such as China are manipulating their figures. While our work on macro eco data has pushed us to take the economic figures with a pinch of salt (due to the methodology which could create some issues), we do not side with camp mistrusting everything. However, we believe that the big data analytics is likely to help improve the accuracy and the frequency of the high frequency data. However, the statistic office may take time before undertaking the experiment.
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 – ).
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 (please see below recent promising advance in Asthma treatment) 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.
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. Japan is said to resume discussion with US on TPP, while energy sector is heading toward energy transition away from Nuxe. Physics Nobel price attribution to energy efficient and environmental friendly technology is a game changer because it does support the view that the Win-Win scenario is feasible, if only the consensus stop being pessimistic for no reason.
Furthermore, GPIF delayed its asset allocation review. This is positive because it will calm down markets nervousness that GPIF will shift over-night its JGB holding and would create a market fixed income crash. We see the current development in line with our constructive scenario.
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 pushback to reopening nuclear plans, ahead of Japan-Russian talks (about sanctions, energy agreement, and disputed territories).
As China, Japan, and South Korea heads toward a constructive talks (as we were reporting in our previous daily briefings) and Japan and North Korea are heading toward a solution on Japanese civilians abduction, North Korea leaders close to Kim Jong Un held last weekend high level talks with South Korea minister of reunification. This indicates that the scenario of an unified Korea is advancing. We have been considering that the reunification will ultimately take place but it requires normalised relation amongst the 3 important players: China, Japan, South Korea.
Central banks News
As the planet “economy” is heading to IMF and WB meetings, two “stories” are making the news: 1) Eurozone deflation risk, and 2) monetary policy 2.0, post end of QE in the US. These stories are covered through the prism of old text books on one hand, and with a pinch of political activism of the many interest groups which will suffer from what policymakers are saying that they’ll do (please see our previous daily for lawmakers strategy).
A slow Fed in normalising interest rates, would mean 1) a large proportion of “smart money” are likely to look like “dump money” (these have called for quick and urgent rate normalisation while inflation is anything but surprising to the upside since the beginning of the crisis), 2) the carry trade bugs would benefit but at the expense of much constrained macro prudential environment, 3) Pension Fund liabilities would increase (these are already on the rise due to the improvement in life expectancy) which would mean replacement of some fixed income asset by equity – dividend stocks – , private equity – to spot the next Facebook or Twitter – and infrastructure direct investment.
A successful ECB in avoiding deflation, would mean that more than 80% of the market consensus economists have called it wrong and need to find a new job. We are at the very important moment where text book should be revised and instead of looking backward, the central banks have to move forward establishing their own credibility in a world were the mistrust in a speculative bubble (if pessimism was an asset class I would be short these days). This mistrust not only jeopardise the economic future it does as well help extremists groups (extreme right and left) and terrorist organisations to hire their future “talents”. We have expressed unease with how many media have become populistic. Many of our calls have been proven right, though they were going against the consensus, for the simple reason that we consider the public much more smarter (and this is exactly what we see everyday when using big data). We believe that the occupy movements have been hijacked but these movements participants want to use their soft power and avoid getting trapped by interest groups which would benefit from any disorder. Anarchy, as a political system, is outdated in the XXI Century because of the simple fact that every one is getting empowered. It might take time to get rid of each terrorist but make no mistake better starting to clean the books now because the data will be able to spot anyone who have participated in creating disorder and spreading mistrust (the US SEC, along with all regulators, consider dis-information illegal and this time it’s will not stop to financial sanctions).
We take the opportunity to explain the different between dis-inflation and deflation. While deflation is a self sustained decrease in growth and inflation, dis-inflation is the reduction in the rate of inflation. We are genuinely in dis-inflation, but NOT in deflation. We understand that many commentators are making this Economics 101 mistake to speak their own books and have more easing (to benefit from the carry trade, or to create more tension between Germany – France and Italy and destroy any prospect for the EUR to become a reserve currency). The driver of deflation are inexistent. Should France and Italy stick to the structural reforms agenda (“pact de responsibility” in France and Labor and institutional reforms in Italy) the grand bargain would be struck between Target2 creditor countries and their debtors. This clear the way to the EUR to fly as a reserve currency. The overwhelming genuine evidences show that the situation is heading toward this constructive scenario, although one might agree that France and Italy could do more and quickly. However, rushing in transforming two countries which have not reformed for two to three decades would create social tension. These two countries, which I have studied for more than 2 decades, cannot reform at the same speed as Greece or Latvia. Many Austrian economists are pushing for the Greek-style speed of reforms because they genuinely know that such a speed could derail the reforms all together (and achieve their political aim).
President Abraham Lincoln said “You can fool all the people some of the time, and some of the people all the time, but you cannot fool all the people all the time”. Some market participants are better meditating this quote.
Draghi Says Investors See First ECB Rate Increase by 2017
Mario Draghi said investors predict the European Central Bank will start increasing interest rates by 2017 as he pledged to expand stimulus measures if needed.
“When we look at market expectations, the first hike in interest rates is foreseen by 2017,” the ECB president said in a speech at the Brookings Institution in Washington today. “The Governing Council has repeated many times, even as it was adopting new measures: it is unanimous in its commitment to take additional unconventional measures to address the risks of a too-prolonged period of low inflation.”
The ECB has introduced measures from negative interest rates and long-term loans to asset purchases to fend off deflation and rekindle growth in the 18-nation region. Draghi, in Washington for the annual meetings of the International Monetary Fund and World Bank, has also stressed that monetary policy will fail if European governments drag their feet on structural reforms and reiterated that message today.
Draghi Clashes With Schaeuble Over Steps for Europe
European Central Bank President Mario Draghi and German Finance Minister Wolfgang Schaeuble differed over what further steps to take if the euro-area economy keeps weakening as the region came under renewed foreign pressure to revive growth.
As the International Monetary Fund’s annual meeting in Washington began, Draghi pledged anew to loosen monetary policy more if needed and called on those governments with the room to ease fiscal policy to do so. By contrast, Schaeuble warned against U.S.-style quantitative easing and urged continued budgetary discipline.
The differences demonstrate the lack of a common front in euro-area policy making as its economy continues to deteriorate and the IMF estimates there is as much as a 40 percent risk of a third recession since 2008. Finance ministers and central bankers from the Group of 20 economies meet today, and Europe’s economic performance will be among the issues discussed, officials said.
“There is a concern about a deflationary spiral, we aren’t predicting it, but we want to preclude it,” Canadian Finance Minister Joe Oliver told reporters. “No one is saying it’s a piece of cake, far from it.”
WTI Rises From 17-Month Low on Fed; Brent Steady in Bear Market
West Texas Intermediate crude rose from a 17-month low on bets that monetary policies in the largest economies will remain expansionary. Brent was steady after entering a bear market yesterday on concern global supplies will exceed demand.
WTI advanced as much as 0.7 percent in New York. The dollar fell for a fourth day, bolstering the appeal of commodities, after minutes released yesterday from the Federal Reserve’s September meeting showed concern about risks in a stronger currency. Brent was little changed after settling more than 20 percent below its recent peak, meeting a common definition of a bear market.
“I believe we’ll see rising oil prices from this low point,” Frank Klumpp, an analyst at Landesbank Baden-Wuerttemberg, said by e-mail. “It just illustrates that we are in a very oversold area now for Brent, that it’s reached this technical definition of a bear market, but what’s more important is the supply and demand situation.”
S&P 500 Erases Year’s Best Rally as Oil Sinks, Gold Jumps
The Standard & Poor’s 500 Index wiped out its biggest rally of the year as small-caps tumbled with oil amid concern over Europe’s economy. Gold rose on bets the largest economies will keep interest rates low.
The S&P 500 (SPX) fell 2.1 percent at 4 p.m. in New York, the biggest drop since April, after rallying 1.7 percent yesterday. The Russell 2000 Index of smaller companies tumbled 2.7 percent, the also most since April. West Texas Intermediate crude dropped 1.8 percent, falling into a bear market. The euro slid 0.4 percent against the dollar. The Treasury 10-year yield was little changed at 2.33 percent, while rates in Germany, France and Spain fell to records. Gold jumped 1.6 percent and the VIX (VIX) soared to the highest since February.
The euro declined and stocks accelerated losses as European Central Bank President Mario Draghi said there are signs the recovery is losing momentum, and the central bank must lift inflation from an “excessively low” level. Federal Reserve policy makers said in minutes of their last meeting that slowing global growth and the stronger greenback posed potential risks to the U.S. outlook. Germany’s economy is on the edge of recession, according to four economic institutes.
Sterling dragged down by euro after Draghi flags deflation risk
(Reuters) – Sterling fell to a day’s low against the dollar on Thursday, dragged down by the euro’s falls after European Central Bank chief Mario Draghi reiterated that more measures could be used to ward off the threat of euro zone deflation.
The dollar has weakened this week after a surge that took it 10 percent higher against a basket of major currencies since May. Dealers said, however, that the downturn had cleaned out some of the technical barriers to another push higher for the greenback.
When long positions become dominant in a market, it tends to be harder for the currency to continue to gain until some of those players have cashed in their gains.
The pound fell as low as $1.6112, down 0.3 percent on the day, as the euro fell back well below $1.27.
Dovish US Federal Reserve minutes reveal global slowdown worries
Australia shares rebound as Wall Street rallies on Fed minutes
* ASX 200 rebounds from 8-month lows, set to snap 3 sessions of losses
* 167 shares higher, 23 shares lower, 9 shares unchanged
* Employment fell 29,700 in September, though some market participants doubt reliability
SYDNEY/WELLINGTON, Oct 9 (Reuters) – Australian shares climbed 1.3 percent on Thursday, rebounding from 9-month lows in the previous session as Wall Street soared after the U.S. Federal Reserve indicated it would not raise rates for a « considerable time ».
The S&P/ASX 200 index rose 66.8 points to 5,308.1 by 0136 GMT. The benchmark fell 0.8 percent on Wednesday and looks set to snap three sessions of losses.
