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SNBDL Daily Briefing
Report prepared using big data solution Quid
Our take away from the last 24 hours news
During the last 24h, Central Banks (CBs) news have been focusing on: Fed’s Williams anti-gravity views: “eyes U.S. inflation”. Since the outbreak of the global financial crisis, I have been worry of two extreme inflation scenario: hyper-inflation, due to deficit financing through seignorage or “fed money printing” – in CB vigilantes parlance, and deflation, due to the balance sheet deleveraging forces. Looking at facts, from the rapid decrease in Oil prices to wages inflation to the genuine fiscal deficit reduction, I wonder where this inflation threat will come from? But if we focus on San Francisco alone, we might consider that due to technology, San Francisco might experience some additional real estate market frothiness which is a by-product to wealth rapid creation. But this view does not apply to the overwhelming majority of the US. The only way we could justify Fed’s Williams position is that he plays the “bad cop” role to avoid a shift away from Vigilantes investment portfolios, which have been loosing money and might continue to loose. While we understand Fed’s Williams position, we do consider that the next big move in rates is likely to be downward (as investors which have been unfortunate with their short position will square them going into the end of 2014 – and pricing midterm elections risks -).
Guy Debelle, of RBA, made a come back with the same old story: AUD is overvalued, beware of a bond sell-off due to Fed rate normalisation. While this story sound music in the hears of PPP-model believers and those which have been short AUD ever since, it does not fly when tested with the view that Australia (like China) is rebalancing. The rebalancing process creates a shift in the regime of PPP models which make them ineffective. We have been reporting SMEs survey which have much higher AUD level in their business models than RBA’s vigilantes. But Debelle talk down to the AUD plays a very genuine role: avoiding more real estate frothiness when China is heading toward RMB internationalisation which could increase the demand for Aussie assets.
ECJ (European Court of Justice) heard a challenge to the European Central Bank’s landmark bond-buying scheme to contain the euro zone crisis in a case underscoring deep concerns in Germany over ECB clout. This is part of a process which started ever since President Draghi announced the OMT back in summer 2012. ECJ decision is likely to come as a surprise to many. Our analysis indicate that the EZ countries have already given some sovereignty when they have accepted a currency union. However, challenging the OMT provides a very positive role because it put a genuine pressure on the countries to undertake reforms (EZ countries have only reformed when they find themselves under certain form of pressure). We are more confident than consensus that the ECJ ruling will be positive, EZ will not disappear (which will come as a blow to many EU-Skeptics which will loose their economic and political credibility), and the EUR will become a full ledge reserve currency. These are not hopes they are forecast and we consider that there is a more than 80% probability to take place. The recent energy prices reduction (which we forecast before the sell-side community) will be instrumental in the constructive scenario.
BoJ Hawks (Fmr. Chief Eco) are calling for exiting the QQE. These calls are in line with the strategy we’ve outlined in our recent Japanese Update. Indeed, the hawks need to put pressure on the government in order that PM Abe cabinet take the decision to hike VAT again (though our scenario is that this hike might be in smaller steps that initially anticipated). We’re surprised by how markets participants have been dismissing Abenomics 3rd arrow. Indeed, Womenisation is starting, accepting immigration as well, deregulation is going through. We can always criticise the speed but questioning PM Abe willingness to reform (which goes beyond Abenomics because it’s instrumental in Japan geopolitical role in the coming decades) is false. It will require waiting until next tenure 2016 before PM Abe undertake what might look like as the impossible reform: social security. We continue to be cautiously optimistic because PM Abe has no choice but reforms when Russia wants to annex some territories.
Ukraine CB indicated that IMF is willing to help. While medium to long term we have a very positive scenario on Ukraine – West, which we summarise into New Poland or Poland 2.0, we are more pessimistic short term. The more oil prices plummet the more Russia needs to flex mussels and push the country to break. Russia oligarchs have no interest to let a country like Ukraine undertake anti-corruptions laws, increase its ties with EU and NATO. Such an example, could become Russia’s current ruling elite genuine existential threat specifically if Oil prices plummet below $80 (this might happen as soon as next December).
Today’s glass half-empty Economics News, could be summarised into: EU countries are failing reducing budget: France, Italy and even Portugal. Looking into more details, Portugal deficit overshooting is attributable to a one-off recapitalisation of Banco Esperito Santo. Should Bruxelles refrain from taking this one-off for what it is, they will not only make a tremendous mistake they are likely to increase the hate, EU-skeptics are spreading about the commission. Actually we are fascinated that EU-Skeptics call for no budget deficit mercy to speak their books and increase there political capital. When it comes to France and Italy the situation is different. The two countries are far from having delivered the genuine reforms which go beyond the budget. France has to reform its unemployment allowances system – although smoothly in order to avoid the FN taking people into the street -. Italy has to reform its public sector organisation and collusion (governance). We were saying since February that Germany will suffer from Ukraine tension and this is likely to be short term and open the door for some fiscal stimuli. We are nearly there.
China issued a new small and targeted stimuli as the PBoC seems genuinely willing to more the functioning of its monetary policy in order to prepare for RMB internationalisation.
Australia Consumer confidence improves because, according to the survey, Aussies are weighting their own well-being vis-a-vis a pessimistic global environment.
Ebola: “There’s nothing to fear but the fear itself”, President Roosevelt
Our competitors have started to compare Ebola to the 1918 Spanish Flu (more here) which has been responsible for 50 to 100 millions casualties and a genuine driver of WW-II. Why are we relaxed that this scenario will NOT take place? Two reasons explain our different view: 1) many of our economist colleagues have not spotted Ebola when it started as a driver to markets and economy, they have not had time to study three components (institution reaction, global coordination, and the 1st reason of spread of the disease : mistrust and disinformation), 2) many have not spotted the narrative around the vaccine and how the experimental vaccines have been effective (on primate as well as on humans). There is a third factor why media and some “newly declared experts” are getting morbid excitement. These are not getting all the story. Let’s face it, you can sell more volatility and news paper when people fear something. At SNBDL, we consider that good research finds its clients without any need of stress.
Our main fear is that Ebola could be used as a dirty weapon, and many intelligence experts are fearing the same. But US military are taking the risk seriously and the newly installed military hospital in Africa is indicating that the US with France are leading the fight to this disease.
Unlike in the beginning of XX century, many corporations have contingency plans in place in the case the situation intensifies (and we are not ruling out that the number of cases will increase). In the XXI century, workers can continue to generate value from their homes. Furthermore, Japan Fukushima brought one of the most interesting innovation: the “now-ers”. These are people which use devices (in the case of Fukushima these devices provided the level of nuclear emissions) to map real time a situation in a country (nuclear emission in the case of Japan). Should the outbreak increase, everyone can use symptom reporting mobile Apps in order to avoid collusion between “non-lethal flu” symptoms reporting with Ebola cases. This collusion is likely to be the main driver of any excessive fear. Dr. Ezekiel Emanuel, a former White House health adviser, said ‘Panic is something we can’t afford’ when discussing Ebola. Some commentators are starting to challenge CDC ability to deal with the crisis. This gesture is natural should one consider the interests at stake should US citizens start to panic.
Iraq & Syria: Information war is intensifying. ISIL claims winning battle even before fighting them (e.g. Baghdad). We have been indicating that Kobani battle is very important for ISIL to strengthen its narrative. Our analysis of ISIL communication tool have shown that the terrorist organisation is using Spartacus narrative in conjunction with the biblical reference of David & Goliath. Though we refuse to spread ISIL propaganda material, and I hope that our readers will understand our position, we can send to client our references upon-request. To sum up our finding, 1) ISIL needs to win Kobani or shift the focus to other places (Baghdad), 2) any news which could push oil prices higher is welcome (because ISIL Oil Co “refinery margins” are shrinking every day), 3) the investment portfolio of ISIL reserves (those stolen from Iraqi Central Banks) are invested – according to our sources – to benefit from any information win, 4) by spreading chaos, ISIL jihadists hiring initiative got more traction because their view of the “end of the world” (or the Apocalypse) get traction.
Turkey decision to let US military to use its bases in the country to fight ISIL is a game changer. This is a first step before Turkey found a narrative where it helps Kurds without giving credit to independent kurdistan. President Erdogan can play a very important political (and economical) card should he decided to lead the fight on the ground. The shift in Muslim Brotherhood position vis-a-vis of ISIL (please see our yesterday report on Tariq Ramadan) is likely to help President Erdogan to more ahead with the ground operations. But for now, Turkey has been reluctant to side with Kurdish Peshmerga in the fight against ISIL. This is a dangerous strategy and Erdogan is likely to find himself having to choose between Evil and Good. Pakistan Taliban have joined ISIL cause. This does not come as a surprise due to the other terrorists group struggle to attract new fighters.
We continue to be negative on Oil prices and on volatility because both include a risk premium related to ISIL battles. ISIL is winning some communication battle but is doomed to fail, because the international community is taking over the narrative and genuinely showing that the institutions are not rotten to the core. Gaza development is very positive element in our scenario.
Russia: 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. Putin is reducing the pressure on Eastern Ukraine because he stuck a domestic political win during last week Formula 1 in Sochi and wants to reduce the pressure ahead of the G-20 (please see PM Abbott declaration on MH-17)
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: referendum called off. We were expecting it and we add Catalonia to the numerous subjects were big data has proven its accuracy.
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.
US Midterms elections: November 4th midterm elections is coming with many uncertainties. Should GOP win the Senate, the US administration is likely to find itself stuck with a divided government which could make : debt ceiling, budget negotiation, Fed Transparency Bill negotiation, very hard. Some humorists have called the Tea Party caucus to be the “no-negotiators”. Without leaning toward a liberal Tea Party bashing, we would like to remind our readers of October 2013 debt ceiling talk. These period have created too much fear that the US might default that some Sovereign Wealth Funds (SWF) have been considering challenging the USD reserve currency privilege status. The average polls are giving 55% chance to the GOP to secure a win in the Senate. However, these polls do not track the weak signals narrative nor participation variable (a model we’ve built for Scotland Independence and which has proven a very good results). Koch donors story (politico here) is very interesting because it shows that Oil interest groups are busy trying to reduce the speed at which their wealth is evaporating. $1bn is the amount invested, hope that this investment does not include any link to gestures to destabilise the Homeland security. We are confident that private initiative such as Super Pac of Super Pacs (using public donation to cut interest groups campaign financing) would take over in the short term because Pension Funds and Investors will soon recognise that “Greed is NOT good” and better have a functioning democracy.
We continue to side with the consensus. But we consider that as soon as investors will start looking at the consequence of a GOP Senate majority win we might see some change in the dynamics. We have the opportunity to use a new source of big data information. We will be using it to bring the change in the narrative in the coming 3 weeks. Stay tuned and thanks for your support.
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
Earnings season kicked started with better than expected bottom line. However, chatters are starting to pencil down tax benefit (ahead of changes which are expected to take place during the G-20). While lower tax benefit is already in our scenario, we consider that analytics and new technology will help corporate America to keep profit margins high.
