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SNBDL Daily Briefing
Report prepared using big data solution Quid
Our take away from the last 72hours news
IMF meetings confirmed our views that the markets have gone ahead of itself pricing quick rate normalisation in the US. However, while rates curves are repricing down rate hikes probability (33% chances of rate hike by July 2015, down from 59% in Sept 18 according to BBG analysis of fed funds futures), vulnerable EM central banks (e.g. Tombini) indicated that countries should stick to reforms because US normalisation will increase volatility and risk premium.
ECB announced considering diversifying its reserves into RMB. Should board members confirmed the decision, this action would move RMB closer to internationalisation while China is under taking reforms and economic rebalancing. PBoC confirmed, during IMF meetings, that hard landing probability continue to be subdued. We continue to see China soft landing while undertaking the genuine reforms to move away from the old economic model toward a model where labor intensive industry would be delocalised in Africa while China keeps innovation and high value added industries.
Weidmann continues to play the “bad cop” role to press France, Italy parliament to move ahead with reforms. During the weekend, France EcoMin Macron hinted that France would be considering reforming unemployment allowances. We have indicated that this reform was instrumental to harmonise the EZ and move the region closer to Draghi-nomics. We have been indicating that Draghi-nomics differs from Abe-nomics in sequencing of the three arrow. In order to avoid the moral hazard risks, EU institutions want to move ahead with the third arrow (i.e. structural reforms) before undertaking fiscal stimuli (2nd arrow) while the ECB is undertaking monetary stimuli (1st arrow). EU designated Eco Commissioner Pierre Moscovici indicated to the French media (iTele) that the commission will be vigilant in studying French 2015 budget, though he left the door open to negotitations. He did not confirmed the rumours that he asked President Hollande to announce new measures to reduce French public spending. But EcoMin Macron weekend interview seems to confirm this rumour. Furthermore, Jeroen Dijsselbloem, the chairman of euro zone’s finance ministers, used the forum to propose a new « growth deal » for Europe offering nations embarking on ambitious economic reforms more fiscal wiggle room and low-interest EU funds.
We continue to be more constructive on the EZ that the current market consensus.
ISDA announced, on Oct. 10th, that 18 major global banks (G-18) have agreed to sign a new ISDA Resolution Stay Protocol, which has been developed in coordination with the Financial Stability Board to support cross-border resolution and reduce systemic risk. This represents a major step in strengthening systemic stability and reducing the risk that banks are considered ‘too big to fail’. Moreover, EU commission (Commissioner Barnier) proposed that banks should have the right to use a wider range of asset-backed debt to meet the 28-nation bloc’s planned liquidity rule. This proposal increases the chances for ECB ABS-QE to work. We were confident that the EU commission will change some ABS rules to make ECB ABS QE more effective.
Furthermore, Eurogroup has pressed for more “fiscal stimuli” or growth pack. This is in line with EU Commission designated President Juncker EUR 300bn investment plan. Commissioner Designated Moscovici indicated that this funds are likely to be “new money” not recycling. Though he didn’t provide any specifics, he said that the funds may be channeled by EIB and ESM. We continue to see Chancellor Merkel supporting this initiative, while we consider these investment to be in form of Private Public Partnership with some form of guarantees given by ESM-EIB.
World Bank President pressed for more funding to defeat Ebola Outbreak stressing that the economic cost may go as high as $32bn. The WHO have indicated a couple of weeks ago that the human cost could be 1.4millions causalities by the beginning of 2015. These announcement and the increase in the fear about Ebola are likely to increase the chance of gathering the needed $1bn (estimates given by WHO and CDC) to defeat the outbreak.
Ebola outbreak fear continue to increase in the US and Europe, while the number of cases declared continue to be very low. Though the public fear is increasing the pressure on lawmakers to channel sufficient funds to deal with the outbreak. Some politically motivated lawmakers are using the outbreak to move ahead with their anti-globalisation agenda which include closing flight connections with the countries where the outbreak first started.
Taking a step back from the sensational (ethos) media reports, the actions taken continue to support our constructive view that the outbreak will be dealt with while experimental vaccine are getting tested.
From our Oct. 10th daily briefing
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.
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.
Egypt President Al-Sisi opened Gaza donors conference in Cairo. The conference pledge $5bn, while Palestinian President Abbas committed transparency of the use of the funds. Meanwhile, Secretary Kerry pressed Palestine – Israel to move ahead with a two-states solution peace negotiation. We are very constructive of these new negotiations for 4 main reasons: 1) Arab countries (incl. Egypt) are taking part of the process and have a genuine interest to reduce the use of palestine “war” to hire new Jihadists (we were indicating that Palestine and Syria are used by Jihadists of ISIL and other terrorists group to spur mistrust in ruling governments), 2) Hamas is splitting between moderate and extremists and has jeopardised its political capital, 3) Moderate Hamas and Fatah national coalition is shifting the focus toward reconstruction away from fighting, 4) soft power is replacing terrorism acts as a genuine way to move ahead with peace process.
From our Oct. 10th daily briefing
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.
Kobani battle is very important for ISIL. A defeat in this battle would weaken the terrorist organisation on two fronts: 1) it will weaken militarily ISIL, 2) it will weaken ISIL rhetoric that although the number of fighter is small they’ve “defeated” a multi-countries coalition. Observers are indicating that ISIL has secured 40% of Kobani. Turkey participation will be instrumental but President Ergodan is struck between a rock (Muslim brotherhood which locate there operation from Qatar to Turkey) and a hard place (Kurdish aim for independence) while genuinely aiming to defeat Assad. But US State Department indicated over the weekend that Turkey will train the Syrian rebels. We continue to see Turkey as the game changer in the fight against Turkey. From the ideological prospect, Tariq Ramadan, a prominent Muslim academic, close to Muslim Brotherhood, spoke out loud against ISIL (ISIL’s act are un-Islamic). But while the muslim community tries to push against ISIL, groups which militate for a religious war continue to paint all muslims as terrorists or hypocrites. This move can be explained by the genuine objective to increase tension as many would benefit politically, economically and financially from a renewed economic crisis triggered by geopolitical risks. But oil prices continue to behave in line with our constructive scenario.
From our Oct. 10th daily briefing
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.
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)
President Putin ordered troops withdraw from the Ukrainian border ahead of Ukraine-Russia head of states meeting in Italy this week. While this action could be positively perceived, we advise cautious because the same action has been taken after Crimea annexation. Meanwhile, Ukraine is considering a peace process with Donbass region self-proclaimed republics. However, as we were indicating for some time (please see our Friday take below), a quick resolution seems un-compatible with Ukraine aim to ultimately join EU and NATO. President Putin actions could be explained by 1) Premier Li visit to Russia, which seeks economic collaboration, and 2) the acceleration in RUB depreciation which cost ~$1.5bn currency intervention daily.
From our Oct. 10th daily briefing
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).
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 protests are calming down, as we were expecting. But 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.
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.
Ferguson-Missouri tension resumed during the weekend after a new fatal shooting. The Tea Party caucus is using these events as a way to increase the racial tension, while Sen. Rand Paul wants to use the spread of African-American anger vis-a-vis President Obama administration as a way to bring these voters to the GOP. Sen. Rand Paul has used exactly the same strategy with the youth, which suffers the most from the global financial crisis consequences. The administration needs to increase it rhetoric against disinformation, mistrust and pessimism should it want to avoid that the voters turn to those who are placing the most emphasis on pessimism with the help of donors which interest is to keep status quo (at a moment when the US need urgently to undertake structural reforms – immigration, taxes etc. -).
US markets continue to behave between repricing downward growth prospect (as we were expecting) and reassign Fed policy going forward. Although VIX has moved up it still below the high stresses period we have experienced during the recent period. The Mid-Term elections prospect is not discussed as one reason which could create more crisis: GOP are likely to tight Fed hands, should they secure the Senate majority, while the recovery is still underway. We see the next two weeks to focus on the narrative on the negative consequences of a GOP Senate win. A strategy the UK has followed to secure the Scotland independence vote. Meanwhile, recent Clinton Presidency document release shows the stress around the impeachment risk (a gesture GOP has been considering until recently and which may resume after mid-term elections). Furthermore, the political mistrust continues to be on focus in DC while policymakers discussing inappropriate conduct during the 2012 prostitution scandal in Colombia
From our Oct. 10th daily briefing
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.
While EU-skeptics group continue to do well in the polls, EU is heading to a grand bargain which would clear the way to regain public support for the EU project. Germany’s FinMin Schauble indicated that Germany’s response to a “clear weakening” of the economy will be a shift in public spending toward investments and away from government consumption. Eurogroup has cleared the way to a shift toward growth agenda / pact. Furthermore, China Premier Li visit to Germany has conducted to the release of a guideline for bilateral corporation. Furthermore, EcoMin Macron hinted that France may be considering a change in U/E allowances (a reform we understood to be very high on Chancellor Merkel ask list to move for more EU integration). Furthermore, US and UK are considering joint model to deal with too big to fail (after ISDA agreed on a “big bang” deal to reduce systemic risk arising from derivatives). Finally, according to Reuters, Germany is trying to convince Turkey and Iran to join the fight against Islamic State (IS) militants, Foreign Minister Frank-Walter Steinmeier told a German newspaper. EU developments are in line with our constructive scenario for the region (a view which is not priced yet by markets).
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
IMF meetings confirmed our views that the markets have gone ahead of itself pricing quick rate normalisation in the US. However, while rates curves are repricing down rate hikes probability (33% chances of rate hike by July 2015, down from 59% in Sept 18 according to BBG analysis of fed funds futures), vulnerable EM central banks (e.g. Tombini) indicated that countries should stick to reforms because US normalisation will increase volatility and risk premium.
ECB announced considering diversifying its reserves into RMB. Should board members confirmed the decision, this action would move RMB closer to internationalisation while China is under taking reforms and economic rebalancing. PBoC confirmed, during IMF meetings, that hard landing probability continue to be subdued. We continue to see China soft landing while undertaking the genuine reforms to move away from the old economic model toward a model where labor intensive industry would be delocalised in Africa while China keeps innovation and high value added industries.