Economic News
“Data dependence” vs. Calendar forward guidance has been the debate amongst fixed income traders/investors since the introduction of the forward guidance as a monetary policy tool. The main issue with data dependency is that the Fed could miss the Goldilock moment at which it should increase rates. In such a case the Fed would have to enter into a very rapid hiking cycle (which would require a very steep yield curve). More than 70% of the economists are saying in sync. the Fed will be too late. I hope that this strong belief has nothing to do with the fact that the Fed is headed by a woman (yes I am also fed up with all the gender comments I have been hearing for the last 2 years when it comes to discuss Fed and Chair Yellen).
We explain here why we have been forecasting a rate hike not early than Q1-2016 and we stick to it. First, many fixed income folks, unlike commodity trader, do not analyse enough geopolitics. When they do it’s to act as a buyer of safe heaven (like in September with USD) or as a seller of fixed income, when expecting inflation to go higher start through oil prices (1979 crisis scenario). This time, fixed income investors have been surprisingly more bullish oil prices than commodity trader were. Since we have published our May 2014 strategic portfolio we have been negative on Oil (our first short term target was 90$, before we have been calling for a pause, to reach in a second stage our second target $80 per barrel of WTI – 1st deliverable future -). The risk to our energy call is to the downside. Indeed, we may revise our second target lower depending on how the negotiations with Iran go.
Second, many, including Fixed Income King Bill Gross, have been saying that Central Bank fiscal deficit financing will spur hyper-inflation and a solvency crisis. We have pushed these ideas back because of the simple fact that the US is reducing its deficit and pushing downward inflation – thanks amongst other things to ACA or Obamacare.
Third, many have been considering that the Philipps Curve and the Taylor Rule should apply without questioning it (like a Dogma). But because of robotics, automation and cheap learning (E-learning for instance) the Philipps Curve shape is currently changing. The economies in the West are transforming from consumption to experiences. Unemployed are finding jobs, though they are not yet satisfied with these – as indicated by the elevated partially employed for economic reasons -. Others are creating their own businesses (the start-up of yourself economy) instead of hoping that Corporations will move away from a crony capitalism which have reached all the level of hierarchy. XIX Century economists have explain this as the phenomena through which the worker is willing to “pray whatever god” to keep his job and avoid the stigma of unemployment. This generate a genuine lack of risk taking (better safe than sorry would one say).
These trends are miles away from the Generation X XIX Century style revolution and a pure relation between unemployment and inflation. We have been indicating that while wages of Data Scientists will continue to sky rocket (data scientists are offered $250-300K a year for a first job), wages of bankers (which industry will be much more regulated going forward) are likely to stagnate or decelerate. We took deliberately these two examples because they indicate why some economist, traders, bankers I discuss with, feel much higher inflation than the CPI 2%-inch print. As a successful banker you might like to buy a mansion in Mayfair. But there is a competition for this “luxury property” market which is coming from the new wealthy “start up manager” which pushed for these category of goods or services inflation higher. We cannot call it an asset market bubble because many are not using leverage for paying these houses (which reduces the self fulfilling risk of deleveraging).
However, when it comes to the median inflation basket things are genuinely positive: oil prices and commodity prices reduction will passthrough in the coming months, helping inflation to remain subdued and consumption to resume. Should the Fed hike rates for the benefit of some at the expense of the many? A good question the US public have to decide upon in the next mid-term election (November). We have been worry that the Senate goes to the GOP (and again here were are not supporting one camp against the other) because in such a case the Transparency Bill could have a second life and therefore push the Fed into a genuinely bad path. The Tea Party caucus has been genuinely opened speaking about the need to risk solvency in order to reintroduce the gold standard (a model which could self reinforce deflation like in the 1930s with the consequences we know).
Futures suggest traders see U.S. Fed hiking rates in fourth-quarter 2015
(Reuters) – Short-term U.S. interest rates futures were mostly higher early Thursday as traders now see the Federal Reserve will more likely raise policy rates in the fourth quarter in 2015 following a perceived dovish set of minutes on its recent policy meeting.
The minutes of the Sept. 16-17 meeting of the Federal Open Market Committee, the U.S. central bank’s policy-setting group, suggested concerns about the impact of a strengthening U.S. dollar and weakening economic prospects in Europe and Asia on the domestic economy, which traders reckon might delay when the Fed raises interest rates.
Most Wall Street economists polled last week by Reuters forecast June 2015 for a Fed « lift-off » on interest rates following encouraging September data on jobs growth.
« The market is trying to price out the first hike from mid-2015 to sometime later. The market is really running with the idea that the Fed might not raise rates in all of 2015, » said Bret Barker, portfolio manager at TCW Group in Los Angeles.
Fed’s Lacker Says Inflation Likely to Rise Even With Slow Growth
Federal Reserve Bank of Richmond President Jeffrey Lacker said inflation is likely to continue moving up gradually even as growth remains below trend at 2 percent to 2.5 percent.
“Thankfully, there are no signs that business and consumer expectations for future inflation have drifted away from 2 percent,” Lacker said in the text of a speech today in Asheville, North Carolina. “Of course, monetary policy must ensure that we never see such a drift in expectations materialize, for if it does, it will have been too late.”
Lacker’s view on inflation comes after other members of the Fed’s policy-making body have showed increased concern that inflation is low.
« Some Fed policymakers concerned about dollar’s appreciation: minutes »
WASHINGTON, Oct. 8 (Kyodo) −− Some U.S. central bank policymakers were concerned about the
possible impact of the dollar’s rise against other major currencies on the country’s economy, the
minutes of their meeting last month showed Wednesday.
Some members of the Federal Open Market Committee, the policy−setting panel of the Federal
Reserve, « expressed concern that the persistent shortfall of economic growth and inflation in the
euro area could lead to a further appreciation of the dollar and have adverse effects on the U.S.
external sector, » according to the minutes.
Several participants at the Sept. 16−17 meeting, including those without voting rights, noted that « slower economic growth in China or Japan or unanticipated events in the Middle East or Ukraine might pose a similar risk. »
Bernanke Defends AIG Bailout in Court
Former Federal Reserve Chairman Ben Bernanke testified in federal court Thursday that insurance giant American International Group Inc. had to be rescued by the government in 2008 to avert global catastrophe.
Bernanke took the stand at a trial of a lawsuit brought by former AIG Chairman and CEO Maurice Greenberg, who is suing the government over its handling of AIG’s bailout loan. Bernanke was one of the key decision makers on the bailout, which began with an $85 billion rescue loan from the New York Federal Reserve in September 2008 and grew to nearly $185 billion in federal aid.
In early questioning, Bernanke kept his answers terse when asked about the potential damage an AIG collapse might inflict and details of how the Fed came to approve the bailout. He frequently responded « yes, sir » to questions posed by Greenberg’s lead attorney.
« Certainly there was an enormous amount of stress on financial institutions » in the fall of 2008 after mortgage financiers Fannie Mae and Freddie Mac had been taken over by the government and fear cascaded through financial markets, Bernanke said.
Ebola
Ebola could cost between $9bn to $32bn depending how credible is the global institutions response according to the World Bank. From a pure economic prospect, (no nice feeling here), by investing $1bn the world could save $23bn. Because$1bn is actually what WHO, UN believe to be sufficient to deal definitely with the outbreak. Any CEO would love to have this difficult question which could bring 23x return. We have been following the ramp-up of this investment, US Pentagon devoted 700mn along with Bill Gates 50mn and other wealthy and NGO institutions. #IceBucketChallenge has showed as that we can be nice, without taking anything from ourselves. We are getting to understand that a Win-Win scenario is not only stable but it’s also generating the most profit. If only we restart believing in ourselves.
In term of response, Canada, US, Britain and others have introduced or are considering temperature screening in Airports and Train stations. We have indicated that one genuine approach would be to use the “health devices” which can track temperature as well as heart rate to map with big data where the risk are and how to stop any outbreak.
Ebola infection has started to spread to Europe. CDC estimated to 100 the number of people who might have been affected in the US. This number is likely to increase in the coming day, before it decelerated. This is the Contagion effect as know in Mathematics. In order to avoid the paranoia, the CDC, as we were expecting, have used the power of social media and @twitter, to : improve the information (fight disinformation) and spur the motivation for social media to help reduce the outbreak. The need to get prepared is very important in a period where our institutions are seen as lacking credibility. We have been indicating that having Russia cut gas delivery to Europe could make any non-lethal flu a cause of paranoia and create more economic headwinds (consumer confidence etc.). But unlike many commentators we consider that our institutions – WHO, CDC and others – are up to the task and mankind is more resilient that many think. The media pressure around Ebola is making it easier to dedicate budget for this fight (Pentagon has dedicated $700mn).
The most widely spread FALSE belief is that Ebola can mutate easily. This is possible but highly unlikely. In films and TV-shows, scenarists like to make their stories appealing but the reality is sometimes (fortunately) less scary.
From our Thursday Oct. 1st daily
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.
Spanish nurse worsens, Madrid blames infection on human error
* Seven people hospitalised, monitored in Madrid hospital
* Health of nurse Teresa Romero deteriorating – hospital
* European Commission asks for explanation
* Doctor says his suit sleeves were too short
* Health workers say training inadequate
MADRID, Oct 9 (Reuters) – The health of a Spanish nurse with Ebola worsened on Thursday and four other people were put into isolation in Madrid, while the country’s government rejected claims its methods for dealing with the disease weren’t working and blamed human error.
Romero, 44, is the first person to have contracted Ebola outside of Africa, after becoming infected by a Spanish priest repatriated from Africa with the disease.
US military planes arrive at epicenter of Ebola
MONROVIA, Liberia (AP) — Six U.S. military planes arrived in the Ebola hot zone Thursday with more Marines, as West Africa’s leaders pleaded for the world’s help in dealing with a crisis that one called « a tragedy unforeseen in modern times. »
« Our people are dying, » Sierra Leone President Ernest Bai Koroma lamented by videoconference at a World Bank meeting in Washington. He said other countries are not responding fast enough while children are orphaned and infected doctors and nurses are lost to the disease.
Alpha Conde of Guinea said the region’s countries are in « a very fragile situation. »
World Bank launches public-private partnerships infrastructure plan
The idea has already attracted banking groups like Citibank and HSBC and the reinsurance firm Swiss Re, as well as the Australian and Japanese governments.