Br-exit: Knowing that EU is changing its narrative, UKIP call for an early Br-exit vote doesn’t come as a surprise. Actually, we were expecting it to come earlier because the populist are likely to loose the supports they are having now. Populists parties are using investment advisory businesses to spread their mistrust. A recent study conducted by the AMF (France SEC), showed that 9 web-traders over 10 are loosing money when investing in FX. This is mainly due to the fact that 9 over 10 are investing like they vote: buy Gold, USD and sell EUR because it’s doomed (this is their beliefs not ours). By better regulating the internet retail investment sector, we are likely to see less spread of mistrust. These internet retail websites are widely spreading mistrust and advising ‘moms and pops’ to make easy money when the doom scenario will come. Again our legal have forbidden us from spreading some website adds (because they consider these are non respecting SEC and other regulations). These attract their “victims” by claiming making $8,000 a month by becoming a trader. The 9 over 10 are usually exposed to the next big splash in the markets. This is exactly how our research have found ISIL portfolio to be invested. While the first is betting that our institutions are rotten to the core and are listing to the doom and gloom widely spread, the former is speaking its own books. No one can be held accountable for making wrong investment decisions. However, by stressing the losses many individual investors are likely to change their strategy and diversify their views. This financial market war is likely to leave only those which bet on ISIL success largely exposed to the doom and gloom scenario.
While EU-skeptics groups 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. He said that Germany could be willing to increase EIB capital (a strategy designated Commissioner Moscovici seems to be open to during his weekend interview). 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 – ).
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
During the last 24h, Central Banks (CBs) news have been focusing on: Fed’s Williams anti-gravity views: “eyes U.S. inflation”. Since the outbreak of the global financial crisis, I have been worry of two extreme inflation scenario: hyper-inflation, due to deficit financing through seignorage or “fed money printing” – in CB vigilantes parlance, and deflation, due to the balance sheet deleveraging forces. Looking at facts, from the rapid decrease in Oil prices to wages inflation to the genuine fiscal deficit reduction, I wonder where this inflation threat will come from? But if we focus on San Francisco alone, we might consider that due to technology, San Francisco might experience some additional real estate market frothiness which is a by-product to wealth rapid creation. But this view does not apply to the overwhelming majority of the US. The only way we could justify Fed’s Williams position is that he plays the “bad cop” role to avoid a shift away from Vigilantes investment portfolios, which have been loosing money and might continue to loose. While we understand Fed’s Williams position, we do consider that the next big move in rates is likely to be downward (as investors which have been unfortunate with their short position will square them going into the end of 2014 – and pricing midterm elections risks -).
Guy Debelle, of RBA, made a come back with the same old story: AUD is overvalued, beware of a bond sell-off due to Fed rate normalisation. While this story sound music in the hears of PPP-model believers and those which have been short AUD ever since, it does not fly when tested with the view that Australia (like China) is rebalancing. The rebalancing process creates a shift in the regime of PPP models which make them ineffective. We have been reporting SMEs survey which have much higher AUD level in their business models than RBA’s vigilantes. But Debelle talk down to the AUD plays a very genuine role: avoiding more real estate frothiness when China is heading toward RMB internationalisation which could increase the demand for Aussie assets.
ECJ (European Court of Justice) heard a challenge to the European Central Bank’s landmark bond-buying scheme to contain the euro zone crisis in a case underscoring deep concerns in Germany over ECB clout. This is part of a process which started ever since President Draghi announced the OMT back in summer 2012. ECJ decision is likely to come as a surprise to many. Our analysis indicate that the EZ countries have already given some sovereignty when they have accepted a currency union. However, challenging the OMT provides a very positive role because it put a genuine pressure on the countries to undertake reforms (EZ countries have only reformed when they find themselves under certain form of pressure). We are more confident than consensus that the ECJ ruling will be positive, EZ will not disappear (which will come as a blow to many EU-Skeptics which will loose their economic and political credibility), and the EUR will become a full ledge reserve currency. These are not hopes they are forecast and we consider that there is a more than 80% probability to take place. The recent energy prices reduction (which we forecast before the sell-side community) will be instrumental in the constructive scenario.
BoJ Hawks (Fmr. Chief Eco) are calling for exiting the QQE. These calls are in line with the strategy we’ve outlined in our recent Japanese Update. Indeed, the hawks need to put pressure on the government in order that PM Abe cabinet take the decision to hike VAT again (though our scenario is that this hike might be in smaller steps that initially anticipated). We’re surprised by how markets participants have been dismissing Abenomics 3rd arrow. Indeed, Womenisation is starting, accepting immigration as well, deregulation is going through. We can always criticise the speed but questioning PM Abe willingness to reform (which goes beyond Abenomics because it’s instrumental in Japan geopolitical role in the coming decades) is false. It will require waiting until next tenure 2016 before PM Abe undertake what might look like as the impossible reform: social security. We continue to be cautiously optimistic because PM Abe has no choice but reforms when Russia wants to annex some territories.
Ukraine CB indicated that IMF is willing to help. While medium to long term we have a very positive scenario on Ukraine – West, which we summarise into New Poland or Poland 2.0, we are more pessimistic short term. The more oil prices plummet the more Russia needs to flex mussels and push the country to break. Russia oligarchs have no interest to let a country like Ukraine undertake anti-corruptions laws, increase its ties with EU and NATO. Such an example, could become Russia’s current ruling elite genuine existential threat specifically if Oil prices plummet below $80 (this might happen as soon as next December).
Exclusive: Fed’s Williams downplays global risks, eyes U.S. inflation
(Reuters) – A bellwether Federal Reserve policymaker on Tuesday downplayed concerns about weakness in the global economy, saying the U.S. central bank should only delay an interest rate hike next year if inflation or wages fail to perk up.
John Williams, president of the San Francisco Fed, said in an interview with Reuters that the first line of defense at the central bank, if needed, would be to telegraph that U.S. rates would stay near zero for longer than mid-2015, when he currently expects them to rise.
If the outlook changes « significantly, » with inflation showing little sign of returning to the central bank’s 2-percent target, he said he would even be open to another round of asset purchases.
The comments from Williams, seen as a good barometer of the views of Fed Chair Janet Yellen, suggest the central bank has been little moved by growing concerns in financial markets over weakness in Europe and China, and remains on track to lift rates. In the interview, Williams repeated he is comfortable with his call for a rate hike about nine months from now.
But « if inflation isn’t moving above 1.5 (percent) and we get stuck into that gear, that would argue for a later liftoff, » he said. « If we don’t see any improvement in wages, that would be a sign that we still have a lot of slack in the economy and we are not getting any inflationary pressure to move inflation back to 2 percent. »
Debelle Says Aussie Overvalued, Bond Sell-Off May Be Violent
Australia’s currency remains overvalued on most measures while any sell-off in global fixed-income markets could be “relatively violent,” central bank Assistant Governor Guy Debelle said in a speech.
“The Australian dollar is still higher than most conventional estimates of fundamentals would indicate, notwithstanding its recent decline,” Debelle said in the text of a speech in Sydney today. “The exchange rate is thus offering less assistance than would normally be expected in achieving balanced growth in the Australian economy. A lower exchange rate would be helpful in achieving that objective.”
Debelle’s address focused on the market’s failure to react in a sustained way to instability in the Middle East and eastern Europe, uncertainty about the turning point in U.S. monetary policy, the future direction of policy in Japan and Europe and concern about the strength of Chinaâs economy. Investors may have been pacified by central banks’ increased forward guidance for interest rates, he said in the text of his speech.
Investors Realizing No Happy Ending in Central Bank Fairy Tale
Oct. 14 (Bloomberg) — You know it’s a special moment in the financial markets when analysts ditch the jargon and reach for artistic references.
Ed Yardeni cited “The Wizard of Oz.” International Monetary Fund Managing Director Christine Lagarde went with both “Alice in Wonderland” and Harry Potter. Stephen King — the HSBC Holdings Plc chief economist, not the author — trolled the fantasy aisle.
Their message for investors: Even after the MSCI World Index’s lurch to its lowest since February, sentiment risks souring for a while longer. The reason is that just as global growth is weakening again, central bankers who sustained much of the expansion around the world are running out of ammunition.
“Investors around the world are shocked, shocked that the monetary wizards may have run out of magic tricks to revive global economic growth,” said Yardeni, president and chief investment strategist at Yardeni Research Inc. in New York. “Even the wizards are admitting that their powers to do so are limited.”
To King, markets spent most of this year caught up in a fairy tale that policy makers were on top of things.
In the rosy scenario, the Federal Reserve would next year cool U.S. growth with tighter monetary policy and the European Central Bank would revive expansion with quantitative easing. Everyone would win.
‘Something Wrong’
“Like most fairy tales it can’t be true in reality,” King at a conference in Washington last week. “There’s something wrong with it.”
Ailing global economy could lead Fed to delay hike
WASHINGTON (AP) — Just as the U.S. job market has finally strengthened, the Federal Reserve now confronts a new worry: A sputtering global economy that’s spooked investors across the world.
The economic slump could spill into the United States, potentially weakening job growth and keeping inflation well below the Fed’s target rate. Such fear has led some analysts to suggest that the Fed might wait until deep into next year to start raising interest rates — and then raise them more gradually than expected.
« I’m beginning to think that the Fed might delay (a rate increase), » said Bob Baur, chief economist at Principal Global Advisors, an asset management firm. « If we don’t see a better situation in Europe and better things out of Japan and stability in China, they might hang on just a little bit longer. »
Yet so far, the prospect of continued lower rates — which make loans cheaper and can fuel stock gains — is being outweighed by investors’ mounting fears of weakness from Asia to Europe to Latin America. After shedding 223 points Monday, the Dow Jones industrial average is now more than 5 percent below its September peak. Americans with stocks in their retirement accounts have taken a beating — at least for now.
Europe’s top court weighs German challenge to ECB
(Reuters) – Europe’s top court on Tuesday heard a challenge to the European Central Bank’s landmark bond-buying scheme to contain the euro zone crisis in a case underscoring deep concerns in Germany over ECB clout.
The case comes more than two years after the ECB backed a scheme to buy government bonds, called Outright Monetary Transactions (OMT). Although the plan has since been all-but moth-balled, the ruling, due in the middle of next year, could have wide significance.
If successful, the action by a group of Germans would encourage other challenges to the central bank. That in turn could hamper the ECB’s freedom to act, such as any move towards quantitative easing or ‘printing money’ by buying state bonds across the euro zone.
Bank of Japan Should Quit While It’s Ahead, Says Hayakawa
The Bank of Japan should start paring its unprecedented easing soon or risk hurting people in its quest to stoke inflation, said Hideo Hayakawa, the central bank’s former chief economist.
Pushing inflation to the bank’s 2 percent target in a short period will raise living costs without boosting employment or economic growth, Hayakawa said in an interview yesterday. Prices are rising by about 1 percent and an intensifying labor shortage will eventually achieve the goal, he said.
“It’s important to quit while you’re ahead,” said Hayakawa, who was an executive director at the BOJ until March 2013. “Basically, drop the two-year reference, keep the 2 percent target and taper slowly.”
The remarks underscore the risks Governor Haruhiko Kuroda is taking to reflate the world’s third-biggest economy with a stimulus program he began in April last year. While the BOJ is still winning its “gamble” with its stimulus, it shouldn’t push its luck, Hayakawa said.
Ukraine central bank chief says IMF ready to help more
(Reuters) – Ukraine received assurances from the International Monetary Fund and the World Bank that the two lenders stand ready to provide the war-torn country with more financial support, Kiev’s central bank chief said on Tuesday.
In a brief discussion with journalists, Ukrainian Central BankGovernor Valeria Hontareva said: « We got all these reassurances that they will support us. »
She did not say in what form any further support might come.
Central Bank of India cuts deposit rates on various maturities
State-run Central Bank of India has announced reduction of its deposit rates on various maturities in the range of 5 to 175 basis points here today.
For deposits less than Rs 1 crore, maturing in 7 to 14 days, rates have been reduced to 5 per cent from 6.50 per cent.
Term deposits with less than Rs 1 crore, maturing in one year to less than two years has been reduced to 9 per cent from 9.05 per cent.
