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SNBDL Daily Briefing
Report prepared using big data solution Quid
Our take away from the last 24 hours news
Central Banks : FED Hotel California “I was Running to the door… “Relax”… You can check-out any time … but you can never leave!”
As markets assess the consequence of Ebola, ISIL, Russia tension, Hong Kong Occupy movement and other topics we discuss daily since the launch of Daily Briefing, James Bullard (St. Louis Fed) hinted that QE-3 ending could be postponed. He even left the door open for QE-4. For those who followed our views for a couple of years we have been indicating that QE is like Eagles’ Hotel California song (here) and our best QE quote is:
“Last thing I remember, I was
Running for the door
I had to find the passage back
To the place I was before
« Relax, » said the night man,
« We are programmed to receive.
You can check-out any time you like,
But you can never leave! «
Obviously as soon as Bullard talked about QE, stocks rebounded, fixed income sold-off and commodity rebounded from a one-way trend (repricing inflation). Let’s face it, this time is not like any of the recessions or the crisis we have been witnessing during the last 50 years (the span of my research) or at least 20years (the span of our living memories). This time we are facing the moment when we go through a new Goldilock conditions, defined by David Christian of Big History Project. This period is as economically important as have been the discovery of fire, the discovery of fuel energy etc.
We have been reading all the non-sense about QE : it will destroy monetary systems, it will push inflation toward elevated territories etc. We call these a non-sense because something genuinely changed in 2013: if the trend is your friend, Central Banks are not trend’s friend anymore. How it comes in Hotel California economy? Central banks are using (and will be using extensively) macro prudential. The QE is mutating into Credit Easing. To move away from Esoteric economy, if QE is about to provide “cheap funding” to traders, hoping that markets will self regulate themselves and channel the needed funding to those sectors in need, Credit Easing is a cheap funding with a memo to traders: “these are the sectors / activities we’d like you to focus on”. Some Austrian economist called the later, the banker’s bubble. M. Tieule Nobel Prize is not a coincidence and we think that markets should enjoy “[CBs] are programmed to receive” to think about shifting their market reaction. We believe, and our convincing calls recently should provide our readers with confidence, that unless investors make the right calls between perception and reality, it would be very difficult to generate return and justify why asset managers are asking for the price of a night at Hotel California.
The second topic, we would like to stress today is #Budget15. Greece sovereign bonds have behaved as if, Merkel and Hollande were about to kick Greece out of the Eurozone. This is a complete non-sense. The markets are heavily influenced by “EU-Skeptics” talks. You might hate EU and EZ, but face it, we have been right so far and the narrative is much more supportive to our constructive call. Budget 2015 is economically neutral and the EU is likely to keep it economically neutral in a context where growth is subdued and inflation is low. This “twilight” position, is not a win for the “spending camp cause” because it comes at the expense of some spending cuts, while it’s not a win for the “hawkish camp” either because though the deficit reduces the speed is slow. But it does create the right “grand bargain” EU is an urgent need for. I genuinely believe that August 30th EU council decisions were building blocks for changing EUR into a reserve currency will all what that mean. But the moral hazard risk, and the need to keep EU political forces together, while under going a Grand Bargain, Merkel is in a need to threaten France and Italy to deliver, while France and Italy – along with UK – need to show that they are deciding for themselves and there is no Diktat (or nomenclature dictatorship – like extreme right ideologues like to name it -).
Economic news : Defying and dismissing facts
We are fascinated by how market is dismissing the positive effects of low energy prices. Saudi – who is supposed to be a player which wants higher oil prices – had it’s “whatever it takes” moment with “[markets should] get used to it [cheap oil]”. We appreciate the fact that many wealth pocket will be rebalanced (a quick look to Bloomberg RICH list, which provide a wealth mark to market of the top 200 wealthy individuals, enables to see that the rebalancing and inequality reduction is happening). We see oil prices reduction, governance improvement, fight against tax evasion as genuine actions to rebalance inequalities, not through taxation – and class struggle war – but through the reduction of indirect and unfair taxation – bottleneck, red tape, corruption etc. -. These are not only changing the way corporation function, but are about to help solve many problems: Palestine – Israel peace process have never been that close, Saudi and Iran are taking genuine actions to avoid Sunni-Shia fight (both two sides are finding a common enemy : ISIL), Africa is getting our attention (Ebola outbreak can only be overcome if we deal with it in Africa), Tech and innovation are supported by government (China, EU, EM countries). We understand that many have been calling for Doom & Gloom (and I must confess that I have been in this camp until 2013) and have a very well constructed tough process but should those recognise some facts, we might have the calls to bring stocks higher, rates lower, and commodity lower. If there is a bubble it’s likely to be in oil and commodity prices.
Who’s spreading fear? Politicians. Rand Paul, Tea Party champion, seems to have contracted the most dangerous and contagious disease “stupidity” and should be taken to intensive care. First, facts, he said: “he called Ebola “incredibly contagious” and suggested it could spread at a cocktail party attended by someone who is symptomatic, according to CNN video footage.” I personally take the risk of going to a cocktail party with people who have the symptomatic. Ebola transmits through fluids and is not airborne. I don’t know how Tea Party cocktails go but I assume that the people are not hugging each other (in that case it might explain many things about Tea Party).
Second, let’s explain our attack against Rand Paul, who does not deserve to be a US Senator. I am respectful to democracy but US Senator is someone who work for the People (remember the WE in the constitution). We know from CDC, WHO and scientists that the most dangerous thing to do right now is to panic. This is supported by bipartisan (I mean moderate). Rand Paul is no different from Abu Bakr El Baghdadi. Make no mistake, I can stand facing a grand jury to explain why. Both are leading folks who are hoping for the end of the world the Apocalypse. I advise Rand Paul to check his mental health because no elector (WE) would like to send someone to the White House who’s not willing to wake up at 3am and find solutions not scare the public and sing when Rome burns.
I am not a US Citizen and therefore I can only urge my fellow “earth inhabitant” with a US passport to ask Rand Paul to apology for spreading: mistrust, disinformation and fear. The US had showed mankind that its presidents are visionaries : “there is no fear but the fear itself”.
By accepting to apologise for mistakes, Texas hospital has shown that we can learn from our mistakes and trust can be regain again (Vice PM Nick Clegg have made the demonstration – here -).
Letting stupid politicians (these include FN, UKIP and all extremists) aside, Ebola outbreak can be overcome with science, technology and the overwhelming money donated by Facebook Zuckerberg, Microsoft Bill Gates and many other donators.
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 and UN Chief Ban Ki-moon call for peace process to be discussed are bringing all the conditions to move forward. FM Fabius says that recognising Palestine should help ‘2-state-solution’ as French parliament mulls a bill.
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).
Russia economy is falling a part. In two separate notes (Russia update and Energy update) we indicated that oil prices will plummet and this will have important consequence on Russia. The “elephant in the room” is Iran nuclear talk negotiation. President Hassan Rouhani said a deal is a certainty. Let’s take him on his words. Should Iran sanctions be lifted we would: 1) see oil prices plummeting even further, 2) oil and energy sector companies are likely to benefit from Iran need to improve investments (because the country was isolated for so many years), 3) Russia is likely to be even more isolated when Putin threatens to “cut the gas” if Ukraine steals it (we were forecasting that Putin will cut the gas in order to spur even more panic because with any non-lethal flu can become the reason for social media to get excited). Hopefully, Russia is already preparing the after-Putin era. There are numerous reforms supporters in Russia. Although no one can argue with Putin – he enjoyed 86% public support – these forces are likely to wait for the right moment to change the country. USSR came to an end because oil prices plummeted. Putin is likely to experience the same story. The coming days we’ll not be surprise to see some comments which can reopen the existential threat to Israel from a nuclear Iran. But as we were saying over and over again, Israel and Palestine peace process is advancing though not quickly enough to generate a two-state country (leaving in peace and prosperity). These talks include genuine actions of both hawks (stupidity has no passport) who have no interest in peace. But, Iran is changing, Saudi is also changing and we have to start think again about these two countries.
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).
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 (“Government ready to talk but rejects key concessions”). 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.
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. The recent decision to suspend HK police for use of pepper spray on protesters is an indication that the level of tolerance to police action has came down substantially. What’s pepper spray relative to Tian’anmen tanks? Please don’t read this comparison as an acceptance for any police abuse but we might recognise that the tolerance level has shift downward substantially and this is a positive development for the Chinese political stability.
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 to 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. China seems willing to open discussion with Tibet. We are not surprised because we were expecting it, but it’s a game changer in China Mainland willingness to improve ; acceptance of others beliefs (President Xi Decision was clear about that), acceptance of democracy… However, this is a very difficult path, we see President Xi willing to undertake the changes but at a speed he considers it can avoid hard landing and apocalyptic scenarios.
Catalonia: referendum called off, Rajoy opened discussion to give more autonomy to Catalonia, Russia’s RT News is pressing Catalonian to revolt. 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.
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. -). Furthermore, not only Tea Party caucus is using this strategy, the moderate Chris Christie whom have suffered from the Bridge scandal, is using the same strategy to change his image.
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.