The World Bank on Thursday launched a new initiative that would bring together governments, development institutions and private investors to form public-private partnerships (PPP) for infrastructure.
The initiative, known as the Global Infrastructure Facility, would structure projects to attract long-term investors such as pension funds and insurance companies in order to meet the developing world’s $1 trillion in infrastructure needs over the next six years.
“We have several trillions of dollars in assets represented today looking for long-term, sustainable and stable investments,” World Bank President Jim Yong Kim said. “The real challenge is not a matter of money but a lack of bankable projects — a sufficient supply of commercially viable and sustainable infrastructure investments.”
The idea has already attracted banking groups like Citibank and HSBC and the reinsurance firm Swiss Re, as well as the Australian and Japanese governments. The facility itself, known as GIF, would not provide direct project funding but aims to bring in investors to advise governments on how to structure potential projects in order to attract private capital.
UN Chief: 20 Times More Ebola Aid Needed
The presidents of three Ebola-stricken West African nations made urgent pleas for money, doctors and hospital beds Thursday and representatives of nations gathered for financial meetings promised more help.
« Our people are dying, » said President Ernest Bai Koroma. He described devastating effects of « this evil virus » — children made orphans, doctors and nurses dying, an overwhelmed medical system that can’t keep up.
Koroma spoke by video from Sierra Leone to an Ebola summit at the annual meeting of the International Monetary Fund and World Bank in Washington. He said the world’s response hasn’t kept pace with the spread of Ebola, and « a tragedy unforeseen in modern times » is threatening everyone.
United Nations Secretary-General Ban Ki-moon called for a 20-fold surge in international aid to fight the outbreak.
« For those who have yet to pledge, I say please do so soon, » Ban said. « This is an unforgiving disease. »
MASSACHUSETTS NONPROFIT FIGHTS EBOLA IN LIBERIA
MEDFORD, Mass. (AP) — A Massachusetts-based nonprofit health organization is sending a team of experts to work with Liberian health officials fighting the Ebola outbreak in West Africa, the organization’s president said Thursday.
A team from Management Sciences for Health in Medford arrived in Liberia this week to work with the Liberian government and other community leaders to identify gaps and unmet needs.
« Our immediate priorities are to work with government and community leaders to stop a health system collapse in Liberia, to prevent the epidemic from spreading to nearby nations and to restore Liberians’ trust in their health system, » President Dr. Jonathan Quick said.
The organization says Ebola cases are doubling every two weeks in Liberia. The disease, with a mortality rate of about 50 percent, has killed at least 3,800 people in West Africa with no signs of abating.
Britain to deploy 750 servicemen in West Africa to tackle Ebola
LONDON — Britain will increase its support to tackle the Ebola disease in West Africa, including sending 750 servicemen there, a government spokesperson said Wednesday.
The government on Wednesday held an emergency meeting chaired by Prime Minister David Cameron to discuss the issue of Ebola.
The spokesperson said the servicemen will help with the establishment of Ebola treatment centers and an Ebola training academy.
« The Ebola outbreak in West Africa is already a global threat to public health and it’s vital that the UK remains at the forefront of responding to the epidemic, » said Defence Secretary Michael Fallon, who attended the emergency meeting.
Aid groups cheer food price fall to 4-year low, « hunger hotspots » remain
ROME (Thomson Reuters Foundation) – World food prices have hit a four-year low, a UN agency reported on Thursday, with record harvests breathing new hope into the fight against hunger, though some « hunger hotspots » remain.
Global wheat production is forecast to reach a record high in 2014, the Food and Agriculture Organization (FAO) said in its monthly food price index released in Rome.
Other coarse grains, including maize, are seeing a « comfortable » balance between supply and demand, leading to the lowest world prices since August 2010, it said.
« Lower prices are good news from two points of view, » Jane Howard, a spokeswoman for the World Food Programme, said in an email interview.
« Fewer people go to bed hungry every night and it also means our organization’s food bill – buying food for our operations – is lower. »
LAWMAKERS APPROVE $700 MILLION TO FIGHT EBOLA
WASHINGTON (AP) — The Republican chairmen of House panels that oversee the Pentagon signed off Thursday on an additional $700 million to pay for the military mission to help fight Africa’s deadly Ebola outbreak.
Thursday’s action by Armed Services Committee Chairman Howard « Buck » McKeon and Appropriations Chairman Harold Rogers would permit a total of $750 million in funds leftover for fighting in Afghanistan to be used to provide logistical help for health care workers in West Africa. The first $50 million was released last month.
The administration originally requested $1 billion to send up to 4,000 troops to Africa. In briefings this week, McKeon said Pentagon officials estimate $750 million would cover a six-month mission that would include airlifting personnel, medical supplies, protective suits and equipment such as tents to house Ebola victims and isolate people exposed to the virus.
But an aide to Sen. James Inhofe, the top Republican on the Senate Armed Services panel, said the Oklahoman has not signed off on the money. It takes the OK of the top Republican and Democrat on the House and Senate Armed Services and Appropriations panels to « reprogram » Pentagon funds. Democrats and Sen. Thad Cochran of Mississippi, the ranking Republican on the Appropriations Committee, have already agreed.
Britain to Begin Ebola Screenings at Airports and Eurostar Terminals
The UK government has announced that it will begin “enhanced screening” for Ebola at major transport hubs, amidst growing fears of a European outbreak.
In a statement this afternoon, Downing Street said that “enhanced screening” for Ebola will be implemented at Britain’s two largest airports – Heathrow and Gatwick, and at Eurostar terminals.
According to the statement, the checks will apply to those arriving from Liberia, Sierra Leone or Guinea and will involve « assessing passengers’ recent travel history, who they have been in contact with and onward travel arrangements. »
Gaza
Israel and Palestine continue to head into the right direction.
While Gaza war settle down, recognition of the economic cost increases. As we were expecting, the national coalition between Fatah and Moderate Hamas is taking place. This is likely to increase President Abbas political capital which would help the country to: 1) secure more economic aids – though these aids have to be channelled to the people in need, not to terrorist financing -, 2) increase the pressure on the international community to speed up a two-states solution negotiated with neighbours, 3) be seen as a credible partner with whom Israel can negotiate. As we are heading toward more peace, Hezbollah and Hamas spin-offs are looking to become more barbaric in order to keep their militants (in the Silicon Valley parlance we call this “retaining talents”). While in the short term, the Hezbollah is likely to become more barbaric long-term we may settle agreeing with President Hassan Rohani view, expressed in his UN General Assembly address, Terrorists are in a global coalition, the world should unite to fight them.
But PM Netanyahu said it all during his visit to the US: a nuclear Iran should not come with an increase in the existential threat to Israel. While we are heading to a peace process, Israel needs to secure the goldilock conditions of such a scenario. This goes through a genuine commitment by Ayattolah Khamanei that Israel should continue to flourish in peace, leaving the existential threat to ISIL and the Califat-of-Paper Abu Bakr El Baghdadi. Make no mistake : Israel will never be destroyed. Because, Israel is one of the greatest idea, in my opinion, which human brain invented during our common 13.8bn years history in creating institutions and laws to reduce universe entropy. It has nothing to do with religion or ideology, this is just pure rational thinking and science. The idea of Israel remains me that while facing adversity one move on an try to empower himself to bring: prosperity (in our parlance: jobs, growth, adequate inflation, wealth, solvency etc.). This is what, I believe, Moses did: creating the promised land of prosperity and peace. This is why Israel can never be destroyed. Even Hitler failed, Abu Bakr El Baghdadi is doomed and Ayattolah Khamanei have to play his cards well now. He can empower his people, improve Iran economy and growth, by recognising the obvious. In 20years finance careers I’ve never seen an investment as obvious as this one. [Don’t hesitate to ask for details as usual].
Sweden recognition of Palestine constitute a first step into the right direction. External pressure on Israel, comes as a genuine help for the government to fight its hard liners and bring them to a peace solution. We see this process to last one to two years but we are convinced that peace will happen not because it’s a nice thing but because it’s where economic prosperity lies for Iran, Palestine, and Israel.
PALESTINIAN UNITY CABINET SETS UP GAZA OPERATIONS
GAZA CITY, Gaza Strip (AP) — The new Palestinian unity government toured Gaza and held a Cabinet meeting there for the first time Thursday, aiming to assure donor countries that absolute Hamas control has ended and that it can lead the rebuilding of the war-battered territory.
The visit by the ministers came three days before an international pledging conference for Gaza, to be held in Cairo.
In establishing a foothold in Gaza, the new Cabinet, which reports to Western-backed President Mahmoud Abbas, was trying to signal that the Palestinians’ paralyzing political split has come to an end. Hamas had seized Gaza from Abbas in 2007, leaving him with only parts of the West Bank.
Oil Bulls Keep Faith Saudi Supply Cuts Will Stem Price Slide
Oct. 9 (Bloomberg) — Ignore the talk of an OPEC price war, say crude market bulls. Oil’s next move was spelled out in Saudi Arabia’s own words.
Price cuts announced by the Saudis, including the biggest discounts for Asia since 2008, sparked speculation that the world’s biggest crude exporter would let oil tumble rather than cede market share to rivals in OPEC. This is misguided, said UBS AG and BNP Paribas SA. Brent is below the $95-to-$110 range endorsed by Saudi Oil Minister Ali Al-Naimi, ensuring the country will curb output, they said.
Brent, the European benchmark, fell into a bear market amid a surplus of U.S. shale oil and weaker economic growth. The discounts prompted predictions that Saudi Arabia would tolerate lower prices to deter investment in higher-cost U.S. shale. The advance of Islamist militants across a swathe of Iraq and Syria means the kingdom will shore up oil prices to support neighbors instead, BNP Paribas said.
“We do not buy into the argument that there’s a price war in the making,” Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas in London, said by e-mail on Oct. 6. “Saudi Arabia has always done the heavy lifting when it comes to OPEC supply management. What is key in our view is that it is not in the best interest of OPEC to witness a prolonged period of low prices.”
