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SNBDL Daily Briefing
Report prepared using big data solution Quid
Our take away from the last 24 hours news
Central banks news:
As we were indicating yesterday, the markets are highly focused on next October FOMC. We are giving 60% probability to a Fed delay its ending of QE3 in its Oct. 28-29 meeting. We continue to believe that depending on how Ebola, ISIL and midterms election evolve, the Fed might decided to do more in December, should the fear/mistrust continue its current trend (please see our report Ebola a communication war which explains through one example the overall implications).
But the Fed is also working on other non-monetary policy gears to reduce asset frothiness and market excessive risk taking. Indeed, as the Fed’s inspector general criticises the Federal Reserve failure to act on JPMorgan ‘Whale’, while risks were very well identified years before the story broke, many FOMC members including Dudley call for major changes in the financial industry such as: bonuses clawback and ring fencing of risky businesses.
These development are in line with our recent comments where we expressed the view that the Central Banks are moving from QE to Credit Easing. The former tools provide market with liquidity and let market participants impact different asset prices. In the latter case, central banks channel the liquidity to some specific sectors. We consider that the ECB T-LTRO and QE ABS to be part of central banks tentative action to respond to criticism that QE has been fuelling asset bubbles and in-fine inequalities, while it has failed moving money velocity up.
While the hawks are calling for quick rates normalisation, the “balanced” members seem more willing to delay rates normalisation. But these want to tighten liquidity conditions through tougher regulation on the financial system (to reduce amongst other thing the carry-trade moral hazard risk) – click here-. We have been critiquing the fact that hawks have an excessive airtime (like we were indicating it after last August Jackson Hole symposium). In our note which analyse the differences between perception and reality (click here), we have been indicating that there is an excessive doom & gloom positioning which is likely to correct and put some hedge funds in very difficult situation. We continue to see some hedge funds experiencing an increase in withdrawals. We may as well witness hedge funds closing businesses in some circumstances, as institutional investors revise down their expect return out of the asset class (which would have a third year in a row with no stellar performances).
The pressure on hedge funds to reverse their very weak 2014 performance explains the excitement around any news flow which could help delay the recognition day. These include additional stimuli from ECB, last two-weeks excessive monetary expectations out of the BoJ etc.
We continue to see the EUR rebounding from the excessive “negative mood” triggered by repricing of the existential threats (while Br-exit risk looms and tension with Russia continues to be unsettled). We consider that markets are insufficiently focused on the consequences of a GOP majority Senate win in the forthcoming midterms. Both Sen. Ted Cruz and Sen. Rand Paul recent announcements are worrying because they hint that the US might be heading toward a period of 2-years where the administration could become paralysed. We continue to believe that the 55% chances giving to GOP Senate majority win could trend down when and if the media will start to focus on the negative consequences for the US economy.
While we consider that the US narrative is likely to turn negative in the short term, ECB AQR is likely to calm market nervousness which have pushed Greece Sovereign credit to territories we have not been used to without existential threats.
China economic data confirms, as expected, that the country is soft landing, and rebalancing. This is taking place at a moment where the IV-th Plenum discusses governance reforms (crack down on corruption) and rule of law (a game changer juridicial reform). We continue to have a more optimistic view on China relative to consensus.
Finally, as a macro theme, we consider that the markets are insufficiently pricing the fact that oil prices have came down substantially, which creates a dis-inflationary boost (a form of tax cut to consumption).
Economics News: Some bankers, which consider that we are in a new XXI Century class struggle, have been calling for a quick rate normalisation without delay regardless of the consequences on the economy. We have been indicating many times how surprised we were reading some opinions because they dismissed facts (oil prices development) while they spur mistrust in institutions (libertarian thinking has been widely spread to critic Fed role in inflating asset price bubbles). We were indicating that unless these bankers succeed in crashing the market again, the Central Banks and financial institutions will move ahead with more regulations and constraints (“Banker compensation may get more complicated and have fewer zeroes if the International Monetary Fund has a say”, according to a report on IMF new initiative to regulate a sector perceived by the public as having played a major role in today’s problems).
We would like to separate this “game of chicken” from the overwhelming majority in finance which is trying to improve the narrative, as many banks have had to face multi-billion sanctions and regulator close oversight.
However, until the “bad behaviour” in Finance get corrected, we are likely to see an inflation in opinions and views supporting the bankers fight for their interest. But Australia G-20 is likely to be a game changer in this fight. We have been very optimistic that the global institution will move ahead with improving governance and reducing loopholes discussed in the recent OECD proposal to reduce tax “optimisation”.
Earnings news: Apple earnings help to calm the excessive nervousness that corporations profit margins will be unsustainable and will push the market into a depressed territories.
The Earning season just started by the overall view is not as “depressing” as many have been painting for months (we have disagreed with this view at many occasions). Except some important misses due to idiosyncratic reasons, such as IBM, the profit margins look still healthy.
But the corporations continue to see “challenging” top line. In fact the “balance sheet deleveraging” dynamics continue to be at play. In a nutshell, corporation anticipates less top line growth, they protect their margins, using tax initiatives, financial engineering (such as buy-backs) or rationalise their staff. This dynamic is usually used by some populists groups to point to the class-struggle between Rich (shareholders) and Poor (workers). But there is an untold story, which explains that even with the very high level of inequalities, there is a very low probability for a XIX Century style revolution *though many would love to see it to challenge the current governance improvement trend*. The untold story is that among people leaving big corporation, there is an overwhelming number of entrepreneurs, innovators and good professionals which have reached the level of intolerance vis-a-vis some crony capitalism phenomenon. This is what we like to call “Stalinism Capitalism”: it works like capitalism for large shareholders and management while its Stalinism for workers, small shareholders (including Pension Funds). Should big corporation move away from Stalinism Capitalism, a trend which is already in place, we would with more than 75% probability: 1) improve profit margins, 2) improve workers pay and conditions, 3) improve gender equality – which empowers workers -, 4) improve consumer services. This trend is a certainty because political activism has been focusing on criticising states actions, it has just get organised to challenge private sector bad behaviour.
Ebola: In our special note on Ebola (Ebola a communication war) we stressed that Ebola virus will be more about a communication issues than a medical problem. On one hand, we pointed to the excessive fear spurred by politically motivated participants on Twitter. On the other, we stressed that while spreading fear about Ebola could help short term interest groups such as increasing financial markets volatility which could help put the blame on excessive regulation. It does show how the Tea Party caucus and less moderate GOP are unprepared to take over the executive branch. If I was advising Marco Rubio or Rand Paul, I would have advised them to fire their communication and strategic teams. Why? For one simple reason, by emphasising the mistrust, both the two Senators are showing how unprepared, un-experienced they are to pretend running for office in 2016.
1. Would anyone trust a leader who will start trashing all the administration and pushing the public to panic while they have to be focus finding solutions?
2. Would anyone trust Marco Rubio, who continue to fight a XVI Century war against Science, to take the right decision while over sighting CDC operations?
3. Would anyone trust Sen. Rand Paul to be the leader to calm the public when he was indicating that Ebola is airborne (NB: this is not the case now please see our report)?
Should the Senate goes to the GOP, it would be the first time in my 20 years career analysing politics that I would have seen a group wining on the ground that : 1) they will spur fear instead of calming public nervousness and show they would be working, 2) they will trigger an economic crisis because they might be some highly hypothetical fear that Chair Yellen will be behind the curve, 3) they might call for President impeachment trial when the country is leading a coalition against terrorists (inc. ISIL). Will the US public prefer voting to help some private interests which have invested ~$1bn in ads? I doubt. I continue to believe that Tocqueville is right: the US is the best democracy invented so far.
The arrival of Ron Klain as a coordinator of the US administration efforts is likely to lead to a reduction in the excessive fear we have reached last week. WHO announcements, that some western african countries are free from Ebola and that a Vaccine should be ready by January 2015, are contributing to overcoming the outbreak.
Gaza: China has joined the call for creating conditions for peace talks. Although this did not come as a surprised to us, we see in the global call for peace as an additional evidence that Israeli-Palestine problem is heading toward an unique opportunity to settle a renewed peace process. UN Secretary General Ban is pressing both Hamas and IDF to recognise excesses. First, the UN is refocusing the attention to facts we were indicating during the summer, that some Hamas weapons have been hidden in UN sites during Gaza war. This adds more evidence to the fact that Hamas has been using palestinian civilians as shields. Second, the UN is pressing the Israel Defence Forces (IDF) inquiry about the excessive use of force.
We have been expressing worries after the decision to reconstruct Gaza because there is a genuine lack of traceability of funding. Hamas confirmed that some funds are redirected to re-militarize. This is in line with the fact that as Hamas is losing its political capital to Fatah of President Abbas. The organisation announcement is a gesture to regain some of its “lieutenants” defecting to other “hard liner” organisations.
We have been saying for some time that a fight against terrorism and radical Islam required to genuinely rebuild trust which would phrase in 3 steps. First, reopen Palestine Israel peace process. Second, sell the narrative that this process is intend to be a win-win scenario (i.e. peace, jobs, and growth for the 2 countries). Third, reduce the speed of Jihadists hiring because those are getting radicalised by the feeling of “injustice” and a perceived war against palestinian and muslims in general.
Recent Secretary of State Kerry comments that a Palestinian – Israel two-state solutions will help derail ISIL are in line with the convictions we expressed since the start of Gaza war and the “fight for talents” terrorists organisation have been organising. Please see our comments on Iraq & Syria will indicate that the terrorists are loosing battle in the ground but want to keep their narrative alive in order to keep hiring (when the western countries are just realising that defeating ISIL will require defeating its hiring process).