Weidmann continues to play the “bad cop” role to press France, Italy parliament to move ahead with reforms. During the weekend, France EcoMin Macron hinted that France would be considering reforming unemployment allowances. We have indicated that this reform was instrumental to harmonise the EZ and move the region closer to Draghi-nomics. We have been indicating that Draghi-nomics differs from Abe-nomics in sequencing of the three arrow. In order to avoid the moral hazard risks, EU institutions want to move ahead with the third arrow (i.e. structural reforms) before undertaking fiscal stimuli (2nd arrow) while the ECB is undertaking monetary stimuli (1st arrow). EU designated Eco Commissioner Pierre Moscovici indicated to the French media (iTele) that the commission will be vigilant in studying French 2015 budget, though he left the door open to negotitations. He did not confirmed the rumours that he asked President Hollande to announce new measures to reduce French public spending. But EcoMin Macron weekend interview seems to confirm this rumour. Furthermore, Jeroen Dijsselbloem, the chairman of euro zone’s finance ministers, used the forum to propose a new « growth deal » for Europe offering nations embarking on ambitious economic reforms more fiscal wiggle room and low-interest EU funds. We continue to be more constructive on the EZ that the current market consensus.
Treasuries Post Biggest Weekly Gain in 13 Months
Treasuries rose for a fourth week, with 10-year yields dropping the most in more than a year, on speculation the Federal Reserve’s concern that global economic growth is slowing may push back interest-rate increases.
Yields on two-year notes registered the steepest weekly decline since 2010 as the International Monetary Fund cut its forecast this week for global growth and European Central Bank President Mario Draghi pledged to loosen monetary policy more if needed. Traders see about a 33 percent chance the Fed will raise its benchmark rate by its July 2015 meeting, down from a 59 percent on Sept. 18, fed funds futures data compiled by Bloomberg show.
“The Fed changed the goalpost again,” said Thomas Roth, senior Treasury trader in New York at Mitsubishi UFJ Securities USA Inc. “Most of the move this week was on Europe and the dollar and the Fed’s emphasis of it in the minutes. We’re now data dependent on Europe.”
Germany to keep warning of fiscal stimulus risks at G20 – Weidmann
(Reuters) – Germany will keep warning about the dangers of short-term fiscal stimulus at talks on the global economy in Washington although risks to growth are on the downside, Bundesbank President Jens Weidmann said on Thursday.
Weidmann said he expected growth in Germany, Europe’s biggest economy, to come in below levels expected earlier this year, but maintained its fundamentals were sound.
Pressure is mounting for Germany to use its healthy budget to boost public spending and spur growth in Europe and Weidmann said he expected discussion of stimulus on Friday, when Group of 20 officials meet on the sidelines of World Bank and International Monetary Fund meetings.
« (The) position is clear, in order to create sustainable growth there’s little use in setting off an economic flash fire, particularly against a backdrop of historically high debt, » he told reporters.
Weidmann Says ECB Balance-Sheet Target May Lead to Risk Transfer
Oct. 10 (Bloomberg) — European Central Bank Governing Council member Jens Weidmann said targeting the amount of assets owned by the ECB is a risky endeavor.
“It worries me quite a bit, there’s a risk related to the announcement of a balance-sheet target, together with the two purchase programs,” Weidmann, who heads Germany’s Bundesbank, said in Washington late yesterday. The danger is “that we’ll buy these assets overpriced,” he said.
Weidmann was one of at least three governors who opposed the ECB’s decision this month to start buying asset-backed securities before the end of the year. The purchase plan is part of a range of stimulus measures by the Frankfurt-based central bank which ECB President Mario Draghi has signaled will increase the balance sheet by about 1 trillion euros ($1.3 trillion)
Buying assets too expensively “would be a risk transfer from banks’ balance sheets to the central bank’s balance sheet,” Weidmann said.
Former Fed chief Ben Bernanke defends AIG bailout in court
Former Federal Reserve Chairman Ben S. 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.
stand at a trial of a lawsuit brought by former AIG Chairman and Chief Executive 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.
« 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.
China’s Central Bank Sees ‘very Low’ Risk Of Hard Landing
(Reuters) – The chance of a hard landing for China’s economy is very small in spite of worries about the country’s real-estate sector, the chief economist of the People’s Bank of China said on Saturday.
Ma Jun told a panel on the sidelines of the IMF and World Bank fall meetings in Washington that the property sector, which accounts for 20 percent of total investment in China, was the main downside risk to the Chinese economy.
However, he said the sector was not the only driver of growth.
« I think the chance of a hard landing is very low, » Ma said.
« Although we worry about some downside risk like the real-estate slowing down and so on, there are also growth engines, including the service sector in general, the Internet in particular … and healthcare is rising very rapidly. »
Ma said the slowdown in real estate was putting downward pressure on the economy and some further deceleration in the sector was possible given weak public sales.
He said leveraging in the real-estate sector, in state-owned enterprises and in local government financing vehicles was too high and had been rising in the past few years. This was a key reason for the government’s policy of avoiding « excessive stimulus » to the economy.
China Welcomes ECB Yuan Debate as Flexible Currency Envisioned
Oct. 12 (Bloomberg) — Policy makers from Beijing to Kuala Lumpur welcomed plans by the European Central Bank to consider adding the yuan to its foreign-currency reserves.
The internationalization of China’s currency emerged as a subject at the annual meeting of finance ministers and central bank governors in Washington after Bloomberg News reported that the ECB will discuss whether to begin laying the groundwork to buy yuan. Such a measure would mark a major step for the importance of the currency, also known as the renminbi.
Asked about the ECB’s plans, People’s Bank of China Governor Zhou Xiaochuan said that “it’s good that more countries are willing to adopt it as a reserve currency as our economy grows.”
“Of course it means some homework to do for us, including to reduce administrative control on our financial market and make it more market-oriented, and to gradually make the yuan a convertible currency,” he said.
While China is the world’s second-largest national economy, the yuan currently isn’t ranked among the most-held foreign reserve assets, according to data from the International Monetary Fund. The U.S. dollar leads at 61 percent of holdings.
Should ECB officials eventually decide to buy the currency, initial purchases would be small and might start in a year at the earliest, said a person who asked not to be named because the discussions aren’t public. The central bank’s 24-member Governing Council will consider the move when gathering in Frankfurt for their Oct. 15 mid-month meeting.
UPDATE 1-Fed tightening to raise volatility in Brazilian economy -Tombini
WASHINGTON, Oct 11 (Reuters) – Brazil expects to see greater volatility in its economy when the United States begins hiking interest rates, Brazilian central bank chief Alexandre Tombini said on Saturday.
Brazil has been preparing for an eventual rise in U.S. rates by amassing around $380 billion in currency reserves and maintaining a floating currency, Tombini said on the sidelines of the International Monetary Fund and World Bank fall meetings in Washington.
« With the monetary tightening, we expect to see higher levels of volatility than in the past. Brazil has been preparing for that, » Tombini said.
Polish Central Bank to Complete Rate Cuts This Year, Belka Says
Oct. 10 (Bloomberg) — Poland’s central bank won’t keep cutting interest rates into 2015 if Governor Marek Belka gets his way.
“Don’t expect us to postpone any possible future steps until the first or second quarter of 2015, at least the way things look now,” Belka said in an interview today in Washington, D.C., where’s he’s attending the International Monetary Fund’s annual meetings. “In my opinion, and I don’t know if this view will prevail, everything we’ll do, we should do by the end of this year.”
The National Bank of Poland defied expectations on Oct. 8 by cutting its benchmark seven-day rate by 50 basis points, more than the quarter-point predicted by 33 of 40 economists in a Bloomberg survey, to bolster growth and fight off the threat of persistent deflation. Belka said then he would neither rule out nor promise more reductions in borrowing costs, adding that policy makers wanted “to concentrate rate cuts in time.”
With the German economy deteriorating and Russia hit with economic sanctions because of the crisis in Ukraine, Polish growth is coming under pressure as its export markets suffer.
“Weaker growth in the euro area and the European Union as a whole means difficulties for our exports,” Belka said. “For now our exporters are coping wonderfully. But even if you’re a well-trained athlete, it’s not easy to run uphill.”
BOJ Kuroda: Divergency of big central banks’ policies justified
Oct 12 (Reuters) – Bank of Japan Governor Haruhiko Kuroda said the divergence in monetary policy among the world’s four largest central banks is justified as they reflect differences in their economic situations.
The Federal Reserve and the Bank of England are moving towards normalising their ultra-loose monetary policies, while the European Central Bank and the BOJ are continuing their massive stimulus.
« That does not create any problem, » Kuroda said.
« I think this non-synchronised way of monetary normalisation and monetary policy management is quite justified. A synchronised exit from unconventional policy by all central banks could be much more difficult for some emerging market economies, » he told the Emerging Markets magazine in a recent interview.
Kuroda was in Washington to attend the meeting of IMF and Group of 20 finance leaders.
Kuroda reiterated his view that while Japan’s economy was headed for a moderate recovery, the central bank would stick to its quantitative easing programme as the country was still only half-way in meeting its 2 percent inflation target.
Economic News
ISDA announced, on Oct. 10th, that 18 major global banks (G-18) have agreed to sign a new ISDA Resolution Stay Protocol, which has been developed in coordination with the Financial Stability Board to support cross-border resolution and reduce systemic risk. This represents a major step in strengthening systemic stability and reducing the risk that banks are considered ‘too big to fail’. Moreover, EU commission (Commissioner Barnier) proposed that banks should have the right to use a wider range of asset-backed debt to meet the 28-nation bloc’s planned liquidity rule. This proposal increases the chances for ECB ABS-QE to work. We were confident that the EU commission will change some ABS rules to make ECB ABS QE more effective.
Furthermore, Eurogroup has pressed for more “fiscal stimuli” or growth pack. This is in line with EU Commission designated President Juncker EUR 300bn investment plan. Commissioner Designated Moscovici indicated that this funds are likely to be “new money” not recycling. Though he didn’t provide any specifics, he said that the funds may be channeled by EIB and ESM. We continue to see Chancellor Merkel supporting this initiative, while we consider these investment to be in form of Private Public Partnership with some form of guarantees given by ESM-EIB.