Iraq & Syria
As expected, PKK leader is calling for speeding up peace negotiation with Turkey to clear the way toward Turkey ground intervention. However, Turkey continues to say that they would like a ground intervention coalition. As the coalition is negotiating two important issues: 1) dealing with President Assad, and 2) ground intervention, ISIL is striking battles win in Kobani. We do see this win as short term because the coalition is likely to settle on a deal because facing the chaos there is no choice but fighting.
From our Thursday daily briefing:
The likelihood of defeating ISIL continue to increase, though short term ISIL seems winning battles such as Kobani (at the Turkish borders).
Turkey and Canada decided to join the 40 countries coalition to fight ISIL. We were saying that Herve Gourdel beheading (to which we need to add Alan Henning since Friday) and the Philippines militant threat to ham a German were sufficiently evil behaviour in 2014 to create the wake up call that each of us should make something to stop these unacceptable atrocities.
We are surprised by Turkey’s attitude toward Kobani. This attitude could only be explained by the fact that Turkey and Kurdistan have not settle yet on a strategy to defeat Assad without giving too much power to the Kurds (which may ask for an independent Kurdistan). Yesterday, Kurds have been protesting as Turkish ground forces stay out of battle for Kobani. Should Turkey join the Peshmerga fighting forces, it would target Assad as well as ISIL.
According to Theresa May, ISIL could acquire a dirty weapon. Saudi’s high cleric ceased the opportunity of Hajj pilgrim to call all muslims – Shia, Sunni, Maliki, Wahabi etc. – to defeat the Murderers In Iraq & Syria (known as ISIL). What we commonly name ISIL is not Islam (not I) and not a state (not S). It would be helpful to replace these two letter by “M” for Murderers. I bet that the Jihadists hiring will collapse after this simple action. The fight against the Murderers will be easy should we decrease the number of their new followers. This work like contagion or viral system. The final fight will come along with the genuine actions G-20 is saying it will undertake in Australia to improve governance. This time there is no way to escape with half-backed solution: G-20 needs to get rid of bad governance to reduce the spread of the view that “institutions are rotten to the core” (a view which helps Jihadists to hire youth on the internet). We discussed it since 2009, we have increase the data to track this bad governance since 2012. This power have moved from states to the public. Fortunately, anecdotal evidences (from UK to China) indicate that lawmakers have the same goal reducing bad governance. This is not because that’s a nice thing to do but because this were profits, shareholders values, pensioners interests, workers interests, consumer interests are. PM Abbott has joined the call to stop Hate Preacher from spreading their hate beliefs. But the global community needs to fight these preaches by showing that there are many young muslims which while offered to be hired by Terrorist groups have preferred fighting the hateful ideology, saying that this ideology should not be called Islam (#NotInMyName).
Again, we tend to reduce Entropy, this since our first day 13.8 billions years ago (Oil prices development and the number of violent deaths are an amazing reflect this fact).
Finally, as part of the evidence that data will help fight terror, France 24 broke Sunday that Zabihullah Mujahid (Taliban spokesman) revealed mistakenly his localisation in twitter (here)
Islamic State seizes large areas of Syrian town despite air strikes
(Reuters) – Islamic State fighters seized more than a third of the Syrian border town of Kobani, a monitoring group said on Thursday, as U.S.-led air strikes failed to halt their advance and Turkish forces looked on without intervening.
With Washington ruling out a ground operation in Syria, Turkey said it was unrealistic to expect it to mount a cross-border operation alone to relieve the mainly Kurdish town.
The U.S. military said Kurdish forces appeared to be holding out in the town, which lies within sight of Turkish territory, following new air strikes in the area against a militant training camp and fighters.
Washington said U.S. forces launched nine air strikes on Thursday against Islamic State militants north and south of Kobani, striking some fighting units and destroying four buildings held by the group. U.S. forces also conducted two air strikes against Islamic State in Iraq.
Jailed PKK leader calls for speeding up peace process, warns of ‘massacres’: HDP co-chair
The jailed leader of the outlawed Kurdistan Workers’ Party (PKK) has called for an acceleration of the Kurdish peace process following deadly recent clashes stemming from protests against the jihadist assault on the Syrian Kurdish town of Kobane, while warning of « provocations and massacres, » Peoples’ Democratic Party (HDP) co-chair Selahattin Demirtaş has said.
“We had the chance to exchange messages with Mr. [Abdullah] Öcalan last night. We would like to indicate that he, too, is advising and urging all parties to speed up dialogue and negotiations against the danger of provocations and massacres,” Demirtaş said at a press conference in Diyarbakır on Oct. 9.
Over 20 people have been killed and dozens of others injured mainly in Diyarbakır and other southeastern provinces during massive nationwide protests on Oct. 7 to express support for Kobane and condemn the Islamic State of Iraq and the Levant (ISIL).
Although some of the protests were called by the HDP, Demirtaş stressed that his party did not call for the use of violence at any time.
“We wanted to show our support to Kobane by staging demonstrations, but without looting, destruction or killings. We don’t advocate violence and ask everyone to follow our demand,” he said, while also denouncing “smear attempts” targeting the HDP.
Crude oil futures slump more than $3/barrel to $84.06
Crude oil futures fell more than $3 a barrel to $84.06 a barrel Thursday.
Oil was hammered Thursday by relentless anxiety about oversupply and waning global demand, sending Brent and West Texas Intermediate hurtling to levels unseen since 2012.
Oil was under pressure as euphoria over the U.S. Federal Reserve’s last policy meeting appeared to evaporate. The jitters ricocheted across markets, and sent Wall Street reeling as investors feared the central bank was becoming more pessimistic about domestic growth.
Yet the proximate cause for the market’s worries is surging U.S. oil supplies. The world’s largest economy has rapidly become one of the world’s largest producers of oil on the heels of a shale revolution. The U.S. is producing just shy of 9 million barrels a day, up more than 70 percent since 2008, according to Energy Information Administration (EIA) data.
ISIS advances as Turkey rejects solo ground action
Advancing Islamic State in Iraq and the Levant (ISIS) fighters seized control of a third of the Syrian border town of Kobani Thursday, as Turkey rejected sending in troops on its own against the jihadists.
Despite intensified US-led air strikes, the militants captured more ground in overnight fighting that killed dozens, as calls grew for ground action to support Kobani’s beleaguered Kurdish defenders.
But after talks with NATO chief Jens Stoltenberg, Turkish Foreign Minister Mevlut Cavusoglu said Ankara could not be expected to act alone.
“It’s not realistic to expect that Turkey will lead a ground operation on its own,” he said.
Ankara has come under pressure over its inaction as the jihadists advance on its doorstep, with protests in Kurdish areas in Turkey sparking clashes that claimed at least 22 lives and forced authorities to impose a curfew in six provinces.
Kobani, where Kurdish militia have been holding out against a three-week siege by the jihadists, has become a crucial battleground in the fight.
American Abdul-Rahman Kassig, Held Captive by ISIS, Knew Risks: Friends
An American aid worker threatened with beheading in Syria had researched the region and knew the dangers, but he believed the good he could accomplish through his relief organization outweighed the risk, his friends said Wednesday.
Separately, the mother of the 26-year-old hostage, Abdul-Rahman Kassig, reached out to the leader of the ISIS militants via Twitter in a new effort to secure her son’s release. The group captured Kassig in Syria on Oct. 1, 2013. In a video released Friday, an ISIS militant threatened to kill Kassig following the beheading of British hostage Alan Henning.
Nearly 300 people gathered Wednesday at Butler University in Indianapolis, where Kassig was a student from 2011 to 2012, to celebrate his work to help Syrians and pray for his release. Hazem Bata of the Islamic Society of North America quoted religious passages and urged ISIS to « follow the religion you claim to hold so dear and have mercy on Abdul-Rahman. »
Erdogan fiddles while Kobani burns
The sense of betrayal is palpable. The Kurds on Turkey’s southern border with Syria are embittered as the tragedy of Kobani unfolds before their eyes on the other side of a wire fence.
In Syria, Kurdish fighters of the YPG (People’s Protection Units) militias are beleaguered. They were unaided, apart from the pinpricks of occasional Western air strikes, until Tuesday when the United States-led allies started to bomb Islamic State in Iraq and the Levant (Isis) positions during the day, slowing their advance.
Many now fear that, without a more substantial ground offensive, the YPG forces will be unable to prevent the fall of Kobani.
The forces might also be in the terminal stages of failing to prevent a massacre but Ankara refuses to allow Kurdish fighters to cross into Syria to relieve the neighbouring city.
As Turkish troops and tanks stand guard at the border, many Kurds are desperate and angry, assaulted by Turkish teargas, water cannon and police.
Treasurer Joe Hockey pressures Labor to pass stalled budget measures to pay for Iraq war
Prime Minister Tony Abbott is being urged to « correct » his Treasurer Joe Hockey, who has said the Labor opposition should pass stalled budget measures if it is « honest » about supporting the Iraq mission and its associated costs.
Mr Abbott on Thursday was asked several times whether he backed Mr Hockey’s comments, but he declined and instead praised Labor’s leader Bill Shorten for his bipartisan approach to the military action against Islamic State extremists.
Russia
European Union’s incoming foreign affairs head Federica Mogherini hinted her strategy with the “bear” Russia: firmness and tact. Actually, we believe that firmness is coming from EU Council President Donald Tusk, while tact needs to come from the EC. EU’s Mogherini hinted that others in Brussels know better to deal with bears (in politics that mean “I know that you have vested interests with Russia”). Many political parties have to drop their support to Russia and start think about EU public interests. Otherwise, many will start questioning whether these are not conducting treason (betraying those who have voted for them). The list is long and no one have interest to name names. In an environment where Iran wants to secure the negotiation without upsetting Russia (a long term ally which have helped provide a back-door to Iran oil), Rouhani said that Iran negotiation should not derailed any political solution with Russia. Unfortunately for Russia this will not help lift sanctions. Because, many commentators are watching: EU should make no mistake, vested interest will not go away with the crimes Russia is responsible for (and that goes beyond annexing Crimea).