Iraq & Syria: Last week we were saying that, as soon as Turkey will have assurances that the Kurds will not use the current tension at Kobane to increase the tension over the Kurdish independence, ISIL is likely to start to loose the symbolic battle. We were indicating that Kobane is a must win for ISIL in order to pursue their “marketing campaign” borrowed to Spartacus and David & Goliath.
During the recent days, ISIL was loosing ground in Kobani and diverting its to-become-jihadists attention to Baghdad, Raqa to show how barbaric ISIL can be. These actions intend to keep the “to-become-Jihadists” (like Australian Abdullah Emir – click here-) attention on joining their fight. We have been witnessing that many non-affiliated groups have pledge allegiance to ISIL in order to keep hiring. We have seen for example that Algeria salafists groups have renamed themselves to “Califat fighters” to channel funding, weapons, supports etc. We would not be surprised if ISIL continues to spur disinformation that they can take their fight to the sky or that the have got access to US arms (as indicated by the US thanks message channeled by some extremists twitters.
By winning the communication war and cutting ISIL from attracting young fighters the coalition increases its chances to ultimately defeat ISIL.
We would like to remain our readers that ISIL is three groups: 1) psychopaths – drug addicted fighters who are leading the fight because their illness have reduced their fear of death, 2) Some sunni army groups which have been betrayed by Al-Maliki government (these include Ba’aht party), 3) Some sunni tribes. The “non-psychopaths” are using ISIL as a threat to push the global community to pressure Iraqi government to be more genuinely inclusive and reduce bad governance. We would not be surprised that Iraqi army would spur the information that they would be helping ISIL to take it fight to the sky, but let’s face facts, unless ISIL gets some government support, it’s very difficult to imagine how ISIL could have any chances vis-a-vis US and coalition airforces.
Russia – Ukraine tension take away:
Russia and Ukraine tentative gas deal, reached in Milan, is likely to move ahead according to PM Yatsenuk. But this did not come with less tension, Merkel has been very critical to President Putin, while Germany BND (spies) have reported that MH-17 has been shot down by Pro-Russian rebels.
Yesterday, the head of the State Duma’s Foreign Affairs Committee, Mr. Pushkov, has denied Russia’s involvement in the downing of Malaysian Airlines flight MH17 following the publication of BND report. This communication war is likely to keep any trust about MH17 always challenged.
Chancellor Merkel attitude is in line with our view that she is using Putin threat to push EU to undertake more reforms and more integration, while keeping the threat of Russia isolation very high. Meanwhile, Russia economy continues to tank.
Actually, many other political groups are using the same strategy: allegiance to Putin in exchange to push some domestically driven agenda.
Reports out of Sweden relative to underwater activities indicate that Sweden is shifting away from its “neutral” stands and is heading to put some additional pressure on Putin. Should Sweden change stands as the recent evidence are starting to show, Ukraine tension might increase because it will leave President Putin without any example of neutrality Ukraine should be bind by.
Comments by Swedish PM Lofven “[Sweden] have already say [it] will stay out of NATO” hint that the recent events are bringing the question back to the table (at least from the Russian prospective).
We continue to see only two possible outcomes: 1) Russia pursue its aggressive attitude and pushed for a separation of Ukraine at the expense of a full-fledge isolation, or 2) Russia opposition start to “challenge” President Putin to return to reforms. The second outcome is unlikely for now because intelligence from the ground is indicating that while the opposition is willing to change the trend, there is a serious lack of appetite to challenge President Putin be in openly or behind the scenes.
We foresee the situation to continue to deteriorate while Oil prices continue to plummet. Russian economy is likely to suffer a lot, while EU narrative is likely to change because the “communication war” which have been spurred by Russia and its supporters in the Western political groups is loosing traction (facts have no religion).
Hong Kong take away:
Hong Kong protests are calming down, as we were expecting, while a recent poll showed that 68% are opposing protests. As we were expecting HK reopened dialogue with protestors but we see the timing too soon to stuck any genuine action which could give all the camp Mainland, HK and Umbrella Revolution something to claim a victory for. As we were expecting, the crackdown on the protestors is nothing comparable to what some have been fearing (Tian’anmen square II).
We see mainland China giving some democratic say, as soon as the IV-th plenum will be validated and the two difficult reforms (i.e. fighting corruption and introducing the rule of law while separating the juridicial system from the other branches) advanced.
We believe that President Xi wants to be seen as the strong man in his fight against conservatism and in conducting reforms. 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 (introduction of some form of democracy), 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: One word take Replace Catalonia, HK Occupy with Ferguson, keep calm and carry on.
An independent commission will be created to study issues that have surfaced since the fatal police shooting of Michael Brown in Ferguson, Missouri Gov. Jay Nixon said Tuesday. This commission aims de-escalating a situation which could easy surge.
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.
In general, 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 a 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 use soft power – and Ferguson is part of that – to press institutions to reforms. 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:
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.
The recent polls which show a GOP turnout advantage, should be taken with a pinch of salt. The reason is that turnout is a very volatile variable and depend on the consequence of not showing in the polls. Countries differ in their reaction function to election. As a general view, the more a country struggles to get rights the more the public is fearing the return of any dark days. The more the media will focus on the fact that GOP are winning (with the consecutive effects) the more the voters might increase their turnout. We believe that this “reversibility of votes” is the “magic” bullet which might help save some efficacy for the second half of President Obama tenure as well as avoid an incredible economic headwinds (see here Ted Cruz agenda for GOP Senate). Should one add Senator Ted Cruz comments, those of Senator Rand Paul (which spur fear about Ebola), we might find ourselves in situation which would have many similarities to Nero burning Rome (click here).
These are the reasons why we are less confident than many commentators in the US that GOP has had the Senate majority.
US markets continue to behave between repricing downward growth prospect (as we were expecting), reassign Fed policy going forward or considering (as libertarian driven rhetoric keep mistakingly saying: the economy is very strong and requires a rate hike). Although VIX has moved up it’s still below the high stresses period we have experienced. 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. Finally on this topic we see the push from H. Clinton (and the #GirlPower team) could change the election because the first casualty of a Tea Party Caucus win in November would be women.
Earnings season kicked started with mixed bags for the moment. 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 by questions about how quick Greece will exit 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 which supports looking at the glass half full. France and Germany have started discussion about investment growth project (Juncker plan). We continue to see the most likely solution would be a EIB financed loans guaranteed by either the ESM or by states directly. The discussion are still on-going as EcoMin Macron and FinMin Sapin of France have been visiting the German cabinet on Monday.
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. Please not the announcement by the UK that “trolls” might face as high as 2years in prison.
China: The IV-th plenum was expected to focus on improving governance and reducing corruption but it came with two other game changing announcement : focus on “rule of law” and the introduction of separation between juridical power and the other branches of the government.
We will focus in the coming day on the decision as they come. By the meantime, the development is very supportive to our constructive view on China. The country is genuinely rebalancing while soft landing.
Furthermore, Australian police have agreed to assist China in the extradition and seizure of assets of corrupt Chinese officials who have fled with hundreds of millions of dollars in illicit funds, the Sydney Morning Herald newspaper reported (see more below).
We see any stimuli to be small and targeted because 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-.
While the recent decisions strengthen President Xi power, we foresee the first objective of the Chinese President to be rebalancing the Chinese economy while cooling the pressure which have developed in China.
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: Although two cabinet ministers resign over scandal, creating more questions about Abenomics, we do not see this derailing PM Abe objectives. Recent decision to crack down on tax dodgers is another piece of evidence that Japan is heading toward reforms and improving governance.
Futhermore, BoJ continues to behave as we expected: Cautious while the rebalancing is taking place in the country (e.g. GPIF upward allocation to equities). We consider that whatever pressure or sell-off should be an opportunity to strengthen positioning.
North Korea decision to free Jeffrey Fowle, a US Citizen, is a positive indication that the relations with NK are improving in what we see as first genuine steps toward a reunification solution which would involve China, South Korea and Japan. We see the next China – Japan summit as instrumental for reducing the tension between the two countries and to move ahead with reunification talks.
Central banks News
Central banks news:
As we were indicating yesterday, the markets are highly focused on next October FOMC. We are giving 60% probability to a Fed delay its ending of QE3 in its Oct. 28-29 meeting. We continue to believe that depending on how Ebola, ISIL and midterms election evolve, the Fed might decided to do more in December, should the fear/mistrust continue its current trend (please see our report Ebola a communication war which explains through one example the overall implications).
But the Fed is also working on other non-monetary policy gears to reduce asset frothiness and market excessive risk taking. Indeed, as the Fed’s inspector general criticises the Federal Reserve failure to act on JPMorgan ‘Whale’, while risks were very well identified years before the story broke, many FOMC members including Dudley call for major changes in the financial industry such as: bonuses clawback and ring fencing of risky businesses.
These development are in line with our recent comments where we expressed the view that the Central Banks are moving from QE to Credit Easing. The former tools provide market with liquidity and let market participants impact different asset prices. In the latter case, central banks channel the liquidity to some specific sectors. We consider that the ECB T-LTRO and QE ABS to be part of central banks tentative action to respond to criticism that QE has been fuelling asset bubbles and in-fine inequalities, while it has failed moving money velocity up.
While the hawks are calling for quick rates normalisation, the “balanced” members seem more willing to delay rates normalisation. But these want to tighten liquidity conditions through tougher regulation on the financial system (to reduce amongst other thing the carry-trade moral hazard risk) – click here-. We have been critiquing the fact that hawks have an excessive airtime (like we were indicating it after last August Jackson Hole symposium). In our note which analyse the differences between perception and reality (click here), we have been indicating that there is an excessive doom & gloom positioning which is likely to correct and put some hedge funds in very difficult situation. We continue to see some hedge funds experiencing an increase in withdrawals. We may as well witness hedge funds closing businesses in some circumstances, as institutional investors revise down their expect return out of the asset class (which would have a third year in a row with no stellar performances).