World Bank President pressed for more funding to defeat Ebola Outbreak stressing that the economic cost may go as high as $32bn. The WHO have indicated a couple of weeks ago that the human cost could be 1.4millions causalities by the beginning of 2015. These announcement and the increase in the fear about Ebola are likely to increase the chance of gathering the needed $1bn (estimates given by WHO and CDC) to defeat the outbreak.
Killings drag Mexico’s president away from focus on economic reforms
MEXICO CITY – Since taking office nearly two years ago, President Enrique Pena Nieto has sought to project an image of Mexico on the move, beating back chronic drug violence and pressing ahead with historic constitutional and economic reforms, even offering to contribute soldiers to UN peacekeeping missions in other parts of the globe.
The problem is that, back home, Mexico’s grotesque cycle of violence continues, with soldiers and police implicated in recent atrocities. Pena Nieto’s determination to focus on Mexico’s moment has been derailed by Mexico’s mess.
International human rights groups are calling the massacre of 22 suspected gang members in southern Mexico this year a test case for the president, and the world is demanding answers in the forced disappearance of 43 teachers’ college students, who are feared to be buried in mass graves discovered after they vanished Sept. 26.
International Monetary Fund warns global economy at risk, calls for bold action
WASHINGTON: The International Monetary Fund’s member countries on Saturday said bold action was needed to bolster the global economic recovery, and they urged governments to take care not to squelch growth by tightening budgets too drastically.
With Japan’s economy floundering, the euro zone at risk of recession and the US recovery too weak to generate a rise in incomes, the IMF’s steering committee said focusing on growth was the priority.
WRAPUP 2-Fed officials keep eyes on mid-2015 rate rise
* Fischer, Williams join Dudley; see mid-2015 rate increase
* Data, not dates, will drive policy, Fed officials say
* Bullard sticks to view of 1st-quarter 2015 liftoff
* Lacker says too soon to know when rates will rise (Adds comments)
LAS VEGAS, Oct 9 (Reuters) – The Federal Reserve will probably start raising interest rates around the middle of next year, two top officials at the U.S. central bank said on Thursday, although both said the exact timing will depend on the economy.
« What we think now is that the capital markets have it more or less right but we don’t ourselves know when we’re going to do it, » Fed Vice Chairman Stanley Fischer said in Washington.
« On the basis of our forecasts of the data … it looks like markets more or less have it right – somewhere in the middle of the year. »
The Fed has kept rates near zero since 2008 and has nearly quadrupled its balance sheet to more than $4 trillion through a series of bond purchase programs in an effort to push borrowing costs down further and boost hiring.
With the U.S. jobless rate at 5.9 percent and closing in on what the central bank sees as consistent with full employment, officials plan to wrap up their bond buying this month.
Now, investors are rushing to place bets on when rates will rise.
Europe growth pact floated as euro zone recession fears mount
(Reuters) – Heeding global calls for action to shore up Europe’s sagging economy, euro zone’s top finance official proposed a new growth pact on Friday to break a policy logjam and spur reforms by rewarding countries with cheap funds and leeway on budget targets.
The International Monetary Fund, which cut its global growth forecasts for the third time this year this week, flagged Europe’s weakness as the top concern, a sentiment echoed by many policymakers, economists and investors.
European officials in Washington for the IMF and World Bank annual meetings sought to dispel the gloom, with European Central Bank President Mario Draghi talking about a delay, not an end, to the region’s recovery.
Jeroen Dijsselbloem, the chairman of euro zone’s finance ministers, used the forum to propose a new « growth deal » for Europe offering nations embarking on ambitious economic reforms more fiscal wiggle room and low-interest EU funds.
EU Finance Ministers to Urge Budget Refocus in Search for Growth
European Union finance ministers are set to call for government spending plans to have a greater focus on growth and investment, raising pressure on German Chancellor Angela Merkel to ease her opposition to stimulus measures across the bloc.
The ministers, who meet in Luxembourg on Oct. 14, will say “the composition of public expenditure should be better orientated toward growth, notably in supporting investment,” according to a draft statement obtained by Bloomberg News.
Ministers will call on the EU to identify projects “that could be realized in the short and medium term and lay the foundation for a credible and transparent pipeline of projects,” said the document, dated today.
World Bank Calls for Emergency Disease Outbreak Fund
The World Bank Group faulted the pace of the global response to the Ebola outbreak and called for an international fund to distribute money quickly to affected countries.
« The institutional toolbox is empty » when it comes to health emergencies, World Bank President Jim Yong Kim said Friday at a Washington gathering of global finance officials. « There’s no such center of knowledge and skill for response and coordination. »
World Bank officials are looking at several ways of structuring an emergency facility, including setting up a system that would prepackage contingent funding agreements that could be activated when a global health emergency is declared.
Mr. Kim’s remarks follow those of President Barack Obama, who in September at a United Nations gathering criticized institutions like the U.N. for not moving fast enough. The U.N.’s health agency, the World Health Organization, has seen sharp budget cuts and has faced criticism from health groups about its Ebola response.
Banks, Insurers to Get ABS Incentives as ECB Gears Up Buy
Mario Draghi’s plan to revive the European market for asset-backed securities is getting a boost from Brussels.
European Union financial-services chief Michel Barnier proposed today that banks should have the right to use a wider range of asset-backed debt to meet the 28-nation bloc’s planned liquidity rule.
Barnier also presented a definition of high-quality securitizations that would get preferential capital treatment in a bid to encourage insurers to enter the market.
The measures “show that Europe is serious about creating a framework to support investment in the economy, particularly through promoting safe and transparent securitization and encouraging insurers to invest for the long term,” Barnier said in an e-mailed statement.
Fed’s Tarullo, Williams See Rising Uncertainty in Global Economy
Oct. 11 (Bloomberg) — Two Federal Reserve officials warned of risks to the world economy amid global financial cross currents, as the Fed reviews raising interest rates while the euro area and Japan concentrate on boosting stimulus.
Governor Daniel Tarullo said at the annual meeting of the Institute for International Finance today in Washington that downside risks to the global economy outnumber upside risks.
“I’m worried about growth around the world right now,” Tarullo told members of the global financial industry group.
“The U.S. appears to have some momentum for what is still moderate growth. It’s not fabulous growth, but right now obviously other major economies are tilting, or at least showing risks a little bit more to the downside than to the upside,” Tarullo said. “This is obviously a set of things that we have to think about in our own policies going forward.”
Fed officials voiced concern at their policy meeting last month over the risks posed by weaker global growth and a stronger dollar, which could hurt exports and dampen inflation.
The Bloomberg dollar spot index, which gauges the U.S. currency against 10 major rivals, has risen 6.7 percent since the start of July.
Investors betting on the dollar expect the Fed to raise interest rates next year in response to solid U.S. growth, while the euro zone and Japan continue to ease policy.
San Francisco Fed President John Williams said that with the Bank of Japan and European Central Bank also pursuing unconventional monetary policies, he sees risks in the interactions between the biggest economies.
Major Banks Agree to Sign ISDA Resolution Stay Protocol
WASHINGTON, DC, October 11, 2014 – The International Swaps and Derivatives Association, Inc. (ISDA) today announced that 18 major global banks (G-18) have agreed to sign a new ISDA Resolution Stay Protocol, which has been developed in coordination with the Financial Stability Board to support cross-border resolution and reduce systemic risk. This represents a major step in strengthening systemic stability and reducing the risk that banks are considered ‘too big to fail’.
The Protocol will impose a stay on cross-default and early termination rights within standard ISDA derivatives contracts between G-18 firms in the event one of them is subject to resolution action in its jurisdiction. The stay is intended to give regulators time to facilitate an orderly resolution of a troubled bank.
“This is a major industry initiative to address the too-big-to-fail issue and reduce systemic risk, while also incorporating important creditor safeguards. The ISDA Resolution Stay Protocol has been developed in close coordination with regulators to facilitate cross-border resolution efforts and reduce the risk of a disorderly unwind of derivatives portfolios,” said Scott O’Malia, ISDA Chief Executive.
Ebola
Ebola outbreak fear continue to increase in the US and Europe, while the number of cases declared continue to be very low. Though the public fear is increasing the pressure on lawmakers to channel sufficient funds to deal with the outbreak. Some politically motivated lawmakers are using the outbreak to move ahead with their anti-globalisation agenda which include closing flight connections with the countries where the outbreak first started.
Taking a step back from the sensational (ethos) media reports, the actions taken continue to support our constructive view that the outbreak will be dealt with while experimental vaccine are getting tested.
From our Oct. 10th daily briefing
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.
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.
Latest updates / Ebola death toll rises to above 4,000, says WHO
First Ebola vaccine trial starts on African soil; Hagel to discuss Ebola with Central and South American leaders; U.S. House Republicans release $750m in Ebola funds.
The first Ebola vaccine trial to be tested on African soil began Friday, as international efforts to contain the deadly epidemic continued.
The outbreak of the disease is the biggest global health challenge since the emergence of AIDS, a top U.S. health official said Thursday during an address at the World Bank. Over 4,000 people have been killed since the current outbreak began, the vast majority of them in Guinea, Liberia and Sierra Leone, according to the World Health Organization.
Meanwhile, tensions were high in Spain, as the first person to contract the virus outside of West Africa, a Madrid nurse, lay seriously ill.
World ministers step up effort against Ebola
WASHINGTON, – World financial leaders promised swift action against Ebola at the fall meeting of the IMF and World Bank on Saturday as countries across the world scrambled to stem the deadly outbreak, which U.N. officials warn is getting worse.
Officials also pledged to act boldly to give the weak and uneven global recovery some momentum.
The leaders endorsed the IMF’s efforts to support three West African countries battling the Ebola crisis. Managing Director Christine Lagarde said at a news conference that the IMF has made $130 million available to Guinea, Liberia and Sierra Leone and that the IMF and other international agencies stood ready to do more.
In addition to $130 million in interest-free loans being provided by the IMF, the World Bank is providing $400 million for the Ebola efforts.
In its closing statement, the World Bank policy committee said “swift and coordinated action and financial support are critical to contain” the Ebola crisis.
Ebola funds should not be repackaged aid, Africa bank chief says
Oct 11 (Reuters) – The head of the African Development Bank expressed concern on Saturday that some donors responding to the Ebola crisis were repackaging aid money, funneling it away from other areas in need in the three countries at the center for the epidemic.