From yesterday report
Oil prices plummeting continue to constitute an existential threat to President Putin administration. A policy document of the Islamic State discovered at one of the raids brings forth some alarmingly ambitious plots of the jihadist outfit. The plan includes bribing Russia with access to oilfields in exchange for Iran’s nuclear technology. This document confirmed that ISIL is looking to Russia to increase it force. We have been worry that vested interests would align their force with those of the barbaric. Should they do so, they would be no place to hide. Make no mistake, if ISIL got the technology Putin and Russia (with interest groups which have been supporting them) will be held accountable.
While Russia continue to prepare its isolation (VTB’s says consider that capital control is not the end of the world), Putin stays put and keep his narrative: the cost will be more harsher for EU than for Russia. Unfortunately, for President Putin, facts have no political bias or religion. Russia economy is collapsing and the Saudi oil prices cut, Iran negotiation amongst other thing are pushing oil prices to a free fall spiral and threatening the stability of the government (an Oil price at $75 will push Putin out). In our Energy Update (our call that oil might go as low as $80 for WTI) we’ve highlighted the trends we observe now. These are not only providing a boost to EU (currently mistakenly analysed by many XX Century economists as a deflationary risk) but also increasing the current Russian administration existential threat. We forecasted last February that Russia will have to go through a period of isolation, will create Eurasia by annexing Eastern Europe (we still unsure where the division will take place). We stick to this scenario. However, we are working on an alternative scenario, where the speed of oil prices collapse may over through Putin administration and oligarchs before President Putin reached his messianic goal (many economists agree with the view that some of Russian President speeches are messianic – 2007 Munich is a very telling speech-).
Ukraine President is taking the “good governance bill” to the floor. This on one hand increase the likelihood of our scenario that Ukraine – West will become a new Poland but it increases short term the risk of more actions of “bad governance agents: the self designated Eastern Republics”). I wonder what kind of economic prospect will have these Russian federation satellite. Old USSR satellite (Latvia and Bulgaria) are fighting political crisis spur by the widely spread mistrust in their government. Like during the Cold War, Russia continue to use the spread of disinformation (in the internet). But we see these posturing likely to fail, should EU Commission President pursue his genuine plan to change EU narrative (more jobs, more investment – specially in digital -). The emergence of new media companies helped by big data is likely to be another leap in defeating the disinformation and mistrust spread.
Putin dismisses critic Kasparov’s political skills
(Reuters) – Russian President Vladimir Putin questioned Garry Kasparov’s skills as a politician on Thursday after the former world chess champion described him as the most dangerous man in the world.
« He’s not made a very good politician, but he’s a great chess player, » Putin told sports officials during a visit to Novocheboksarsk city in Russia’s Volga region.
He was replying to a comment by Kirsan Ilyumzhinov, the head of the International Chess Federation, that a foreign Grandmaster had refused to play in a tournament in Russia because of concerns over political stability.
In reply, Putin said everyone was welcome to come and play including Kasparov, who left Russia in 2013, saying he feared political persecution. The Kremlin leader rarely refers to his critics and opponents by name in public.
Germany on Edge of Recession in Report Critical of Merkel
Germany’s economy is on the edge of recession as exports to China and Russia sag and Chancellor Angela Merkel’s domestic policies hold back growth, four economic institutes said in a report.
Europe’s biggest economy probably posted zero growth in the third quarter and will expand by 0.1 percent in the fourth after shrinking 0.2 percent in the second, according to the fall outlook presented today by the institutes advising the government. The group cut its 2014 growth forecast to 1.3 percent from 1.9 percent in April and trimmed next year’s to 1.2 percent from 2.0 percent.
“This year, we have some weakening,” Finance Minister Wolfgang Schaeuble said in Washington today, citing global crises such as the Ukraine conflict and the effect of sanctions against Russia. “We don’t have a recession in Germany.”
Five crazy theories that could totally explain North Korea
Over at BuzzFeed, Hayes Brown suggests that North Korea is being even weirder than usual. His evidence for this assertion:
North Korean leader Kim Jong Un hasn’t made a public appearance in over a month.
Top-ranking North Korean officials met with their South Korean counterparts, agreeing to restart the high-level dialogue.
Immediately after the high-level contact, North Korean and South Korean ships exchanged gunfire.
Pyongyang seems to be restricting travel in and out of the city.
Now on the one hand, when it comes to North Korea, I’m not entirely sure if this is “weirder than usual.” Think about it — what qualifies as “usual” for North Korea? It was not even that unusual for previous North Korean leaders to disappear for weeks at a time, apparently. Heck, the most unusual thing for the North Koreans to do at this point in time is behave in a constructive manner toward their neighbors.
On the other hand, yeah, this all seems pretty strange. And even beyond the behavior that Brown assembled, there’s additional weird stuff going on, such as:
North Korea has now officially acknowledged that it has forced labor camps.
CNN is suggesting that Kim’s sister, Kim Yo Jong, is now running the country.
Trying to explain North Korean behavior is the last refuge of what used to be called Kremlinology. And as the New York Times’ Choe Hang-Sun notes, it’s just so easy to believe the worst about the country officially known as the Democratic People’s Republic of Korea (DPRK):
There is also always the temptation to believe the worst of a family-ruled country that has little exposure to the outside world and has displayed its share of oddities, and cruelties. At least in earshot of their many minders, regular North Koreans credit the Kims with godlike feats. And although experts say Mr. Kim did not feed his uncle to dogs as one Chinese blog post suggested, South Korean intelligence officials said some of the uncle’s lieutenants were executed by machine gun.
UPDATE 2-China to again levy coal import tariffs after nearly a decade
* Import tariffs of between 3 and 6 pct applicable from Oct. 15
* Australia, Russia exports seen hit; Indonesia to be exempt
* China thermal coal futures, China shares of top coal firms rise (Adds analyst’s comments, coal futures and coal firms’ shares)
SHANGHAI, Oct 9 (Reuters) – China, the world’s top coal importer, will levy import tariffs on the commodity after nearly a decade, in its latest bid to prop up ailing domestic miners who have been buffeted by rising costs and tumbling prices.
The sudden move by China to levy import tariffs of between 3 percent and 6 percent from October 15 is set to hit miners in Australia and Russia – among the top coal exporters into the country.
Traders said Indonesia, the second-biggest shipper of the fuel to China, will be exempt from the tariffs since a free trade agreement between China and the Association of Southeast Asian Nations (ASEAN) means Beijing has promised the signatory nations zero import tariffs for some resources.
A 3 percent import tariff imposed on lignite last year did not include Indonesia.
« China is clearly moving to protect its local miners. Given that the tariff also covers coking coal, Australia, being the top supplier to China, is likely going to be the most affected, » said Serene Lim, an analyst at Standard Chartered. Continued…
Hong Kong
Hong-Kong political reforms protest: Events are developing as we were expecting
Pro-democracy protests have decided to change their strategy and open talks. 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. China wary of HK protests ease pain of Macau Casinos (a pain organised by China to reduce corruption). This is 100% in line with our first comment on HK protests please find below some of what we were saying yesterday.
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.
We do agree with the view that HK Occupy is not about democracy but about inequality. We do see the objective of Occupy to create the conditions to speed up reforms rather derailing them. We have been saying that Tea Party, Oligarchs and Russia have highjacked the movement for which we support the objective but not the actions. But many are fooling themselves when thinking that the populists movements want to change the current trend. Can anyone trust Russia’s Putin and Gold Bugs Tea Party in the fight against corruption? Really?
Hong Kong calls off talks with student activists as city leader investigated
(Reuters) – Hong Kong called off talks with protesting students on Thursday, dealing a heavy blow to attempts to defuse a political crisis that has seen tens of thousands take to the streets to demand free elections and calling for leader Leung Chun-ying to resign.
The government’s decision came as democratic lawmakers demanded anti-graft officers investigate a $6.4 million business payout to Leung while in office, as the political fallout from mass protests in the Chinese-controlled city spreads.
« Students’ call for an expansion of an uncooperative movement has shaken the trust of the basis of our talks and it will be impossible to have a constructive dialogue, » Chief Secretary Carrie Lam said on the eve of the planned dialogue.
She blamed the pull-out on students’ unswerving demands for universal suffrage, which she said was not in accordance with the Asian financial centre’s mini-constitution, the Basic Law, what she described as their illegal occupation of parts of the city and fresh calls for people to rally.
Hong Kong Protests Unresolved After Talks Collapse
A pro-democracy protest that has blocked main roads in Hong Kong for almost two weeks could drag on for days yet, after talks aimed at resolving a bitter standoff between the city’s government and student demonstrators collapsed Thursday.
The government called off the talks hours ahead of the scheduled time Friday, saying the dialogue had been « seriously undermined » by student leaders’ call earlier in the day for supporters to turn out in force to occupy the main protest zone.
« I truly regret that we will not be able to have a meeting tomorrow which will produce any constructive outcome, » said Chief Secretary Carrie Lam.
Even before the announcement, it was clear that the two sides hold vastly different positions over whether Hong Kongers could have more say in choosing the former British colony’s leader.
Student leaders vow not to retreat from the streets even as the number of protesters occupying the main thoroughfare and streets in two busy shopping districts has dwindled sharply this week.
Pressure mounts on Hong Kong leader over payout amid crisis
(Reuters) – Democratic lawmakers in Hong Kong demanded anti-graft officers investigate a $6.4 million business payout to Chief Executive Leung Chun-ying on Thursday, as political fallout grows from massive student-led protests calling for democracy in the Chinese-controlled city.
The controversy ratchets up the pressure on the pro-Beijing leader just days after tens of thousands of people occupied the streets of the Asian financial centre and called for Leung to step down.
The campaign against the former property surveyor and son of a policeman has now extended from the streets to the city’s legislative chambers where democrats have the numbers to veto major decisions and potentially cause policy paralysis.
Washington must keep close watch on Hong Kong, says US government panel
WASHINGTON: Pro-democracy protestors in Hong Kong won powerful backing Thursday from a US government panel, which urged Washington to return to keeping a close eye on the city, including with high-level official visits.