The pressure on hedge funds to reverse their very weak 2014 performance explains the excitement around any news flow which could help delay the recognition day. These include additional stimuli from ECB, last two-weeks excessive monetary expectations out of the BoJ etc.
We continue to see the EUR rebounding from the excessive “negative mood” triggered by repricing of the existential threats (while Br-exit risk looms and tension with Russia continues to be unsettled). We consider that markets are insufficiently focused on the consequences of a GOP majority Senate win in the forthcoming midterms. Both Sen. Ted Cruz and Sen. Rand Paul recent announcements are worrying because they hint that the US might be heading toward a period of 2-years where the administration could become paralysed. We continue to believe that the 55% chances giving to GOP Senate majority win could trend down when and if the media will start to focus on the negative consequences for the US economy.
While we consider that the US narrative is likely to turn negative in the short term, ECB AQR is likely to calm market nervousness which have pushed Greece Sovereign credit to territories we have not been used to without existential threats.
China economic data confirms, as expected, that the country is soft landing, and rebalancing. This is taking place at a moment where the IV-th Plenum discusses governance reforms (crack down on corruption) and rule of law (a game changer juridicial reform). We continue to have a more optimistic view on China relative to consensus.
Finally, as a macro theme, we consider that the markets are insufficiently pricing the fact that oil prices have came down substantially, which creates a dis-inflationary boost (a form of tax cut to consumption).
GLOBAL MARKETS-Shares rally on U.S. tech earnings, ECB purchase plans
Dutch Pension Investor Sees More Threats Than ECB Tests
As euro-area banks brace for the results of a yearlong review of their finances, bigger regulatory uncertainties may lay ahead for their investors, according to PGGM NV, a Dutch money manager overseeing more than $200 billion in pension assets.
While the European Central Bank’s assessment of banks is important, “unresolved regulatory measures that can have an impact on a bank’s strategy may be more important,” said Sevinc Acar, who helps oversee PGGM’s holdings of investment-grade corporate bonds. She spoke in an interview at the company’s headquarters in Zeist, Netherlands, on Oct. 15.
Putting in place rules in the U.K. to protect consumer banking from riskier activities are among the uncertainties that can affect banks, according to Acar. British lenders have to submit a ring-fencing plan to the Bank of England by Jan. 6, the central bank said this month.
Exclusive: ECB looking at corporate bond buys, could act as soon as Dec – sources
(Reuters) – The European Central Bank is considering buying corporate bonds on the secondary market and may decide on the matter as soon as December with a view to begin purchases early next year, several sources familiar with the situation told Reuters.
European shares rallied on the news, led by banks and shares in peripheral countries. The euro EUR= fell more than half a cent against the dollar and credit indices tightened sharply.
Policymakers are desperate to revive the euro zone economy, which is barely growing and dogged by low inflation of 0.3 percent, far below the ECB’s target of just below 2 percent.
UPDATE 2-Fed spotted JPMorgan ‘Whale’ risks years before scandal -inspector
* Fed’s inspector general criticizes failure to act
* Latest black eye for New York Fed bank supervisors
* Whale trade led to billions in losses at Wall Street bank (Adds recommendations, outside comment, secret examiner tapes)
By Jonathan Spicer and Michael Flaherty
NEW YORK/WASHINGTON, Oct 21 (Reuters) – The Federal Reserve’s New York branch knew about risks JPMorgan Chase & Co was taking with its massive « London Whale » derivatives bets four years before they imploded, but it failed to act properly to head them off, the U.S. central bank’s inspector general said.
The Fed’s Office of Inspector General said on Tuesday one of the key flaws it uncovered in its probe of the 2008 transaction at the Wall Street bank was the New York Fed’s over-reliance on certain personnel who left the supervisory team in 2011. That created a « significant loss of institutional knowledge » within the team assigned to inspect JPMorgan, the report said.
Fed official: Big banks should clean up their acts
The Fed official overseeing Wall Street says things need to change, and if the industry’s risky culture isn’t turned around, it may be time to break up the big banks.
William Dudley’s proposal would overhaul the way bonuses are paid out to executives. He said it would also incentivize ethical behavior among lower-level bankers.
Dudley, president of the New York Federal Reserve Bank, laid out his ideas at a workshop Monday involving officials from Wall Street’s largest banks, plus federal regulators. Representatives from the likes of JPMorgan Chase (JPM), Morgan Stanley (MS), Goldman Sachs (GS), Barclays (BCS) and Bank of America (BAC) were listed as participants.
If « bad behavior » continues, the banks would « need to be dramatically downsized and simplified, » he warned them. Dudley cited « ongoing occurrences of serious professional misbehavior, ethical lapses and compliance failures » that have led to over $100 billion in fines since 2008.
The cornerstone of his plan is barring bank management, including top executives, from cashing out bonuses before their firms take a hit from big losses or government fines.
Dudley proposed bonuses be promised but locked up and only paid out in full after 10 years. In the meantime, fines and major losses could be deducted from that amount.
The Australian dollar is higher after the release of better than expected Chinese economic growth figures.
At 1700 AEDT on Tuesday, the local unit was trading at 88.18 US cents, up from 87.95 cents on Monday.
China’s gross domestic product expanded 7.3 per cent year-on-year in the September quarter, dragged down by a softening property market, official data showed.
The figure is a five-year low but exceeded the median market forecast of 7.2 per cent.
Forex.com research analyst Chris Tedder said the numbers gave the market confidence that the People’s Bank of China’s management of its economy is going well.
« The Australian dollar reacted exactly as expected to today’s Chinese GDP figures – it jumped slightly higher after the mildly better than expected data, » he said.
« Today’s numbers increase the likelihood that Beijing will do even more to support economic growth. »
Turkish Central Bank to pay interest on lira reserves to support growth
Turkey’s Central Bank said on Oct. 21 it will begin paying interest on financial institutions’ required lira reserves from November, in a bid to support growth and domestic savings.
The Bank said earlier this year that it may take such a step to boost liquidity in the financial system and help counter any economic slowdown. It stopped paying interest on lira reserves in 2010, when Turkey was flooded with cheap funding that threatened to overheat its economy.
The Central Bank said on its website that the rate of interest it pays on lira reserves in November and December will equal the weighted average cost of Central Bank funding minus 700 basis points.
Economics News
Economics News: Some bankers, which consider that we are in a new XXI Century class struggle, have been calling for a quick rate normalisation without delay regardless of the consequences on the economy. We have been indicating many times how surprised we were reading some opinions because they dismissed facts (oil prices development) while they spur mistrust in institutions (libertarian thinking has been widely spread to critic Fed role in inflating asset price bubbles). We were indicating that unless these bankers succeed in crashing the market again, the Central Banks and financial institutions will move ahead with more regulations and constraints (“Banker compensation may get more complicated and have fewer zeroes if the International Monetary Fund has a say”, according to a report on IMF new initiative to regulate a sector perceived by the public as having played a major role in today’s problems).
We would like to separate this “game of chicken” from the overwhelming majority in finance which is trying to improve the narrative, as many banks have had to face multi-billion sanctions and regulator close oversight.
However, until the “bad behaviour” in Finance get corrected, we are likely to see an inflation in opinions and views supporting the bankers fight for their interest. But Australia G-20 is likely to be a game changer in this fight. We have been very optimistic that the global institution will move ahead with improving governance and reducing loopholes discussed in the recent OECD proposal to reduce tax “optimisation”.
Russia to Invest $25 Billion in North Korea
Russia will invest $25 billion in the modernization of more than 3,500 kilometers of railroad in North Korea, Far East Development Minister Alexander Galushka said Tuesday.
Boldly titled « Victory, » the project demonstrates Russia’s commitment to « provide investment in exchange for access to North Korea’s natural resources, » Galushka said at ceremony in Pyongyang celebrating the project, TASS reported.
The project — which includes both the reconstruction of existing railroads and building entirely new lines — will be carried out by Russian engineering and construction firm Mostovik in cooperation with the North Korean government.
Russia and North Korea in June set the goal of increasing their bilateral trade to $1 billion a year by 2020, as Russia faced off with the West over the escalating crisis in eastern Ukraine. Their bilateral trade amounted to about $113 million last year. (MT)
Slowing economic growth a challenge for Beijing leaders
BEIJING — Even as China’s economic growth sank to the lowest level in more than five years, Beijing policymakers remain cautious about rolling out major stimulus measures, raising concerns about the impact on the global economy.
China’s gross domestic product increased just 7.3% on the year in the July-September period, the slowest pace since the first quarter of 2009, with the sluggish real estate market slamming on the brakes.
In the first nine months of this year, home sales dropped 10% in value. Lower sales and mounting inventory dampened new investment, pushing down spending growth in property development to 12.5% for the period, down 1.6 percentage points from the January-June half.
Manufacturers with excess capacity took a direct hit, with the increase in industrial production slowing 0.3 percentage point from the January-June term to 8.5%.
Since the start of the year, the prices of reinforcing steel — used to build condominiums and other structures — have fallen about 20% to some 1.5 yuan (24 cents) per 500 grams, roughly the price of Chinese cabbages.
« Chinese cabbages are doing better because they sell, » lamented a steel wholesaler in Chengdu, Sichuan Province. « We may have to shut down the business. »
Copper Jumps Most in Five Weeks on China Economic Data
Copper prices jumped the most in five weeks in London as the economy expanded more than forecast in China, the world’s top user of industrial metals.
Gross domestic product increased 7.3 percent in the third quarter from a year earlier, topping the average estimate of 7.2 percent by analysts, Chinese government data showed today. Industrial output rose 8 percent in September, exceeding forecasts. Last week, a government official said the central bank is considering a 200 billion yuan ($32.7 billion) stimulus plan. As of Oct. 14, hedge funds bet on a drop in New York copper futures and options for the fourth straight week. “Between the Chinese GDP being better than expected, stimulus talk in the last couple days in China and money managers being net short, we’re seeing a little bit of a short-covering rally,” Graham Leighton, a trader at Marex Spectron Group in New York, said in a telephone interview.