In an interview, Donald Kaberuka said moving funds from already allocated development projects in Liberia, Guinea and Sierra Leone was unhelpful in the long term and make their rebuilding harder.
« I have told donors that I hope what they are announcing is additional resources because if it isn’t …once (Ebola) is gone we will have no resources to build health care systems and continue reconstruction, » Kaberuka told Reuters on the sidelines of meetings in Washington of the International Monetary Fund and World Bank.
‘Breach in protocol’ caused second U.S. Ebola infection
DALLAS — A health care worker who cared for the Ebola patient who died last week tested positive for the deadly virus, sending health officials scrambling Sunday to find the « breach in protocol » that resulted in her infection.
The woman was among caregivers for Thomas Eric Duncan, who died Wednesday at Texas Health Presbyterian Hospital. A state test finding that she had Ebola was confirmed Sunday by the Centers for Disease Control and Prevention, making it the first known case transmitted in the U.S.
CDC chief Thomas Frieden said his agency will investigate how a worker in full protective gear contracted the virus.
« At some point there was a breach in protocol, » Frieden said. « That breach in protocol resulted in this infection. »
Thomas Eric Duncan: 7 ways his Ebola case differs from others in U.S.
(CNN) — His family is devastated. The woman he planned to marry, haunted by the « what ifs. » And many are wondering why Thomas Eric Duncan died when several other Ebola patients treated in the United States survived.
1. Duncan wasn’t hospitalized right away
2. He didn’t get an experimental drug immediately
3. He got a different experimental drug
4. He didn’t get a blood transfusion from an Ebola survivor
5. The hospital treating him had no advance notice
6. Information on his case has been muddled
7. Family believes his insurance status played a role
U.S. military faces new kind of threat with Ebola
Oct 12 (Reuters) – At Fort Campbell in Kentucky, spouses of U.S. soldiers headed to Liberia seem to be lingering just a bit longer than usual after pre-deployment briefings, hungry for information about Ebola.
For these families, the virus is raising a different kind of anxiety than the one they have weathered during 13 years of ground war in Afghanistan and Iraq. They want to know how the military can keep soldiers safe from the epidemic, a new addition to the Army’s long list of threats.
« Ebola is a different problem set that the division hasn’t (faced) before, » said Major General Gary Volesky, who will soon head to Liberia along with soldiers from the 101st Airborne Division.
There are already more than 350 U.S. troops on the ground in West Africa, mostly in Liberia, including a handful from the 101st. That number is set to grow exponentially in the coming weeks as the military races to expand Liberia’s infrastructure so it can battle Ebola.
The military has already stood up a headquarters in Liberia’s capital, Monrovia, and hopes to have a 25-bed field hospital up and running by the middle of this month. It also aims to quickly build up to 17 Ebola treatment units.
Gaza
Israel and Palestine continue to head into the right direction.
Egypt President Al-Sisi opened Gaza donors conference in Cairo. The conference pledge $5bn, while Palestinian President Abbas committed transparency of the use of the funds. Meanwhile, Secretary Kerry pressed Palestine – Israel to move ahead with a two-states solution peace negotiation. We are very constructive of these new negotiations for 4 main reasons: 1) Arab countries (incl. Egypt) are taking part of the process and have a genuine interest to reduce the use of palestine “war” to hire new Jihadists (we were indicating that Palestine and Syria are used by Jihadists of ISIL and other terrorists group to spur mistrust in ruling governments), 2) Hamas is splitting between moderate and extremists and has jeopardised its political capital, 3) Moderate Hamas and Fatah national coalition is shifting the focus toward reconstruction away from fighting, 4) soft power is replacing terrorism acts as a genuine way to move ahead with peace process.
From our Oct. 10th daily briefing
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.
Kerry pushes for Mideast peace, donors pledge $5 billion for Palestinians
CAIRO (Reuters) – U.S. Secretary of State John Kerry called on Sunday for a renewed commitment to achieving Middle East peace, saying a lasting deal between Israel, the Palestinians and all their neighbours was possible.
But prospects for a renewed peace process appeared dim as Kerry offered no specifics on how to restart negotiations in his speech to a Gaza reconstruction conference that raised more than $5 billion (3.1 billion pounds) in aid for the Palestinians after a devastating war in the tiny coastal territory.
The last round of U.S.-brokered peace talks foundered in April over Israeli objections to a Palestinian political unity pact that included the Islamist Hamas movement and over Palestinian opposition to Israeli settlement expansion.
« Out of this conference must come not just money but a renewed commitment from everybody to work for peace that meets the aspirations of all, for Israelis, for Palestinians, for all people of this region, » Kerry told the meeting in Cairo.
Easing Gaza restrictions is the new two-state solution
Analysis: Israel now admits that the almost-airtight blockade of Gaza has done more harm than good; on eve of Cairo truce talks, Israel shifts its focus to easing the lives of Palestinians in return for greater oversight over Hamas. This is how Israel hopes to restore calm to its south.
On the possibility of non-violent resistance in Palestine
ISRAEL-PALESTINE How real is that possibility? And how great are the obstacles against non-violence as a disruptive force in a stifled peace process? These are some of the difficult questions discussed in this ambitious analysis by Georgia Travers.
As the dust settles, literally, from this summer’s war in Gaza, many have speculated about the critical need for, and apparent lack of, Palestinian leaders who espouse the methods of non-violent resistance championed by international heroes such as Gandhi, Mandela, and Dr. King. These observers posit that over time – much as in India, South Africa, and the United States – the widespread adoption of strategic civil disobedience will provide Palestinians with a compelling alternative to the current norm of cyclical, and increasingly lethal, violence.
Egypt’s Sisi opens Gaza donor conference, urges Israel to consider Arab peace initiative
« We should turn this moment into a real starting point to achieve a peace that secures stability and flourishing and renders the dream of coexistence a reality, » Egyptian leader says.
Egyptian President Abdel Fattah al-Sisi urged Israel on Sunday to consider launching new peace efforts based on an Arab initiative first presented in 2002 and rejected by the Jewish state.
Sisi was opening a conference in Cairo on rebuilding Gaza after a 50-day war between the Hamas and Israel.
« We should turn this moment into a real starting point to achieve a peace that secures stability and flourishing and renders the dream of coexistence a reality, and this is the vision of the Arab peace initiative, » he said.
The plan, put forward by Saudi Arabia at an Arab League summit in Beirut in 2002, offered full recognition of Israel but only if it gave up all land seized in the 1967 Middle East war and agreed to a « just solution » for Palestinian refugees.
Iraq & Syria
Kobani battle is very important for ISIL. A defeat in this battle would weaken the terrorist organisation on two fronts: 1) it will weaken militarily ISIL, 2) it will weaken ISIL rhetoric that although the number of fighter is small they’ve “defeated” a multi-countries coalition. Observers are indicating that ISIL has secured 40% of Kobani. Turkey participation will be instrumental but President Ergodan is struck between a rock (Muslim brotherhood which locate there operation from Qatar to Turkey) and a hard place (Kurdish aim for independence) while genuinely aiming to defeat Assad. But US State Department indicated over the weekend that Turkey will train the Syrian rebels. We continue to see Turkey as the game changer in the fight against Turkey. From the ideological prospect, Tariq Ramadan, a prominent Muslim academic, close to Muslim Brotherhood, spoke out loud against ISIL (ISIL’s act are un-Islamic). But while the muslim community tries to push against ISIL, groups which militate for a religious war continue to paint all muslims as terrorists or hypocrites. This move can be explained by the genuine objective to increase tension as many would benefit politically, economically and financially from a renewed economic crisis triggered by geopolitical risks. But oil prices continue to behave in line with our constructive scenario.
From our Oct. 10th daily briefing
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.
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)
WTI Oil Posts Biggest Weekly Drop Since January on Signs of Glut
Oct. 10 (Bloomberg) — West Texas Intermediate crude pared the biggest weekly drop since January amid signs of a global glut. Brent, the benchmark for more than half the world’s oil, gained after reaching a four-year low in intraday trading.
WTI closed yesterday more than 20 percent below its June peak, a common definition of a bear market. Brent is down 22 percent from the June high. Both crudes settled higher for the first time in four days after falling more than 2 percent during trading today.
The world’s two most-traded crude futures are collapsing because demand growth is slowing at a time when output is expanding from countries including the U.S. and Russia, the largest suppliers outside OPEC. The Organization of Petroleum Exporting Countries increased oil production by the most in almost three years last month as Libyan output surged.
“The market is catching its breath after a week of collapse,” Mike Wittner, the head of oil market research at Societe Generale SA in New York and the third-most accurate forecaster for WTI among analysts ranked by Bloomberg in the past eight quarters, said by phone. “The fundamentals are weak but don’t justify this. It’s concern about OPEC that’s got the market rattled.”
WTI for November delivery rose 5 cents to settle at $85.82 a barrel on the New York Mercantile Exchange. Futures fell 4.4 percent this week after dropping 4.1 percent last week. The contract touched $83.59 today, the lowest intraday price since July 3, 2012. The volume of all futures traded was 46 percent above the 100-day average at 3:02 p.m.
ISIS seizes large areas of Kobani despite airstrikes
Islamic State in Iraq and Syria fighters seized more than a third of the Syrian border town of Kobani, a monitoring group said on Thursday, as U.S.-led airstrikes 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 airstrikes in the area against a militant training camp and fighters.
Washington said U.S. forces launched nine airstrikes on Thursday against ISIS militants north and south of Kobani, striking some fighting units and destroying four buildings held by the group. U.S. forces also conducted two airstrikes against ISIS in Iraq.
Islamic State says it is buying and selling Yazidi women, using them as concubines
BAGHDAD — The Islamic State extremist organization boasted Sunday that it had enslaved women from an Iraqi minority group in order to use them as concubines, as a rights organization detailed teenagers being bought and sold by fighters for as little as $1,000.
An English-language propaganda magazine for the Islamic State said that Yazidi women and children were considered spoils of war after they were captured as the militants seized their towns and villages. It was the first confirmation from the group of widespread allegations of detention and sexual abuse against Yazidi women.
Hundreds of thousands of members of the ancient sect were displaced as the Islamic State swept through the Sinjar area of northern Iraq in August, prompting President Obama to warn of an unfolding genocide. Those who fled said that while men had been massacred, hundreds of women and children had been detained.