The call came in a damning annual report that renewed criticism of China’s human rights record, saying President Xi Jinping continues to « adhere to the authoritarian model of his predecessors. »
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. However, Artur Mas uses the threat of going ahead with the referendum, though the constitutional court has specified that’s un-constitutional. This threat is urging PM Rajoy to act which he did in Saturday by opening discussion of some kind of PM Cameron solution to Scotland independence call (i.e. more fiscal autonomy). Catalonia government will decide by October 15 on whether to hold referendum. We see the most likely scenario to be some deal with Madrid which would : 1) help Artur Mas to claim victory – he would have secured more autonomy – and 2) help PM Rajoy to de-escalade the tension over Catalonia. We see the next region to start a fight for more autonomy to be Bavaria (Germany’s most wealthy region which is pushing Alternative fur Deutschland – AfD – anti-EZ party wants to reduce its contribution to other regions – “lazy” EZ members states, in their parlance -. Business interest (Football Clubs) are starting to indicate the cost of a secession. Novo-Russia continue to support Catalonia, as a secession could help justify Crimea. Many have been talking about war in the East, the War against Russia is also taking place in Catalonia. The relations between populists parties in EU and Russia speaks volume. Czar Putin should make no mistake EU is one and indivisible. Populism is a cancer, EU is recovering from it.
UPDATE 1-Goldman fund hires adviser to buy more Spanish gas assets – sources
* Redexis eyes EDP’s Naturgas assets worth 200 mln euros
* Goldman bets on Spanish gas natural market potential (Adds details, background)
MADRID, Oct 9 (Reuters) – Redexis, the holding for the gas distribution business in Spain of Goldman Sachs Infrastructure Partners, has hired a bank to advise it on buying assets from competitor Naturgas, the local unit of Portugal’s EDP , two sources aware of the process said.
Goldman Sachs is betting on Spain after the government overhauled last year laws that regulate the gas sector, offering a more stable framework for investments in a country where gas demand is expected to rise as a five-year economic slump comes to an end.
The Spanish market also has strong growth potential because the country uses less natural gas than the rest of Europe and lower gas prices as a result of shale gas expansion in the United States make it an attractive energy option for cash-strapped consumers.
US News
New events in St Louis are resuming racial tension. This tension is no different from Occupy HK or other militants who feel that : 1) new technologies are leaving them behind, 2) inequality is at unacceptable level, 3) they need to speak loud to genuinely be a soft power. This tension is natural when it’s hard to find any new medias explaining that the US institutions are not rotten to the core. We are more constructive than the consensus on these matter because many evidences are showing that Gen X use of social media is indirectly pressing government to improve governance. This trend is likely to yield to more constructive Win-Win scenarios.
We have been covering the US using mainly 6 axes: 1) immigration reforms, 2) tax reforms – tax inversion, 3) institutional mistrust, 4) net neutrality, 5) mid-term election, 6) new gold standard. Today we focus on Institutional mistrust, as we are fed up of how this mistrust is derailing growth.
Institutional mistrust: In order to reduce the widely spread mistrust, Twitter sued FBI and DOJ to release NSA information requests regarding surveillance of its users. Let’s start by indicating that it does not need to be NSA to get a large sense of who is thinking what and supporting whom on twitter. This is the most fascinating thing I’ve been working on since I joined Twitter. A specific research work will be published in the coming weeks. It will show that not only we know localisation, but also we know what people believe in, what camp they are working for. We have already spotted one or two spies as well… At SNBDL we like to say: if you’re cheating on your partner, tell him the truth. There is no way you can hide it in a globally shared data. When it comes to privacy – security balance, we have been indicating many times that the “Casablanca Test” said it all (this is the name given by the US Supreme Court).
Economy: While job creation continue to be well supported, the wages are muted. This is the most exciting story because the Fed can continue to support job creation while the US economy is rebalancing. We understand those who want quick rate normalisation rational, but this rational is not for the benefit of the many – because inflation is subdued and is likely to continue to be -. In the housing sector, the US is confirming the trend that it’s heading toward “Germanisation” *becoming Germany with housing*. Indeed, income and wealth inequality is pushing many americans to consider renting. When one can carry books, music, films, paperwork, IDs etc. on one small devise such as a phone or a tablet, renting become a genuine solution to focus one’s wealth to empower oneself.
President Obama gave a speech on the Economy to help Democrats to keep the Senate majority. The speech did not come with any new news. However, the agenda presented could be derailed and even create a doom scenario should GOP won the Senate majority. It would jeopardise reforms (when China and EU are reforming) such as immigration, education, infrastructure etc. The doom scenario would take place should they resumed their aim to impeach the US President. We are not siding here against GOP from any ideological prospect. We do believe that it’s in GOP interest to loose, to focus on it’s internal civil war against the Tea Party. The GOP without Tea Party can be a very important driver to bi-partisan reforms agenda. With the Tea Party, not only GOP threatens the US economy but it does also threaten its own future. Remember : GOP abolished slavery. It’s now seen as in a War against Women. We disagree with Mohamed El-Erian view that mid-term elections are a non-even for markets. Mr. El-Erian explains in a private communication that he does not see GOP dragging its feet into a non-sense economic politics (gridlocks). We disagree with this because Tea Party is far from being rational and its objective is to help its own financial supporters interests: Commodities (through Koch industries which has “invested” $125m in this mid-term ads so far) and Gold bugs (ask if you disagree with this we can share with you tens of thousands of website and evidences).
US Tax inversion: Salix Pharmaceuticals Ltd , citing a « changed political environment, » said on Friday it had scrapped a deal with Italy’s Cosmo Pharmaceuticals SpA that would have allowed it to shift its tax base from the United States to Europe.
From Sept 26th Daily Briefing: 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.
Police say off-duty St. Louis cop shot teen who opened fire on him
Protesters gathered in a St. Louis neighborhood late Wednesday after an off-duty police officer fatally shot an 18-year-old black man who police say opened fire on the officer during a foot pursuit.
St. Louis Police Chief Col. Sam Dotson said the 32-year-old unidentified officer, a six-year veteran of the force, was working for a private security company when he approached three men on the street.
« As he exited the car, the gentlemen took off running. He was able to follow one of them before he lost him and then found him again as the guy jumped out of some bushes across the street, » Lt. Col. Alfred Adkins said. « The officer approached, they got into a struggle, they ended up into a gangway, at which time the young man pulled a weapon and shots were fired. The officer returned fire and unfortunately the young man was killed. »
Ferguson: A chill in the air before ‘Weekend of Resistance’
There was a chill in the air on Wednesday night in Ferguson as protesters paid tribute to Michael Brown through candlelight vigil and prepped for a flurry of activity that is expected this coming weekend.
Protesters shifted from their primary position in front of the local police headquarters to the scene of another shooting of a black teenager, this time by an off-duty St. Louis police officer, overnight on Wednesday. St. Louis police scanners reported that 125 people blocked an intersection in the area, but remained peaceful. According to the police scanner, the crowd was made up of “15-year-olds to 80-year-olds, all races, all genders.”
This new incident has reignited simmering tension in a region still reeling from the killing of Brown two months ago.
St. Louis police said a uniformed off-duty officer fired at least 17 shots at the teen, leaving him dead in a neighborhood a little more than a dozen miles from where Brown was killed two months ago.
GOP, White House clash on Secret Service scandal
WASHINGTON (AP) — Two years after a prostitution scandal rocked the Secret Service, a Republican congressman renewed allegations Thursday about possible involvement by a White House volunteer and said he smelled efforts to cover it up. White House officials adamantly denied wrongdoing and said there’d been no attempt to keep anything quiet.
Jobless Claims in U.S. Fall, With Average at Eight-Year Low
A healthier job market helped spark the biggest gain in Americans’ confidence in almost a year, raising prospects for the economy at the start of fourth quarter.
The number of people seeking jobless benefits at state employment agencies averaged 287,750 in the four weeks ended Oct. 4, an eight-year low, according to figures today from the Labor Department in Washington. The Bloomberg gauge of consumer sentiment climbed last week by the most since mid-November.
Companies are responding to rising demand by retaining workers and boosting headcounts, setting the stage for stronger sales that will help make up for weakness in the rest of the world. The report on sentiment showed households were more upbeat about the buying climate than at any time since mid-July as gasoline prices fell and job prospects improved.
Consumer Comfort in U.S. Increases by Most Since Mid-November
Consumer sentiment in the U.S. increased last week by the most since mid-November as households grew more optimistic about the economy and buying climate.
The Bloomberg Consumer Comfort Index climbed to 36.8 in the period ended Oct. 5 from a four-month low of 34.8. A gauge of attitudes about the world’s largest economy registered the biggest increase since 2007.
A pickup in hiring, more job openings and lower gasoline prices are combining to brighten Americans’ spirits even as the stock market languishes. While today’s figures showed confidence improved among the college educated, homeowners and almost all income groups, the weekly gain left sentiment close to its third-quarter average.
The advance wasn’t “enough to break its long-term pattern of slow and fitful gains,” Gary Langer, president of Langer Research Associates LLC in New York, which produces the data for Bloomberg, said in a statement. “September’s jobless rate hit a six-year low, but that’s partly due to labor force dropouts. And wage growth, another key element of consumer sentiment, was stagnant.”
CALIFORNIA POWER REGULATOR TO EXIT AMID CRITICISM
SAN FRANCISCO (AP) — California’s chief utility regulator, under fire over emails showing secret dealings with the state’s largest utility, said Thursday that he will not seek reappointment when his term ends at the end of the year.
California Public Utilities Commission President Michael Peevey made the announcement after a state lawmaker said he would bring legislation to block Peevey’s reappointment to a third term. Democratic state Sen. Jerry Hill applauded Peevey’s decision, saying it was « more than just a great first step. »
« We can stop fighting and start rebuilding the commission, » he said.
Peevey was under fire in connection with a series of emails describing alleged backroom dealings between him and others at the commission and California’s biggest utility, Pacific Gas & Electric Co.
In emails released by PG&E on Monday, a utility official described Peevey pressing the utility for more than $1 million in campaign donations and other gifts during a dinner in which the two also discussed at least five PG&E regulatory matters before the commission.
Obama to target millennials with economic pitch
WASHINGTON (AP) — President Barack Obama is targeting his midterm election economic message to young people born after 1980, a cohort that has shown itself to be reluctant to vote in nonpresidential contests.