Growth in Chinese GDP drives local currency higher, while shares remain steady
Slightly better than expected economic growth for China has helped drive the Australian dollar higher, but local shares have taken a pause from their recent gains.
The local currency jumped back above 88 US cents in the wake of official Chinese GDP data for the September quarter, and was trading around 88.1 US cents just after 5:30pm (AEDT).
Gross domestic product grew by 7.3 per cent in the three months, slightly better than the 7.2 per cent growth predicted by analysts.
Trade was flat for the Australian share market throughout the day, with marginal falls in the afternoon erased in the final minutes of the session.
The All Ordinaries index closed up five points or 0.1 per cent at 5,313, while the ASX-200 added six points to 5,325.
There were mixed fortunes for the major players in the key finance and mining sectors.
IMF: Time has come for big changes in banker pay
Banker compensation may get more complicated and have fewer zeroes if the International Monetary Fund has a say.
The IMF’s most recent Global Financial Stability Report evaluates executive pay, corporate governance and risk-taking in some of the largest banks around the world and recommends policy measures to ensure only prudent risk-taking is rewarded.
While a number of quantitative and qualitative factors contributed to the global financial crisis, the report argues that structure of executive compensation encouraged bankers to take shortsighted risks with lasting negative impacts:
The causes of such risk taking were many and complex, but there is general agreement in the financial industry, the public sector, and academia that incentive structures at some financial institutions played an important role.
Earnings News
Earnings news: Apple earnings help to calm the excessive nervousness that corporations profit margins will be unsustainable and will push the market into a depressed territories.
The Earning season just started by the overall view is not as “depressing” as many have been painting for months (we have disagreed with this view at many occasions). Except some important misses due to idiosyncratic reasons, such as IBM, the profit margins look still healthy.
But the corporations continue to see “challenging” top line. In fact the “balance sheet deleveraging” dynamics continue to be at play. In a nutshell, corporation anticipates less top line growth, they protect their margins, using tax initiatives, financial engineering (such as buy-backs) or rationalise their staff. This dynamic is usually used by some populists groups to point to the class-struggle between Rich (shareholders) and Poor (workers). But there is an untold story, which explains that even with the very high level of inequalities, there is a very low probability for a XIX Century style revolution *though many would love to see it to challenge the current governance improvement trend*. The untold story is that among people leaving big corporation, there is an overwhelming number of entrepreneurs, innovators and good professionals which have reached the level of intolerance vis-a-vis some crony capitalism phenomenon. This is what we like to call “Stalinism Capitalism”: it works like capitalism for large shareholders and management while its Stalinism for workers, small shareholders (including Pension Funds). Should big corporation move away from Stalinism Capitalism, a trend which is already in place, we would with more than 75% probability: 1) improve profit margins, 2) improve workers pay and conditions, 3) improve gender equality – which empowers workers -, 4) improve consumer services. This trend is a certainty because political activism has been focusing on criticising states actions, it has just get organised to challenge private sector bad behaviour.
Earnings set to take markets’ center stage
Earnings news will take center stage Wednesday after another day of strong stock market gains cemented the view that the worst is over.
Boeing, Abbott Labs, Biogen Idec, GlaxoSmithkline, Norfolk Southern, Northrop Grumman, US Bancorp and Dow Chemical are among the companies reporting before the opening bell. CPI inflation data is also expected at 8:30 a.m., and that number should reflect falling gasoline prices.
Investors have been increasingly willing to dip into stocks with no new negative developments in Ebola, a steadying of oil prices, and the sense that the Federal Reserve will not move to raise rates quickly even as it ends bond buying. The start of a European Central Bank bond buying program this week and speculation it could do more also helped put a lift in risk assets.
« It’s a retracement of a decline that made no sense, » said Steve Massocca of Wedbush Securities. « We are now back to where we were on Oct. 9. We’re back to where we were eight trading days ago…It put a damper on a lot of the deal activity that was going on, and that’s what we needed. Now we’re recovering. I think we’re going to consolidate here. » Massocca said with relatively high valuations, he does not expect the market to go much higher.
Best day of 2014 for S&P 500 and Nasdaq Composite
U.S. stocks surged on Tuesday, with the S&P 500 and the Nasdaq Composite extending gains into a fourth day, as investors embraced earnings from corporations including Apple, Texas Instruments and United Technologies.
« When you look at Apple, it almost takes your breath away. It’s such a big company, and so important to the S&P 500 and the technology sector, so it has a lot of weight, » said Hugh Johnson, chairman of Hugh Johnson Advisors, who owns Apple shares, but would not purchase more at current prices.
Verizon Communications gained after the wireless carrier tallied revenue above estimates; Coca-Cola and Chipotle Mexican Grill were active to the downside, as the beverage maker and Dow member cited currency headwinds in cutting its growth outlook, and the burrito chain signaled increased growth in quarterly sales would not continue forever.
Ebola
Ebola: In our special note on Ebola (Ebola a communication war) we stressed that Ebola virus will be more about a communication issues than a medical problem. On one hand, we pointed to the excessive fear spurred by politically motivated participants on Twitter. On the other, we stressed that while spreading fear about Ebola could help short term interest groups such as increasing financial markets volatility which could help put the blame on excessive regulation. It does show how the Tea Party caucus and less moderate GOP are unprepared to take over the executive branch. If I was advising Marco Rubio or Rand Paul, I would have advised them to fire their communication and strategic teams. Why? For one simple reason, by emphasising the mistrust, both the two Senators are showing how unprepared, un-experienced they are to pretend running for office in 2016.
- Would anyone trust a leader who will start trashing all the administration and pushing the public to panic while they have to be focus finding solutions?
- Would anyone trust Marco Rubio, who continue to fight a XVI Century war against Science, to take the right decision while over sighting CDC operations?
- Would anyone trust Sen. Rand Paul to be the leader to calm the public when he was indicating that Ebola is airborne (NB: this is not the case now please see our report)?
Should the Senate goes to the GOP, it would be the first time in my 20 years career analysing politics that I would have seen a group wining on the ground that : 1) they will spur fear instead of calming public nervousness and show they would be working, 2) they will trigger an economic crisis because they might be some highly hypothetical fear that Chair Yellen will be behind the curve, 3) they might call for President impeachment trial when the country is leading a coalition against terrorists (inc. ISIL). Will the US public prefer voting to help some private interests which have invested ~$1bn in ads? I doubt. I continue to believe that Tocqueville is right: the US is the best democracy invented so far.
The arrival of Ron Klain as a coordinator of the US administration efforts is likely to lead to a reduction in the excessive fear we have reached last week. WHO announcements, that some western african countries are free from Ebola and that a Vaccine should be ready by January 2015, are contributing to overcoming the outbreak.
Ebola vaccine trials in West Africa expected to start in January for ‘tens of thousands’
GENEVA – Tens of thousands of doses of experimental Ebola vaccines could be available for « real-world » testing in West Africa as soon as January as long as they are deemed safe, a top World Health Organization official said Tuesday.
Dr. Marie Paule Kieny, an assistant director general for WHO, said clinical trials that are either underway or planned in Europe, Africa and the U.S. are expected to produce preliminary safety data on two vaccines by December.
If the vaccines are declared safe, she said they will be used in trials in West Africa beginning in January to test their effectiveness among tens of thousands — but not millions — of people.
« I’m not suggesting at this moment that there would be mass vaccination campaigns at population levels starting in 2015, » she said, adding that none of the volunteers who take part in the trials could accidentally contract Ebola from the testing.
US to screen all travelers from West Africa at 5 airports
WASHINGTON (AP) — Everyone coming to the United States from the three West African countries at the center of the Ebola outbreak will now be screened for the deadly disease at one of five airports, the Homeland Security Department said Tuesday.
Earlier this month, Customs and Border Protection officers at New York’s Kennedy, Newark Liberty, Washington’s Dulles, Chicago’s O’Hare and Hartsfield-Jackson Atlanta airports started screening people arriving from West Africa. The screening includes using no-touch thermometers to determine if travelers have a temperature, one symptom of a possible Ebola infection. The Centers for Disease Control and Prevention is also working with DHS on the screening.
There are no direct flights to the United States from West Africa. About 94 percent of the roughly 150 people traveling daily from West Africa to the U.S. arrive at the one of the five airports. Homeland Security Secretary Jeh Johnson said Tuesday that now everyone traveling from Liberia, Sierra Leone or Guinea will have to land in the U.S. at one of the five airports and then fly on to their destination.
CDC Urges Stricter Ebola Protections for Health Workers
U.S. health authorities recommended greater safety protections for caregivers treating Ebola patients while the outlook improved for containing the virus outside West Africa.
Health workers caring for Ebola patients shouldn’t have any skin exposed, must undergo rigorous training and be supervised by a qualified monitor, the U.S. Centers for Disease Control and Prevention said yesterday. Separately, the agency is revising its recommendations about how to track the health of people who have been exposed to the virus and when their travel should be limited to prevent the spread of the disease.
Ebola has infected more than 9,000 people, killing more than half, in the West African countries of Sierra Leone, Liberia and Guinea, according to the World Health Organization. But the agency yesterday declared Nigeria free of the virus and, in the U.S., 43 people who had contact with deceased Ebola patient Thomas Eric Duncan in Texas were cleared of risk.
Is there really a ‘fear factor’ in the elections?