US Midterms elections: GOP step up demands for Ebola travel ban. It’s interesting that this is in line with the views expressed by both Front National Marine Le Pen (the daughter of M. Le Pen who said “Saint Ebola would help us to get rid of immigration in 3months”). The economic rational behind this call is to derail globalisation by spurring fear. This obviously can derail the trend we are forecasting for commodity prices. In nutshell, an economic crisis can postpone some of the investment needed to improve energy efficiency transition. But we do believe, it can delay but NOT derail the process.
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 (please see our recent reports on robotics and big data).
EU is suffering from the combination of negative general sentiment (Ebola, ISIL etc.) and the negative press conducted by both populists when Russian media provides very good argument to drive the tensions between creditors and debtors higher. But the trend in EU continue to be supportive and as we were indicating the more markets will recognise the short term risk of US midterms elections, the more constructive they’ll become on EU and EUR. Markets were upset yesterday because Greece may postpone exiting from the program. The glass half full part of this story is that Greece, a country which once was considered to be doomed with the only hope for it is to become 2001 Argentina (according to some Nobel Prize laureates), is considering the idea of normalisation 5 years after its program. That’s in itself a strong argument to look at the glass half full.
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
Central Banks : FED Hotel California “I was Running to the door… “Relax”… You can check-out any time … but you can never leave!”
As markets assess the consequence of Ebola, ISIL, Russia tension, Hong Kong Occupy movement and other topics we discuss daily since the launch of Daily Briefing, James Bullard (St. Louis Fed) hinted that QE-3 ending could be postponed. He even left the door open for QE-4. For those who followed our views for a couple of years we have been indicating that QE is like Eagles’ Hotel California song (here) and our best QE quote is:
“Last thing I remember, I was
Running for the door
I had to find the passage back
To the place I was before
« Relax, » said the night man,
« We are programmed to receive.
You can check-out any time you like,
But you can never leave! «
Obviously as soon as Bullard talked about QE, stocks rebounded, fixed income sold-off and commodity rebounded from a one-way trend (repricing inflation). Let’s face it, this time is not like any of the recessions or the crisis we have been witnessing during the last 50 years (the span of my research) or at least 20years (the span of our living memories). This time we are facing the moment when we go through a new Goldilock conditions, defined by David Christian of Big History Project. This period is as economically important as have been the discovery of fire, the discovery of fuel energy etc.
We have been reading all the non-sense about QE : it will destroy monetary systems, it will push inflation toward elevated territories etc. We call these a non-sense because something genuinely changed in 2013: if the trend is your friend, Central Banks are not trend’s friend anymore. How it comes in Hotel California economy? Central banks are using (and will be using extensively) macro prudential. The QE is mutating into Credit Easing. To move away from Esoteric economy, if QE is about to provide “cheap funding” to traders, hoping that markets will self regulate themselves and channel the needed funding to those sectors in need, Credit Easing is a cheap funding with a memo to traders: “these are the sectors / activities we’d like you to focus on”. Some Austrian economist called the later, the banker’s bubble. M. Tieule Nobel Prize is not a coincidence and we think that markets should enjoy “[CBs] are programmed to receive” to think about shifting their market reaction. We believe, and our convincing calls recently should provide our readers with confidence, that unless investors make the right calls between perception and reality, it would be very difficult to generate return and justify why asset managers are asking for the price of a night at Hotel California.
The second topic, we would like to stress today is #Budget15. Greece sovereign bonds have behaved as if, Merkel and Hollande were about to kick Greece out of the Eurozone. This is a complete non-sense. The markets are heavily influenced by “EU-Skeptics” talks. You might hate EU and EZ, but face it, we have been right so far and the narrative is much more supportive to our constructive call. Budget 2015 is economically neutral and the EU is likely to keep it economically neutral in a context where growth is subdued and inflation is low. This “twilight” position, is not a win for the “spending camp cause” because it comes at the expense of some spending cuts, while it’s not a win for the “hawkish camp” either because though the deficit reduces the speed is slow. But it does create the right “grand bargain” EU is an urgent need for. I genuinely believe that August 30th EU council decisions were building blocks for changing EUR into a reserve currency will all what that mean. But the moral hazard risk, and the need to keep EU political forces together, while under going a Grand Bargain, Merkel is in a need to threaten France and Italy to deliver, while France and Italy – along with UK – need to show that they are deciding for themselves and there is no Diktat (or nomenclature dictatorship – like extreme right ideologues like to name it -).
U.S. Stocks Rebound With Crude as Treasuries Drop on Fed
U.S. stocks recovered from an early plunge, led by small-caps, while Treasuries fell as a Federal Reserve official said the central bank should consider delaying the end of stimulus plans. Oil jumped after dropping below $80.
The Standard & Poor’s 500 Index (SPX) gained less than 0.1 percent at 4 p.m. in New York, erasing a drop of as much as 1.5 percent. The Russell 2000 Index rallied 1.3 percent. The 2-year Treasury yield climbed 2 basis points from a 17-month low. Stoxx Europe 600 Index pared its loss to 0.4 percent after tumbling 2.9 percent. West Texas Intermediate jumped 1.1 percent after retreating below $80 for the first time since June 2012. The Bloomberg Dollar Spot Index was little changed after jumping 0.4 percent earlier.
St. Louis Fed Bank President James Bullard said the central bank should consider delaying the end of its bond buying to halt the decline in inflation expectations. Data today showed jobless claims unexpectedly dropped last week to their lowest level in 14 years, while industrial production rose in September by the most in almost two years.
“The Bullard comments were a short-term shot of adrenaline,” Chad Morganlander, a money manager at St. Louis-based Stifel Nicolaus & Co., which oversees about $160 billion, said in a telephone interview. “The U.S. economy is doing quite well, yet there’s overall concern that the euro zone is falling into the abyss.”
WRAPUP 1-Fed official wants to keep up QE as inflation expectations slip
Oct 16 (Reuters) – The Federal Reserve should keep buying bonds for longer than planned in the face of volatile markets and falling inflation expectations, a top U.S. central banker said on Thursday, even as another Fed policymaker warned against an over-reaction.
James Bullard, president of the St. Louis Fed, is the only official at the central bank to publicly suggest putting on hold the Fed’s widely telegraphed plan to halt its asset-purchase program later this month. Yields on U.S. bonds, which have plunged the last few days, rebounded after his comments.
WRAPUP 2-Fed likely to end bond buying, may signal caution on rate hikes
* Fed seen taking global growth worries into account
* Bullard suggests continuing bond buying for now
* Drop in inflation expectations raises concern
* Economists eye changes to Fed policy statement due Oct. 29
Faltering euro zone pressing down on global growth, inflation: Reuters poll
(Reuters) – Growth prospects for the still-unsteady global economy have dimmed as disinflation grips the world, making it difficult for central banks to move away from aggressive monetary stimulus, Reuters polls found.
The recent sell-off in financial markets, for years propped up by central bank liquidity and other stimulus measures, has brought into focus the risks another euro zone slowdown now poses to global growth.
Indeed, the biggest danger for the world economy in the coming year is deflation or another recession in the euro zone, followed closely by the risk of slower growth in China, according to polls conducted globally over the past week.
The euro zone is stuck in a quagmire of weak growth and inflation with even Germany, its biggest member, close to a recession, and prices falling in Italy. [ECILT/DE] [ECILT/IT]
UPDATE 4-ECB eyes extra funding for Greek banks as Athens markets plunge
* ECB to trim discount to bolster Greek bonds
* Move aims to free up extra ECB funding for banks
* Investors fret at prospect of Greece going it alone (Recasts and adds Greek finance minister comment)
By George Georgiopoulos and John O’Donnell
ATHENS/FRANKFURT, Oct 16 (Reuters) – The European Central Bank will loosen its terms for accepting security from Greek banks to allow them to tap more of its funding, offering the country’s lenders support as stock and bond markets in Athens tumble.
This will provide a powerful incentive for Athens, which has toyed with the idea of quitting its financial aid programme earlier than scheduled, to stay under the supervision of international lenders rather than attempt to go it alone.
Robeco Keeps Fed Rate Rise Call Backed by Draghi-Led Rebound
The Federal Reserve will probably raise borrowing costs in the second quarter of next year even though Vice Chairman Stanley Fischer indicated a slowing global economy could delay any rate increase, according to Dutch money manager Robeco Groep NV.
“The chance the Fed will hike is very high, probably still in the second or late in the second quarter,” said Peter Van Der Welle, a strategist at the Rotterdam-based asset manager, which reduced its global equity holdings on Oct. 1. “The strong improvement in the labor market will put the Fed eventually into action.”
The International Monetary Fund earlier this month reduced its forecasts for 2015 global growth, escalating Fed officials’ concern that deteriorating expansions abroad and a stronger U.S. dollar could hurt exports and damp inflation. Rates on federal fund futures show the likelihood of a September 2015 rate increase dropped to 36 percent from 56 percent on Oct. 10, and 67 percent two months ago, according to data compiled by Bloomberg.