Kurds urge more air strikes in Kobani; monitor warns of defeat
(Reuters) – Kurdish forces defending Kobani urged a U.S.-led coalition to escalate air strikes on Islamic State fighters who tightened their grip on the Syrian town at the border with Turkey on Saturday.
A group that monitors the Syrian civil war said the Kurdish forces faced inevitable defeat in Kobani if Turkey did not open its border to let through arms – something Ankara has so far appeared reluctant to do.
The U.S.-led coalition escalated air strikes on Islamic State in and around Kobani, also known as Ayn al-Arab, some four days ago. The main Kurdish armed group, the YPG, said in a statement the air strikes had inflicted heavy losses on Islamic State, but had been less effective in the last two days.
A Kurdish military official, speaking to Reuters from Kobani, said street-to-street fighting was making it harder for the warplanes to target Islamic State positions.
« We have a problem, which is the war between houses, » said Esmat Al-Sheikh, head of the Kobani defense council.
Turkey to help train, equip Syria opposition, says State Department
U.S. says it sees a higher chance of reprisal attacks on members of the anti-Islamic State coalition; UN Syria envoy warns of ‘massacre’ in Kobani.
Turkey has agreed to support the training and equipping of the moderate opposition in Syria, the U.S. State Department said on Friday, saying a U.S. military team would visit Ankara next week to discuss the matter.
« Turkey has agreed to support train-and-equip efforts for the moderate Syrian opposition, » spokeswoman Marie Harf told reporters in descrif it bing a visit to Turkey by the two senior U.S. officials responsible for building a coalition to fight the Islamic State militant group in Syria and Iraq.
« There will be a [U.S. Defense Department] planning team traveling to Ankara next week to continue planning that through military channels, » she added.
The United States also said on Friday that it sees a higher chance of reprisal attacks on members of the U.S.-led coalition against Islamic State since they began air strikes against the fighters last month.
In a periodic update of its « worldwide caution » on potential threats, the State Department noted the United States and regional partners began military action against Islamic State, also referred to as ISIL, on September 22.
Jihadists Seize Kurdish Headquarters in Kobane, Massacre Feared
Islamic State jihadists have captured the headquarters of Kurdish fighters defending the Syrian border town of Kobane, with a UN envoy warning thousands would likely be massacred if it falls to them.
Outgunned Kurdish militia were struggling to prevent the jihadists closing off the last escape route for civilians still in the area, prompting an appeal yesterday for urgent military assistance.
US-led warplanes have intensified air strikes against IS, which has been attacking Kobane for three weeks, but the Pentagon has said that there are limits to what can be done without troops on the ground.
Washington also warned that the military campaign could lead to reprisal attacks « against US, Western and coalition partner interests throughout the world. »
The jihadists’ advance has brought the front line to just 1.3 kilometres from the Turkish border but Ankara has so far refrained from any action against the jihadists.
Four straight nights of protests among Turkey’s large Kurdish minority have left 31 people dead as anger flared over the government’s lack of action to save Kobane.
IS now controls 40 percent of the town, according to the Britain-based Syrian Observatory for Human Rights.
Tariq Ramadan: ‘ISIL’s acts are un-Islamic’
An ‘Islamic Caliphate’, a ‘Caliph’ – terms that now in headlines across the globe, mostly thanks to one extremist group, The Islamic State of Iraq and the Levant (ISIL).
As ISIL captures territory declaring their caliphate, minorities have fled and journalists have been beheaded.
Abu-Bakr al-Baghdadi, the leader of ISIL, has called on Muslims to take up arms, and thousands of fighters from around the world have travelled to Syria and Iraq to fight for the self-declared caliphate.
They are distorting the whole message. So we have to respond to this by saying … what you are doing, killing innocent people, implementing so-called ‘Sharia’ or the so-called ‘Islamic State’, this is against everything that is coming from Islam.
The group’s actions are causing a backlash among Muslims who see ISIL – also known as Daesh – in contrast to their religion and past caliphates famed for tolerance.
More than 120 Muslim scholars have released a letter where they call ISIL un-Islamic and argue that the group is incorrectly using scripture to support its cause.
“They [ISIL] are distorting the whole message. So we have to respond to this by saying … what you are doing, killing innocent people, implementing so-called ‘Sharia’ or the so-called ‘Islamic State’, this is against everything that is coming from Islam, » says Tariq Ramadan, a prominent Islamic scholar.
Russia & Ukraine
President Putin ordered troops withdraw from the Ukrainian border ahead of Ukraine-Russia head of states meeting in Italy this week. While this action could be positively perceived, we advise cautious because the same action has been taken after Crimea annexation. Meanwhile, Ukraine is considering a peace process with Donbass region self-proclaimed republics. However, as we were indicating for some time (please see our Friday take below), a quick resolution seems un-compatible with Ukraine aim to ultimately join EU and NATO. President Putin actions could be explained by 1) Premier Li visit to Russia, which seeks economic collaboration, and 2) the acceleration in RUB depreciation which cost ~$1.5bn currency intervention daily.
From our Oct. 10th daily briefing
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).
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 orders troops back from border
Russian President Vladimir Putin has ordered thousands of troops to withdraw from the border with Ukraine ahead of diplomatic talks on bringing peace to the Western-backed, former Soviet republic.
The announcement by the Kremlin late Saturday appeared to be a positive signal prior to Putin’s meeting with Ukrainian President Petro Poroshenko and European leaders in Milan on Friday.
Accused by Ukraine and the West of stoking a bloody insurgency in eastern Ukraine, Russia is facing its most serious international isolation since the end of the Cold War. Several rounds of Western sanctions have shaken the economy, intensified capital flight and weakened the ruble.
« The head of state has tasked the defence minister with beginning to bring troops back to their permanent bases, » the Kremlin said.
Russian president Vladimir Putin to attend Brisbane G20 summit, Treasurer Joe Hockey confirms
Treasurer Joe Hockey has confirmed Russian president Vladimir Putin will attend next month’s G20 summit in Brisbane.
The Federal Government and Opposition have been highly critical of Russia’s response to the MH17 plane crash as well as its behaviour towards Ukraine.
Mr Hockey said Russia’s finance minister confirmed Mr Putin’s attendance during a « lengthy discussion » in Washington on Saturday.
« I certainly shared with him my views and the views of Australia about Russia’s activity in Ukraine, » he told the ABC’s Insiders program.
« He did confirm that president Putin will be coming to the G20 leaders’ summit in Brisbane and I think there will be some full and frank dialogue at that meeting. »
Prime Minister Tony Abbott, speaking at a news conference in Brisbane, said he understood that some Australians would be upset to see him shaking hands with Mr Putin at the event.
« I absolutely take that point, » he said.
Russia Currency Interventions Cross $3 Billion as Oil Slides
Russia’s currency interventions have exceeded $3 billion this month as a domestic dollar shortage and slumping oil prices batter the ruble.
The central bank sold $1.5 billion on Oct. 8, according to data released on its website today, the most for a single day since a $4.41 billion intervention that preceded the Crimea referendum to join Russia in March. According to a Bloomberg poll, the monetary authority dipped into reserves for another $1 billion or more on Thursday to support the ruble.
The currency of the world’s biggest energy exporter suffered the world’s worst slide since June as US and European sanctions make it harder for companies to refinance the nearly $55 billion of debt the central bank estimates is due through December. The cash crunch sent the premium traders pay to swap rubles into dollars to a record high, underscoring the pressure on the ruble as Brent oil slides to a four-year low and wagers for interest-rate increases approach a 2011 peak.
“The ruble will continue to weaken,” Vladimir Miklashevsky, a strategist at Danske Bank in Helsinki, said by e-mail. “The central bank won’t prevent it from declining, if the velocity is gradual enough.”
The monetary authority spent a total of $3.35 billion defending the currency since September, according to central bank data that exclude any interventions on Thursday and Friday. The bank said it moved the upper band of its target dollar-euro basket by 15 kopeks to 45 on Thursday.
The ruble was trading 0.3 percent weaker versus the basket at 45.1376 by 10:47 a.m. in Moscow. It lost 0.3 percent to 40.2785 per dollar.
Premier Li arrives in Russia for official visit
MOSCOW – Chinese Premier Li Keqiang arrived here Sunday afternoon for an official visit to Russia, with a series of deals ranging from energy to people-to-people exchanges expected to be signed.
During his visit, Li will attend the 19th China-Russia Prime Ministers’ Regular Meeting with his counterpart, Dmitry Medvedev, and a forum themed on innovation.
The two sides are expected to ink about 50 mutually beneficial agreements and reach new consensus in the areas of energy, high-speed rail and finance.
Analysts believe that Li’s three-day visit, the premier’s first to Russia since he took office in March 2013, will inject new impetus into the two countries’ practical cooperation and their comprehensive strategic partnership of coordination.
Experts say that the diplomatic relations between the two countries, which were established 65 years ago, are at an « all-time high point » with frequent exchanges of high-level visits, surging trade and investment, and an increasing number of large-scale projects.
Before Russia, Li visited Germany, the first leg of his three-nation visit, which will also take him to Italy.
Premier Li’s Russia visit to boost cooperation
BEIJING, Oct. 12 (Xinhuanet) — During his three-day visit to Russia, Premier Li Keqiang will hold talks with his counterpart Dmitry Medvedev with an eye to bolstering bilateral cooperation. As many as 50 agreements are expected to be signed. This is a reflection of the continuing development of the two countries’ relations.
The China-Russia relationship is at its all-time best, since the two neighbors established diplomatic ties 65 years ago.
Kiev Seeks Peaceful Resolution to Donbas Conflict: Ukrainian Ambassador to Belarus
MINSK, October 10 (RIA Novosti) -The authorities of Ukraine are seeking the peaceful resolution to the conflict in Donbas, the Ukrainian Ambassador to Belarus, Mykhailo Yezhel, said on Friday.
« Ukraine is seeking the peaceful resolution to the conflict in Donbas and we make every effort to fulfill the peaceful agreements, » Yezhel said at the CIS summit in Minsk.
The Ukrainian ambassador to Belarus reminded that the Ukrainian parliament, Verkhovna Rada, adopted the bills granting amnesty to the conflict’s participants and special status to the breakaway regions of Donetsk and Luhansk.