Several US banks attacked by hackers who hit JPMorgan Chase
NEW YORK: Several US financial institutions were targeted by the same computer hackers who breached the systems of JPMorgan Chase earlier this year, sources familiar with the matter said Wednesday.
While the location of the hackers was not clear, the sources told AFP that numerous intrusion attempts were made at computer systems at major banks and other institutions.
Surging VIX Shakes Bulls as S&P 500 Charts Go Haywire: Options
This week’s vortex in equities is a sign of things to come for Donald Selkin, the chief market strategist for National Securities Corp.
Three days of Standard & Poor’s 500 Index swings exceeding 1.5 percent have sent the Chicago Board Options Exchange Volatility Index up 21 percent since Oct. 6 to 18.8, a level not seen since February. About $800 billion has been erased from U.S. equities in three weeks as the average size of daily moves in the S&P 500 almost doubled.
The surging VIX, which usually moves in the opposite direction as the S&P 500, is “a dangerous sign because we’ll have broken through some resistance,” Selkin, whose firm oversees about $3 billion, said by phone. “In a sense, if we don’t hold here, then we could see the next resistance level around 21, which would take us down another couple hundred points.”
Losses in the S&P 500 since it reached a record Sept. 18 now match declines in the last two U.S. selloffs, in July and April. The gauge decreased 2.1 percent to 1,928.21 yesterday after European Central Bank President Mario Draghi said there are signs the recovery is losing momentum.
Europe News
EU: Patrick Modiano, Literature Nobel Prize win creates an unique opportunity to remember the atrocities which took place during Nazi occupation. It could be an unique opportunity to avoid following those political activists which gained coverage recently, which are calling for ending the EU (EU-Skeptics). UKIP and Front National, to point to those two EU-Skeptics, rhetoric are no different from what EU was hearing before WW-II.
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). Although PM Valls said out loud “My government is pro-business” (he translated it in English because in literal translation is sound like a french lover talk), many media continue to bash France and EU (even Mickey needs a bailout). But the same story about Euro-Disney shows that US corporation are still believing in EU and EZ (let’s face it the 2 – wake up call have pushed leaders to change the course – it’s the EC commission of the last chance -). Italy is winning its way to Labor market reform. This is likely to clear the way from more institutional reforms to defeat bad governance (or corruption). Furthermore, EU leaders are considering speeding up funds for job recovery support. The most important single data today comes from Switzerland, which after a long negotiation, is agreeing to share banking secrecy data – it’s the first step in dealing with privacy-security issues -.
Ahead of Br-exit negotiation, Britain is fighting against bad governance in Finance. This is as a game changer as has been President Xi actions to fight corruption. We are constructive on EU scenario because policymakers are taking the right decision.
UK LibDem has recovered from the “Sorry”-Gate. Back then, we have analysed Vice PM Nick Clegg apology to be the next big thing in politics. Creating more trust with the public and the strategy seems going the right direction.
MODIANO WINS NOBEL FOR WORKS ABOUT NAZI OCCUPATION
PARIS (AP) — French novelist Patrick Modiano has devoted his career to exploring the traumas of the Nazi occupation of his country, including how it could strip people of their identities.
On Thursday, the 69-year-old Parisian’s steadfast efforts over the past 45 years earned him the 2014 Nobel Prize in literature.
In a sign of how effective his works have been, his 1968 « La Place de l’Etoile » was later hailed in Germany as a key post-Holocaust work.
Modiano was out for a walk on Paris’ Left Bank when he received word of his prize. « I was walking near the Luxembourg Gardens when my daughter called with the news, » Modiano said at a news conference at the offices of his French publisher Gallimard. « It came as a complete surprise, I just kept walking. It felt like it was happening to my double. »
He was at a loss when asked how he would celebrate his win.
Euro-Area Yields Decline to Record Lows on Fed Rate Bets
Borrowing costs across the euro area dropped to record lows amid speculation sluggish global growth will prompt the Federal Reserve to keep interest rates near zero for longer than previously forecast.
Yields on 10-year government bonds from Spain to Finland, including German securities, fell to all-time lows after minutes of U.S. policy makers’ most recent meeting said a slowdown and a stronger dollar posed potential risks to the outlook for the world’s largest economy. A gauge of inflation expectations in the euro area dropped to the least on record as European Central Bank President Mario Draghi said officials will lift inflation in the 18-nation currency bloc.
“The rally is all about the dovish Fed,” said Peter Chatwell, a fixed-income strategist at Credit Agricole SA’s investment banking unit in London. “The Fed cites global risks but right now it’s the risks to Europe that are the center of the globe.”
Chinese premier’s Germany visit to boost practical cooperation
BEIJING, Oct. 9 (Xinhua) — Chinese Premier Li Keqiang on Thursday kicks off his second visit to Germany since he took office in March last year, sending a strong signal of Beijing’s intention to further promote ties with Berlin.
Germany is China’s biggest European partner in trade, investment and technological cooperation. Bilateral trade exceeded 160 billion U.S. dollars in 2013.
Observers expect the trip to greatly enhance China’s relations with Germany and to promote practical cooperation between the two economic powerhouses.
« Germany is the most important cooperation partner of China in Europe. Their cooperation, exceeding China’s cooperation with any other European country in terms of both breadth and depth, has been playing a leading and pilot role in the development of the China-Europe relationship, » said Mei Zhaorong, a former Chinese ambassador to Germany.
China and Germany have witnessed intensive top-level exchanges this year. Chinese President Xi Jinping visited Germany in March, which was followed by a tour of German Chancellor Angela Merkel to China four months later.
« From President Xi’s European trip, we can clearly feel that European countries, including Germany, have changed their views on China. They have now realized that China is more and more important to their development, » said Xiong Wei of the China Foreign Affairs University.
Li is scheduled to co-chair with Merkel the third round of China-Germany governmental consultations, meet German President Joachim Gauck and witness the signing of more than 10 business and intergovernmental agreements and contracts.
German recession fears mount as exports plunge
(Reuters) – German exports plunged in August by their largest amount since the height of the financial crisis and leading institutes slashed their forecasts for growth, fuelling a debate on whether Berlin is doing enough to prop up Europe’s economy and its own.
Exports slumped by 5.8 percent, the biggest drop since January 2009, in the latest sign that Europe’s largest economy is faltering amid broader euro zone weakness and crises abroad that have battered confidence and led German firms to postpone investment plans.
« The economy seems to need a small miracle in September to avoid a recession in the third quarter, » said Carsten Brzeski, an economist at ING.
German leading economic institutes cut growth forecast
BERLIN, Oct. 9 (Xinhua) — German leading economic institutes cut forecast for economic growth this year and the next on Thursday, blaming weak global economy, geopolitical tensions and domestic policies.
In a joint report issued in Berlin, Ifo of Munich, DIW of Berlin, RWI of Essen and IWH of Halle said Europe’s largest economy would only expand by 1.3 percent in 2014, instead of 1.9 percent as they previously forecasted.
In 2015, German gross domestic product (GDP) would grow by 1.2 percent, instead of 2 percent, said the institutes.
The institutes said the economic outlook was subdued as world economic production expanded at an unexpectedly moderate pace and the euro area’s economy, in particular, remained in a weak phase. International crisis like the situation in Ukraine and military conflicts in Syria and Iraq also clouded the prospect.
UK’s Liberal Democrats weigh future coalition options ahead of 2015 vote
GLASGOW Scotland (Reuters) – Since partnering with Prime Minister David Cameron’s Conservatives in 2010, the junior party in Britain’s first coalition government since World War Two has watched its opinion poll ratings slump.
The Liberal Democrats have been hammered in local, parliamentary and European elections and pollsters predict they could lose around half their 56 lawmakers in the 2015 vote. Yet they could still hold the balance of power.
Polls show voters remain unconvinced of the opposition Labor party’s ability to handle the economy or its leader Ed Miliband’s image, while support for the Conservatives has been hit by its austerity measures and the fact many Britons are yet to see the benefits of a return to economic growth.
Last week Cameron’s party took their first opinion poll lead in more than two years, but with both the main parties regularly polling 30-35 percent each, the race is expected to be close.
Finmeccanica looks to rebuild India ties after former head convicted
(Reuters) – An Italian court sentenced former Finmeccanica Chairman and CEO Giuseppe Orsi to two years in jail for falsifying invoices in a corruption case linked to an Indian deal, but cleared him of more serious corruption charges.
The trial revolved around a 560 million euro ($715 million) contract awarded to Finmeccanica’s AgustaWestland business in 2010 to supply 12 helicopters to the Indian government.
Public prosecutor Eugenio Fusco had accused Orsi and former AgustaWestland head Bruno Spagnolini of paying tens of millions of euros to Indian officials including a former air force head through intermediaries and falsifying invoices to win the high-profile contract.
Portugal’s budget deficit not to be eliminated in five years: IMF
LISBON, Oct. 8 (Xinhua) — Portugal’s budget deficit will keep decreasing but not be eliminated till 2019, the International Monetary Fund (IMF) said Wednesday.
The IMF confirmed its prediction for Portugal’s budget deficit at 4 percent of GDP in 2014 and 2.5 percent in 2015, in line with the government’s estimates.
However, the IMF’s latest forecast for 2016 through 2019 is gloomier than that projected in April. It now expects Portugal to have a budget deficit of 1.7 percent in 2019, instead of 1.2 percent.
The Portuguese government has insisted in recent months that the country must reduce its high debt to maintain credibility with its external creditors.
Portugal had been held to three years of intense austerity under a 78-billion-euro bailout package it signed with the European Commission, the IMF and the European Central Bank, before the program ended in May this year.
China News
China: Continuing data out of China confirm that the country is soft landing while rebalancing. Labor statistics have been showing 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. “BHP Billiton has raised the stakes in the ongoing war of attrition in global iron ore with a plan to slash costs and lift production” confirms our view that commodity companies are starting to adapt to the new normal, while China is cutting the road to nowhere and excessive bureaucracy (China removes 160,000 phantom staff on payroll, China Today). Acknowledging that there is “phantom staff” out loud is an event for those who have been following China for years (this could have cost some China Today’s managers their jobs a couple of years ago).