Economics News
Economic news : Defying and dismissing facts
We are fascinated by how market is dismissing the positive effects of low energy prices. Saudi – who is supposed to be a player which wants higher oil prices – had it’s “whatever it takes” moment with “[markets should] get used to it [cheap oil]”. We appreciate the fact that many wealth pocket will be rebalanced (a quick look to Bloomberg RICH list, which provide a wealth mark to market of the top 200 wealthy individuals, enables to see that the rebalancing and inequality reduction is happening). We see oil prices reduction, governance improvement, fight against tax evasion as genuine actions to rebalance inequalities, not through taxation – and class struggle war – but through the reduction of indirect and unfair taxation – bottleneck, red tape, corruption etc. -. These are not only changing the way corporation function, but are about to help solve many problems: Palestine – Israel peace process have never been that close, Saudi and Iran are taking genuine actions to avoid Sunni-Shia fight (both two sides are finding a common enemy : ISIL), Africa is getting our attention (Ebola outbreak can only be overcome if we deal with it in Africa), Tech and innovation are supported by government (China, EU, EM countries). We understand that many have been calling for Doom & Gloom (and I must confess that I have been in this camp until 2013) and have a very well constructed tough process but should those recognise some facts, we might have the calls to bring stocks higher, rates lower, and commodity lower. If there is a bubble it’s likely to be in oil and commodity prices.
Swedish fiscal policy watchdog criticises government budget plans
STOCKHOLM: The new Swedish centre-left government’s plan not to balance its budget for the next four years is a breach of the country’s financial policy framework, the head of the fiscal policy watchdog said on Thursday.
The Social Democrats and the Green Party formed a minority government after last month’s election. They both campaigned on higher taxes and boosted welfare spending.
Germany’s Merkel warns France over budget deficit
BERLIN (AP) — German Chancellor Angela Merkel insisted Thursday that there can be no exceptions to European Union rules on national deficit targets, a clear message to France after it backed off promises to bring down its budget overspend.
France admitted last month that its 2015 budget would shred promises to bring the deficit below the EU limit of 3 percent of GDP within two years and that its 2014 deficit would increase rather than fall.
The EU executive will decide over the coming weeks whether to force member countries to revise their budgets, and France risks an embarrassing « fail » from Brussels. Patience among other EU countries that had to make budget cuts of their own is also wearing thin.
Fed still on course for rate rise around mid-2015 say economists: Reuters poll
(Reuters) – The Federal Reserve is still set to raise interest rates by mid-2015, according to a Reuters poll of economists that also found a better-than-even chance bond markets are underestimating how quickly policy will eventually tighten.
The latest poll, conducted Oct 8-15 in the midst of widespread selling on global stock markets, stands in contrast to U.S. interest rate futures markets which in recent days have pushed off the timing of the first hike to late next year.
Deflation or another recession in the euro zone are ranked as the most serious threats to the global economy in the coming year, followed closely by the risk of slower growth in China, the poll also found. [ECILT/WRAP]
Oil exporting nations feeling pinch of low oil prices, oil importing ones feeling some relief
NEW YORK – A sudden plunge in the price of oil is sending economic and political shockwaves around the world. Oil exporting countries are bracing for potentially crippling budget shortfalls and importing nations are benefiting from the lowest prices in four years.
The global price of oil is $84 per barrel, down $31, or 27 percent, from its high point for the year. Oil consumption globally is 91 million barrels per day. That means the world’s oil producing countries and companies are bringing in as much as $2.8 trillion less in revenue every day — and consumers, shippers and airlines are saving a comparable amount on gasoline, diesel and jet fuel.
« The problem is that countries get accustomed to a certain level of income, and then spend, » says Edward Chow, a senior fellow at the Center for Strategic and International Studies. « It seems like a windfall at first but when it lasts long enough you get used to it. »
The global price of oil was relatively stable for nearly four years, averaging $110 per barrel. Increased production in the U.S., Canada, Iraq and elsewhere made up for declining supplies in nations such as Iran and Libya and helped meet rising global demand.
Falling oil prices could delay tax cuts, economists say
The federal government will have to weigh the potential risks of sliding oil prices before it starts doling out large tax cuts in advance of next year’s election, economists warn.
Finance Minister Joe Oliver has promised the government would live up to its tax-cutting pledges despite a sharp fall in oil prices — thanks to a projected surplus in next year’s budget.
But some economists say Oliver will be forced to pay close attention to the drop, which could well affect the bottom line in a country as dependent on oil production as Canada.
« The federal government revenues are extremely sensitive to what oil prices are doing, » said Scott Clark, a former senior Finance Department bureaucrat and professor at Carleton University in Ottawa.
« If you listen to Mr. Oliver, he’s very optimistic — in fact, almost unbelievably optimistic — about the surplus going forward. He seems to be downplaying the impact of the oil prices, or that lower oil prices will continue. »
Ebola
Who’s spreading fear? Politicians. Rand Paul, Tea Party champion, seems to have contracted the most dangerous and contagious disease “stupidity” and should be taken to intensive care. First, facts, he said: “he called Ebola “incredibly contagious” and suggested it could spread at a cocktail party attended by someone who is symptomatic, according to CNN video footage.” I personally take the risk of going to a cocktail party with people who have the symptomatic. Ebola transmits through fluids and is not airborne. I don’t know how Tea Party cocktails go but I assume that the people are not hugging each other (in that case it might explain many things about Tea Party).
Second, let’s explain our attack against Rand Paul, who does not deserve to be a US Senator. I am respectful to democracy but US Senator is someone who work for the People (remember the WE in the constitution). We know from CDC, WHO and scientists that the most dangerous thing to do right now is to panic. This is supported by bipartisan (I mean moderate). Rand Paul is no different from Abu Bakr El Baghdadi. Make no mistake, I can stand facing a grand jury to explain why. Both are leading folks who are hoping for the end of the world the Apocalypse. I advise Rand Paul to check his mental health because no elector (WE) would like to send someone to the White House who’s not willing to wake up at 3am and find solutions not scare the public and sing when Rome burns.
I am not a US Citizen and therefore I can only urge my fellow “earth inhabitant” with a US passport to ask Rand Paul to apology for spreading: mistrust, disinformation and fear. The US had showed mankind that its presidents are visionaries : “there is no fear but the fear itself”.
By accepting to apologise for mistakes, Texas hospital has shown that we can learn from our mistakes and trust can be regain again (Vice PM Nick Clegg have made the demonstration – here -).
Letting stupid politicians (these include FN, UKIP and all extremists) aside, Ebola outbreak can be overcome with science, technology and the overwhelming money donated by Facebook Zuckerberg, Microsoft Bill Gates and many other donators.
Texas hospital apologizes for ‘mistakes’ during initial Ebola treatment
The Texas hospital that has become the epicenter of Ebola in the United States has apologized for mishandling the first Ebola patient diagnosed in the country and releasing incorrect information.
Thomas Eric Duncan, a Liberian man who traveled to the United States last month, sought treatment at the Texas Health Presbyterian Hospital in Dallas five days after arriving in the country. He had a fever and said he had traveled from West Africa, a region stricken by Ebola, but he was still released from the hospital hours later.
“Unfortunately, in our initial treatment of Mr. Duncan, despite our best intentions and a highly skilled medical team, we made mistakes,” Daniel Varga, chief clinical officer of Texas Health Resources, the health-care system that oversees the Dallas facility, said in a prepared statement delivered to a congressional hearing. “We did not correctly diagnose his symptoms as those of Ebola. We are deeply sorry.”
Ebola: Rising Call for Ban on Travel From W Africa
Warning that Americans are losing faith in their government’s ability to stop Ebola, Republican lawmakers on Thursday pressed for a ban on travel to the U.S. from the West African outbreak zone. The White House said other measures are more effective.
The administration spent the day trying anew to tamp down fear as the pool of Americans being monitored for symptoms expanded from Texas to Ohio. President Barack Obama said he might appoint a single official to lead the nation’s efforts against the deadly disease.
While a contentious congressional hearing focused on the three cases of Ebola diagnosed within the U.S., the World Health Organization said the outbreak in West Africa was on pace to top 4,500 deaths by the end of the week.
Obama authorized a call-up of reserve and National Guard troops in case they are needed. His executive order would allow more forces than the up-to 4,000 already planned to be sent to West Africa, and for longer periods of time.
‘The problem of Ebola is in three countries in Africa,’ WHO official says
Amid continuing consternation about the spread of the Ebola virus to two nurses in a Texas hospital from a Liberian patient, the World Health Organization on Thursday sought to keep the focus on West Africa’s burgeoning and unprecedentedly large Ebola outbreak.
“The problem of Ebola is in three countries in Africa, » WHO official Isabelle Nuttall said, referring to Liberia, Guinea and Sierra Leone. « This is where we need to concentrate all of our efforts. We need to bend the curve in these three countries. … If we’re able to stop the disease over there, then we don’t have any more to worry about the rest of the world.”
During a Thursday news conference, Nuttall commented on a variety of topics relating to the disease.
US Sen. Paul: Ebola “incredibly” contagious
CONCORD, N.H. — U.S. Sen. Rand Paul of Kentucky told a group of college students Wednesday the deadly virus Ebola can spread from a person who has the disease to someone standing three feet away and said the White House should be honest about that.
His comments directly conflict with statements from world health authorities who have dealt with Ebola outbreaks since 1976.
Paul, a doctor and potential GOP presidential contender, made his comments during a stop at Plymouth State University in New Hampshire Wednesday. In his remarks, he called Ebola “incredibly contagious” and suggested it could spread at a cocktail party attended by someone who is symptomatic, according to CNN video footage.