Fixed deposits upto Rs 1 crore in the maturity bucket of three years to less than five years would now attract an interest rate of 8.75 per cent as against 9.05 per cent earlier.
Economics News
Today’s glass half-empty Economics News, could be summarised into: EU countries are failing reducing budget: France, Italy and even Portugal. Looking into more details, Portugal deficit overshooting is attributable to a one-off recapitalisation of Banco Esperito Santo. Should Bruxelles refrain from taking this one-off for what it is, they will not only make a tremendous mistake they are likely to increase the hate, EU-skeptics are spreading about the commission. Actually we are fascinated that EU-Skeptics call for no budget deficit mercy to speak their books and increase there political capital. When it comes to France and Italy the situation is different. The two countries are far from having delivered the genuine reforms which go beyond the budget. France has to reform its unemployment allowances system – although smoothly in order to avoid the FN taking people into the street -. Italy has to reform its public sector organisation and collusion (governance). We were saying since February that Germany will suffer from Ukraine tension and this is likely to be short term and open the door for some fiscal stimuli. We are nearly there.
China issued a new small and targeted stimuli as the PBoC seems genuinely willing to more the functioning of its monetary policy in order to prepare for RMB internationalisation.
Australia Consumer confidence improves because, according to the survey, Aussies are weighting their own well-being vis-a-vis a pessimistic global environment.
Chinese Stocks in Hong Kong Fall to Extend Loss to 10% from Peak
Chinese shares fell in Hong Kong, with the benchmark index dropping 10 percent from this year’s high, as protests in the city added to concern about weakening global economic growth.
Yanzhou Coal Mining Co. and China Coal Energy Co. slid more than 2 percent to lead declines for energy companies. Tingyi (Cayman Islands) Holding Corp., which is partly owned by Ting Hsin International Group, plunged 4.7 percent in Hong Kong amid speculation a tainted lard scandal in Taiwan will hurt food sales. Tasly Pharmaceutical Group Co. decreased 2.2 percent to pace declines for health-care shares in mainland trading.
The Hang Seng China Enterprises Index (HSCEI) retreated 0.3 percent at the close. The index entered a so-called correction after sliding 10 percent from a recent high on Sept. 8 amid concern protests over free elections in Hong Kong will hurt the city’s retailers and after the International Monetary Fund cut its forecast for global growth last week.
Germany Cuts Growth Outlook as Investors See Threat of Recession
Oct. 14 (Bloomberg) — Germany cut its growth outlook and investor confidence fell to the weakest level in two years as recession concerns mount in Europe’s biggest economy.
The Economy Ministry reduced its 2014 economic-growth forecast to 1.2 percent from 1.8 percent, and its 2015 prediction to 1.3 percent from 2 percent. The ZEW Center for European Economic Research said its index of investor and analyst expectations slid to minus 3.6 in October from 6.9 in September, the 10th monthly decline and the first negative reading since November 2012.
ZEW President Clemens Fuest said he doesn’t rule out a technical recession, or two quarters of contraction, and both he and Economy Minister Sigmar Gabriel called for more investment. That might aid the European Central Bank in its battle to revive the recovery in the 18-nation euro area.
“Financial investors are turning increasingly gloomy on the prospects for the German economy,” said Thomas Harjes, senior European economist at Barclays Plc in Frankfurt. “Holiday effects played a role for the soft monthly August data prints but underlying growth momentum has also slowed.”
Survey shows more pessimism about German economy
FRANKFURT, Germany – Germany’s ZEW survey of investment analysts fell for the tenth consecutive month in October, adding to a string of downbeat economic data about Europe’s largest economy and the eurozone as a whole.
The index fell to minus 3.6 points from 6.9 points in September. That was worse than the zero expected by market analysts.
The ZEW reading published Tuesday follows drops in industrial production, exports, factory orders, and the much-watched Ifo confidence survey among business executives. The run of worrisome numbers has raised fears Germany’s economy may stagnate or even slip into recession in coming months.
UPDATE 1-Italy, EU Commission spar over Rome’s budget plan
* Italy says won’t amend budget to increase deficit cuts
* EU source warns budget is « serious violation »
* PM Renzi announces more tax cuts, increased borrowing
* Italy cabinet to sign off on budget on Wednesday
ROME/LUXEMBOURG, Oct 14 (Reuters) – Italy and the European Commission were on a collision course over Rome’s 2015 budget plan, which Brussels says flouts EU recommendations but Rome says it has no intention of changing ahead of a Wednesday deadline.
Italian Prime Minister Matteo Renzi, faced with a recession-bound economy, has set out an expansionary 2015 budget framework which funds tax cuts with new borrowing and targets only a marginal reduction in the budget deficit.
The Commission says Italy must cut the deficit more in order to rein in a public debt of more than 130 percent of gross domestic product, the highest in the euro zone after Greece. Renzi says the debt has risen because of persistent recession which is only exacerbated by fiscal tightening.
France’s Sapin rules out 2015 budget changes – Les Echos
Reuters) – Finance Minister Michel Sapin ruled out substantive changes to France’s 2015 budget before a Wednesday deadline to present it to the European Commission, but told a French newspaper he was hopeful of avoiding a clash over it.
To the dismay of France’s EU partners, the current budget draft confirms that France will miss a target to bring its deficit below an EU-mandated limit of three percent of output next year and will only attain that goal by 2017.
EU officials are seeking to persuade France to adjust the budget before it presents the package to the European Commission on Wednesday, warning that they could use their powers to reject the budget outright – a political embarrassment for France.
Portugal’s public deficit could reach 7.5 pct of GDP, says EU
LISBON, Oct. 14 (Xinhua) — Portugal’s public deficit could reach 7.5 percent of gross domestic product (GDP), if the government takes extraordinary measures like the capitalization of Novo Banco, the European Commission said in a report on Tuesday.
The commission said the country would be able to meet its target of 4 percent of GDP this year if these extraordinary measures are not included.
Portugal has committed to cutting its budget deficit to 4 percent this year and 2.5 percent next year under a 78-billion-euro (98 billion U.S. dollars) bailout package it signed with its international lenders — the European Commission, the International Monetary Fund and the European Central Bank — in 2011, which implied heavy taxes and spending cuts.
The European Commission said in its report that Portugal reaching its deficit target this year depends on how the authorities deal with the reclassification of public firms’ debt and with the rescue of bank Banco Espirito Santo.
Consumer Confidence Rises As Financial Situation Improves
The ANZ – Roy Morgan Weekly Consumer Confidence Index has been bouncing around the long run average recently but the 1.1% rise this week to 113.8 and the drivers of the rise suggest that, even though the economy doesn’t exactly excite at the moment, consumers may be adjusting to the headline news by looking at their personal situation.
Indeed the rise of 1.1% was driven by “perceptions of households’ financial situation compared to a year ago (+3.8%) and expectations over the next year (+3.3%),” ANZ said.
Fitch: Most U.S. Structured Finance ‘Shock-Resistant’ to Rise in Interest Rates
NEW YORK–(BUSINESS WIRE)– Link to Fitch Ratings’ Report: US Structured Finance Interest Rate Shock Implications
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=784068
The direct impact of an interest rate shock is likely to be manageable for most of U.S. structured finance from a ratings perspective, though subsequent shock waves could prove challenging for some asset types, according to Fitch Ratings in a new report.
‘A significant increase in rates would have a negative impact on the still-challenged housing market as mortgage rates would rise and home sales would decline,’ said Managing Director Kevin Duignan. ‘That said, ratings on most U.S. structured finance asset types would remain shock-resistant to a rise in interest rates.’
Ebola
Ebola: “There’s nothing to fear but the fear itself”, President Roosevelt
Our competitors have started to compare Ebola to the 1918 Spanish Flu (more here) which has been responsible for 50 to 100 millions casualties and a genuine driver of WW-II. Why are we relaxed that this scenario will NOT take place? Two reasons explain our different view: 1) many of our economist colleagues have not spotted Ebola when it started as a driver to markets and economy, they have not had time to study three components (institution reaction, global coordination, and the 1st reason of spread of the disease : mistrust and disinformation), 2) many have not spotted the narrative around the vaccine and how the experimental vaccines have been effective (on primate as well as on humans). There is a third factor why media and some “newly declared experts” are getting morbid excitement. These are not getting all the story. Let’s face it, you can sell more volatility and news paper when people fear something. At SNBDL, we consider that good research finds its clients without any need of stress.
Our main fear is that Ebola could be used as a dirty weapon, and many intelligence experts are fearing the same. But US military are taking the risk seriously and the newly installed military hospital in Africa is indicating that the US with France are leading the fight to this disease.
Unlike in the beginning of XX century, many corporations have contingency plans in place in the case the situation intensifies (and we are not ruling out that the number of cases will increase). In the XXI century, workers can continue to generate value from their homes. Furthermore, Japan Fukushima brought one of the most interesting innovation: the “now-ers”. These are people which use devices (in the case of Fukushima these devices provided the level of nuclear emissions) to map real time a situation in a country (nuclear emission in the case of Japan). Should the outbreak increase, everyone can use symptom reporting mobile Apps in order to avoid collusion between “non-lethal flu” symptoms reporting with Ebola cases. This collusion is likely to be the main driver of any excessive fear. Dr. Ezekiel Emanuel, a former White House health adviser, said ‘Panic is something we can’t afford’ when discussing Ebola. Some commentators are starting to challenge CDC ability to deal with the crisis. This gesture is natural should one consider the interests at stake should US citizens start to panic.
Ebola cases could soar to 10,000 a week; CDC: New team to help hospitals
There could be up to 10,000 new Ebola cases per week in Guinea, Liberia and Sierra Leone by the end of this year as the outbreak spreads, the World Health Organization warned Tuesday.
And now that a nurse has become the first person to contract Ebola on American soil, the Centers for Disease Control and Prevention says it has a new plan to help hospitals handle the deadly virus.
« For any hospital anywhere in the country that has a confirmed case of Ebola, we will put a team on the ground within hours, » CDC Director Dr. Tom Frieden told reporters.
Dr. Sanjay Gupta answers: #EbolaQandA Can the U.S. handle an Ebola outbreak? How your hospital handles Ebola
The response team will include experts in infection control, protective equipment and experimental therapies. A team such as that, Frieden said, may have prevented a Dallas nurse from contracting the disease. The nurse was a member of the medical team that treated an Ebola patient who died last week.
« I wish we had put a team like this on the ground the day the first patient was diagnosed. That might have prevented this infection, » Frieden said. « But we will do that from this day onward with any case anywhere in the U.S. »
In addition to the many experts it sent to Dallas, Frieden said, the CDC « could have sent a more robust hospital infection control team and been more hands-on with the hospital from day one about exactly how this should be managed.
Latest Updates / Ebola death rate increases to 70 percent
Doctors Without Borders loses nine medics to Ebola; infected Dallas nurse receives plasma transfusion from doctor who survived; U.S. health officials launch review of Ebola treatment procedures.
Facebook’s Mark Zuckerberg and wife Priscilla Chan donate $25 million to Ebola fight
Facebook CEO Mark Zuckerberg and his wife Priscilla Chan, who is a pediatrician, have donated $25 million to the Centers for Disease Control Foundation to aid in combating the Ebola epidemic in West Africa.
In a Facebook post announcing the move, Zuckerberg said the current crisis is at a « critical turning point »:
We need to get Ebola under control in the near term so that it doesn’t spread further and become a long term global health crisis that we end up fighting for decades at large scale, like HIV or polio.
We believe our grant is the quickest way to empower the CDC and the experts in this field to prevent this outcome.