Hong Kong
Hong Kong protests are calming down, as we were expecting. But 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.
Hong Kong Protesters Rally Anew as Government Quits Talks
Hong Kong pro-democracy protest leaders called on supporters to flood the city’s streets tonight to pressure the government after talks aimed at ending the two-week standoff were suspended.
Student leader Joshua Wong today urged protesters to gather at 7:30 p.m. near the government’s main office complex in Admiralty to show that demonstrations still have the support to continue their occupation of key city roads. The benchmark stock index and the Hong Kong dollar fell today.
Carrie Lam, the city’s No. 2 official, and student leaders yesterday blamed each other for the collapse of talks, with demonstrators threatening more action and the government warning it may clear the streets. Crowds have dwindled to hundreds of people from about 200,000 at the protest movement’s peak, while the blockade of key roads has raised the ire of truck and cab drivers.
UPDATE 5-Thousands of Hong Kong protesters regroup after govt rejects talks
Demonstrators pitch tents, plan for pro-longed protest
* Police promise to take action at appropriate time
* Chinese premier says Hong Kong a domestic issue (Adds comment from Chinese Premier, Angela Merkel in Berlin)
HONG KONG, Oct 10 (Reuters) – Thousands of protesters regrouped in central Hong Kong on Friday to push their demand for democracy, a day after the government called off talks with students amid a two-week standoff that has shaken communist China’s capitalist hub.
The political crisis has seen tens of thousands take to the city streets to push for free elections and seek the resignation of Hong Kong leader Leung Chun-ying.
Scores arrived with tents, suggesting they were in for the long haul despite a call by police to remove obstacles that have blocked major roads in and out of the financial centre, causing traffic and commuter chaos with tail-backs stretching for miles.
Police said they would take action at an appropriate time, without specifying what that would be.
« I’ve just set up camp here under the bridge and I will come down to occupy whenever I can, » said Wong Lai-wa, 23. « I may have to go back to school during the day, but I will make every effort to come back. »
China rules the former British colony through a « one country, two systems » formula which allows wide-ranging autonomy and freedoms not enjoyed on the mainland and specifies universal suffrage as an eventual goal.
But Beijing said in August it would screen candidates who want to run for the city’s election for a chief executive in 2017, which democracy activists said rendered the notion of universal suffrage meaningless.
China has branded the protests illegal and on Friday criticised the U.S. Congress for sending the « wrong message » to demonstrators, in a « deliberate attack » on China.
In an annual report to U.S. Congress, the Congressional-Executive Commission on China said Washington should boost support for democracy and universal suffrage in Hong Kong.
Speaking in Berlin, Chinese Premier Li Keqiang said: « Hong Kong’s affairs belong to the internal affairs of China and all other countries must respect each others sovereignty. »
He added there had been and would be no change in China’s policy on Hong Kong’s autonomy.
« I am sure the people of Hong Kong and the government of Hong Kong have the competency to ensure the wealth and stability of society, » he said.
German Chancellor Angela Merkel said she hoped protests would remain peaceful and « solutions can be found in a free exchange of opinion which will satisfy the people of Hong Kong ».
Hong Kong protest leaders write open letter to Chinese president
Chinese newspaper blames U.S. for pro-democracy protests
Students leading pro-democracy protests in Hong Kong issued an open letter Saturday to Chinese President Xi Jinping, urging him to consider political reforms in the city and blaming the city’s unpopular leader for the demonstrations.
The letter, issued by two student groups leading the protests, said Hong Kong Chief Executive Leung Chun-ying was responsible for a civil disobedience campaign that has seen tens of thousands of people throng the semi-autonomous city’s key thoroughfares over the past two weeks.
Thousands of demonstrators showed up in the main protest zone on Saturday, two days after Hong Kong’s government called off scheduled negotiations with students who are demanding voters have a greater say in choosing the city’s leader in 2017 elections.
Hong Kong’s leader warns protesters as tent city sprouts up
Hong Kong’s embattled leader Leung Chun-ying vowed on Sunday to stay in office, warning students demanding his resignation that their pro-democracy movement was out of control.
Leung said the blockade of key parts of the Asian financial hub – now entering its third week – could not continue indefinitely.
Speaking in an interview with the local TVB television station, Leung said his government would continue to try to talk with student leaders but did not rule out the use of « minimum force » to clear the area.
The last few weeks had « proved that a mass movement is something easy to start, but difficult to stop, » he said.
« And no-one can direct the direction and pace of this movement. It is now a movement that has lost control. »
Taiwan’s President Ma calls for democracy in Hong Kong
TAIPEI — During his national day remarks on Friday, President Ma Ying-jeou said that Beijing should consider implementing democracy in China as the country’s economy grows, and called for universal suffrage in Hong Kong.
Ma’s comments followed major peaceful demonstrations recently in Hong Kong over the territory’s right to elect its own chief executive in 2017. Beijing has insisted on vetting all candidates.
“This moment is the best opportunity for mainland China to embrace constitutional democracy as the livelihood of its people’s has significantly improved with its booming economy, » Ma said. « With more and more of the 1.3 billion people on the mainland becoming middle class, they naturally want a higher degree of democracy and the rule of law. »
Ma went to say that democracy and the rule of law are not rights only for people in the West, but for everyone.
Taiwan, a democractic republic, has a particular interest in communist China’s political development since Beijing has refused to exclude the use of force to recover control of the island which split away at the end of a civil war in 1949.
Embattled Hong Kong Politician Says Pro-Democracy Protesters Have ‘Almost Zero Chance’ Of Succeeding
Hong Kong (AFP) – Hong Kong’s pro-democracy protesters have an « almost zero chance » of changing Beijing’s stance and securing free elections, the city’s embattled Chief Executive Leung Chun-ying said in a TV show Sunday.
Demonstrators calling for Beijing to grant full democracy to the former British colony have paralysed parts of Hong Kong for more than two weeks, causing widespread disruption and prompting clashes between protesters and residents who opposed road blockades.
In an interview broadcast on a local channel TVB Sunday, Leung said the street protests had « spun out of control » and warned it was highly unlikely the action would alter Beijing’s position.
He added if the government had to clear the protests sites, police would use a « minimum amount of force » to handle the situation.
China announced in August that while Hong Kongers will be able to vote for Leung’s successor in 2017, only two or three vetted candidates will be allowed to stand — an arrangement the protesters dismiss as « fake democracy ».
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.
Can immigrants affect Catalonian aspirations?
Even if only a fraction of Catalonia’s immigrants vote, they might have a key role in the final outcome of a referendum.
On October 2, the president of Catalonia’s regional government, Artur Mas, signed a decree officially calling for a referendum on Catalonia’s independence. However, after the Spanish government’s appeal, the Constitutional Court issued a cautionary suspension of the vote that is supposed to stay in place while the legal dispute is solved. This might take weeks, months or years and that is entirely dependent on the court’s discretion. But the Catalan government is not willing to accept a delay in its plans, and has officially said that it is planning to hold the vote anyway, perhaps with an alternative legal formula.
The Catalan independence movement gathered widespread attention from international media for the first time in September 2012, during the massive demonstrations in Barcelona. The Catalan political arena was not well understood outside Spain, and until then, the scarce reports in the international media tended to portray Catalan nationalism as a moderate, non-secessionist movement seeking greater autonomy within Spain in a non-contentious way.
Ferguson
Ferguson-Missouri tension resumed during the weekend after a new fatal shooting. The Tea Party caucus is using these events as a way to increase the racial tension, while Sen. Rand Paul wants to use the spread of African-American anger vis-a-vis President Obama administration as a way to bring these voters to the GOP. Sen. Rand Paul has used exactly the same strategy with the youth, which suffers the most from the global financial crisis consequences. The administration needs to increase it rhetoric against disinformation, mistrust and pessimism should it want to avoid that the voters turn to those who are placing the most emphasis on pessimism with the help of donors which interest is to keep status quo (at a moment when the US need urgently to undertake structural reforms – immigration, taxes etc. -).
Police used pepper spray to subdue some arrested in St. Louis protest of Ferguson shooting
ST. LOUIS (AP) — Officers arrested 17 protesters and used pepper spray to subdue some of them Sunday in a St. Louis neighborhood not far from the suburb where violence erupted this summer after the shooting of a black man by a white policeman.
The arrests were the only incident in an otherwise peaceful weekend of demonstrations in the city to protest the fatal shooting of 18-year-old Michael Brown in Ferguson in August. The shooting sparked sometimes violent demonstrations in the predominantly black suburb.
Early Sunday morning, about 200 protesters gathered in Shaw, a south St. Louis neighborhood where last week another black 18-year-old was killed by a white police officer, St. Louis Police Chief Sam Dotson said. The protesters, some wearing masks, marched toward a QuikTrip convenience store and tried to force open its doors, Dotson said.
Rand Paul: GOP’s « biggest mistake » was not courting black voters
After a meeting with African-American civil rights leaders in Ferguson, Missouri, on Friday, Sen. Rand Paul, R-Kentucky, said the « biggest mistake » his party made in the last several decades was a failure to reach out to black voters.
In an interview on CNN, Paul said his meeting with leaders from the National Association for the Advancement of Colored People (NAACP), the Urban League, and local business and faith leaders went « very well. »
« I don’t want to characterize how everybody else feels about what I said, but I think it was a good opening to the conversation, » the senator explained. « I think in the Republican Party, the biggest mistake we’ve made in the last several decades is we haven’t gone into the African-American community, into the NAACP and say you know what, we are concerned about what’s going on in your cities and we have plans. They may be different than the Democrats, but we do have plans and we do want to help. »
St. Louis Protesters March Under Array of Banners
ST. LOUIS — They came from places far from Ferguson, Mo., states like California, New York and Oregon. And while the story of a white police officer’s shooting of an unarmed black teenager in Ferguson in August was what drew throngs of people to the St. Louis area for a weekend of protest, some also came with sweeping messages about income inequality and the minimum wage, race relations, immigration policy and distrust about police procedures nationwide.
“The killing of innocent black youth is systemic,” said Adeline Bracey of Chicago, who marched here on Saturday in a crowd of demonstrators down the middle of Market Street, not far from the Gateway Arch. “It has to stop — everywhere.”