Paul has made similar comments in the wake of three Ebola diagnoses within the United States, suggesting the Centers for Disease Control and Prevention makes the transmission of Ebola sound similar to that of AIDS.
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 and UN Chief Ban Ki-moon call for peace process to be discussed are bringing all the conditions to move forward. FM Fabius says that recognising Palestine should help ‘2-state-solution’ as French parliament mulls a bill.
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).
In his opening speech at this week’s Gaza Reconstruction Conference, UN Secretary-General Ban Ki-moon said that “the cycle of building and destroying must end. Donors may be fatigued, but the people of Gaza are bruised and bloody. Enough is enough.”
Expressing his hope that Sunday’s conference would be the last needed for Gaza, he added that it was supposed to “chart a course to a just and final peace between Israelis and Palestinians.”
Other participants reiterated the same hope by emphasising that the reconstruction of Gaza could not be carried out in isolation from efforts to revive the Israeli-Palestinian talks in search of a comprehensive and lasting peace agreement.
Adel Al-Adawi, a former assistant to the Egyptian foreign minister, said the conference was the right moment for transformational change in order to establish a Palestinian state with East Jerusalem as its capital.
The conference had the potential to be a real success as it gathered countries and international organisations that had all agreed on the need to rebuild Gaza and help the Palestinian people, he said.
John Kerry’s Plane Just Broke Down … Again
Vienna (AFP) – Globe-trotting top US diplomat John Kerry was left hoofing it back on a commercial flight from Vienna Thursday, after his ageing Air Force plane broke down for the fourth time this year.
After marathon talks on Iran’s nuclear programme in the Austrian capital Wednesday, Kerry’s party of more than 40 State Department staff and journalists were checking out of their hotel rooms before dawn Thursday when the news came that his Boeing 757 needed unspecified repairs — again.
Since taking up his post in February 2013, Kerry has flown some 566,000 miles (911,000 kilometres) around the globe and visited 55 countries — many of them multiple times — spending some 249 days on the road.
He’s well on his way to overtaking his predecessor Hillary Clinton who flew just short of a million miles in her four years in office, visiting a record 112 countries.
But despite a normally well-planned, slick logistical operation to move Kerry and his posse of staff, security agents and the travelling press as he jumps from country to country, he has been beset this year by a frustrating number of glitches.
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.
Syrian Kurdish official appeals for weapons for Kobani fighters; says airstrikes not enough
MURSITPINAR, Turkey (AP) — In its battle for the Syrian town of Kobani, the Islamic State group enjoys a key advantage: a supply of weapons, ammunition and fighters shuttling between Syria and Iraq.
The town’s Syrian Kurdish defenders, while backed by airstrikes from the U.S.-led coalition, are outnumbered, poorly armed and squeezed against the unwelcoming Turkish border. Reflecting growing desperation despite their success so far in holding out, Syrian Kurdish officials are increasingly their appeals to better arm the defenders of the strategic frontier town.
« From the start, we said the coalition’s airstrikes will not be able to save Kobani or to defeat Daesh in the area, » said Idriss Nassan, deputy head of Kobani’s foreign relations committee, using an Arabic acronym for the Islamic State group.
« We call upon the international community to open a humanitarian safe passage to allow in food, medicine, and weapons supplies, » Nassan told The Associated Press.
Attacks in Baghdad Kill at Least 50 People
Militants unleashed a wave of attacks in Iraq on Thursday, mainly targeting Shiite areas in and around the capital of Baghdad, killing at least 50 people and wounding dozens, authorities said.
The Islamic State group has overrun vast areas in western and northern Iraq as well as parts of neighboring Syria, and has vowed to destabilize and eventually take over Baghdad.
It claimed responsibility for the day’s deadliest strike. In that attack, two parked car bombs exploded simultaneously in a commercial area in the northern Dolaie neighborhood, killing 14 civilians and wounding 34 others, a police officer said.
Residents angered by the failure of government forces to protect the neighborhood threw stones at police checkpoints and police cars that arrived to respond to the blasts. That prompted police to withdraw from the area.
Senior Iraqi officials have tried to reassure residents that the capital is too well-protected for militants to capture, even as they struggle to stop frequent near daily deadly attacks.
Islamic State fighters say they have a foothold inside Baghdad. They have claimed several large-scale bombings in the city recently, particularly in the Shiite districts in Baghdad.
The group said the Dolaie attack targeted Iraqi soldiers and Shiite militiamen allied with them. The authenticity of the claim could not be independently verified, but it was posted on websites frequently used by the group.
Violence that bore the hallmarks of the group struck elsewhere too.
In the eastern neighborhood of Talibiyah, a suicide bomber rammed his explosives-laden car into a police checkpoint, killing at least 12 people, another police officer said. The dead in that attack included seven policemen and five civilians, he added. At least 28 other people were wounded.
UPDATE 10-Oil rises on tight U.S. gasoline stocks, options expiry
* Oil briefly spikes on options expiry, technicals
* Brent rebounds after hitting four-year low
* U.S. crude inventories jump as gasoline slumps – EIA data (New throughout, updates prices, market activity)
NEW YORK, Oct 16 (Reuters) – Oil prices rose in volatile trade on Thursday, as data showing tight U.S. gasoline supplies and technical trading ahead of options expiry provided rare support amid a long downturn.
U.S. government data showed gasoline stockpiles fell to their lowest level in two years, pushing gasoline futures 3 percent higher early and boosting crude futures which have fallen more than 25 percent since June.
At around 1 p.m. EDT (1700 GMT), crude suddenly surged as much as $3 a barrel as investors rushed to cover positions tied to U.S. WTI options trades set to expire later in the day, as well as automatic buy-stops. By the end of the session, oil prices had given up much of those gains, but remained higher on the day.
Brent crude for December delivery rose $1.70 to settle at $85.82 a barrel, after slipping to a four year low at $82.93. Brent crude for November, which expired Thursday, rose 69 cents to settle at $84.47 a barrel.
U.S. November crude rose 92 cents to settle at $82.70 a barrel, off the intra-day high of $84.83 a barrel.
Oil prices have slid precipitously since June as ample global supply outpaces weak demand. Saudi Arabia and other OPEC members have made it clear that they are not ready to cut production and shore up prices.
« The market is trying to find a bottom around $80, but there’s a lot of support and short covering, » said Andrew Lipow, president of Lipow Oil Associates.
Ramped up air strikes stall Islamic State advance on Syrian town
(Reuters) – Two days of heavy air strikes by U.S. warplanes have slowed an advance by Islamic State militants against Kurdish forces defending the Syrian border town of Kobani.
Turkish and U.S. officials said last week that Islamic State was on the verge of taking Kobani from its heavily outgunned Kurdish defenders, after seizing strategic points deep inside the town.
The tempo of coalition air strikes has increased dramatically, with U.S. fighter and bomber planes carrying out 14 raids against Islamic State targets near Kobani on Wednesday and Thursday, the U.S. military’s Central Command said.
The strikes had seen the militants’ advance slow, but « the security situation on the ground in Kobani remains tenuous, » the U.S. statement added.
The four-week Islamic State assault has been seen as a test of U.S. President Barack Obama’s air strike strategy, and Kurdish leaders say the town cannot survive without arms and ammunition reaching the defenders, something neighbouring Turkey has so far refused to allow.
The State Department said on Thursday that a U.S. official had held direct talks for the first time last weekend with a Syrian Kurdish group involved in the fight against Islamic State in Syria, including Kobani. Kurdish spokesmen said their forces were giving coordinates of the militants’ positions to the United States. (Full Story)
EU, China to Increase Cooperation to Combat Terrorism, Extremism: EU
MOSCOW, October 16 (RIA Novosti) – The People’s Republic of China and the European Union (EU) have agreed to jointly fight terrorism and extremism, the EU said in a statement Thursday.
« They reviewed the situation in the Middle East, northern Africa and the Sahel [region of Africa] and agreed to increase cooperation to counter the common threat of extremism and terrorism in these regions, » said the EU statement issued after a meeting between the Chinese Prime Minister Li Keqiang, the European Commission President Jose Manuel Barroso and the European Council President Herman Van Rompuy.
The EU-China meeting was held Wednesday evening on the sidelines of the October 16-17 Asia-Europe Meeting (ASEM) in Milan.
Pentagon Lacks Estimate on Size of IS Forces in Kobani
WASHINGTON, October 17 (RIA Novosti) – The US military does not know how many Islamic State (IS) militants are currently attacking Kobani, a Syrian town that borders Turkey, Pentagon Press Secretary said.
« We don’t have a good estimate, » Defense Press Secretary Rear Adm. John Kirby said on Thursday, in response to a question on the size of IS forces in Kobani.
Kirby said that the reason why the United States intensified its air campaign in Kobani was due to IS’s expanding footprint.
Islamic State crisis: Nothing left in Anbar for displaced Sunni
Fighting between government forces and Islamic State (IS) in Iraq’s western province of Anbar has forced 180,000 people to flee since the city of Hit fell to the Sunni jihadist group earlier this month, the United Nations said on Monday.
Among the civilians displaced by the IS advance across Anbar towards Baghdad is 55-year-old Ali Abdullah (not his real name), a Sunni from the provincial capital Ramadi who spoke to the BBC.
« I used to be a solider; I get a pension of US$600 (£375) every two months.