Grants like this directly help the frontline responders in their heroic work. These people are on the ground setting up care centers, training local staff, identifying Ebola cases and much more.
CDC chief: After Dallas nurse’s Ebola infection, U.S. must ‘rethink’ protocols
DALLAS — As a 26-year-old Dallas nurse lay infected in the same hospital where she treated a dying Ebola patient last week, government officials on Monday said the first transmission of the disease in the United States had revealed systemic failures in preparation that must “substantially” change in coming days.
“We have to rethink the way we address Ebola infection control, because even a single infection is unacceptable,” Thomas Frieden, director of the Centers for Disease Control and Prevention, said in a news conference.
Frieden did not detail precisely how the extensive, government-issued safety protocols in place at many facilities might need to change or in what ways hospitals need to ramp up training for front-line doctors or nurses.
CDC adds 76 to Ebola watchlist, regrets not sending big team
Seventy-six hospital workers who treated an Ebola patient who died in Dallas last week or dealt with his blood are now being « actively monitored » for signs of the virus after a nurse contracted the disease from the same patient, a top federal health official said Tuesday, as he expressed regret for not having responded more aggressively sooner.
They join 48 other people who had or may have had contact with Ebola victim Thomas Eric Duncan before the Liberian national was admitted to a Dallas hospital, as well as one person who had contact with nurse Nina Pham, 26, after she was infected, said Dr. Thomas Frieden, head of the federal Centers for Disease Control.
Frieden said that with the benefit of hindsight, CDC should have initially dispatched « a more robust hospital infection team » to Dallas when Duncan was diagnosed with Ebola there late last month, as opposed to after Pham’s diagnosis, as he has now done.
Americans short on reasons to trust: Column
The seemingly professional CDC and Secret Service look overwhelmed and discredited.
There’s a connection between the Secret Service’s Colombian hooker scandal and Americans’ increased worry about Ebola. Both have to do with trust.
Until recently, if you’d asked Americans to pick government institutions characterized by efficiency and professionalism, the Centers for Disease Control and Prevention and the Secret Service would likely have been at the top of the list. In both cases, recent evidence now suggests otherwise. And that’s especially destructive because both agencies depend on trust to do their jobs.
In the case of the Secret Service, the story comes in two parts — first, the 2012 scandal involving Secret Service agents boozing and carousing with prostitutes in Cartagena, Colombia, ahead of a visit by President Obama, and second, the apparent coverup that gave favored treatment to a White House worker who was the son of an Obama donor.
Factbox: U.S. funds to fight Ebola now top $1 billion, may rise
(Reuters) – The U.S. government now has more than $1 billion available to fight the spread of Ebola from West Africa and is proceeding with plans to deploy up to 4,000 military personnel to the region by late October.
Key congressional committee leaders signed off last week on the transfer of $750 million in Defense Department funds to support the military effort.
Here is a rundown of U.S. monetary commitments so far and the status of future funds in the fight against Ebola:
Gaza
Gaza: During the last 20years, we have not been as optimistic that Palestine – Israel peace process to move forward as today. Why? Because this time, the global community has to get rid of ISIL – which uses Palestine’s and Assad’s victims as a justification for their hiring of new Jihadists *usually the use the definition of “humanitarian work” to get in contact with their victims*-. British parliament voted on Monday to recognize Palestine as a state, a move that will not alter government policy, but carries symbolic value as Palestinians pursue international recognition. Britain does not classify Palestine as a state, but says it could do so at any time if it believed it would help promote peace between the Palestinians and Israel. These development in addition to the aid decided by donors during the weekend (please see yesterday daily briefing) and UN Chief Ban Ki-moon call for peace process to be discussed are bringing all the conditions to move forward. Behind the scenes, Muslim brotherhoods are loosing the ideological fight, Hamas is splitting between moderate (which decided to participate to a coalition government) and extremists (which are struggling to look even more barbaric than ISIL to attract “talents”). Iran and Saudi are heading toward a peaceful Sunni-Shia schism etc.
What are the consequences for global markets? Less geopolitical risk premium and lower energy prices (low inflation, and higher profit margins for corporations).
Cement Trucks Roll Into Gaza With Israel Assured Hamas Sidelined
Trucks carrying cement, gravel and iron crossed Israel’s border with the Gaza Strip following assurances the materials for rebuilding the war-battered territory won’t be diverted by Hamas.
Israeli guards admitted 75 trucks today at the Kerem Shalom terminal, the first bound for private contractors since convoys were cut off in December, Palestinian Authority liaison officer Raed Fattouh said in an e-mail. United Nations Secretary-General Ban Ki-moon hailed the convoy in a visit to Gaza, after international donors meeting this week in Cairo pledged $5.4 billion for the reconstruction project.
“The destruction which I have seen while coming to here is beyond description,” Ban told reporters in Gaza.
The 50-day war in July and August laid waste to neighborhoods across the 40-kilometer-long (25-mile) seaside enclave with at least 20,000 structures destroyed or severely damaged, according to the Palestinian Authority. Hamas and other militant groups fired thousands of rockets and mortar shells at Israel. More than 2,100 Palestinians and 70 Israelis died in the conflict.
Israel agreed to admit the trucks on condition that Hamas not be allowed any access to the construction materials. Hamas is considered a terrorist group by Israel, the U.S. and the European Union. It has used cement imported for rebuilding homes destroyed in previous conflicts, to reinforce cross-border tunnels for staging attacks in Israel.
UN chief in Gaza pledges to stand with Palestinians
GAZA – UN Secretary General Ban Ki-Moon arrived in the Gaza Strip on Tuesday, and met with members of the Palestinian unity government. He said his organization stands with the Palestinian people.
« We are standing to your side, » said Ban Ki-Moon in a news conference held at the Palestinian unity government’s headquarters in Gaza city. He announced that the first shipment of construction raw materials will be allowed in Gaza on Tuesday.
While in Gaza, Ban is expected to launch a reconstruction process of construction in the coastal enclave that his organization supervises. His convoy crossed through Erez crossing point between Israel and northern Gaza Strip.
He visited in Jabalia refugee camp in northern Gaza Strip to check a school run by his UN relief and work agency, which was hit during a 50-day Israeli offensive on Gaza that ended in Aug 26.
« We express deep solidarity with the Palestinian people for a better future and better economy, » said Ban Ki-Moon, adding « I told the Israeli side that resolving problem in Gaza can never be made without resolving the roots of the problem. »
He also went to check the massive destruction caused during the Israeli large-scale ground operation in July in Sheja’eya neighborhood in eastern Gaza city and spoke to the owners of the destroyed homes.
British MPs pass symbolic motion on Palestinian state
(Reuters) – British lawmakers voted on Monday to recognise Palestine as a state, a move that will not alter government policy, but carries symbolic value as Palestinians pursue international recognition.
Britain does not classify Palestine as a state, but says it could do so at any time if it believed it would help promote peace between the Palestinians and Israel.
Prime Minister David Cameron abstained from the vote, which was called by an opposition lawmaker, and Cameron’s spokesman earlier said foreign policy would not be affected whatever the outcome.
The vote was closely watched by Palestinians and Israelis seeking to gauge the readiness of European countries to act on Palestinian hopes for unilateral recognition by U.N. member states.
The final motion, which passed by 274 votes to 12 stated: « That this House believes that the Government should recognise the state of Palestine alongside the state of Israel as a contribution to securing a negotiated two-state solution. »
The vote comes just as Sweden’s new centre-left government prepares to officially recognise Palestine, a move condemned by Israel, which says an independent Palestine can only be achieved through negotiations.
Iraq & Syria
Iraq & Syria: Information war is intensifying. ISIL claims winning battle even before fighting them (e.g. Baghdad). We have been indicating that Kobani battle is very important for ISIL to strengthen its narrative. Our analysis of ISIL communication tool have shown that the terrorist organisation is using Spartacus narrative in conjunction with the biblical reference of David & Goliath. Though we refuse to spread ISIL propaganda material, and I hope that our readers will understand our position, we can send to client our references upon-request. To sum up our finding, 1) ISIL needs to win Kobani or shift the focus to other places (Baghdad), 2) any news which could push oil prices higher is welcome (because ISIL Oil Co “refinery margins” are shrinking every day), 3) the investment portfolio of ISIL reserves (those stolen from Iraqi Central Banks) are invested – according to our sources – to benefit from any information win, 4) by spreading chaos, ISIL jihadists hiring initiative got more traction because their view of the “end of the world” (or the Apocalypse) get traction.
Turkey decision to let US military to use its bases in the country to fight ISIL is a game changer. This is a first step before Turkey found a narrative where it helps Kurds without giving credit to independent kurdistan. President Erdogan can play a very important political (and economical) card should he decided to lead the fight on the ground. The shift in Muslim Brotherhood position vis-a-vis of ISIL (please see our yesterday report on Tariq Ramadan) is likely to help President Erdogan to more ahead with the ground operations. But for now, Turkey has been reluctant to side with Kurdish Peshmerga in the fight against ISIL. This is a dangerous strategy and Erdogan is likely to find himself having to choose between Evil and Good. Pakistan Taliban have joined ISIL cause. This does not come as a surprise due to the other terrorists group struggle to attract new fighters.
We continue to be negative on Oil prices and on volatility because both include a risk premium related to ISIL battles. ISIL is winning some communication battle but is doomed to fail, because the international community is taking over the narrative and genuinely showing that the institutions are not rotten to the core. Gaza development is very positive element in our scenario.
U.S.-led air strikes intensify as Syria conflict destabilizes Turkey
MURSITPINAR Turkey/ISTANBUL (Reuters) – American-led forces have sharply intensified air strikes in the past two days against Islamic State fighters threatening Kurds on Syria’s Turkish border after the jihadists’ advance began to destabilize Turkey.
The coalition had conducted 21 attacks on the militants near the Syrian Kurdish town of Kobani over Monday and Tuesday and appeared to have slowed Islamic State advances there, the U.S. military said, but cautioned the situation remained fluid.
U.S. President Barack Obama voiced deep concern on Tuesday about the situation in Kobani as well as in Iraq’s Anbar province, which U.S. troops fought to secure during the Iraq war and is now at risk of being seized by Islamic State militants.
« Coalition air strikes will continue in both of these areas, » Obama told military leaders from more than 21 coalition partners in the fight against Islamic State, including Turkey, Arab states and Western allies.
RIGHTS GROUP: IRAQ SHIITE MILITIAS KILLING SUNNIS
BAGHDAD (AP) — Iraq’s Shiite militias have abducted and killed scores of Sunni civilians with the tacit support of the government in retaliation for Islamic State group attacks, Amnesty International said Tuesday, as a suicide car bombing claimed by the Sunni extremists killed 23 people, including a Shiite lawmaker.
The Shiite militiamen number in the tens of thousands and wear military uniforms but operate outside any legal framework and without any official oversight, the London-based watchdog said, adding that they are not prosecuted for the crimes.
The accusations were based on interviews with relatives of victims and survivors who claimed that members of four prominent Iraqi Shiite militias — Asaib Ahl al-Haq, the Badr Brigades, the Mahdi Army, and Ketaeb Hizbollah — were behind many abductions and killings of Sunnis in the country, the rights group said in a 28-page report, entitled « Absolute Impunity: Militia Rule in Iraq. »
Sunni grievances have metastasized since the U.S.-led invasion that toppled Saddam Hussein in 2003 and handed power to the long-oppressed Shiite majority. Sunni anger helped fuel the rampage across northern and western Iraq by the Islamic State group and the onslaught has aggravated sectarian tensions elsewhere, again driving Iraq to the brink of civil war.