Demonstrators on Friday in St. Louis County began a weekend of protest over the shooting of a black teenager in Ferguson, Mo.Protests Begin Over Ferguson Shooting Amid Dismay in St. Louis CaseOCT. 10, 2014
Demonstrators confronted the St. Louis police on Thursday near the site where an 18-year-old was fatally shot by an off-duty police officer who was on patrol for a private security company.New Outcry Unfolds After St. Louis Officer Kills Black TeenagerOCT. 9, 2014
In the two months since the shooting death of Michael Brown, 18, in suburban Ferguson, a steady stream of demonstrations has often been local and personal, but the events this weekend, and expected to continue through Monday, were a test of the wider reach of efforts that have grown out of the case.
US News
US markets continue to behave between repricing downward growth prospect (as we were expecting) and reassign Fed policy going forward. Although VIX has moved up it still below the high stresses period we have experienced during the recent period. The Mid-Term elections prospect is not discussed as one reason which could create more crisis: GOP are likely to tight Fed hands, should they secure the Senate majority, while the recovery is still underway. We see the next two weeks to focus on the narrative on the negative consequences of a GOP Senate win. A strategy the UK has followed to secure the Scotland independence vote. Meanwhile, recent Clinton Presidency document release shows the stress around the impeachment risk (a gesture GOP has been considering until recently and which may resume after mid-term elections). Furthermore, the political mistrust continues to be on focus in DC while policymakers discussing inappropriate conduct during the 2012 prostitution scandal in Colombia
From our Oct. 10th daily briefing
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.
Surging VIX Shakes Bulls as S&P 500 Charts Go Haywire
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.”
S&P 500 Caps Worst Week in Two Years as Tech Shares Drop
The Standard & Poor’s 500 Index (SPX) posted the biggest weekly drop in two years as concern about chipmaker earnings fueled a rout across the technology industry.
The Dow Jones Industrial Average (INDU) erased gains for the year as Intel Corp., Microsoft Corp. and Cisco Systems Inc. fell more than 3.5 percent. Microchip Technology Inc. tumbled 12 percent said quarterly revenue was crimped by a decline in China sales and warned of an industry correction. Juniper Networks Inc. sank 9.1 percent after reporting preliminary results that missed its own forecast.
The S&P 500 lost 1.1 percent to 1,906.13 as of 4 p.m. in New York. The index fell 3.1 percent for the week, the biggest drop since May 2012. The Nasdaq Composite Index sank 2.3 percent. The Dow average lost 115.15 points, or 0.7 percent, to 16,544.10.
Nadella’s advice to women on raises comes back to bite him [The Seattle Times :: ]
Oct. 10–Microsoft CEO Satya Nadella, speaking Thursday at one of the world’s largest gatherings of women in technology, angered many when he said women needn’t ask for raises but should trust in the system and good karma to get them the salaries they deserve.
Just hours later, though, Nadella said he was wrong in those remarks.
Nadella was speaking at the Grace Hopper Celebration of Women In Computing and was taking part in a Q&A keynote address with Maria Klawe, president of Harvey Mudd College and a Microsoft board member.
Klawe had asked Nadella what his advice would be for women who are uncomfortable asking for a raise.
White House disputes report that aides had not thoroughly investigated Cartagena link
The White House on Thursday stood by an internal review that cleared a travel office volunteer suspected of inappropriate conduct during the 2012 prostitution scandal in Colombia and vigorously disputed a Washington Post report that presidential aides had not thoroughly investigated the matter.
Spokesman Eric Schultz said the White House review after President Obama’s trip to an economic summit in Cartagena focused on interviews with members of the travel advance team and an examination of other records, including a Hilton hotel log that showed that a female guest was registered overnight on April 4, 2012, to the room of travel team member Jonathan Dach.
White House lawyers “looked at these allegations and found there was nothing to them,” Schultz told reporters aboard Air Force One as President Obama traveled to California.
The review overseen by then-White House Counsel Kathryn Ruemmler “was conducted in an aggressive, thoughtful and thorough way,” he added.
White House denies considering executive action to close Guantanamo
(Reuters) – The White House on Thursday denied a report that President Barack Obama is putting together options for executive action to close the controversial U.S. military prison in Guantanamo Bay, Cuba in defiance of congressional wishes.
The Wall Street Journal, citing administration officials, reported that the White House was « drafting options » to close the facility by overriding a ban put in place by Congress that prohibits prisoners from being brought to the United States.
« Since the president came into office in 2009 the administration has been examining all possible ways we could get to closure of the facility, but we are not drafting options to override the law, » said Caitlin Hayden, a spokeswoman for the White House National Security Council.
« We are continuing to work on transfers (of prisoners) and calling on Congress to lift restrictions. »
Newly Released Clinton-Era Papers Show Damage Control During Scandal
As the White House was enveloped in the Monica Lewinsky scandal in January 1998, aides offered advice to President Bill Clinton’s speechwriting team on how to use the State of the Union address that month to rebuild public confidence in the president.
“Please recognize, I am in no way suggesting that he use his speech to discuss our current situation head-on,” Minyon Moore, the president’s public liaison, wrote in a memo. “I am simply stating that we cannot take his supporters for granted, nor his detractors, and they need to be reassured on several fronts.”
Ms. Moore suggested that Mr. Clinton invoke God “as the underpinning for his policy and thought process.”
Her memo was nestled among the roughly 2,500 pages of documents from the Clinton White House years that were made public on Friday by the National Archives. More of the 30,000 documents will be released over the next several weeks.
President Bill Clinton in December 1994, a month after the midterm elections when Republicans retook Congress.A President’s Struggles in Clinton-Era MemosMARCH 14, 2014
Hillary Rodham Clinton in January.Thousands of Bill Clinton White House Papers ReleasedFEB. 28, 2014 document Clinton Archives CollectionMARCH 28, 2014
Some of the most riveting material involves the administration’s scramble to contain the Lewinsky scandal — which led to the president’s impeachment — and the maneuverings inside the White House to prepare for Hillary Rodham Clinton’s political future.
Almost 18 months before the Lewinsky scandal broke, but months after Mr. Clinton’s relationship with her began, the president went to the trouble of sweetening a reference to his wife as he twice scribbled changes to his acceptance speech at the Democratic National Convention in 1996.
Tesla’s Musk Unveils All-Wheel-Drive Version of Model S Car
Oct. 10 (Bloomberg) — The newest Tesla electric car is an all-wheel-drive version of the Model S sedan with two motors and safety features including driver-assisting tools intended to prevent crashes.
Elon Musk, chief executive officer of Tesla Motors Inc., said the dual motors accelerate the car from zero to 60 miles (97 kilometers) per hour in 3.2 seconds. “Yeah, it’s mad,” Musk said to laughter before hundreds of guests at the company’s design headquarters in Hawthorne, California.
“This car is nuts. It’s like taking off from a carrier deck,” Musk, 43, said at a ceremony unveiling the new model late yesterday. “It’s really mind-blowing.”
Europe News
While EU-skeptics group continue to do well in the polls, EU is heading to a grand bargain which would clear the way to regain public support for the EU project. Germany’s FinMin Schauble indicated that Germany’s response to a “clear weakening” of the economy will be a shift in public spending toward investments and away from government consumption. Eurogroup has cleared the way to a shift toward growth agenda / pact. Furthermore, China Premier Li visit to Germany has conducted to the release of a guideline for bilateral corporation. Furthermore, EcoMin Macron hinted that France may be considering a change in U/E allowances (a reform we understood to be very high on Chancellor Merkel ask list to move for more EU integration). Furthermore, US and UK are considering joint model to deal with too big to fail (after ISDA agreed on a “big bang” deal to reduce systemic risk arising from derivatives). Finally, according to Reuters, Germany is trying to convince Turkey and Iran to join the fight against Islamic State (IS) militants, Foreign Minister Frank-Walter Steinmeier told a German newspaper. EU developments are in line with our constructive scenario for the region (a view which is not priced yet by markets).
Anti-EU UKIP party wins first elected seat in British parliament
Oct 10 (Reuters) – Britain’s anti-EU UK Independence Party won its first elected seat in parliament on Friday by a wide margin.
In the English seaside town of Clacton-on-Sea, UKIP candidate Douglas Carswell won 21,113 votes or 60 percent of the vote, giving him a majority of 12,404.
Carswell, formerly the sitting parliamentarian from Prime Minister David Cameron’s Conservative party, had triggered the by-election by defecting to UKIP.
Cameron’s party came second with 8,709 votes or 25 percent of the vote. Labour came third with 3,957 votes. Turnout was 51 percent.
UKIP’s success highlighted the threat it poses to Cameron seven months before a national election and its ability to split the mainstream Conservative party’s vote casting a cloud over its re-election prospects in 2015. (Reporting by Andrew Osborn; Editing by Guy Faulconbridge)
China, Germany vow to lift partnership to higher levels
BERLIN, Oct. 10 (Xinhua) — China and Germany on Friday released a comprehensive action plan designed to further promote their all-dimensional strategic partnership.
The document, a guideline for bilateral cooperation in the medium and long terms, was issued during Chinese Premier Li Keqiang’s ongoing official visit to the European economic powerhouse.
The two sides should work together to properly implement the blueprint, and pursue common development from a long-term perspective, so as to raise their relationship to higher levels, Li said while co-chairing with German Chancellor Angela Merkel the third round of bilateral governmental consultations.
Stressing that China and Germany are both nations with great influence, Li said bilateral ties have become increasingly strategic and future-oriented since being upgraded to an all-dimensional strategic partnership earlier this year.
He said the China-Germany relationship is not a simple buyer-seller relationship, but a high-level win-win cooperative relationship with bright prospects.
Schaeuble Says Germany Will Shift Spending to Investment
German Finance Minister Wolfgang Schaeuble said Germany’s response to a “clear weakening” of the economy will be a shift in public spending toward investments and away from government consumption.
Schaeuble said the government will lower its growth forecast for Europe’s biggest economy this week and cited sanctions imposed on Russia, geopolitical uncertainty, weaker growth in the rest of Europe and a loss of confidence as reasons. He spoke to reporters yesterday after meetings of finance chiefs gathered in Washington for the annual meetings of the International Monetary Fund and the World Bank.