My family and those of my two sons, Mohammed and Ahmed, all lived in the same house in Znkurh, a district of Ramadi.
My sons both worked for the police.
We had to leave after IS members in the area killed Mohammed and bombed our homes.
They had visited my home at the beginning of September and told me that I needed to stop my sons working for the police.
They told me my sons had to repent. They also requested a pistol from each one and threatened to blow up my house if we didn’t give them the weapons.
Pass terrorism laws quickly, expert says
Counter-terrorism laws need to be passed quickly by Canberra to contain the jihadist threat and avoid the need for more draconian measures in future, a former independent reviewer of Australia’s spy agencies says.
Rufus Black, who conducted a review of Australia’s intelligence community for the former Labor government in 2011, backed the urgency with which the Abbott government is pushing its « foreign fighters » bill through the Parliament. He said the current threat was dire and needed to be managed.
« I think a timely action that targets a very small number of people who represent a threat and limits their liberties is probably a very good measure, not just to increase security but to protect liberty in the longer run, » Dr Black, a noted ethicist, said.
« If we do it quickly, we won’t need more severe measures … That’s why I’m supportive of doing it quickly and in a targeted way. »
Russia
Russia economy is falling a part. In two separate notes (Russia update and Energy update) we indicated that oil prices will plummet and this will have important consequence on Russia. The “elephant in the room” is Iran nuclear talk negotiation. President Hassan Rouhani said a deal is a certainty. Let’s take him on his words. Should Iran sanctions be lifted we would: 1) see oil prices plummeting even further, 2) oil and energy sector companies are likely to benefit from Iran need to improve investments (because the country was isolated for so many years), 3) Russia is likely to be even more isolated when Putin threatens to “cut the gas” if Ukraine steals it (we were forecasting that Putin will cut the gas in order to spur even more panic because with any non-lethal flu can become the reason for social media to get excited). Hopefully, Russia is already preparing the after-Putin era. There are numerous reforms supporters in Russia. Although no one can argue with Putin – he enjoyed 86% public support – these forces are likely to wait for the right moment to change the country. USSR came to an end because oil prices plummeted. Putin is likely to experience the same story. The coming days we’ll not be surprise to see some comments which can reopen the existential threat to Israel from a nuclear Iran. But as we were saying over and over again, Israel and Palestine peace process is advancing though not quickly enough to generate a two-state country (leaving in peace and prosperity). These talks include genuine actions of both hawks (stupidity has no passport) who have no interest in peace. But, Iran is changing, Saudi is also changing and we have to start think again about these two countries.
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).
European Union’s incoming foreign affairs head Federica Mogherini hinted her strategy with the “bear” Russia: firmness and tact. Actually, we believe that firmness is coming from EU Council President Donald Tusk, while tact needs to come from the EC. EU’s Mogherini hinted that others in Brussels know better to deal with bears (in politics that mean “I know that you have vested interests with Russia”). Many political parties have to drop their support to Russia and start think about EU public interests. Otherwise, many will start questioning whether these are not conducting treason (betraying those who have voted for them). The list is long and no one have interest to name names. In an environment where Iran wants to secure the negotiation without upsetting Russia (a long term ally which have helped provide a back-door to Iran oil), Rouhani said that Iran negotiation should not derailed any political solution with Russia. Unfortunately for Russia this will not help lift sanctions. Because, many commentators are watching: EU should make no mistake, vested interest will not go away with the crimes Russia is responsible for (and that goes beyond annexing Crimea).
Oil prices plummeting continue to constitute an existential threat to President Putin administration. A policy document of the Islamic State discovered at one of the raids brings forth some alarmingly ambitious plots of the jihadist outfit. The plan includes bribing Russia with access to oilfields in exchange for Iran’s nuclear technology. This document confirmed that ISIL is looking to Russia to increase it force. We have been worry that vested interests would align their force with those of the barbaric. Should they do so, they would be no place to hide. Make no mistake, if ISIL got the technology Putin and Russia (with interest groups which have been supporting them) will be held accountable.
While Russia continue to prepare its isolation (VTB’s says consider that capital control is not the end of the world), Putin stays put and keep his narrative: the cost will be more harsher for EU than for Russia. Unfortunately, for President Putin, facts have no political bias or religion. Russia economy is collapsing and the Saudi oil prices cut, Iran negotiation amongst other thing are pushing oil prices to a free fall spiral and threatening the stability of the government (an Oil price at $75 will push Putin out). In our Energy Update (our call that oil might go as low as $80 for WTI) we’ve highlighted the trends we observe now. These are not only providing a boost to EU (currently mistakenly analysed by many XX Century economists as a deflationary risk) but also increasing the current Russian administration existential threat. We forecasted last February that Russia will have to go through a period of isolation, will create Eurasia by annexing Eastern Europe (we still unsure where the division will take place). We stick to this scenario. However, we are working on an alternative scenario, where the speed of oil prices collapse may over through Putin administration and oligarchs before President Putin reached his messianic goal (many economists agree with the view that some of Russian President speeches are messianic – 2007 Munich is a very telling speech-).
Ukraine President is taking the “good governance bill” to the floor. This on one hand increase the likelihood of our scenario that Ukraine – West will become a new Poland but it increases short term the risk of more actions of “bad governance agents: the self designated Eastern Republics”). I wonder what kind of economic prospect will have these Russian federation satellite. Old USSR satellite (Latvia and Bulgaria) are fighting political crisis spur by the widely spread mistrust in their government. Like during the Cold War, Russia continue to use the spread of disinformation (in the internet). But we see these posturing likely to fail, should EU Commission President pursue his genuine plan to change EU narrative (more jobs, more investment – specially in digital -). The emergence of new media companies helped by big data is likely to be another leap in defeating the disinformation and mistrust spread.
Putin warns spat with US over Ukraine threatens global stability (+video)
MOSCOW — President Vladimir Putin warned Washington that a spat between nuclear powers over the Ukraine crisis could threaten global stability and said in remarks published on Wednesday that Russia would not be « blackmailed » by sanctions.
Taking a tough line on the eve of talks with Ukrainian President Petro Poroshenko in Milan, Putin said the sanctions imposed by the United States and the European Union over Moscow’s role in the crisis were hindering peace moves.
« We hope that our partners will realize the recklessness of attempts to blackmail Russia, will remember the risks that a spat between major nuclear powers incurs for strategic stability, » he told the Serbian newspaper Politika before a brief visit to Belgrade on Thursday.
Iran Opposes Extending Troubled Nuclear Talks
Iran’s foreign minister said today that Tehran opposes extending troubled nuclear talks beyond a November 24 deadline, even though major stumbling blocks remain in the way of a deal.
« We only have 40 days left to the deadline and… None of the negotiators find (an) extension of talks appropriate, » Mohammad Javad Zarif said in Vienna, a day after six hours of intense talks with US Secretary of State John Kerry.
« We share this view… And we think there is no need to even think about it, » Zarif said in the Austrian capital, quoted by the state televison’s website.
The comments echoed a senior US State Department official late yesterday after the talks between Kerry, Zarif and EU foreign policy chief Catherine Ashton in a Vienna hotel room.
« Deadlines help people to make hard decisions, and there are hard decisions to be made here. And we must, » the official said on condition of anonymity.
Kerry left Vienna on this morning – after problems with his aircraft – but Zarif remained for talks with political directors from the US, Russia, Britain, China, France and Germany chaired by Ashton.
Russia plays down cooperation with U.S. against Islamic State militants
(Reuters) – Russia played down comments by U.S. Secretary of State John Kerry on Thursday over sharing intelligence about Islamic State militants, saying Moscow refuses to be involved in coalitions that breach « international law ».
Without denying that cooperation existed, a statement from the Foreign Ministry said clarification was needed on reports that Kerry and Russian Foreign Minister Sergei Lavrov had agreed on intelligence sharing.
Kerry, speaking after meeting Lavrov in Paris earlier this week, said the United States and Russia had agreed to « intensify intelligence cooperation with respect to ISIL and other counterterrorism challenges of the region. »
The Russian ministry said Moscow already has been providing help to Syria and Iraq in their fight against « terrorism ».
« Russia will continue those efforts but will not get involved in ‘coalitions’, which are being created in circumvention of the UN Security Council and are in breach of international law, » the ministry said in a statement.
Russia’s $50 Billion Repo Pledge Fails to Halt Ruble Drop on Oil
The ruble slid to a record as oil sank and a global market rout overshadowed the Bank of Russia’s pledge of $50 billion to ease a foreign-currency shortage.
The currency slumped 1.3 percent to 46.1342 against the dollar-euro basket by 6 p.m. in Moscow, when the central bank ends its daily market operations. The ruble temporarily pared its drop after policy makers said they will offer as much as $1.5 billion of four-week repurchase agreements at its debut auction on Oct. 29.
The foreign-exchange repos “will smooth, but not stop the weakening as the macro and geopolitical environment remain unchanged,” Vladimir Miklashevsky, a strategist at Danske Bank A/S in Helsinki, said by e-mail. “It is impossible and unwise to swim against a falling oil price.”