Furthermore, the west is helping China to change it’s “narrative” from being anti-democracy (China has not gone back on its agreements with Britain over the future of Hong Kong, whose autonomy is far greater than what Britain expected three decades ago, a former aide to late British Prime Minister Margaret Thatcher has said.).
Furthermore, Premier Li is undertaking a state visit to EU. This is likely to bring more collaboration with the West, while China will be offering a back-door to Russia energy at a moment when : President Putin is challenged by plummeting oil prices and sanctions are making harder for the energy sector (finance projects and investments).
The government continues to fear 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 [while becoming environmental friendly], 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 recent 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 -.
Premier pushes innovation on German visit
Premier Li Keqiang arrives in Berlin on Thursday for a visit during which he will hold talks with German Chancellor Angela Merkel.[Rao Aimin / Xinhua]
Landmark bilateral cooperation program poised to cover the next 5 to 10 years
Premier Li Keqiang, starting his second visit to Germany on Thursday since taking office, aims to maximize Sino-German ties through a unique « innovation program » to help China’s economic transformation.
Besides a large number of business agreements to be signed during his trip, innovation will be a leading theme for a landmark Sino-German cooperation program over the next five to 10 years.
This program will cover and map the future for bilateral cooperation in areas including industry, science and technology, agriculture, education, environmental protection, urbanization, medical treatment and social welfare.
The program document is scheduled to be signed after the third China-Germany governmental consultation, co-chaired by Li and German Chancellor Angela Merkel on Friday.
BEIJING – Beijing issued a yellow alert for air pollution on Wednesday with smog forecast to continue for the next three days.
Due to the weather, pollution was predicted to remain heavy in Beijing until Saturday, said the Beijing heavy air pollution response office. Earlier on Wednesday, the Beijing Meteorological Observatory issued a yellow alert for smog.
It is the first yellow smog alert in Beijing since the beginning of July. Tianjin and Hebei also issued a yellow alert.
Citizens, especially elders and children, were advised to take protective measures. Schools were asked to avoid outdoor activities and reduce physical exercise classes.
Air quality index (AQI) in downtown Beijing exceeded 200 for the past 24 hours, according to data updated at 8 p.m. by the Beijing Municipal Environmental Monitoring Center. An AQI of over 300 is defined as « serious pollution » and an AQI between 201 and 300 is considered « heavy », according to China’s standard.
World Bank starts initiative to help developing countries for infrastructure
WASHINGTON, Oct. 9 (Xinhua) — The World Bank on Thursday launched an initiative to bridge the private sector with the need of developing countries and emerging markets on infrastructure construction.
« Today I will be launching a new partnership initiative, the Global Infrastructure Facility (GIF), which is aimed at mobilizing the private sector to help tackle the massive infrastructure deficit now facing developing countries and emerging markets, » World Bank President Jim Yong Kim said in his opening press briefing at the IMF-World Bank Annual Meetings 2014.
According to the data of the World Bank, developing countries and emerging markets need one trillion U.S. dollars a year in extra investment for infrastructure through 2020.
Australia News
Australia: Australia struggles with the labor statistics glitches. Treasurer Hockey offered the private sector to check the information and help to correct that data. While this information does not change drastically our view that the RBA will stay put (due to the fear of a housing bubble, which the central bank is dealing with through macro prudential tools). However, the glitches reduces the “view” in the market that countries such as China are manipulating their figures. While our work on macro eco data has pushed us to take the economic figures with a pinch of salt (due to the methodology which could create some issues), we do not side with camp mistrusting everything. However, we believe that the big data analytics is likely to help improve the accuracy and the frequency of the high frequency data. However, the statistic office may take time before undertaking the experiment.
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 – ).
Unemployment up, but no-one buys the data
Australia’s unemployment rate supposedly hit an 11-year high in September – problem is, nobody trusts the numbers.
Official labour market figures have been all over the place in the past few months, showing surprising, if not downright unbelievable, results.
The figures showed unemployment at a 12-year high of 6.4 per cent in July, before suggesting a record 121,000 jobs were added to the economy in August.
Both results blindsided economists and even left the Australian Bureau of Statistics sceptical, although an initial investigation found no deficiencies in its methodologies.
Joe Hockey eyes new fee to fix dodgy ABS jobs data
Treasurer Joe Hockey has signalled that market participants may be charged a fee to access data provided by the Australian Bureau of Statistics (ABS) as he blamed Labor’s budget cuts for dodgy job figures produced by the agency.
The credibility of monthly employment data – arguably the most crucial gauge of the economy’s health – has been thrown into doubt by the official statistician, who said it was conducting a review of its July, August and Thursday’s September figures.
Australia’s digital appetite sees downloads increase tenfold in five years
Australians are downloading 10 times as much data as they were five years ago, as more people get online with faster internet speeds.
Countrywide downloads totalled 996,160 terabytes in the three months to June, according to new data from the Australian Bureau of Statistics.
That’s an increase of 50 per cent on 12 months ago, and a tenfold increase compared with the same period in 2009.
Downloads via mobile phones increased by 40 per cent in just six months to reach 38.7 terabytes.
Govt seeks clarity on China coal tariffs
The federal government is seeking clarity from China about its shock decision to impose new tariffs on Australian coal.
China will impose from October 15 a levy of three per cent on coking coal imports and six per cent on lower grade thermal coal in a move designed to boost its local coal industry.
The protectionist strategy will see Australian producers hard hit and comes as free trade talks continue between Canberra and Beijing.
Trade Minister Andrew Robb says he is seeking clarity via Australia’s post in China.
But he stressed there would always be a strong place in the market for Australian high-grade, lower emission coal.
« This highlights the importance of concluding high quality Free Trade Agreements to shore-up our competitive position, » he said in a statement on Thursday.
« In negotiations, our starting point is to always seek zero tariffs for Australian exports, but these are negotiations. »
Opposition trade spokeswoman Penny Wong called for the Abbott government to tell Australians when it became aware of this measure.
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 (please see below recent promising advance in Asthma treatment) 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.
NAB flags profit drop on $1 billion in UK write-downs
National Australia Bank chief executive Andrew Thorburn described $1.34 billion in write-downs as a « disappointing result » for investors but the market sent NAB shares higher on Thursday as a discount for past mismanagement gradually unwinds.
Around $1 billion of the write-downs related to the UK, where a new remediation process agreed with the UK Financial Conduct Authority in August has forced NAB to reassess complaints by clients mis-sold payment protection insurance (PPI).
Extra impairments were also made on capitalised software and NAB made changes to the treatment of deferred tax assets and R&D taxes. But the market was expecting a larger impairment to be made against the core banking project known as NextGen, and some restructuring in the wealth division, MLC, where no write-downs were made. NAB shares finished the session up 1 per cent to $32.47; the other majors finished around 1.5 per cent higher.
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. Japan is said to resume discussion with US on TPP, while energy sector is heading toward energy transition away from Nuxe. Physics Nobel price attribution to energy efficient and environmental friendly technology is a game changer because it does support the view that the Win-Win scenario is feasible, if only the consensus stop being pessimistic for no reason.
Furthermore, GPIF delayed its asset allocation review. This is positive because it will calm down markets nervousness that GPIF will shift over-night its JGB holding and would create a market fixed income crash. We see the current development in line with our constructive scenario.
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 pushback to reopening nuclear plans, ahead of Japan-Russian talks (about sanctions, energy agreement, and disputed territories).
As China, Japan, and South Korea heads toward a constructive talks (as we were reporting in our previous daily briefings) and Japan and North Korea are heading toward a solution on Japanese civilians abduction, North Korea leaders close to Kim Jong Un held last weekend high level talks with South Korea minister of reunification. This indicates that the scenario of an unified Korea is advancing. We have been considering that the reunification will ultimately take place but it requires normalised relation amongst the 3 important players: China, Japan, South Korea.
Nikkei lifted by Fed minutes, but stronger yen clouds outlook
* Nikkei up on dovish Fed statement
* Yen strengthens against dollar, some exporters hurt
* Trading houses suffer as energy prices fall
TOKYO, Oct 9 (Reuters) – Japan’s Nikkei share average rose on Thursday after the Federal Reserve said it would not lift interest rates until the U.S. economy was sufficiently strong, though a resurgent yen dented optimism on profit outlook.
Wall Street shares posted their biggest gains so far this year as investors scaled back expectations of U.S. rate hikes after minutes from the Fed’s last policy meeting showed officials were concerned with a stronger dollar and a global slowdown.
FOREX-Dollar hits fresh 2-week low in wake of dovish Fed minutes
* Dollar index sets fresh two-week low
* Fed minutes prompt markets to rethink rate hike bets
* Aussie rebounds after brief dip on weak jobs data
SYDNEY/SINGAPORE, Oct 9 (Reuters) – The dollar hit a two-week low versus a basket of currencies on Thursday, after minutes from the U.S. Federal Reserve’s last meeting prompted markets to push out expectations for the likely timing of an interest rate rise.
The dollar index fell 0.1 percent to 85.174. It slipped to 85.143 at one point, its lowest level since late September, pulling away from a four-year peak of 86.746 hit on Friday.
Against the yen, the dollar slipped 0.2 percent to 107.91 yen, nearing Wednesday’s three-week low of 107.75 yen and well away from a six-year high of 110.09 set last week.
U.N. draft urges ICC referral for North Korea, but Pyongyang fights back
(Reuters) – A draft resolution urges the U.N. General Assembly recommend the referral of North Korea to The Hague for crimes against humanity, prompting Pyongyang to take the unusual step of proposing its own text praising its human rights record.
If the call for a referral to the International Criminal Court remains in the draft that is put to a vote in the coming weeks, diplomats say it will likely lead to increased public pressure on Pyongyang over alleged rights abuses, though it could unsettle China, North Korea’s principal protector.
Reuters on Thursday obtained a copy of the European draft as well as North Korea’s letter to all 193 U.N. member states.
The 372-page U.N. Commission of Inquiry report, published in February, detailed wide-ranging abuses in North Korea, including the use of prison camps, systematic torture, starvation and killings comparable to Nazi-era atrocities. The report’s publication prompted calls among Western states and their allies for punitive action against Pyongyang.
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