Asaib Ahl al-Haq and the Hezbollah Brigades were among a group of Shiite militias backed by Iran that carried out lethal attacks against U.S. bases in June 2012.
A spokesman for the Iraqi military, Brig. Gen. Saad Maan Ibrahim, dismissed the Amnesty report, saying that the government would « in no way be an accomplice for killing its own citizens. » He added that the Iraqi government and its military « do not support any group, including militias, which work to kill innocent people. »
Barack Obama, foreign military chiefs, to thrash out Islamic State plans
WASHINGTON: President Barack Obama will hash out a strategy to counter Islamic State on Tuesday with military leaders from some 20 countries including Turkey and Saudi Arabia amid growing pressure for the U.S.-led coalition to do more to stop the militants’ advance.
Some three weeks before U.S. congressional elections viewed largely as a referendum on Obama’s leadership, the president will aim to show the U.S. public and allies abroad that he is committed to a plan to « degrade » and « destroy » the group that has taken over large swaths of Iraq and Syria.
U.S. Contractor Killed by Ex-Colleague in Saudi Capital
A U.S. citizen working for an American defense contractor was shot dead and another was wounded at a gas station in Riyadh, Saudi Arabia’s capital.
Both worked for Vinnell Arabia, according to the U.S. State Department. The subsidiary of Northrop Grumman Corp. (NOC:US) supports the Saudi National Guard.
The suspect, who was detained after being wounded in a shootout with police, had dual Saudi and American citizenship. He was a colleague of the victims before his recent dismissal “due to drug-related issues,” the Saudi embassy in Washington said today in a statement.
Turkish government empowers police amid Kurdish dialogue
The ruling AKP plans to bestow sweeping powers on the security forces to crush protests, while also claiming to be advancing the peace process with Kurds
The government has vowed to advance Turkey’s stalled the peace process – its self-declared “unique brainchild” – while also pledging to empower security forces in the aftermath of recent violent demonstrations in predominantly Kurdish eastern and southeastern Anatolia.
In doing so, the ruling Justice and Development Party (AKP) government pointed the finger at the Peoples’ Democratic Party (HDP), a key actor in the Kurdish political movement represented in Parliament, accusing it of provoking the demonstrations by Kurdish citizens against Ankara’s perceived inaction toward Syrian Kurds besieged by jihadists in the Syrian border town of Kobane.
In response, the HDP, which is directly involved in the process aimed at ending the three-decade-long conflict between the outlawed Kurdistan Workers’ Party (PKK) and Turkey’s security forces, strongly rejected the suggestion that it was the main reason for the deadly street violence that left more than 35 people dead last week.
The parties traded the severe accusations yesterday amid the government’s declaration of tougher security measures, although the HDP announced as recently as Oct. 13 that the government had “partially shared” a long-awaited draft roadmap aimed at accelerating the peace process.
The HDP argued that it was its call for demonstrations that prevented Kobane from falling into the hands of jihadists, because the U.S.-led coalition carried out its first air strike targeting Islamic State of Iraq and the Levant (ISIL) militants approaching Kobane only after the protest call.
Parliamentary delegations from the HDP have been speaking to imprisoned PKK leader Abdullah Öcalan, in line with his central role in the peace process, over the past two years, and the party accused the government of « hypocrisy » for declaring that it considered the PKK and ISIL to be the same.
ISIS sold Muslim women to Jews, Kuwaiti cleric charges
The coalition to fight Islamic State is a fraud, and the Islamist organization is selling Muslim women to Jews, according to Kuwaiti Shi’ite cleric Imam Saleh Jawhar.
In a video released by MEMRI, The Middle East Media Research Institute, Jawhar can be seen making the remarks in a recent sermon in Kuwait.
“Even if we accept everything else – what kind of religion allows the capturing of a Muslim woman, and on top of that, allows her to be sold to a Jew?!” the cleric asked in the sermon entitled “The False War on ISIS [Islamic State].”
Jawhar pointed to Islamic State’s successes in the northern Syrian town of Kobani as evidence that the US-led coalition’s fight against the extremist Islamist group may not be real.
British ex-PM Blair may have been terrorism target, court hears
(Reuters) – A man charged in Britain with terrorism offences at a trial so sensitive that prosecutors sought to have it heard entirely in secret might have been planning an attack on ex-prime minister Tony Blair, a court heard on Tuesday.
Erol Incedal, 26, was arrested in October last year with another man, Mounir Rarmoul-Bouhadja, who last week admitted possessing a bomb-making document on a memory card, prosecutor Richard Whittam said.
Incedal, who lives in London and is a British citizen, denies charges of preparing for acts of terrorism with unnamed others abroad and possessing information useful to terrorism.
« The acts of terrorism that they were preparing for were either against a limited number of individuals, an individual of significance or a more wide-ranging and indiscriminate attack such as the one in Mumbai (India) in 2008, » Whittam told the jury at the Old Bailey court.
While Whittam said there was no settled plan nor any specific target, he said a piece of paper with the address of a property owned by Blair was found in Incedal’s black Mercedes when it was stopped for a traffic offence in September 2013.
Middle East Updates / Kerry: ‘No discrepancy’ between U.S. and Turkey over Islamic State
Turkish planes hit Kurdish targets in southeast Turkey; Obama to meet anti-Islamic State coalition partners.
9:50 P.M. U.S. Secretary of State John Kerry said there was « no discrepancy » between the United States and Turkey with regard to the strategy for fighting Islamic State militants trying to take over a Kurdish town in Syria near the Turkish border.
Kerry, in Paris for talks with Russian Foreign Minister Sergei Lavrov, added that Ankara would define its role according to its own timetable. (Reuters)
Iran’s Rouhani says nuclear deal with West ‘certain’
Despite doubts, Iranian president says final settlement with world powers on Tehran’s disputed nuclear program can be achieved within 40 days remaining of deadline.
DUBAI – Iranian President Hassan Rouhani said on Monday a nuclear deal with the West was bound to happen and he believed it could be achieved by a November 24 deadline.
« We have reached consensus on generalities and there are only the fine details to be worked out: whether we would reach an agreement within the next 40 days, if the time will be extended, etc., » the president told his people in a late evening address broadcast live on television.
Russia
Russia: 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. Putin is reducing the pressure on Eastern Ukraine because he stuck a domestic political win during last week Formula 1 in Sochi and wants to reduce the pressure ahead of the G-20 (please see PM Abbott declaration on MH-17)
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.
Australian Leader Serves an Unsportsmanlike Warning to Putin
MOSCOW — Could it be his charm or talent? Or the exaggeratedly macho image?
Whatever it is, there is something about the Russian president, Vladimir V. Putin, that seems to get under the skin of other world leaders, prompting them to say things they typically do not about other important figures, at least not aloud or in public.
On Monday in Australia, Prime Minister Tony Abbott became the latest in a long line when he told reporters that he planned to get in Mr. Putin’s face at a meeting of the Group of 20 economic forum in Brisbane next month over the downing of Malaysia Airlines Flight 17 in eastern Ukraine, in which 28 Australian citizens were killed.
“I’m going to shirt-front Mr. Putin,” Mr. Abbott told reporters, using a term that in Australian football means charging an opponent to knock him down and in rugby refers to grabbing an opponent’s shirt or collar. “I am going to be saying to Mr. Putin: ‘Australians were murdered. They were murdered by Russian-backed rebels using Russian-supplied equipment. We are very unhappy about this.’ ”
Putin Loses His Best Friend: Expensive Oil
The decline in oil prices may be depriving Russian President Vladimir Putin of his biggest ally.
Oil has been the key to Putin’s grip on power since he took over from Boris Yeltsin in 2000, fueling a booming economy that grew 7 percent on average from 2000 to 2008.
Now, with economic growth slipping close to zero, Russia is reeling from sanctions by the U.S. and the European Union over its land grab in Ukraine, and from a ruble at a record low. Putin, whose popularity has been more than 80 percent in polls since the annexation of the Crimean Peninsula in March, may have less money to raise state pensions and wages, while companies hit by the sanctions also seek state aid to maintain spending.
Luxury Growth Weakest Since 2009 Amid Geopolitical Turmoil: Bain
Worldwide luxury-goods sales could increase this year at the slowest pace since 2009 as spending falls for the first time in China and turmoil in Hong Kong and Russia curbs tourist consumption, according to Bain & Co.
Global sales of personal luxury items from handbags to watches will rise 2 percent to 223 billion euros ($282 billion), Bain estimated in a report today. That would be the weakest growth since sales fell five years ago. Revenue will rise 5 percent when excluding currency swings, Bain said.
Britain’s Burberry Group Plc, (BRBY) the maker of $1,600 trench coats, said today that wholesale revenue will fall in the second half, while handbag maker Mulberry Group Plc (MUL) said full-year earnings would be significantly below estimates. LVMH Moet Hennessy Louis Vuitton SA (MC) is due to report third-quarter sales after European markets close.
Putin puts a chill on German economy
It’s official: Germany is hurting from the Ukraine crisis and mediocre global growth.
Europe’s biggest economy sharply cut its forecasts for growth this year and next, citing « geopolitical crises » and the lackluster performance of its major trading partners.
The government said it expected gross domestic product to rise by 1.2% in 2014, compared with a forecast earlier this year of 1.8%. The rate of expansion for 2015 is just as dismal: 1.3%.
That’s an even gloomier prognosis than the most recent outlook from the International Monetary Fund, which last week cuts its forecast for German GDP growth to 1.4% this year, and 1.5% next. The biggest shock to the economy in the past six months has come from Russia, though a slowdown elsewhere in the world hasn’t helped.
Russia signs deals with China to help weather sanctions
Russia and China signed energy, trade and finance agreements on Monday proclaimed by Moscow as proof that a policy turn to Asia is bearing fruit and will help it to weather Western sanctions over the Ukraine crisis.
The 38 deals, signed on a visit to Moscow by Premier Li Keqiang, allow for deeper cooperation on energy and a currency swap worth 150 billion yuan ($25 billion) intended partly to reduce the sway of the U.S. dollar.
They are among the first clear successes of the eastward shift, ordered by President Vladimir Putin to avoid isolation over the sanctions, since the vast nations reached a $400 billion, 30-year natural gas supply agreement in May.
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 tensions rise as police use pepper spray on protesters to clear road
(Reuters) – Hundreds of Hong Kong police used pepper spray on pro-democracy protesters in the early hours of Wednesday to clear a major road that had been barricaded with concrete slabs, heightening tensions in the financial hub.
The clashes were the worst in over a week between police and largely student protesters, who late on Tuesday swarmed into a tunnel on a key four-lane thoroughfare, halting traffic and chanting for universal suffrage.
Large numbers of police forced the crowds back, spraying pepper spray at those who resisted. « We’re peaceful. We just want democracy. Why are you doing this, » one female protester yelled.
Several protesters were wrestled to the ground and taken away. Scores of other officers then entered the tunnel in the Admiralty district and began clearing away makeshift walls formed from concrete slabs, partially reopening the tunnel to traffic.
Clashes at Hong Kong pro-democracy protests after police barricades removed (+video)
Angry crowds, opposed to pro-democracy protests that have paralyzed parts of Hong Kong for two weeks, tried Monday to charge barricades used by demonstrators.
Skirmishes broke out in Hong Kong today between pro-democracy demonstrators and groups opposed to them, heightening tensions after weeks of largely peaceful protest.
Early Monday morning police moved back numerous protest barriers in order to clear space for cars to begin moving through key streets in the financial district, The Associated Press reports.