Russia is grappling for ways to ease a local shortage of hard currency exacerbated by sanctions over the conflict in Ukraine. The world’s biggest energy exporter is eating into its $452 billion reserves as oil slumps to a four-year low in London and the penalties block companies from U.S. and European debt markets. Markets around the world slumped today on concern a financial crisis is returning to Europe and as Ebola’s spread starts to affect investor psychology.
The central bank said today it spent $2.3 billion intervening in the currency market on Oct. 14. That brings this month’s total to about $13 billion, including today, ING’s Russia chief economist Dmitry Polevoy said by e-mail.
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 (“Government ready to talk but rejects key concessions”). 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.
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. The recent decision to suspend HK police for use of pepper spray on protesters is an indication that the level of tolerance to police action has came down substantially. What’s pepper spray relative to Tian’anmen tanks? Please don’t read this comparison as an acceptance for any police abuse but we might recognise that the tolerance level has shift downward substantially and this is a positive development for the Chinese political stability.
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 to 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. China seems willing to open discussion with Tibet. We are not surprised because we were expecting it, but it’s a game changer in China Mainland willingness to improve ; acceptance of others beliefs (President Xi Decision was clear about that), acceptance of democracy… However, this is a very difficult path, we see President Xi willing to undertake the changes but at a speed he considers it can avoid hard landing and apocalyptic scenarios.
China rejects West’s HK criticism
BEIJING – The Chinese Foreign Ministry has rejected criticism from Britain and the United States on Hong Kong affairs.
British Prime Minister David Cameron said on Wednesday that Britain should stand up for the rights of people in Hong Kong, Reuters reported.
Speaking in parliament, Cameron said it was important people in Hong Kong could enjoy freedoms and rights set out in the Sino-British Joint Declaration of 1984 that agreed to return Hong Kong to Chinese sovereignty.
He was speaking after protesters in Hong Kong clashed with police early on Wednesday morning.
Foreign Ministry spokesman Hong Lei said on Thursday that the rights and freedoms of Hong Kong residents have been fully guaranteed since Hong Kong returned to China in 1997.
Hong Kong’s democratic institutions will achieve historic progress if the island promotes constitutional development in accordance with the Basic Law and the decision of the National People’s Congress Standing Committee’s (NPCSC), he said.
The NPCSC has decided that the election of a chief executive for the Hong Kong Special Administrative Region (HKSAR) in 2017 shall be implemented by universal suffrage on the basis of nomination by a « broadly representative » committee.
Hong said that Hong Kong’s affairs fall within China’s internal affairs and no country or individual has a right to interfere.
Hong Kong: Government ready to talk with protesters but rejects key concessions
HONG KONG — Hong Kong’s leader said Thursday that he is ready to start talks with pro-
democracy demonstrators as early as next week, even as he ruled out any concessions to the protesters.
Student activists leading the protests — which are a showdown over Beijing’s control of political affairs and freedoms in the former British colony — said they were prepared to talk, but political analysts said Chief Executiv e Leung Chun-ying had effectively offered dialogue with one hand while closing the door to compromise with the other.
“Over the last few days, including this morning through third parties, we expressed a wish to the students to start the dialogue to discuss universal suffrage,”
Leung told reporters, referring to a key point of contention: the process for electing his successor in 2017.
But Leung continued to reject any attempt to overturn — or even challenge — the Chinese Communist Party’s ruling in August that provoked the protests.
China said that the election would be open to all voters for the first time in Hong Kong’s history but that the choices on the ballot would be limited to those approved by Beijing. Among the qualifications: The candidates must “love China.”
Catalonia
Catalonia: referendum called off, Rajoy opened discussion to give more autonomy to Catalonia, Russia’s RT News is pressing Catalonian to revolt. 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 Rajoy says ‘chapter of dialogue’ is opened with Catalonia
MADRID (Reuters) – Spanish Prime Minister Mariano Rajoy said on Wednesday that a new « chapter of dialogue » was being opened with Catalonia after the northeastern region dropped plans to hold a referendum on independence from Spain next month.
But Rajoy also threatened to block a non-binding « consultation » ballot which Catalonia says it will hold instead, if it were found to be illegal.
Nor was it clear if the Catalan authorities wanted to start discussions with the central government. Regional president Artur Mas said on Tuesday the Spanish state was « the enemy ».
Mas said that a referendum on independence – strongly opposed by the Madrid government – would not now go ahead as planned on Nov.9 but instead a non-binding « consultation » ballot would take place.
Rajoy, who had welcomed the decision, told reporters at parliament on Wednesday: « A chapter of dialogue is now being opened. »
But he also said he would seek to block the consultation vote if there was any indication it was against the law.
‘No compromise possible: Catalonia demands self-determination vote’
Catalans see no possible compromise except a proper vote for self-determination, and are willing to decide their political future without Madrid, Elisenda Paluzie, Dean of the Faculty of Economics and Business at the University of Barcelona, told RT.
While Britain rolled the dice to let Scotland vote on its independence, Spain is not keen on letting Catalonia decide its own future.
According to Elisenda Paluzie, “Spain has never recognized Catalonia as a nation,” and it neither wants to let the region decide, nor to “recognize us as a nation.” Madrid fears a majority would vote in favor of Catalan independence, she told RT.
“Polls in Catalonia show stronger support for independence than in Scotland,” Paluzie said.
Catalonia “is not by far the richest area in Spain,” the autonomous region is the fourth by GDP per capita. However, she went on, “it is a rich territory and could be by itself perfectly well by collecting its own taxes and having its own policies in the context of level markets and openness.”
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. -). Furthermore, not only Tea Party caucus is using this strategy, the moderate Chris Christie whom have suffered from the Bridge scandal, is using the same strategy to change his image.
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.
Milwaukee police chief fires officer who shot man during struggle in downtown park
MILWAUKEE – A Milwaukee police officer who shot and killed a man in a downtown park, sparking protests and calls for justice over several months, was fired Wednesday for what Chief Edward Flynn called a failure to properly carry out procedure.
Officer Christopher Manney, 38, was dismissed nearly six months after the confrontation that led to Dontre Hamilton’s death. Hamilton, 31, was shot 14 times, and activists have compared his death to that of 18-year-old Michael Brown in Ferguson, Missouri.
Police and witnesses have said Hamilton was sleeping on a park bench April 30 when officers checked on him twice because workers at a nearby coffee shop were concerned about him. Flynn said those officers found no need for action.
Manney, who wasn’t involved in the first two checks, went to check on Hamilton after retrieving a voicemail left by a desk officer. Flynn said Manney properly assessed Hamilton as having mental health issues, but violated policy when he decided to carry out a pat down without a good reason.
That led to a fight in which Hamilton got control of Manney’s baton and struck him with it, leading the officer to use deadly force that might have been avoided, Flynn said.
« He treated Dontre Hamilton as a dangerous criminal rather than an emotionally disturbed person, » Flynn said.
Flynn said he found « errors of judgment, but no malice » in Manney’s handling of the confrontation
Obama Nominates Vanita Gupta to Be Civil Rights Chief
Gupta has been praised for her ability to bring opposing parties together in matters of criminal justice and civil rights.
President Obama has tapped the deputy legal director of the American Civil Liberties Union, Vanita Gupta, to head the Department of Justice’s Civil Rights Division, Attorney General Eric Holder announced Wednesday. In a statement, Holder praised Gupta’s “trailblazing work” as a civil rights lawyer, and said she “has spent her entire career working to ensure that our nation lives up to its promise of equal justice for all.”
Strongly supported by the left, Gupta has also won unexpected praise from conservatives normally critical of the Obama administration and Holder’s leadership of the Justice Department. Conservatives including Grover Norquist and former president of the National Rifle Association David Keene are among her supporters.
US midterms elections
US Midterms elections: GOP step up demands for Ebola travel ban. It’s interesting that this is in line with the views expressed by both Front National Marine Le Pen (the daughter of M. Le Pen who said “Saint Ebola would help us to get rid of immigration in 3months”). The economic rational behind this call is to derail globalisation by spurring fear. This obviously can derail the trend we are forecasting for commodity prices. In nutshell, an economic crisis can postpone some of the investment needed to improve energy efficiency transition. But we do believe, it can delay but NOT derail the process.
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.
UPDATE 2-In U.S. Congress, Republicans step up demands for Ebola travel ban
WASHINGTON Oct 16 (Reuters) – Republican lawmakers dragged the Ebola crisis into the political arena on Thursday, ramping up their demands that President Barack Obama impose new restrictions on travel from countries ravaged by the deadly virus.
Returning to Washington from the campaign trail three weeks before midterm elections, Republicans made the call for a travel ban a dominant theme at a congressional hearing on the outbreak.
The Obama administration has resisted a ban on travel from Guinea, Liberia and Sierra Leone in West Africa, where thousands have died in the Ebola outbreak that began in March.
« The president has that authority. He’s choosing not to exercise it, » said Representative Michael Burgess, a Texas Republican. « No one understands why we’re not doing this fundamental job of defending the country. »
Obama, speaking to reporters on Thursday after a White House meeting with aides involved in the Ebola fight, said experts had told him « a flat-out travel ban is not the way to go » because a ban would be less effective than current screening measures on travelers to the United States from the region.
The GOP advantage: Geography or gerrymandering?
WASHINGTON (AP) — Republicans helped solidify their hold on the U.S. House when GOP legislators in key states drew new congressional maps after the 2010 Census. But was it geography or gerrymandering that gave Republicans an edge in state after state?