As this blog and others have noted, Republicans have been using Ebola — layering it on top of ISIS and the border — to foment generalized fear and anxiety among voters and nationalize the elections. The goal is to distract from issues and GOP vulnerabilities that help Democrats, and to turn the midterms into a referendum on Obama’s competence amid a hyped-up sense that the country is careening out of control. Skittish Democrats, fearing the potency of such attacks, have been all too quick to embrace a travel ban, even though experts say it’s a terrible idea.
But how is this generalized effort to gin up fear as a factor in the elections really playing? Does it matter?
Two new focus groups of so-called “Walmart moms” — conducted by Republican pollster Neil Newhouse and Democratic pollster Margie Omero — shed a bit of light on this question.
In a memo about the focus groups, Newhouse and Romero write that “Ebola has replaced ISIS as a worry about instability and government leadership.” But it is not a factor in their vote:
In our early September focus groups, ISIS was a dominant concern. It has almost been completely replaced by worries about Ebola…but they do not necessarily feel it is an imminent threat — that is, this is more of a threat to the country, not to them personally.
The CDC — somewhat more than Obama — takes most of the blame, for being “too relaxed” and unprepared. While Ebola is certainly lessening moms’ confidence in government, not one cites it as a reason to vote against (or for) Democrats in November.
Marco Rubio vs. scientists, Round III
A couple of years ago, Sen. Marco Rubio (R-Fla.) was asked how old he thinks the planet is. The senator replied, “I’m not a scientist, man.” Earlier this year, the Florida Republican said he rejects the way “scientists are portraying” the climate crisis.
And this week, Rubio has found a new way to thumb his nose at scientists.
Sen. Marco Rubio (R-FL) announced on Monday he will introduce legislation banning travel to the U.S. for nationals of Ebola-stricken African countries once Congress returns the week after the Nov. 4 elections.
The bill would immediately ban U.S. visas for nationals of Liberia, Guinea and Sierra Leone, to be lifted once the Centers for Disease Control certify that the outbreak has been contained. It would also subject other countries where the Ebola outbreak reaches “significant levels,” Rubio’s office said.
Once introduced, this will be the first Senate legislation mandating a West African travel ban, though a related bill has been announced for the House.
Gaza
Gaza: China has joined the call for creating conditions for peace talks. Although this did not come as a surprised to us, we see in the global call for peace as an additional evidence that Israeli-Palestine problem is heading toward an unique opportunity to settle a renewed peace process. UN Secretary General Ban is pressing both Hamas and IDF to recognise excesses. First, the UN is refocusing the attention to facts we were indicating during the summer, that some Hamas weapons have been hidden in UN sites during Gaza war. This adds more evidence to the fact that Hamas has been using palestinian civilians as shields. Second, the UN is pressing the Israel Defence Forces (IDF) inquiry about the excessive use of force.
We have been expressing worries after the decision to reconstruct Gaza because there is a genuine lack of traceability of funding. Hamas confirmed that some funds are redirected to re-militarize. This is in line with the fact that as Hamas is losing its political capital to Fatah of President Abbas. The organisation announcement is a gesture to regain some of its “lieutenants” defecting to other “hard liner” organisations.
We have been saying for some time that a fight against terrorism and radical Islam required to genuinely rebuild trust which would phrase in 3 steps. First, reopen Palestine Israel peace process. Second, sell the narrative that this process is intend to be a win-win scenario (i.e. peace, jobs, and growth for the 2 countries). Third, reduce the speed of Jihadists hiring because those are getting radicalised by the feeling of “injustice” and a perceived war against palestinian and muslims in general.
Recent Secretary of State Kerry comments that a Palestinian – Israel two-state solutions will help derail ISIL are in line with the convictions we expressed since the start of Gaza war and the “fight for talents” terrorists organisation have been organising. Please see our comments on Iraq & Syria will indicate that the terrorists are loosing battle in the ground but want to keep their narrative alive in order to keep hiring (when the western countries are just realising that defeating ISIL will require defeating its hiring process).
China calls on Israel to create conditions for peace talks with Palestine
UNITED NATIONS, Oct. 21 (Xinhua) — A Chinese envoy on Tuesday called on Israel to create necessary conditions for the resumption of peace talks with Palestine.
At an open debate of the Security Council on the situation of the Middle East, Liu Jieyi, China’s permanent representative to the UN, urged Israel to put an end to the construction of settlements on occupied territories, lift the blockade on Gaza, and release Palestinian prisoners as soon as possible.
Liu said despite the ceasefire of Gaza, things on the ground remain fragile and humanitarian situation is worrying. To change it, the envoy said, it requires Palestine and Israel to work together with the rest of the international community.
« The recurrent conflicts between Palestine and Israel in Gaza shows once again that deadlock in talk is bound to aggravate tensions and drag both parties down into a cycle of violence, » he said.
The Israelis and the Palestinians resumed peace talks in July 2013 after a three-year hiatus. The talks were deadlocked in March this year and collapsed in April, with both sides accusing the other of failing to keep its commitments. Israel wanted the Hamas- controlled Gaza Strip demilitarized while Hamas demanded a lift to the blockade on the enclave.
« We hope that Palestine and Israel will adhere to the strategic choice – peace talks, seize the opportunity of ceasefire to resume and push forward substantial negotiation so as to achieve an early settlement of the question of Palestine that will eventually create an independent state of Palestine that enjoys full sovereignty on the basis of the 1967 border with eastern Jerusalem as its capital, » Liu said.
UN’s Ban vows inquiry into weapons found at UN sites during Gaza war
« The scale of the destruction in Gaza has left deep questions about proportionality and the need for accountability, » Secretary General says at debriefing of the Security Council.
NEW YORK — Fresh off a Monday meeting with Defense Minister Moshe Ya’alon, UN Secretary General Ban Ki-Moon debriefed the UN Security Council on Tuesday morning on his recent trip to Israel, Egypt and the Palestinian territories, and said that he would push forward on an investigation into the destruction and damaging of UN-owned buildings, including incidents when Hamas weapons were found in UN schools.
Ban recounted seeing “mile after mile of wholesale destruction” in Gaza, and his visit to the UN refugee camp Jabalia, which was shelled during Operation Protective Edge.
“I look forward to a thorough investigation by the Israeli Defense Forces of this and other incidents in which UN facilities sustained hits and many innocent people were killed,” he said. “I am planning to move forward with an independent Board of Inquiry to look into the most serious of those cases, as well as instances in which weaponry was found on UN premises.”
Ban Ki-moon says attacks on UN facilities during Israel’s assault on Gaza Strip during July-August will be investigated.
The UN says it will begin investigating attacks on its facilities during Israel’s recent war against Hamas in Gaza, that killed more than 2,100 Palestinians.
UN Secretary-General Ban Ki-moon said on Tuesday that the world body was investigating a deadly strike near one of its schools in the Gaza Strip and the alleged use of UN sites to store weapons.
« I am planning to move forward with an independent board of inquiry to look into the most serious cases, as well as instances in which weaponry was found on UN premises, » Ban said at a monthly meeting of the UN Security Council.
Ya’alon: Israel won’t allow Gaza reconstruction if Hamas rebuilds infiltration tunnels
Hamas admits rebuilding tunnel network in wake of Gaza conflict
Gaza newspaper reporter visits tunnel under repair; head of digging team says repairs began during one of summer conflict’s humanitarian ceasefires.
Iraq & Syria
Iraq & Syria: Last week we were saying that, as soon as Turkey will have assurances that the Kurds will not use the current tension at Kobane to increase the tension over the Kurdish independence, ISIL is likely to start to loose the symbolic battle. We were indicating that Kobane is a must win for ISIL in order to pursue their “marketing campaign” borrowed to Spartacus and David & Goliath.
During the recent days, ISIL was loosing ground in Kobani and diverting its to-become-jihadists attention to Baghdad, Raqa to show how barbaric ISIL can be. These actions intend to keep the “to-become-Jihadists” (like Australian Abdullah Emir – click here-) attention on joining their fight. We have been witnessing that many non-affiliated groups have pledge allegiance to ISIL in order to keep hiring. We have seen for example that Algeria salafists groups have renamed themselves to “Califat fighters” to channel funding, weapons, supports etc. We would not be surprised if ISIL continues to spur disinformation that they can take their fight to the sky or that the have got access to US arms (as indicated by the US thanks message channeled by some extremists twitters.
By winning the communication war and cutting ISIL from attracting young fighters the coalition increases its chances to ultimately defeat ISIL.
We would like to remain our readers that ISIL is three groups: 1) psychopaths – drug addicted fighters who are leading the fight because their illness have reduced their fear of death, 2) Some sunni army groups which have been betrayed by Al-Maliki government (these include Ba’aht party), 3) Some sunni tribes. The “non-psychopaths” are using ISIL as a threat to push the global community to pressure Iraqi government to be more genuinely inclusive and reduce bad governance. We would not be surprised that Iraqi army would spur the information that they would be helping ISIL to take it fight to the sky, but let’s face facts, unless ISIL gets some government support, it’s very difficult to imagine how ISIL could have any chances vis-a-vis US and coalition airforces.
IHS confirmed the estimates we had that ISIL was making ~$2millions per day from oil, before US Strikes. But the combination of the oil facilities strikes and the plummeting oil prices are likely to bring this financial source down. Furthermore there is a genuine need to cut ISIL oil from market through a better oversight and regulation of the oil markets (to avoid money laundering and terrorism financing).
Two factors are important to watch in the coming days: 1) how President Ergodan will change is position when Kobani situation will deteriorate, 2) how the coalition will withstand two events (Iran nuclear negotiation and Saudi decision to let Oil prices stabilise at 70-80$). On the first topic, President Erdogan seems to be willing to provide help – sufficient help to keep ISIL away from Turkey where Muslim Brotherhood are reallocating after being “asked to leave” by Qatar. Second, the coalition is strong and seems to have accepted low oil prices.