CICC’s Levin Zhu, Son of Former Chinese Premier, Resigns
Levin Zhu, the son of a former Chinese premier, resigned as chief executive officer of China International Capital Corp., upsetting plans for a Hong Kong initial public offering as early as this quarter.
Zhu, 56, who wrested control of the nation’s first Sino-foreign investment bank from Morgan Stanley 14 years ago, left to seek other opportunities, according to an internal memo obtained by Bloomberg News. Lin Shoukang, a managing director of the firm, will act as CEO while the board searches globally for a replacement, the document shows.
CICC is poised to delay a Hong Kong share sale valuing it at more than $3 billion, people with knowledge of the matter said. Zhu’s resignation comes with CICC ranked 13th in arranging domestic stock sales this year, slumping from third in 2013, as it loses share to domestic rivals including Citic Securities Co. and Haitong Securities Co.
Catalonia
Catalonia: referendum called off. We were expecting it and we add Catalonia to the numerous subjects were big data has proven its accuracy.
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.
SPAIN’S CATALONIA CALLS OFF INDEPENDENCE VOTE
BARCELONA, Spain (AP) — The leader of Spain’s wealthy Catalonia region on Tuesday called off an independence vote but said an unofficial poll will take place next month to gauge secessionist sentiment.
Artur Mas was forced to cancel the Nov. 9 referendum and replace it with a symbolic one on the same day after Spain’s government challenged the referendum in the country’s Constitutional Court, which suspended the vote while it deliberates.
Separatists in northeastern Catalonia, which has 7.5 million people, have been trying for several years to hold a breakaway vote from Spain to carve out a new Mediterranean nation.
Secessionist sentiment surged during Spain’s economic stagnation and amid discontent at Spain’s refusal to give the region more autonomy and fiscal powers.
Polls show most Catalans support holding an independence referendum and around half favor ending centuries-old ties with Spain.
Ferguson
Ferguson – Missouri: replace Catalonia, HK Occupy with Ferguson, keep calm and carry on.
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. -).
Ferguson, HK Occupy, Scotland Independence, Catalonia share the same problem: inequality. Many are considering that Inequality will bring a class struggle and some kind of XIX century like revolution. Notwithstanding that depending on where someone seats, we might think that these mass protests (1000 for Ferguson, much more in Catalonia) are sufficient to start the revolution. But like we were saying in our earlier notes, we genuinely believe that Occupy and Anonymous groups have been hijacked by “commodity interest groups” (it suffice to look at the links between investment portfolio’s advise of those groups – Gold and Commodities – and the consequence of a derailed soft power to move toward better governance).
However, unlike in the old “organised revolutions” in LatAM, this time around the social media is in charge and the overwhelming majority wants to see soft power – and Ferguson is part of that – but the chaos and Apocalypses imagined by the 3G group (the most radical group within libertarians and their name stands for Gold, Guns and God) are unlikely to take place. Of course Ebola, and ISIL are genuine threats but 1) the on-going improvement in governance (cf. Australia G-20), 2) the work to reduce disinformation and skepticism (EU, Gaza), 3) military and medical action against the two deadly diseases ISIL and Ebola, are supportive to the positive scenario. Furthermore, there is a win-win scenario which is taking place and which could help: workers, shareholders and consumer to benefit from.
Police arrest 50 protesting shootings of blacks in St. Louis area
(Reuters) – Hundreds of people demonstrated in the pouring rain in the St. Louis area on Monday, staging a series of rolling protests in the latest show of anger over the police killing of an unarmed black teenager in August.
At least 50 protesters were arrested in civil disobedience acts in Ferguson, the suburb where Michael Brown, 18, was shot dead. Other groups occupied St. Louis city hall, where they tried to hang a banner, shut down a local Walmart, and chanted outside a fundraiser for a local politician.
An additional protest was planned at a St. Louis Rams football game in the evening.
Police arrested many ministers and national activists who had traveled to Ferguson, most of them outside the police department. One person was arrested at St. Louis city hall.
« This is a historic day, » said Mervyn Marcano, a spokesman for « Ferguson October, » four days of protests culminating on what organizers call « Moral Monday. »
Drenched in a deluge of rain, protesters chanted « Wade in the Water » and other hymns and civil rights anthems as ministers of different faiths kneeled on the wet pavement before a line of state troopers in Ferguson. In a carefully choreographed demonstration the activists slowly broke the police line and forced police to arrest them.
After the cameras leave, is Ferguson any different?
FERGUSON, Mo. – As thousands gathered in the streets and at St. Louis University for the weekend’s last protest, young people challenged those here to think about what happens in Ferguson after the crowds and cameras leave.
A week before the protests we found one young man, 24-year-old Frankie Edwards trying to make a difference.
« Now we got people after school just hanging on the streets, not doing nothing positive, » said Edwards.
Edwards grew up here and says he’s trying to spread the word about free services like job training and re-entry programs for felons.
In the Penrose neighborhood the crime rate is 22 percent higher than the rest of St. Louis. Just last week, Edwards’ godbrother was murdered.
Police: More Than 50 Arrested in Ferguson Protests
Pounding rain and tornado watches didn’t deter hundreds of protesters Monday outside Ferguson police headquarters, where they stayed for almost four hours to mark how long 18-year-old Michael Brown’s body was left in a street after he was fatally shot by police.
Organizers of the four-day Ferguson October protests dubbed the day « Moral Monday » and committed acts of civil disobedience across the St. Louis region. In addition to the initial march on Ferguson police headquarters, protesters blocked the entrance to a major employer, held a loud rally inside St. Louis City Hall, disrupted business at a Ferguson shopping center and three Wal-Mart stores and tried to crash a private fundraiser for a St. Louis County executive candidate where U.S. Sen. Claire McCaskill was scheduled to appear.
At the Edward Jones Dome Monday night, protesters briefly draped a banner over a Jumbotron video board that read « Rams fans know on and off the field black lives matter. »
More than 50 people were arrested, including scholar and civil rights activist Cornel West.
West was among 42 arrested for peace disturbance at the Ferguson police station. Some protesters used a bullhorn to read the names of people killed by police nationwide. Christian, Jewish and Muslim clergy members — some of whom were among the first arrested — led a prayer service before marching to the station two blocks away.
US Midterms elections
US Midterms elections: November 4th midterm elections is coming with many uncertainties. Should GOP win the Senate, the US administration is likely to find itself stuck with a divided government which could make : debt ceiling, budget negotiation, Fed Transparency Bill negotiation, very hard. Some humorists have called the Tea Party caucus to be the “no-negotiators”. Without leaning toward a liberal Tea Party bashing, we would like to remind our readers of October 2013 debt ceiling talk. These period have created too much fear that the US might default that some Sovereign Wealth Funds (SWF) have been considering challenging the USD reserve currency privilege status. The average polls are giving 55% chance to the GOP to secure a win in the Senate. However, these polls do not track the weak signals narrative nor participation variable (a model we’ve built for Scotland Independence and which has proven a very good results). Koch donors story (politico here) is very interesting because it shows that Oil interest groups are busy trying to reduce the speed at which their wealth is evaporating. $1bn is the amount invested, hope that this investment does not include any link to gestures to destabilise the Homeland security. We are confident that private initiative such as Super Pac of Super Pacs (using public donation to cut interest groups campaign financing) would take over in the short term because Pension Funds and Investors will soon recognise that “Greed is NOT good” and better have a functioning democracy.
We continue to side with the consensus. But we consider that as soon as investors will start looking at the consequence of a GOP Senate majority win we might see some change in the dynamics. We have the opportunity to use a new source of big data information. We will be using it to bring the change in the narrative in the coming 3 weeks. Stay tuned and thanks for your support.
KENTUCKY SENATE DEBATE HAS OBAMA FOCUS
LEXINGTON, Ky. (AP) — In a debate at close quarters, Democratic challenger Alison Lundergan Grimes vowed Monday night to be independent of President Barack Obama if she wins Kentucky’s close and costly Senate race, but Republican Leader Mitch McConnell said his rival hopes to deceive voters about her intentions.
Despite her pledge, Grimes stuck to her days-long refusal to say if she voted for Obama in 2008 and 2012. She insisted that if she answered the question, it would « compromise a constitutional right » to cast a secret ballot.
McConnell quickly scoffed at that. « There’s no sacred right to not announce how you voted, » he said, seated next to Grimes for an hour-long debate hosted by KET, the state’s public television station. « I voted for Mitt Romney proudly. I voted for John McCain, » he added, referring to the two men Obama defeated.
The race is one of several that will determine if Republicans capture a Senate majority in midterm elections. They need to pick up six seats to prevail, and a GOP triumph would all-but-certainly make McConnell the new majority leader, with the power to set the Senate’s legislative agenda during the last two years of Obama’s presidency.
The contest is also one of the most expensive in the country, with millions of dollars in television commercials aired by the candidates, their parties and allies focused on Senate races nationally. McConnell also has benefited from about $20 million in advertisements from a pair of organizations set up by former aides and associates solely to re-elect him to a sixth term.
Regrets? Obama’s 2012 voters in key states have a few
Just two years ago, President Obama was re-elected, the first Democrat since FDR to twice win a majority of the electorate.
That was then.
Now USA TODAY/Suffolk University polls in a half-dozen states with key Senate races underscore just how much times and political fortunes have changed for the president. In five of the six states, the percentage of likely voters who say they voted for Obama in 2012 has dipped from the actual results.
Of those who say they did vote for him, as many as one in seven say they regret it.
« He started out as such a dynamic powerhouse; I mean, it seemed to be he could do anything, » says Mike White, 64, of Cary, N.C., one of those disappointed past supporters. « Now I think he’s just looking forward to the end of his presidency. »
2014 campaign TV spending on track to surpass $1 billion
Nearly $1 billion worth of political ads have inundated the airwaves ahead of this year’s midterm elections, driven in part by a stronger Democratic presence on the airwaves than in 2010, according to a new study by the Wesleyan Media Project.
An estimated $337 million has already been spent to air more than 728,000 ads in Senate races, surpassing the $324 million spent during the 2012 elections on Senate campaigns, according to Kantar Media/CMAG data analyzed by Wesleyan. The project examines buys on broadcast television and national cable, but not local cable.
The largest share of TV spending this year has been on governor’s races, with an estimated $426 million spent so far.
“We’re definitely going to hit $1 billion before election day,” said Travis Ridout, co-director of the Wesleyan Media Project.
Cities such as Denver, Tampa and Little Rock — including both Senate and governor’s races — are seeing the most intense volume.
The deep-pocketed political network created by the billionaire conservatives Charles and David Koch this summer quietly launched a super PAC that can buy explicitly political ads supporting Republican candidates rather than the issue-oriented ads they‘d been airing for years.
The catch: For the first time, the network’s donors would be publicly identified if they gave to the super PAC.
The unstoppable walk to political reform
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
Earnings season kicked started with better than expected bottom line. However, chatters are starting to pencil down tax benefit (ahead of changes which are expected to take place during the G-20). While lower tax benefit is already in our scenario, we consider that analytics and new technology will help corporate America to keep profit margins high.
Chicago union head decides against mayoral bid
CHICAGO — Chicago Teachers Union President Karen Lewis, seen as Mayor Rahm Emanuel’s most high-profile re-election challenger, won’t run in 2015, a spokeswoman announced Monday.
Lewis, who often tussled with the mayor during the 2012 Chicago Public Schools teachers’ strike, didn’t specify her reasons and a statement released on behalf of her exploratory committee made no mention of a recent illness she disclosed publicly.
“Karen Lewis has decided to not pursue a mayoral bid,” said a statement from committee spokeswoman Jhatayn Travis. “Yet she charges us to continue fighting for strong neighborhood schools, safe communities and good jobs for everyone.”