The Republican advantage is significant. In the 2012 election, Democratic candidates for the House received 1.4 million more votes than their Republican opponents, yet the GOP maintained a 33-seat majority. It was only the second time since World War II that the party receiving the most votes didn’t win a majority of House seats.
It is an edge the Republicans carry into November’s midterm elections and perhaps beyond.
Democrats blame Republicans for drawing districts that favor GOP candidates. « We’ve never seen a level of gerrymandering as severe as in 2010, » said Matt Bennett, a former aide to President Bill Clinton.
But some experts say geography may be as responsible as gerrymandering for the Republican advantage.
Living patterns in many states make it relatively easy to pack Democrats into fewer congressional districts because Democrats are much more likely than Republicans to live in dense urban areas, said Norman Ornstein, an expert on Congress at the American Enterprise Institute. Republicans are more likely to live in suburban areas, which can be more politically diverse, or in geographically large rural areas.
« Democrats are at a disadvantage here, » Ornstein said. « It’s not as difficult for Republicans doing a redistricting to concentrate the Democrats in districts where they can win 80 or 85 percent of the vote. »
Gerrymandering is the practice of drawing election districts in a way that gives an advantage to one political party over another. One goal is to pack voters from the other party into the fewest districts possible. It often leads to odd-shaped districts that split counties, cities and even neighborhoods.
If done well, gerrymandering can protect incumbents and maximize the number of districts in which one party has a majority of voters.
6 states show how GOP tilted House playing field
WASHINGTON — Americans voted for divided government. You hear it all the time in Washington, especially after voters in 2012 re-elected a Democratic president, a Democratic majority in the Senate and a Republican majority in the House.
But did they?
In the 2012 election, Democratic candidates for the House got 1.4 million more votes than their Republican opponents, yet the GOP maintained a 33-seat House majority.
Republicans pulled off this rare feat by drawing favorable House districts in key states following the 2010 census, giving the party an edge that GOP candidates carry again into this year’s midterm elections. Six states illustrate their success: Florida, Michigan, Ohio Pennsylvania, Virginia and Wisconsin.
President Barack Obama won all six states in both 2008 and 2012, yet each state has a House delegation dominated by Republicans. Did voters simply split their ballots — voting for a Democrat for president and a Republican for Congress?
The evidence says no.
To help analyze voting patterns, The Associated Press divided the votes from the 2012 presidential election into all 435 congressional districts. In each of these six states, Republican Mitt Romney won more House districts than Obama, even though Obama won the statewide vote.
Obama coalition must prove everyone wrong in the midterms
Conventional wisdom has it that the Obama coalition, particularly African Americans, aren’t going to show up for the midterm elections. Unfortunately for Democrats, there is a long line of off-year election results to make this a stone-cold fact. And now there is a near-constant drumbeat about how President Obama and his party are going to get thumped on Nov. 4.
The Upshot at the New York Times today puts “a Republican takeover of the Senate at 74 percent,” although it goes out of its way to say that it’s not “predicting a Republican victory.” The latest Post-ABC News poll shows that Republican enthusiasm for the coming vote is higher. And a Gallup poll released last week shows Democratic enthusiasm in the toilet. That last point is why President Obama has been sounding the alarm since at least the spring. This also explains why he called into the “Steve Harvey Morning Show” yesterday imploring — no, downright begging — the black radio audience to get to the polls.
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 (please see our recent reports on robotics and big data).
U.S. seeks to use Spanish military bases in anti-Ebola operation
(Reuters) – The United States has asked the Madrid government for permission to use the U.S. military bases in Spain in its operation to combat the Ebola crisis in Africa, a Defence Ministry source said on Thursday.
« The U.S. authorities have indeed asked Spain to use their bases in the country as a transit point for logistics and engineers building up field hospitals in Liberia and Sierra Leone, » the source told Reuters.
Madrid was set to agree to the request to use the bases at Rota near Cadiz and at Moron de la Frontera near Seville in southern Spain.
« None of the planes will transport patients or people suspected to have contracted Ebola, or who have been in contact with infected people, » he said. « Spain will have a right to inspect the planes and passengers. »
The United States is deploying up to 4,000 troops to West Africa to help contain the worst outbreak of the disease on record.
A decision is due to be announced on Friday when Spanish Defence Minister Pedro Morenes meets U.S. Defense Secretary Chuck Hagel in Washington.
U.S. 2-Year Yield Rises From 17-Month Low on Bullard QE Comment
Treasuries fell, with two-year note yields rising from a 17-month low, as Federal Reserve Bank of St. Louis President James Bullard said the central bank should consider delaying the end of its bond-buying monetary stimulus to halt a decline in inflation expectations.
U.S. debt yields increased after the largest one-day decline since 2009 yesterday on speculation the central bank would delay interest-rate increases. Reports today showed manufacturing strength and fewer jobless insurance claims than forecast. Treasuries rose earlier, along with bonds in Germany and Japan, on signs global growth is losing momentum.
“Bullard was once at the forefront of the calls for tighter policy, and the fact that he is now capitulating some in favor of the possibility of looser policy is quite notable,” said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia. “He was a perceived hawkish FOMC member, and now he is focusing on low inflation. It suggests team hawk is maybe not just about tighter policy, but is focusing on the inflation risks.”
U.S. carries out fresh air strikes against Islamic State targets in Kobani and Iraq
Kurdish forces in Kobani say they have begun coordinating with the U.S. military to provide targets for air strikes; U.S. military names operation ‘Inherent Resolve.’
U.S. aircraft carried out 18 strikes on Islamic State positions near the besieged Syrian border town of Kobani and five strikes against the group in Iraq on Tuesday and Wednesday, the U.S. military’s Central Command said.
The planes struck 16 buildings occupied by Islamic State militants and destroyed several of their fighting positions near Kobani, a Kurdish town on the Syrian border with Turkey, it said in a statement on Wednesday.
It said four strikes near Baiji, the site of Iraq’s largest oil refinery, destroyed an artillery piece, a Humvee, a machine gun and a building used by the group, which has seized large parts of Iraq and Syria.
Another strike near Haditha Dam in Iraq destroyed an armed vehicle, the statement said.
The U.S. military has named the coalition operation against Islamic State in Iraq and Syria « Inherent Resolve, » a U.S. military official said on Wednesday.
Europe News
EU is suffering from the combination of negative general sentiment (Ebola, ISIL etc.) and the negative press conducted by both populists when Russian media provides very good argument to drive the tensions between creditors and debtors higher. But the trend in EU continue to be supportive and as we were indicating the more markets will recognise the short term risk of US midterms elections, the more constructive they’ll become on EU and EUR. Markets were upset yesterday because Greece may postpone exiting from the program. The glass half full part of this story is that Greece, a country which once was considered to be doomed with the only hope for it is to become 2001 Argentina (according to some Nobel Prize laureates), is considering the idea of normalisation 5 years after its program. That’s in itself a strong argument to look at the glass half full.
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).
UPDATE 2-Iran says progress made in « very difficult » nuclear talks in Vienna
* Iran and U.S. say some progress made in Vienna nuclear talks
* Still aim for agreement by Nov. 24 deadline
* Zarif says to meet Kerry and Ashton in three-four weeks (Adds Zarif quote on venue for next meeting, detail, context)
By Parisa Hafezi and Fredrik Dahl
VIENNA, Oct 16 (Reuters) – Iran’s foreign minister said on Thursday that progress was made in « very difficult » nuclear talks with top U.S. and EU diplomats this week when possible solutions were discussed, sources who attended his briefing for Iranian media said.
Mohammad Javad Zarif spoke after a meeting on Wednesday with U.S. Secretary of State John Kerry and European Union foreign policy chief Catherine Ashton that lasted some six hours in Vienna. A senior U.S. official late on Wednesday also said some progress was made but that much work remained.
« It was very difficult, serious and intensive … but instead of focusing on problems, we discussed solutions as well, » Zarif said, the sources told Reuters. « There was progress in all the fields. »
EU Pledges Support for Greece as Markets Plunge
The European Union is promising Greece continued financial support, in the hopes of calming market turmoil triggered by concerns over the government’s survival and the future of its bailout program.
Greek borrowing costs soared Thursday, with the interest rate on the benchmark 10-years bonds jumping to 8.71 percent — a sign investors are more worried about default. And a third day of heavy selling on the Athens Stock Exchange saw shares lose another 2.2 percent in value, after dropping 12 percent in the previous two days.
Officials in Brussels and Athens insisted the Greek recovery program is in no danger.
Jyrki Katainen, vice-president of the European Union’s executive Commission, said Greece had made « immense progress » since the 240 billion euro ($306 billion) rescue programs started in 2010.
« There should be no doubt that Europe will continue to assist Greece in whatever way is necessary » so the government can keep financing itself, » he said.
Serbia salutes Putin but says future is with Europe
(Reuters) – Serbia feted Russia’s Vladimir Putin with troops, tanks and fighter-jets on Thursday to mark seven decades since the Red Army liberated Belgrade, balancing its ambitions of European integration with enduring reverence for a big-power ally deeply at odds with the West.
The display of military pomp, at a moment when the West says Russian troops are making war in Ukraine, laid bare the balancing act Serbia – a candidate for membership of the European Union – has been forced into by a crisis recalling the Cold War.