ISIL ‘launches fierce new assault’ on Kobane
Kurdish fighters in the battle for the Syrian town of Kobane weathered a fresh onslaught by fighters from the Islamic State of Iraq and the Levant (ISIL) as they awaited promised reinforcements from Iraq.
The Kurdish militia faced fierce attacks on Tuesday, fresh from heavy battles on Monday evening in which ISIL appeared to be trying to cut off the border with Turkey before the reinforcements could arrive.
This account is according to the Syrian Observatory for Human Rights, who also reported that coalition forces carried out further air strikes overnight, following weeks of attacks in and around Kobane.
Pinpointing military and humanitarian aid from nations in the international struggle against the armed group.
Ankara’s announcement on Monday that it would facilitate Kurdish forces from Iraq crossing its border with Syria to relieve Kobane’s beleaguered defenders marked a major shift of policy and was swiftly welcomed by the US.
Kobane has become a crucial symbolic battleground in the war against ISIL, which is fighting to extend areas under its control in Iraq and Syria, where it has declared an Islamic « caliphate » that has not been widely-recognised.
An influx of well-trained Peshmerga fighters into Kobane could be a major boost for the Syrian Kurds.
Turkey to allow Iraqi Kurds to join battle against ISIS in Kobani
Turkey will finally help Iraqi Kurdish fighters to reach the besieged Syrian border town of Kobani where their fellow Kurds have been fighting Islamic State militants for over a month, Ankara has said.
“We are facilitating the passage of peshmerga forces to Kobani to provide support. Our talks on this subject are continuing,” Reuters quoted Turkish Foreign Minister Mevlut Cavusoglu as saying.
During a press conference, the foreign minister stated that Ankara doesn’t want Kobani to fall into the hands of the violent jihadist group, the Islamic State (also known as ISIS or ISIL), which has seized large areas of Syria and Iraq.
He also said that the Turkish authorities are « fully cooperating with the international coalition over Kobani. »
However, Cavusoglu stopped short of saying that Ankara supports Washington’s decision to supply weapons to the Kurdish troops fighting for Kobani.
CORRECTED-Britain sends drones to fly surveillance missions over Syria
Oct 21 (Reuters) – Britain said on Tuesday it was authorising spy planes and armed drones to fly surveillance missions over Syria « very shortly » to gather intelligence on Islamic State (IS) militants.
Michael Fallon, the defence minister, said both Reaper drones and Rivet Joint surveillance aircraft would fly over Syria as part of « efforts to protect our national security from the terrorist threat emanating from there. »
But in a written statement to parliament, he stressed that Reapers would not be allowed to use their weapons in Syria, something he said would require « further permission. » A defence ministry spokeswoman was unable to immediately clarify whether that meant ministerial approval or a vote in parliament.
Fallon announced last week that Britain was deploying armed Reaper drones to the Middle East to conduct air strikes against Islamic State in Iraq.
Parliament voted to approve air strikes against IS in Iraq last month, after a request from the Iraqi government, but Britain isn’t conducting air strikes in Syria. It has previously said such strikes would require fresh parliamentary approval. (Reporting by William James; Editing by Andrew Osborn).
US Airdrop to Kurdish Fighters Seized by ISIS
ISIS-affiliated social media accounts posted sarcastic « thank you » notes to social media
A U.S. airdrop intended to arm Kurdish fighters in northern Syria ended up in the hands of Islamic State of Iraq and Greater Syria (ISIS) fighters, local activists said Tuesday, underscoring the challenge of arming Kurdish fighters along fluid and ill-defined battle lines.
ISIS-affiliated social media accounts filled with images of what appeared to be the intercepted weapons cache, which included ammunition and rocket-propelled grenades, along with sarcastic thank you notes to “Team USA.” Activists for the Syrian Observatory for Human Rights told Associated Press that ISIS fighters had seized at least one package.
Canadian police say man who ran down, killed soldier was ‘radicalized’
(CNN) — A man shot to death after running down and killing a Canadian soldier with his car was « radicalized » and classified as a « potential important threat » to the country, Canadian authorities said Tuesday at a press conference.
Police arrested Martin Rouleau Couture, who reportedly converted to Islam about a year ago, last July and confiscated his passport, but lacked enough evidence to keep him in custody, said Martine Fontaine of the RCMP.
« When he was arrested, he was about to go to Turkey, » Fontaine said. « We stopped him as he was about to leave Canada for terrorist actions. He was questioned when he was arrested. We have not been able to determine any real threat at this time. »
On Monday, a man driving a car hit two members of the Canadian Armed Forces who were walking in a strip mall parking lot in Saint-Jean-sur-Richelieu, Quebec, said David Falls, spokesman for the Royal Canadian Mounted Police.
Libya parliament allies with renegade general, struggles to assert authority
(Reuters) – Libya’s beleaguered elected parliament has declared a formal alliance with a renegade former general, as it struggles to assert some authority in a country many fear is sliding into outright civil war. Three years after the overthrow of Muammar Gaddafi, the oil-producing desert state is in chaos, with Islamists and other militias fighting for territory and influence and the regular armed forces left with little power. One militia faction has seized Tripoli, setting up its own assembly and administration in the capital and forcing the government to take refuge in the eastern part of the country.
Russia
Russia – Ukraine tension take away:
Russia and Ukraine tentative gas deal, reached in Milan, is likely to move ahead according to PM Yatsenuk. But this did not come with less tension, Merkel has been very critical to President Putin, while Germany BND (spies) have reported that MH-17 has been shot down by Pro-Russian rebels.
Yesterday, the head of the State Duma’s Foreign Affairs Committee, Mr. Pushkov, has denied Russia’s involvement in the downing of Malaysian Airlines flight MH17 following the publication of BND report. This communication war is likely to keep any trust about MH17 always challenged.
Chancellor Merkel attitude is in line with our view that she is using Putin threat to push EU to undertake more reforms and more integration, while keeping the threat of Russia isolation very high. Meanwhile, Russia economy continues to tank.
Actually, many other political groups are using the same strategy: allegiance to Putin in exchange to push some domestically driven agenda.
Reports out of Sweden relative to underwater activities indicate that Sweden is shifting away from its “neutral” stands and is heading to put some additional pressure on Putin. Should Sweden change stands as the recent evidence are starting to show, Ukraine tension might increase because it will leave President Putin without any example of neutrality Ukraine should be bind by.
Comments by Swedish PM Lofven “[Sweden] have already say [it] will stay out of NATO” hint that the recent events are bringing the question back to the table (at least from the Russian prospective).
We continue to see only two possible outcomes: 1) Russia pursue its aggressive attitude and pushed for a separation of Ukraine at the expense of a full-fledge isolation, or 2) Russia opposition start to “challenge” President Putin to return to reforms. The second outcome is unlikely for now because intelligence from the ground is indicating that while the opposition is willing to change the trend, there is a serious lack of appetite to challenge President Putin be in openly or behind the scenes.
We foresee the situation to continue to deteriorate while Oil prices continue to plummet. Russian economy is likely to suffer a lot, while EU narrative is likely to change because the “communication war” which have been spurred by Russia and its supporters in the Western political groups is loosing traction (facts have no religion).
Pentagon Admits US Weapons May Be in IS Militants’ Hands
WASHINGTON, October 22 (RIA Novosti) – Pentagon Press Secretary John Kirby admitted that US Weapons, air-dropped for the Kurds fighting the Islamic State (IS) militant group in the Syrian city of Kobani could now be in Islamists’ hands.
“I honestly don’t know if that [bundle] was one of the ones, dropped and whether it is, in fact, or the contents are, in fact, in the hands of ISIL [IS], we honestly don’t know, we are still looking at it,” Kirby commented.
The Press Secretary was commenting on the IS video, released Tuesday, showing the motors, grenades, and armor piercing grenade (APG) parts of the same kind of material that was dropped by US airplanes.
“It’s not out of the realm of the possible. But we are taking a look at it and we just don’t know,” Kirby stated.
The video of IS fighters with one of allegedly air-dropped bundles posted on YouTube on Tuesday is being examined by US military analysts.
Putin Expresses Condolences Over Total CEO Death in Moscow Plane Crash
MOSCOW, October 21 (RIA Novosti) – Russian President Vladimir Putin on Tuesday expressed his deep condolences to his French counterpart Francois Hollande over the death of Christophe de Margerie, the head of French energy giant Total.
“Please convey my sincerest condolences and sympathy to the family and friends of Christophe de Margerie – a prominent French businessman who pioneered many of the major joint projects, which laid the foundation for many years of fruitful cooperation between France and Russia in the energy sector … We have lost a true friend of our country and his legacy will remain with us,” said the telegram Putin has sent to Hollande, according to Kremlin.
“Vladimir Putin has long known de Margerie and had a close working relationship with him, » presidential press secretary Dmitry Peskov added.
Sweden Not Planning to Join NATO: Swedish Prime Minister
TALLINN, October 21 (RIA Novosti) – Sweden has no intention of joining NATO, Sweden’s newly appointed Prime Minister Stefan Lofven said Tuesday.
« We have clearly said that we will stay out of NATO, » Lofven told reporters in Tallinn, adding that Sweden intends to « keep and, if possible, improve cooperation » with the alliance.
The minister noted that Sweden has collaborated with the NATO states for a long time, but this does not mean that it is obliged to follow the alliance’s rules. This includes the fifth article of the North Atlantic Treaty, which states that an armed attack against one NATO member would be considered an attack against all of them.
Swedish Search Mission Not Connected to Dutch Submarine: Swedish Armed Forces
MOSCOW, October 21 (RIA Novosti) – The ongoing operation in the Stockholm archipelago is not connected to a Dutch submarine that recently visited Sweden, the Swedish Armed Forces told RIA Novosti on Tuesday.