“It’s clear, and that is the response of the federal government, that we will have to increase our efforts for more investments in the public and private sector,” Schaeuble said. “Whenever there is leeway in decision-making, we will shift the weight from consumption to investment spending.”
Germany’s economy is stalling as exports slow and Chancellor Angela Merkel’s domestic policies hold back growth, four economic institutes which advise the government said in an Oct. 9 report.
German export data showed the biggest decline since January 2009 in August, the latest sign that the economy is struggling to rebound as the European Central Bank seeks to revive inflation and growth in the euro area.
INTERVIEW-Eurogroup head proposes new growth deal for Europe
* Reforms, EU funds, budget consolidation should be linked
* Dijsselbloem to present his proposal to euro zone leaders on Oct 23
WASHINGTON, Oct 10 (Reuters) – The chairman of euro zone finance ministers proposed on Friday a new growth deal for Europe which would reward governments reforming their economies with cheap European funds for investment and leeway on budget consolidation targets.
The proposal comes at a time as Europe is on the brink of another recession and is desperate to boost economic growth to reduce almost record high unemployment and huge public debt.
The European Central Bank has already cut its interest rates to almost zero and will start asset purchases to inject cash into the moribund economy and reduce the risk of deflation.
« We should try to formulate a new Growth Deal for Europe, » Jeroen Dijsselbloem told Reuters in an interview.
U.S. and UK to test big bank collapse in joint model run
WASHINGTON, Oct 10 (Reuters) – Regulators from the United States and the United Kingdom will get together in a war room next week to see if they can cope with any possible fall-out when the next big bank topples over, the two countries said on Friday.
Treasury Secretary Jack Lew and the UK’s Chancellor of the Exchequer, George Osborne, on Monday will run a joint exercise simulating how they would prop up a large bank with operations in both countries that has landed in trouble.
Also taking part are Federal Reserve Chair Janet Yellen and Bank of England Governor Mark Carney, and the heads of a large number of other regulators, in a meeting hosted by the U.S. Federal Deposit Insurance Corporation.
« We are going to make sure that we can handle an institution that previously would have been regarded as too big to fail. We’re confident that we now have choices that did not exist in the past, » Osborne said at the International Monetary Fund’s annual meeting.
Germany trying to convince Turkey, Iran to join fight against IS
(Reuters) – Germany is trying to convince Turkey and Iran to join the fight against Islamic State (IS) militants, Foreign Minister Frank-Walter Steinmeier told a German newspaper.
In an interview with Berlin’s Tagesspiegel daily, Steinmeier said longstanding animosities in the Middle East needed to be set aside to ensure a united front against IS and he vowed to raise this with Saudi Arabia’s leadership when he visits the country on Sunday.
« We are trying to convince the Arab countries, Turkey and Iran that it is necessary to work together against IS, » he told the newspaper.
He added that Germany was urging Ankara to fight IS with « full force ».
Steinmeier’s comments came as over 20,000 people, mainly Kurds, demonstrated against IS in the western German city of Duesseldorf. Similar marches in Hamburg and Celle over the past week have led to violent clashes between Kurds and radical Islamists but police said Saturday’s demonstration was peaceful.
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 -.
Li says China able to keep around 7.5% growth
BERLIN – Chinese Premier Li Keqiang said on Friday that China has the conditions and capability to achieve an economic growth of around 7.5 percent this year.
China can keep its economic growth rate within a « reasonable range, » he told over 600 officials and business leaders at a China-Germany economic and technological cooperation forum.
A pace around the 7.5 percent target – whether slightly higher or lower — will be acceptable as long as employment is guaranteed, household income raised and quality and efficiency improved, added the premier.
Meanwhile, he reaffirmed Beijing’s commitment to the opening-up policy, stressing that opening-up is a basic national policy related to China’s development and destiny.
China’s opening-up policy, he said, is aimed at mutual benefit and all-win results and brings benefits not only to China but also to the whole world.
The premier added that China will open up to the outside world in a more active manner and on even deeper and higher levels and that besides manufacturing the service sector will also be opened at a faster pace.
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.
Shi Mingde, China’s ambassador to Germany, said that nearly 20 Chinese ministers led by Li and at least 13 ministers from Germany will take part in the meeting – « a joit Cabinet meeting » to showcase the high-level ties.
UPDATE 2-Australia miners push for China tariff relief for battered coal sector
billion of Australian coal exports face tariffs
* Indonesia exempt through ASEAN free trade pact
* Pain likely to be felt in 2015 if tariffs stay in place – source (Adds Australia prime minister quote, likely defaults)
MELBOURNE, Oct 10 (Reuters) – Australia must hold urgent talks with China to exempt coal producers from new tariffs in a free trade agreement due to be completed this year, an industry body said, following Beijing’s move to reintroduce coal tariffs after nearly a decade.
China, the world’s top coal importer, said on Thursday it would impose import tariffs on the commodity in its latest effort to prop up ailing domestic miners who have been hit by rising costs and plunging prices.
The tariffs would hit Australian producers hardest as its main coal export rival, Indonesia, is exempt from the tariffs through the Association of Southeast Asian Nations’ free trade agreement with China. Coal is Australia’s second-largest export after iron ore.
Shares in Whitehaven Coal slumped as much as 9 percent on Friday, while big diversified miners BHP Billiton and Rio Tinto both fell more than 2 percent and Glencore fell 3.2 percent in Hong Kong.
China third-quarter GDP growth seen at five-year low of 7.3 percent, more stimulus expected
(Reuters) – China’s economy likely grew at its weakest pace in more than five years in the third quarter as a property downturn weighed on demand, a Reuters poll showed, raising the chances of more aggressive policy steps that may include cutting interest rates.
The economy may have expanded 7.3 percent in the third quarter from a year earlier – the weakest reading since the first quarter of 2009, when growth hit 6.6 percent during the height of the global crisis, according to a poll of 20 economists.
None of the economists believed Q3 growth will dip below 7 percent, although four penciled in 7.1 percent and one expected 7 percent.
China urges corruption fugitives living abroad to return in exchange for lenient treatment
Official notice offers corrupt officials who have absconded overseas with ill-gotten gains leniency if they return to China before December 1, if not they will face harsh justice Former security chief Zhou Yongkang, under investigation for for possible « serious violations of party discipline » on the cover of China Daily. Photo: Reuters The authorities in Beijing are urging officials who have fled abroad to avoid corruption charges to turn themselves in before December 1 in exchange for leniency or face stiffer punishment.
Li opens doors on trade, energy
China and Russia are likely to sign up to 50 agreements on energy, finance, aerospace, railways and other fields, as Premier Li Keqiang arrived in Moscow on Sunday to seek long-term, stable and sustainable cooperation.
Agreements on energy, a local currency swap, satellite navigation, long-range wide-body aircraft development and high-speed rail are expected to highlight the deals and improve trade and investment between the neighbors, Xinhua News Agency reported.
Progress is expected on the west route gas pipeline negotiations, Chinese Vice-Foreign Minister Cheng Guoping said on Oct 8 at a news briefing.
Wang Yiwei, director of the Institute of International Affairs at Renmin University of China, said these projects will improve trade and investment cooperation between the countries.
Big energy deals turbocharge investment
China’s investment in Italy soared to 5.7 billion euros in the first seven months of the year, five times what it was at the start of the year, says China’s Ambassador to Italy, Li Ruiyu.
This explosive growth in Chinese investment was the result of three big deals, Li says during an interview with China Daily days before a visit to the country by Premier Li Keqiang.
The sound relationship between China and Italy, which now holds the presidency of the European Union, has « always run ahead of Sino-EU ties », and the momentum of China’s investment will be maintained if Italy continues to keep its door open to Chinese investors, Li Ruiyu says.
« I think this is just the beginning, and there will be more investment soon if the Italian government makes it a little easier. »
Rapid growth in China’s investment presence in Italy has made its current stock equal to that of Italy in China, Li says.
« We now essentially have equilibrium in investment between the two countries. »
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 – ).
North Korea leader Kim Jong-un still in charge despite leg injury: source
Beijing: North Korean leader Kim Jong-un is in firm control of his government but has hurt his leg, a source with access to the secretive North’s leadership said, playing down speculation over the 31-year-old’s health and grip on power.
North Korea’s state media, which usually chronicles Mr Kim’s whereabouts in great detail, has not made any mention of his activities since he attended a concert with his wife on September 3, and Mr Kim was absent from state media coverage of a major political anniversary on Friday.
In the previous two years, Mr Kim marked the anniversary of the founding of North Korea’s Workers’ Party with a post-midnight visit to the Pyongyang mausoleum where the bodies of his father and grandfather are interred.
Last year, that visit was covered about four hours later by the state’s KCNA news agency, and by the daily Rodong Sinmun newspaper. But that time has passed without any sign of coverage.
Mr Kim’s father, Kim Jong-Il, did not always attend the October 10 memorial event when he was in power.
The source, who has close ties to Pyongyang and Beijing, said Mr Kim hurt his leg while inspecting military exercises.
« He ordered all the generals to take part in drills and he took part too. They were crawling and running and rolling around, and he pulled a tendon, » the source told Reuters on condition of anonymity.
Chinese tariff hike costly for Australian coal miners
Australian coal companies have been rocked by China’s shock imposition of import tariffs and analysts warn the sector is ill-placed to absorb the impost.
China’s Ministry of Finance said on Thursday that import tariffs for anthracite coal and coking coal will return to 3 per cent, while non-coking coal will attract a 6 per cent import tariff.
About 25 per cent of Australia’s coal exports go to China, which stacks up to about 100 million tonnes worth $9.3 billion each year, according to the Bureau of Resources and Energy Economics, and Patersons analyst Matthew Trivett said the struggling Australian coal sector would find it difficult to handle the « unexpected » tariff.
He said between 20 per cent and 30 per cent of producers were estimated to be operating at a loss.
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.
Japanese court orders Google to halt search harassment
The Tokyo District Court on Thursday issued an injunction ordering Google Inc. to remove some Internet search results revealing the name of a man who claims his privacy rights have been infringed upon due to articles hinting he may have been involved in a crime in the past, according to a document obtained by Kyodo News.
Stocks extended their losing streak to a fourth session on Friday after U.S. equities plunged overnight, with the benchmark Nikkei average closing at the lowest level in about two months.
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