Lewis had been seen as the best shot so far to unseat Emanuel, who won his first term in 2011. For months, she had been circulating petitions and raising her profile at parades and political events, often harshly criticizing Emanuel and his policies. She even dubbed him the “murder mayor” because of the city’s violence problem.
As if flying weren’t stressful enough, now we have Ebola scares
“Hazmat crew swarms Boston flight after Ebola scare,” “Ebola fears running high: False alarm on plane to Las Vegas,” “Ebola ‘joke’ causes scare aboard US plane.” These are just a few recent headlines in Ebola news.
In the 1960s, there were the Cuba hijack scares. After 9/11, all it took was some strange behavior in an airplane toilet to bring in the FBI.
Now, there’s Ebola. Thomas Eric Duncan became the first person diagnosed with the disease in the U.S. on Sept. 30 after flying in from Liberia. Every few days since then, there has been a scare in the air associated with a stray comment, or someone showing “flu-like symptoms” or vomiting. It’s a problem that could get worse before it gets better since people get sick in flight all the time. (That’s why there are airbags.) And, flu-season is almost here.
S&P 500, Nasdaq break three-day slide but Dow dips
(Reuters) – The S&P 500 and Nasdaq ended up slightly on Tuesday, breaking a three-day string of declines that marked their worst losses since 2011, while the Dow finished lower for a fourth session on lingering worries about global demand.
While the S&P closed in positive territory, it was well off its session highs of more than 1 percent and did little to put investors at ease about the market’s recent selloff.
The benchmark index has lost 6.6 percent since its Sept. 18 record closing high and is now up just 1.6 percent for the year, while the Dow is down 1.6 percent since Dec. 31. For a factbox on the market’s selloff, see
« Today’s action is typical of a market that hasn’t completed its downward course, » said Peter Cardillo, chief market economist at Rockwell Global Capital in New York.
« In order for this market to escape further declines, we would have to see the market begin to stabilize and not slip in and out of the plus and minus column consistently. »
Wells Fargo Profit Meets Estimates as Mortgage Revenue Drops
JPMorgan Chase returns to profit as bank earnings lift stocks (+video)
Irish Tax Changes May Cost Apple And Google Billions
LONDON (Reuters) – Ireland’s plan to close a « Double Irish » tax loophole could cost U.S. companies including Apple and Google billions of dollars, although a new break and pressure to tackle tax avoidance elsewhere means they are unlikely to decamp.
Analysts and tax advisers predict that corporations which need access to the EU’s 500 million consumers will find it difficult to set up equally effective schemes in other member states as Brussels investigates arrangements that involve paying minimal tax rates.
« The question is where do you go to? There’s nowhere else in the European Union. It’s just getting too hot, » said George Bull, head of the tax practice at advisory group Baker Tilly.
Ireland has been an attractive base for U.S. multinationals for decades, thanks to a tax regime which allows companies to channel profits made in their major markets through the country and into tax havens, paying little tax along the way.
A report released Monday indicates the Department of Defense has dramatically shifted its views towards climate change, and has already begun to treat the phenomenon as a significant threat to national security. Climate change, the Pentagon writes, requires immediate action on the part of the U.S. Military.
The report is a “roadmap” of the Department’s future needs and actions to effectively respond to climate change, including anticipating that climate change may require more frequent military intervention within the country to respond to natural disasters, as well as internationally to respond to “extremist ideologies” that may arise in regions where governments are destabilized due to climate-related stressors.
“The impacts of climate change may cause instability in other countries by impairing access to food and water, damaging infrastructure, spreading disease, uprooting and displacing large numbers of people, compelling mass migration, interrupting commercial activity, or restricting electricity availability,” the Pentagon writes. “These developments could undermine already-fragile governments that are unable to respond effectively or challenge currently-stable governments, as well as increasing competition and tension between countries vying for limited resources. These gaps in governance can create an avenue for extremist ideologies and conditions that foster terrorism.”
Hillary Clinton touts affordable higher education in $225G Las Vegas speech
Hillary Clinton called for businesses to collaborate with universities to make higher education more affordable in a $225,000 speech Monday night at the annual University of Nevada Las Vegas Foundation dinner.
« Higher education shouldn’t be a privilege for those able to afford it, » Clinton told a crowd of approximately 900 people. « It should be an opportunity widely available for anybody with the talent, determination and ambition. »
The former secretary of State said that many students are affected by student loan debt « that can feel like an anchor dragging them down, » and praised President Obama for increasing federal Pell grants by $1,000.
Her speech fee itself, though, was controversial. Clinton first made headlines in June for the address when it was revealed UNLV was paying Clinton the steep rate to speak at the foundation’s ritzy dinner at the Bellagio hotel and casino.
UNLV students protested her visit, insisting the university instead spend the money on scholarships — as tuition at the school will increase by 17 percent over the next four years.
“You could give scholarships to thousands of students, benefit research on campus, give more students grants for research and studying,” Daniel Waqar, student relations director for the UNLV Student Government, told Nevada political journalist Jon Ralston in June.
Europe News
Br-exit: Knowing that EU is changing its narrative, UKIP call for an early Br-exit vote doesn’t come as a surprise. Actually, we were expecting it to come earlier because the populist are likely to loose the supports they are having now. Populists parties are using investment advisory businesses to spread their mistrust. A recent study conducted by the AMF (France SEC), showed that 9 web-traders over 10 are loosing money when investing in FX. This is mainly due to the fact that 9 over 10 are investing like they vote: buy Gold, USD and sell EUR because it’s doomed (this is their beliefs not ours). By better regulating the internet retail investment sector, we are likely to see less spread of mistrust. These internet retail websites are widely spreading mistrust and advising ‘moms and pops’ to make easy money when the doom scenario will come. Again our legal have forbidden us from spreading some website adds (because they consider these are non respecting SEC and other regulations). These attract their “victims” by claiming making $8,000 a month by becoming a trader. The 9 over 10 are usually exposed to the next big splash in the markets. This is exactly how our research have found ISIL portfolio to be invested. While the first is betting that our institutions are rotten to the core and are listing to the doom and gloom widely spread, the former is speaking its own books. No one can be held accountable for making wrong investment decisions. However, by stressing the losses many individual investors are likely to change their strategy and diversify their views. This financial market war is likely to leave only those which bet on ISIL success largely exposed to the doom and gloom scenario.
While EU-skeptics groups 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. He said that Germany could be willing to increase EIB capital (a strategy designated Commissioner Moscovici seems to be open to during his weekend interview). 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).
Iran expects progress, if no breakthrough, in nuclear talks with EU, U.S.
VIENNA (Reuters) – Iran does not expect a breakthrough in high-level nuclear talks with the United States and the European Union this week but hopes they will help pave the way for a final deal, its foreign minister said on Tuesday.
Mohammad Javad Zarif was quoted by Iran’s Fars news agency after arriving in Vienna, where he was due to meet European Union foreign policy chief Catherine Ashton. U.S. Secretary of State John Kerry will join them on Wednesday.
Zarif’s cautious optimism came a day after President Hassan Rouhani told Iranian television that a nuclear agreement was « certain » and that only « fine details » remained to be negotiated.
Talks between Iran and six powers – the United States, France, Germany, China, Russia and Britain – are due to conclude by a self-imposed Nov. 24 deadline with, diplomats hope, a deal to end a standoff that has lasted more than a decade.
REFILE-UPDATE 8-Oil rout unrelenting, hits $86 on dim demand view, rising shale
* IEA cuts global oil demand estimates for 2014 and 2015
* Estimate for demand for OPEC crude cut by 200,000 bpd
* Reuters survey points to rise in U.S. crude stocks last week
* EIA sees rising shale oil output in Nov, adding over 100,000 bpd
NEW YORK, Oct 14 (Reuters) – Oil prices plunged nearly $3 a barrel on Tuesday, on track for the biggest one-day slide in over a year after the West’s energy watchdog cut its estimates for oil demand and U.S. forecasts projected another big bump in shale production.
Adding to the bearish tone on Tuesday, a source familiar with oil policy in Iran, normally one of the first in OPEC to call for production cuts, followed Kuwait in saying there was no need to rein in supplies.
Brent crude for November, which expires on Thursday, fell $2.65 a barrel to $86.24 after briefly dipping below $86 a barrel, its lowest since December 2010.
U.S. crude fell $2.68 a barrel to $83.06 after it pared sharp intraday losses on Monday to settle down 8 cents.
Losses deepened in mid-afternoon after the U.S. Energy Information Administration projected that fast growing shale basins would increase output by some 106,000 bpd in November from a month earlier.
The unrelenting rise in U.S. shale is colliding with a diminishing outlook for consumption, leading to a glut of crude that has knocked Brent more than 25 percent lower since June.
Ukraine approves corruption laws as Kiev hit by violent clashes
Ukraine approved sweeping laws yesterday to tackle corruption and curb Soviet-era state surveillance of political life ahead of a parliamentary election its pro-western leaders hope will push the country towards the European mainstream.
But violent clashes between police and protesters in the first real anti-government demonstration in Kiev since the “Euromaidan” upheaval last winter highlighted the potential for disorder in the run-up to the election on October 26th.
The demonstrators, many masked, threw smoke-bombs and used air guns to shoot out windows of the parliament building, forcing an early end to the session, which also voted in a new defence minister.
Their motives and party affiliations were not clear, though they appeared to be fringe nationalists. However, members of two nationalist parties who were nearby denied any links to the violence.
French bank turns to Twitter for money transfers
PARIS/FRANKFURT (Reuters) – One of France’s largest banks launched a service on Tuesday to allow its customers to transfer money to other people via tweets on social network Twitter Inc. (TWTR.N: Quote).
The move by Groupe BPCE [BPCE.UL], France’s second largest bank by customers, is an effort to attract attention and users to its S-Money mobile payments unit, which already allows people to transfer money over mobile phones via text message.
Created by the bank using Twitter’s open software standards, known as APIs, the service allows French customers to send money to a friend regardless of which bank they use, and without requiring them to know the recipient’s banking details.
For its part, Twitter is making its own separate push into the world of online payments as the social network seeks new sources of revenue beyond advertising.
Twitter is racing other tech giants Apple (AAPL.O: Quote) and Facebook (FB.O: Quote) to get a foothold in new payment services for mobile phones or apps. They are collaborating and, in some cases, competing with banks and credit card issuers that have run the business for decades.
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 -.
World powers to discuss possible path to final deal on Tehran nuclear issue
VIENNA, Oct. 14 (Xinhua) — Delegations of the P5+1 group (five permanent members of the United Nations Security Council plus Germany) will gather in Vienna to discuss a possible path to a final deal over Tehran’s disputed nuclear program by the Nov. 24 deadline, officials said on Tuesday.
The meetings between P5+1 group are set to start on Thursday, after the talks between Iranian Foreign Minister Mohammad Javad Zarif and European Union (EU) foreign policy chief Catherine Ashton Tuesday in Vienna. United States Secretary of State John Kerry will join them on Wednesday.
Zarif was quoted by Iran’s Fars news agency as saying upon arrival in Vienna that Iran does not expect a breakthrough in talks with the United States and the EU this week but hopes the talks will help pave the way for a final deal.
Michael Mann, spokesman of Ashton, on Tuesday told reporters that the meetings between Iran, EU and the United States are to « see where we stand in the negotiations. »
He added that « there were still significant gaps » in the talks, and the EU would try hard to make some progress.