« Swedish Armed Forces will not speculate regarding the foreign activity in the Archipelago of Stockholm. We are still conducting an intelligence operation and as long as the operation is ongoing we will not be able to comment, » a spokesperson for the Swedish forces said in an e-mail correspondence with RIA Novosti.
« Although we can tell you that we have been able to establish that the foreign activity we are investigating is not connected to the Dutch submarine that visited Sweden last week, » the spokesperson added.
Ukraine Ready to Sign Temporary Gas Deal With Russia: Prime Minister
KIEV, October 21 (RIA Novosti) – Ukraine is ready to sign a temporary gas agreement with Russia, the final price and supply conditions will be set by the courts, Ukrainian prime minister Arseniy Yatsenyuk said Tuesday.
“We are ready to sign – I highlight this – a temporary deal. The final decision on the price and on the delivery conditions will be determined by a court,” Yatsenyuk was quoted as saying by Ukraine’s government portal.
Yatsenyuk reminded that in order to sign the temporary agreement the Ukrainian government had accumulated 3.1 billion dollars.
Yatsenyuk also stated that another possible way to resolve the gas dispute is to get an interim juridical decision from Stockholm’s arbitration, which will determine the price for gas, as well as the conditions of supply.
Pushkov Dismisses Report Blaming Pro-Russian Rebels for MH17 Crash
The head of the State Duma’s Foreign Affairs Committee has denied Russia’s involvement in the downing of Malaysian Airlines flight MH17 following the publication of a German report blaming Ukrainian rebels for the crash.
« The German secret services noted: The Boeing [airplane] was hit by a Ukrainian Buk missile system ‘in possession of the separatists.’ In other words: Russia is not involved here. And the Buk could have been launched by Ukrainian armed forces, » Alexei Pushkov wrote Monday on his Twitter account.
German newspaper Der Spiegel reported Sunday that the head of Germany’s foreign intelligence agency, Gerhard Schindler, told a secret parliamentary committee in September that the plane had been downed by pro-Russian separatists using a Russian Buk missile system fired from a Ukrainian base.
Hong Kong
Hong Kong take away:
Hong Kong protests are calming down, as we were expecting, while a recent poll showed that 68% are opposing protests. As we were expecting HK reopened dialogue with protestors but we see the timing too soon to stuck any genuine action which could give all the camp Mainland, HK and Umbrella Revolution something to claim a victory for. As we were expecting, the crackdown on the protestors is nothing comparable to what some have been fearing (Tian’anmen square II).
We see mainland China giving some democratic say, as soon as the IV-th plenum will be validated and the two difficult reforms (i.e. fighting corruption and introducing the rule of law while separating the juridicial system from the other branches) advanced.
We believe that President Xi wants to be seen as the strong man in his fight against conservatism and in conducting reforms. 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 (introduction of some form of democracy), 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.
Hong Kong students put their case to government, but no breakthrough
(Reuters) – Thousands of Hong Kong protesters listened raptly from the streets on Tuesday as student leaders debated their call for full democracy for the Chinese-run city with government leaders to try end a weeks-long occupation of major traffic arteries.
But, as had been widely expected, there was no breakthrough. Student leaders had yet to decide whether or not to hold a second round.
Beijing-backed city leader Leung Chun-ying had earlier hinted at a procedural concession in choosing the next leader, but it fell well short of what the student-led protesters have been demanding.
Three large screens and projectors were set up at the tent-strewn main protest site on a thoroughfare in the Admiralty district, next to the government offices, with periodic cheering for remarks by student leaders and jeering when Chief Secretary Carrie Lam spoke during the dialogue.
« (Officials) in the Hong Kong government can now decide whether to be democratic heroes or historical villains … I believe every Hong Kong citizen is waiting to see, » student leader Alex Chow said.
China’s central authorities fully support HK gov’t: CY Leung
HONG KONG, Oct. 19 (Xinhua) — Hong Kong Chief Executive CY Leung said on Sunday that China’s central authorities are fully aware of Hong Kong’s situation and have expressed confidence in him and the Hong Kong government to tackle the Occupy Central movement.
In a television interview, Leung said the central government has openly expressed serious concern over Hong Kong, and that it is fully aware of what is happening in the city and the reasons behind the events that are unfolding.
He also said that the Occupy Central movement is not entirely a domestic movement, as external forces are involved.
Leung said »there is obviously participation by people, organizations, from outside of Hong Kong, in politics in Hong Kong, over a long time. And this is not the only time when they do it. And this is not an exception, either. »
Hong Kong protest talks agree little
Hong Kong (CNN) — Conflicting visions of how to bring about change marked the first meeting of pro-democracy protesters and Hong Kong government representatives Tuesday.
While Chief Secretary Carrie Lam, Hong Kong’s second in command, called on the protesters, led by the Hong Kong Federation of Students, to work within the system, student leaders said they had no choice but to work outside it.
« We should work within the system and enhance the transparency and competitiveness of the system as a whole, » Lam said. « This is a good opportunity and a meaningful dialogue. I hope the community will stay united. »
After more than three weeks of chaotic pro-democracy demonstrations, Alex Chow, one of the student leaders, called for a timetable for political reform.
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.
Ferguson
Ferguson – Missouri: One word take Replace Catalonia, HK Occupy with Ferguson, keep calm and carry on.
An independent commission will be created to study issues that have surfaced since the fatal police shooting of Michael Brown in Ferguson, Missouri Gov. Jay Nixon said Tuesday. This commission aims de-escalating a situation which could easy surge.
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.
In general, 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 a 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 use soft power – and Ferguson is part of that – to press institutions to reforms. 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.
NIXON CREATING GROUP TO ADDRESS FERGUSON ISSUES
FERGUSON, Mo. (AP) — An independent commission will be created to study issues that have surfaced since the fatal police shooting of Michael Brown in Ferguson, Missouri Gov. Jay Nixon said Tuesday.
Nixon, who has been criticized by some residents and activists who say he hasn’t done enough to address the unrest in the St. Louis suburb, said the Ferguson Commission will examine the social and economic conditions underscored by the weeks of protests following the shooting.
The Democrat outlined his plan for the commission, which will be created by executive order, during a news conference at St. Louis Community College’s Florissant Valley campus. The group’s goals are broad and its members won’t be announced until next month.
The shooting of Brown, an unarmed, black 18-year-old, has spurred unrest that has drawn the national spotlight to Ferguson, including violent protests in the immediate aftermath of the Aug. 9 shooting and calls for the white officer who killed Brown to be arrested and charged.
State senator arrested at Ferguson protest
Police arrested a state senator during a protest on Monday night in Ferguson, Missouri, where unrest continues as residents await the detainment of Officer Darren Wilson for fatally shooting unarmed teenager Michael Brown in August.
Missouri state Sen. Jamilah Nasheed, a Democrat of St. Louis, joined her fellow residents in a gathering outside of the Ferguson Police Department on Monday. Officers requested the demonstrators refrain from entering the street, or risk arrest, said Public Information Coordinator Sgt. Brian Schellman. Nasheed, along with another individual, Jefonte Nelson, reportedly failed to comply with the authorities’ orders. Police arrested them because they allegedly violated a City of Ferguson ordinance for walking in a roadway where sidewalks are accessible.
US midterms elections
US midterms elections:
November 4th midterm elections is coming with many uncertainties. Should GOP win the Senate, the US administration is likely to find itself stuck with a divided government which could make : debt ceiling, budget negotiation, Fed Transparency Bill negotiation, very hard. Some humorists have called the Tea Party caucus to be the “no-negotiators”. Without leaning toward a liberal Tea Party bashing, we would like to remind our readers of October 2013 debt ceiling talk. These period have created too much fear that the US might default that some Sovereign Wealth Funds (SWF) have been considering challenging the USD reserve currency privilege status. The average polls are giving 55% chance to the GOP to secure a win in the Senate. However, these polls do not track the weak signals narrative nor participation variable (a model we’ve built for Scotland Independence and which has proven a very good results). Koch donors story (politico here) is very interesting because it shows that Oil interest groups are busy trying to reduce the speed at which their wealth is evaporating. $1bn is the amount invested, hope that this investment does not include any link to gestures to destabilise the Homeland security. We are confident that private initiative such as Super Pac of Super Pacs (using public donation to cut interest groups campaign financing) would take over in the short term because Pension Funds and Investors will soon recognise that “Greed is NOT good” and better have a functioning democracy.
We continue to side with the consensus. But we consider that as soon as investors will start looking at the consequence of a GOP Senate majority win we might see some change in the dynamics. We have the opportunity to use a new source of big data information. We will be using it to bring the change in the narrative in the coming 3 weeks. Stay tuned and thanks for your support.
The recent polls which show a GOP turnout advantage, should be taken with a pinch of salt. The reason is that turnout is a very volatile variable and depend on the consequence of not showing in the polls. Countries differ in their reaction function to election. As a general view, the more a country struggles to get rights the more the public is fearing the return of any dark days. The more the media will focus on the fact that GOP are winning (with the consecutive effects) the more the voters might increase their turnout. We believe that this “reversibility of votes” is the “magic” bullet which might help save some efficacy for the second half of President Obama tenure as well as avoid an incredible economic headwinds (see here Ted Cruz agenda for GOP Senate). Should one add Senator Ted Cruz comments, those of Senator Rand Paul (which spur fear about Ebola), we might find ourselves in situation which would have many similarities to Nero burning Rome (click here).
These are the reasons why we are less confident than many commentators in the US that GOP has had the Senate majority.
Why single, white women (and minority voters) are Dems last line of defense
Republicans have more women running for Congress this year than ever before. They have five female Senate nominees, one less than the record high set during the 2012 campaign. They also have 50 female House candidates, two more than in 2012.
This high-water mark for Republicans is important because single, white women, along with minority voters, are the last line of defense for Democrats hoping to keep the GOP from a wave election.