It demonstrated, too, Russia’s influence in the Balkans, which like much of Eastern Europe is dependent on Russian gas.
Before thousands of onlookers, more than 3,000 soldiers marched in Belgrade’s first military parade since 1985, when it was the capital of socialist Yugoslavia. Tanks rumbled behind them and jets tore through the rainy skies above.
UPDATE 1-WHO to test Ebola preparedness in Ivory Coast and Mali
GENEVA Oct 16 (Reuters) – The World Health Organization will send experts to test the Ebola-preparedness measures in Ivory Coast and Mali, the two countries at greatest risk of being the next to be affected by the epidemic, WHO’s health security response chief Isabelle Nuttall said on Thursday.
The virus is known to have killed almost 4,500 people in Liberia, Sierra Leone and Guinea this year, and there have been isolated cases in the United States, Germany and Spain.
The WHO says there have been 9,000 recorded cases in West Africa and a similar number unrecorded, with a 70 percent fatality rate, implying a true death toll already above 12,000. The WHO expects 5,000-10,000 new cases a week by December.
The disease has gradually spread to areas that border Ivory Coast, whose population of about 20 million is roughly equal to the total of the three countries at the centre of the epidemic.
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 –
China, Italy to enhance security
ROME – China and Italy on Wednesday vowed to strengthen cooperation in a host of areas including security and law enforcement to further cement bilateral relations.
The two countries made the pledges in a joint declaration issued during Premier Li Keqiang’s visit to Italy.
The two nations stand ready to boost cooperation in such areas as justice, law enforcement, security, rule of law and the fight against transnational crimes and terrorism on the basis of respect for the differences in their social and legal systems, says the declaration.
The document says that the two countries have also agreed to deepen cooperation on science and technology innovation in a bid to realize mutual benefits and win-win results.
China and Italy have reached consensus on strengthening cooperation in five prioritized areas, ranging from energy conservation and environmental protection, to food security and aviation and space, says the document.
ASEM summit highlights Asia-Europe inter-dependence
MILAN, Oct. 16 (Xinhua) — The 10th Asia-Europe Meeting (ASEM) opened in Milan, Italy, on Thursday under the theme of « Responsible Partnership for Growth and Security. »
The ASEM, founded in 1996, is a high-level and large-scale inter-governmental platform of dialogues and cooperation between the two continents.
The summit in Milan, running on Oct. 16-17, focused on enhancement of financial and economic cooperation between Asia and Europe as trade and investments are key for further growth and jobs.
Moreover, matters of global concern would be discussed at the summit such as climate change, natural disasters, health, epidemics, international crime and terrorism, issues that affect all and require national efforts and broad international cooperation.
The ASEM leaders will convene in a retreat session for the first time on the second day of the summit to discuss current international and regional affairs.
The summit will also steer the future direction of the ASEM in view of the ASEM 20th anniversary in 2016.
European Council President Herman Van Rompuy said at the opening ceremony that Asia and Europe need each other both economically and politically, and security is also inter-linked, « or one could even consider it a single, united Eurasian continent. »
« In the 21st century, no country can remain in isolation. We need to effectively connect our regions, in physical, digital, institutional and human terms, to make our partnership truly beneficial, » he said.
Countries brought together by the ASEM represent more than 60 percent of the world’s population, half of the world’s gross domestic product and 60 percent of global trade, according to Van Rompuy.
European Commission President Jose Manuel Barroso said at the opening ceremony that wealth, competitiveness and creativity all depend on openness to each other, and both Europe and Asia must be willing to adapt, connect and open up to global opportunities.
China contributes greatly to global food security
BEIJING – As the most populous country in the world, China has successfully delivered millions of people from hunger and is helping other countries achieve food security.
In a latest move to this end, Premier Li Keqiang announced on Wednesday that China will donate $50 million to the Food and Agriculture Organization (FAO) of the United Nations in the coming five years.
On the eve of World Food Day, Li made the remarks in Rome in a speech at the headquarters of the FAO, the first intergovernmental organization the premier has visited among all UN agencies since he took office.
As the biggest developing country, China will always be an active force in maintaining food security and ready to work with other countries to create a hunger-free and poverty-free world with sustained development, said Li.
« I trust this visit will mark and unveil a new chapter for the FAO and China collaboration in the noble fight against hunger at national, regional and global levels, » said Percy Misika, the FAO’s representative in China.
China willing to further enhance mutual support with FAO: premier
ROME, Oct. 15 — Chinese Premier Li Keqiang pledged here Wednesday to further strengthen communication, coordination and mutual support with the UN food agency.
Li made the remarks when meeting Jose Graziano da Silva,director-general of the UN Food and Agriculture Organization (FAO).
He also called for the deepening of South-South agricultural cooperation and trilateral collaboration.
The Chinese leader spoke highly of the FAO’s role in safeguarding global food security, boosting international agricultural cooperation, and promoting poverty reduction across the globe.
To safeguard food security, individual countries need to take the issue of food and agriculture as a top priority, Li said, adding that concerted efforts of the international community are also required.
China, as the largest developing country, has already solved the problem of food and clothing, but still has an impoverished population of over 100 million, Li noted.` « We will exert our utmost efforts to eliminate poverty caused by hunger, and we are confident that we can feed the 1.3 billion Chinese people mainly with our own efforts, so as to make our contribution to global food security, » said the premier.
Meanwhile, Li expressed his hope that the FAO can continue giving full play to its role in optimizing the global food and agriculture governance system, enhancing policy coordination, pooling resources, and promoting international agricultural cooperation.
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 – ).
Markets Live: Rally takes a breather
At the end of an incredibly volatile week, the ASX200 is on track to post its biggest weekly gain in two months, as investors snap up many oversold stocks, including the big banks.
ACCC takes Coles to court for allegedly bullying suppliers to boost earnings
The competition watchdog is taking Coles to court amid allegations the supermarket giant demanded payments from its suppliers it was not entitled to.
The Australian Competition and Consumer Commission (ACCC) has accused Coles of engaging in « unconscionable conduct » in breach of the Australian Consumer Law.
Coles faces penalties of more than $1 million for each breach
In an interview with the ABC, ACCC chairman Rod Sims alleged Coles had applied undue pressure to its suppliers even though it had no contractual right to do so. « We’re alleging that Coles took advantage of its superior bargaining position to demand money that it either knew or ought to have known that it didn’t have a right to, » he said.
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.
Don’t Mess With Saudis in Oil Bear Market Global Shakeout
The bear market in oil is showing the world there’s still only one country in a position to choose winners and losers in the global market: Saudi Arabia.
The world’s largest oil exporter is trying to protect its market share by keeping its production steady even as prices hit a four-year low. Energy producers in turmoil, such as Russia, Iran and Venezuela, stand to lose the most, U.S. shale drillers and other Saudi rivals will suffer and industrialized importing countries including Japan will get a boost from cheaper prices.
“Saudi Arabia is the only one in the position of putting more oil on the market when they want to and cutting production when they want to,” said Edward Chow, a senior fellow at the Center for Strategic & International Studies in Washington. “Consumers win, producers lose.”
Brent crude, the international benchmark, fell as much as 29 percent since June 19 to $82.60 a barrel, the lowest since November 2010. Prices have averaged above $105 a barrel since 2011, the four highest years on record. Brent will stay higher than $80 a barrel, analysts at Bank of America Corp. and BNP Paribas SA said yesterday.
Facebook launches Safety Check tool for users affected by major disaster
Facebook wants to know that you’re safe and sound.
After a major disaster or crisis — say, an earthquake or a hurricane — friends and family often scramble to locate and get updates from loved ones who might have been affected.
Now the world’s largest social network is stepping in to help that process.
Facebook has launched Safety Check, a tool that will help users let family and friends know they’re safe, check on others in the affected area and mark their friends as safe.
« It is in these moments that communication is most critical both for people in the affected areas and for their friends and families anxious for news, » Facebook said in a blog post.
Here’s how Safety Check works:
Once a natural disaster strikes, the tool will be activated and, if you’re in the affected area, you will receive a Facebook notification asking if you’re safe. Facebook will determine locations based on the city you have listed in your profile, your last location if you’ve opted in for the Nearby Friends feature and the city where you are using the Internet.
Dollar recovers modestly on stronger U.S. economic data
(Reuters) – The U.S. dollar recovered against the euro and yen on Thursday after stronger U.S. economic data reinforced the view that Wednesday’s selloff in the greenback was overdone.
Labor Department data showed the number of Americans filing new claims for jobless benefits fell to a 14-year low last week, while a report from the Federal Reserve showed production at the nation’s factories, mines and utilities advanced a larger-than-expected 1.0 percent last month.
« The data today was very important in that it provided reassurance that the U.S. economic outlook hasn’t changed drastically, » said Camilla Sutton, chief currency strategist at Scotiabank in Toronto.
A disappointing auction of Spanish debt and data showing deflation hit five peripheral euro zone countries in September also underscored the relative health of the U.S. economy.
While consumer inflation at 0.3 percent was unchanged from Eurostat’s Sept. 30 estimate and met market expectations, Greece, Italy, Slovakia, Slovenia and Spain showed deflation in September on persistently depressed household demand.
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