DPRK’s Kim makes first public appearance in 40 days
PYONGYANG – Top leader of the Democratic People’s Republic of Korea (DPRK) Kim Jong-un has gave field guidance to a newly built residential district, the official KCNA news agency reported Tuesday, his first public appearance in about 40 days.
Kim has not been seen in public since he watched the performance of the Moranbong Band with his wife Ri Sol Ju here at the Mansudae Art Theater on Sept 3. His longest absence from public events since he took power has drawn the world’s attention and fueled speculations about his health.
China’s economic planner confident of achieving growth target
BEIJING, Oct. 14– China’s top economic planner said Tuesday the country’s economic growth will remain in a proper range in the fourth quarter as government support policies to stimulate consumption and stabilize investment gradually filter through.
« I am confident we can achieve the annual growth target, » Li Pumin, secretary-general of the National Development and Reform Commission, told a press conference.
He pointed to the slowdown in investment as major downward pressure on the economy. Earlier data showed China’s urban fixed-asset investment grew 16.5 percent year on year in the first eight months of 2014, retreating 0.5 percentage points from the rate seen during the January-July period due to a continuing downturn in the real estate market.
To offset the impact, Li said China will step up investment in major water conservation projects, with the sum on ongoing projects estimated at around 600 billion yuan (97.6 billion U.S. dollars).
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 – ).
Property makes Australians the world’s richest, says Credit Suisse
Thanks to their houses, Australians are the richest people in the world, according to the investment bank Credit Suisse.
The fifth annual study by the Swiss bank of global wealth trends found the median Australian adult was worth more than $US225,000 ($258,000) in June, well ahead of the second wealthiest population on this measure, the Belgians, at $US173,000.
They were followed by the Italians, French and British, all at around $US110,000.
Only 6 per cent of Australians have wealth below $US10,000, compared with 29 per cent in the United States and 70 per cent for the world as a whole.
Household wealth in Australia is heavily skewed to « real assets » – essentially property – which average $US319,700 per household, or 60 per cent of gross assets. This is the second highest in the world after Norway.
The 2014 Global Wealth Report shows global wealth is 20 per cent above its pre-crisis peak and almost 40 per cent higher than the low recorded in 2008.
Australians have grabbed more than their fair share of the growing pie. The section of the report on Australia is titled « No worries », a headline that some economists may take issue with but which is deserved based on the rapid and almost uninterrupted accumulation of wealth over the past 14 years, as detailed in the report.
Since 2000, the net wealth of the average, or mean (as opposed to median), adult Australian has more than quadrupled, from $US103,151 to $US431,000. That makes us the second richest population on this measure, behind the Swiss at $US581,000.
Markets Live: Miners in rally gear
Shares have enjoyed a solid rally, led by the miners after iron ore’s price soared overnight, while the Aussie has jumped back above 88 US cents.
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.
Citi pulls out of consumer banking in 11 countries, profit jumps
(Reuters) – Citigroup Inc (C.N) said it is pulling out of consumer banking in 11 markets, including Japan and Egypt, as the U.S. bank with the biggest international business looks to cut persistently high costs.
The third-largest U.S. bank, built with a series of acquisitions spanning back to the 1980s, has been trying to slim down since the financial crisis to be as profitable as rivals. It has shed hundreds of billions of dollars of bad assets.
The latest exits were the result of studies the bank began in early 2012 to figure out which countries were not profitable enough for retail banking.
Getting results took a long time, partly because the bank did not have standardized accounting systems across all countries to compare the units’ profitability, sources familiar with the matter told Reuters in 2013. A spokesman for Citigroup said that the sources’ comments were false, and the bank has long had systems in place to consistently measure profitability across businesses and geography.
The deliberate pace at which Chief Executive Officer Michael Corbat is fixing its business underscores how hard it is to fix a business as sprawling as Citigroup, which operates in more than 100 countries. Corbat told analysts that in shedding the poorly performing businesses the company is also taking a valuable step toward reducing complexity.
Typhoon Vongfong leaves 2 dead, nearly 100 injured in Japan
(Reuters) – A powerful storm that battered Japan with high wind and torrential and killed two people headed off out over the Pacific on Tuesday and was downgraded to a tropical depression.
Typhoon Vongfong, at one point the strongest storm to hit Japan this year, was on Tuesday afternoon off the coast of the Tohoku region deviate by a 2011 earthquake and tsunami, the Japan Meteorological Agency said.
After the storm passed through western Japan, a 90-year-old man in was found dead in a field irrigation ditch, while a 72-year-old man drowned. Another person was missing and nearly 100 people were injured.
Vongfong brought heavy rain to Tokyo through the night and snarled traffic across much of the country on the last day of a three-day holiday weekend. More than 600 flights were cancelled nationwide on Monday and more than 60 cancellations were expected on Tuesday, the NHK broadcaster said.
The sun returned to Tokyo on Tuesday morning and commuter train services were getting back to normal but heavy rain pounded northern Japan.
High tides flooded coastal areas in Kesennuma city, where land along the water sank because of the 2011 earthquake.
Rattled investors dump stocks in flight to safety
TOKYO — As anxiety spreads over the global economy and the end of quantitative easing in the U.S., investors are rapidly moving their funds from risky assets to government bonds, triggering a global stock sell-off.
The Nikkei Stock Average slipped 364 points from the end of last week to close at 14,936 on Tuesday after a three-day weekend, falling below the 15,000 mark for the first time since Aug. 8, when the U.S. began airstrikes in Iraq. Nine out of 10 stocks in the first section of the Tokyo Stock Exchange lost ground, with more than 200 hitting year-to-date lows.
There were no specific reasons to sell Japanese shares other than the yen rising to the 106 range against the dollar. Tokyo stocks were weighed down by the U.S. market, where the Dow Jones Industrial Average fell 223 points the previous day.
The Dow tumbled 670 points over the three trading days through Monday. The benchmark index has lost the upward momentum it had until September and is now lower than at the beginning of the year. The CBOE Volatility Index or VIX, a gauge of investor fear, has reached a 28-month high.
Tuesday Oct. 14 OpEd: “Happy Columbus Day!”
Columbus Day: Some social media activists have “trolled” Columbus Day to change it into Indigenous Day in order to focus the narrative on the human casualties the Americas exploration. These activists tried to increase the tension in Ferguson (what’s best to make the tension increase then talking about slavery…).
These activists are using the very high inequalities and the forthcoming robotics era to spot that the “wealthy” will make it all and we will be leaving into some kind of “Elysium” 2-sided “countries”. These are complete non-sense for many reasons: 1) the overwhelming majority are willing to have robot colleagues or bosses (personally I have robot colleagues and there as very helpful), 2) knowledge is about to become as easy as playing games on one’s smartphone, 3) governance is improving and this is likely to open many markets hijacked by crony capitalism, 4) commodity prices are plummeting (should one take Saudi’s “get use to it” with the same credibility markets have taken Draghi’s or Kuroda’s “whatever it takes”).
We are at the edge of starting discovering two “new” continents: Africa and the Oceans. Anonymous hackivists, Boko Haram, ISIL and many others are spreading the pessimism that China will be Columbus of Africa. This is totally UNFAIR and FALSE. We have been in contact with Chinese thinkers for years, and China has shown – though some mistakes have been made – that it aims achieving a win-win scenario: education, health and prosperity for Africa in exchange for labor. Furthermore, Robot has made jobs much less “slaving” than when Columbus arrived to the Americas. Finally, Africa is much more than just commodities or cheap labor. Each time I visited Africa I’ve been overwhelmed by the ingenuity of the public and its ability to adapt. As soon as we get rid of Ebola and some other diseases (such as Malaria) Africa would become the next 20% asset allocation in every pension fund portfolio, because pension funds are struggling to find high returns to compensate from life expectancy improvement (thanks to technology and wearable devices) with higher returns.
The second “continent” which we have not discovered yet is Oceans. This is mainly due to the lack of technology so far. However, the introduction of energy efficient submarine drones (which uses waves to generate autonomously energy) is likely to put NOAA forthcoming years budgets at odd with those of NASA. Again the same “pessimists” are saying that this will destroy our planet (as if anyone could trust Koch Industries to be the champion of the environment) but our technologies are likely to be much more energy efficient and environment friendly (2014 Physics Nobel Prize is one good example of where we are heading).
Finally, the next decades Columbus is likely to be Elon Musk with Space X. We have the ability to upload of conscience on robots / computers. XXI Century Santa Maria is likely to be piloted by robots which are run by the brightest minds conscience uploading. These robot life expectancy is theoretically infinite. Should Santa Maria take with it some of our human DNA, we can populate other planets * which probabilistically have been proven they exist*.
I hope that we will not loose too much time fighting XIV Century devils (ISIL etc.) and will move forward to upload of the maximum of consciences because this can help us move from a Type I species to Type II or even III. Type I: are planet inhabitants which use all energy of their planet. Type II use their solar system energy. Type III uses the Galaxy resources.
Let’s accept our history mistakes and move on, because we have achieved so many great things in 13.8billions years, let take the next leap and move into the new Goldilock conditions. Happy Columbus Day !
Instead of Columbus Day, some U.S. cities celebrate Indigenous People’s Day
(CNN) — Columbus Day often brings to mind the Nina, the Pinta and the Santa Maria. This Monday, some cities and states would rather you think of the Sioux, the Suquamish and the Chippewa.
For the first time this year, Seattle and Minneapolis will recognize the second Monday in October as « Indigenous People’s Day. » The cities join a growing list of jurisdictions choosing to shift the holiday’s focus from Christopher Columbus to the people he encountered in the New World and their modern-day descendants.
The Seattle City Council voted last week to reinvent the holiday to celebrate « the thriving cultures and values of Indigenous Peoples in our region. » The Minneapolis City Council approved a similar measure in April « to reflect upon the ongoing struggles of Indigenous people on this land, and to celebrate the thriving culture and value that Dakota, Ojibwa and other indigenous nations add to our city. »
The Seattle School Board followed suit along with Portland Public Schools, where officials say Indigenous People’s Day will not replace Columbus Day but supplement it. Schools across the country have been working for years to clarify Columbus’ role in history.
« It’s not about one or the other, it’s about how do we get a complete picture to understand where we’re at in history, and how we got there? » said Portland School Board member Greg Belisle, according to the Oregonian.
It’s Columbus Day. Let’s talk about geography (and Ebola).
Today we commemorate Columbus Day, an American holiday observed in some states, perhaps for Christopher Columbus’s perseverance and bravery rather than his geographical knowledge. In light of recent scares involving “potential Ebola cases” and air travel involving individuals who had been nowhere near the Ebola outbreak zone, it seems we all could use a little geography lesson.
As college instructors of African politics, we both work to increase knowledge of African geography. Students usually come to college knowing American geography well, but few have ever been required to memorize a map of Africa. We require that students memorize the map because, when studying African politics, it essential that our students know where events happened and how they relate to one another. It’s impossible to understand the politics of the liberation movements in Southern Africa from the 1960s to 1980s without understanding where Angola and Mozambique lie in relation to South Africa and Zimbabwe. Students must know that the Democratic Republic of Congo shares a border with Rwanda in order to understand how the 1994 Rwandan genocide could have such a profound impact on the Congolese. Like most other African politics professors, we give map quizzes early in the semester of our introductory courses, requiring students to fill in a blank map of the African continent. One of us (Laura) also requires her students to memorize each African capital city. We find that students benefit greatly from this intensive exercise in memorizing the map early on; they don’t have to pause when reading to figure out where Ouagadougou is or how trade routes between Mali and Algeria worked in the pre-colonial era. (For those of you who can’t take our classes, The Washington Post has a neat interactive map quiz that will do just fine.)
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