Historically speaking, minority voters are less inclined to go to the polls in midterm elections than in presidential contests. That being so, Democrats are focusing on pumping up turnout among college-educated, young, single women, who are considered more likely to vote.
“I haven’t seen gender gaps like this in any race until this year and we’re seeing them all over the place,” Nicole McCleskey, a Republican who polls for Public Opinion Strategies, recently told National Journal. She pointed to particularly high levels of male support for Republicans as part of the reason for this year’s yawning gender gap.
US News
US markets continue to behave between repricing downward growth prospect (as we were expecting), reassign Fed policy going forward or considering (as libertarian driven rhetoric keep mistakingly saying: the economy is very strong and requires a rate hike). Although VIX has moved up it’s still below the high stresses period we have experienced. 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. Finally on this topic we see the push from H. Clinton (and the #GirlPower team) could change the election because the first casualty of a Tea Party Caucus win in November would be women.
Earnings season kicked started with mixed bags for the moment. 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).
Sales Gain Shows Resilient Consumer Before Holiday: Economy
Retail sales climbed in October by the most in three months, indicating the government shutdown did little to unnerve Americans before the holiday-shopping season.
The 0.4 percent increase exceeded the median forecast in a Bloomberg survey after no change in September, Commerce Department figures showed today in Washington. Consumers not only snapped up big-ticket goods such as cars and furniture, they dined out, bought clothing and took home more electronics.
The figures boost the holiday-sales outlook for retailers such as Macy’s Inc. (M) and shows the consumer spending that accounts for almost 70 percent of the economy is picking up from a third-quarter slowdown. Cheaper gasoline is stretching Americans’ paychecks at the same time higher stock prices and home values drive gains in household wealth.
Brent Crude Rises as China’s Growth Exceeds Estimates
Brent crude rose for the third time in four sessions as China’s economic growth beat analysts’ estimates, increasing demand for oil. West Texas Intermediate also climbed.
Futures climbed as much as 1.1 percent in London. China’s gross domestic product rose 7.3 percent in the July-September period from a year earlier, the statistics bureau said today in Beijing. While that exceeded the 7.2 percent median estimate in a Bloomberg News survey of analysts, it was also the slowest expansion since the first quarter of 2009. The country’s oil demand increased by 7.1 percent in September, more than double the growth rate in August, according to data compiled by Bloomberg.
Oil is paring its collapse into a bear market as banks including BNP Paribas SA and Bank of America Corp. predict the rout may be over. They’re in part counting on the Organization of Petroleum Exporting Countries to reduce supply as the U.S. pumps the most oil in almost three decades and Russia’s output rises to a near a post-Soviet record.
China, U.S. reaffirm commitment to building new model of major-country relationship
WASHINGTON, Oct. 20 (Xinhua) — China and the United States on Monday reaffirmed their commitment to pushing forward the construction of a new model of major-country relationship, as the two sides are actively preparing for an upcoming visit to China by U.S. President Barack Obama.
In a meeting at the White House, visiting Chinese State Councillor Yang Jiechi and U.S. National Security Advisor Susan Rice discussed the preparations for Obama’s visit to Beijing in early November to attend the informal leadership meeting of the Asia-Pacific Economic Cooperation (APEC) and hold talks with Chinese President Xi Jinping.
Yang said China is willing to closely cooperate with the U.S. side to make all proper preparations for Obama’s attending the APEC summit and visiting China.
Noting that positive progress has been made recently in improving bilateral ties, Yang expressed the hope that China and the U.S. will move in the same direction to deepen cooperation and coordination in various areas and on important regional and international issues.
The senior Chinese official also urged the two sides to conduct active interaction and cooperation in the Asia-Pacific region, resolve bilateral issues in a constructive way, and seek more tangible achievements in building a new model of major-country relationship, thus making active contributions to enhancing regional and global peace, stability and prosperity.
PENTAGON: COUNTER-IS CAMPAIGN COSTS $424 MILLION
WASHINGTON (AP) — The U.S. military has spent $424 million so far in its military campaign against the Islamic State group in Syria and Iraq, the Pentagon said Tuesday.
The Pentagon’s press secretary, Rear Adm. John Kirby, said the cost has averaged about $7.6 million a day since the bombing began in Iraq on Aug. 8. President Barack Obama expanded the campaign by authorizing airstrikes in Syria in late September.
The U.S. military also is flying large numbers of aerial refueling and surveillance and reconnaissance missions over Iraq and Syria, and it has about 1,400 U.S. military personnel on the ground in Iraq. There are no U.S. troops in Syria.
The U.S. Air Force also has flown a small number of resupply missions in Iraq and Syria.
US considering Iraqi request for more military advisers
Senior US officials are considering an Iraqi request for more American military advisers to help Iraqi security forces in their campaign against Islamic State militants, a senior Obama administration official said on Tuesday.
The request came up in meetings that deputy White House national security adviser Antony Blinken and other US officials had with top Iraqi officials last week on a trip to Baghdad and other parts of the country.
The United States has about 1,400 military advisers and diplomatic security personnel in Iraq. The senior official, who briefed a small group of reporters on condition of anonymity, did not say how many more advisers were requested.
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 by questions about how quick Greece will exit 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 which supports looking at the glass half full. France and Germany have started discussion about investment growth project (Juncker plan). We continue to see the most likely solution would be a EIB financed loans guaranteed by either the ESM or by states directly. The discussion are still on-going as EcoMin Macron and FinMin Sapin of France have been visiting the German cabinet on Monday.
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. Please not the announcement by the UK that “trolls” might face as high as 2years in prison.
For E.U. Climate Meeting, Deep Divisions and High Stakes
BRUSSELS — The leaders of the 28 members of the European Union are set to meet here on Thursday to reassert their global leadership in climate protection, but they will first need to finesse deep divisions over how to generate and distribute energy.
Curbing the emissions that contribute to climate change has long been a popular cause in Europe, where policy makers frequently highlight how their industries and citizens emit fewer greenhouse gases like carbon dioxide than do the United States and other industrialized countries.
The two-day summit meeting this week is intended to strengthen and expand the region’s efforts to cut emissions, bolster renewable sources, improve energy efficiency and connect power markets separated by national borders.
Britain Urged to Step Back in Feud With E.U.
LONDON — The departing president of the European Commission warned Britain on Monday about the dangers of isolating itself within the European Union, saying that the nation’s confrontational stance was backfiring and hurting its chances of winning the policy changes it was seeking.
The commission president, José Manuel Barroso, who leaves office at the end of this month, delivered his message in the midst of an intensely political period in Britain, with Prime Minister David Cameron seeking to beat back a challenge from the anti-Europe U.K. Independence Party heading into a general election next spring.
Thank Ancient Scottish Fish Fossils for Joy of Sex, Scientists Say
Scientists studying fossils have discovered that the intimate act of sexual intercourse used by humans was pioneered by ancient armored fishes, called placoderms, about 385 million years ago in Scotland. In an important discovery in the evolutionary history of sexual reproduction, the scientists found that male fossils of the Microbrachius dicki, which belong to a placoderm group, developed bony L-shaped genital limbs called claspers to transfer sperm to females. Females, for their part, developed small paired bones to lock the male organs in place for mating.
Placoderms are the earliest vertebrate ancestors of humans. « Placoderms were once thought to be a dead-end group with no live relatives, but recent studies show that our own evolution is deeply rooted in placoderms and that many of the features we have — such as jaws, teeth and paired limbs — first originated with this group of fishes, » said John Long, a paleontologist at Flinders University in South Australia who led the research. This new finding, he added, shows that « they gave us the intimate act of sexual intercourse as well. »
Germany, France Vow Investment, Sidestep Who Will Pay for It
German and French cabinet members pledged to boost investment and speed economic reforms as the euro area economy sags, while sidestepping the question of how to finance the drive.
French Finance Minister Michel Sapin and Economy Minister Emmanuel Macron said after talks in Berlin today with German Finance Minister Wolfgang Schaeuble and Economy Minister Sigmar Gabriel that they agreed steps aimed at budget consolidation and investment. Yet German lawmakers say they see little scope to alter the country’s draft 2015 budget to boost state spending on infrastructure projects.
Germany and France aim to present “very precise” investment plans on Dec. 1, while France will try to cut its deficit, Sapin told reporters after the talks. Amid euro bloc economic growth that’s “too low,” both nations “need to act,” said Macron, adding that “Germany has more capacity to invest than France.”
France urges Germany to boost investment spending
Oct 20 (Reuters) – French Economy Minister Emmanuel Macron has called on Germany to spend an additional 50 billion euros on investments over the next three years to support the European economy, according to comments that appeared in the Monday edition of the Frankfurter Allgemeine Zeitung (FAZ) daily.
Macron and French Finance Minister Michel Sapin are due to visit Berlin on Monday for talks with their German counterparts.
France is under pressure to secure EU backing for its 2015 budget, which flouts its past deficit-cutting commitments, while Germany faces criticism for failing to spend more and support the faltering euro zone economy.
In the FAZ, Macron urged Germany to offset the 50 billion euros in savings that Paris has announced.
UK online “trolls” face 2 years behind bars
Britain’s internet « trolls » found spreading abuse on social media could face up to two years in jail under laws proposed by the U.K.’s justice minister.
The move against what Justice Secretary Chris Grayling described as online « cowards » will see a quadrupling of the current maximum sentence of six months.
« These internet trolls are cowards who are poisoning our national life, » Grayling told British newspaper the Mail on Sunday.
« This is a law to combat cruelty – and marks our determination to take a stand against a baying cyber-mob. We must send out a clear message: if you troll you risk being behind bars for two years. »
Israel to testify on Gaza before UN in Geneva
Israeli officials are expected to testify before the United Nations in Geneva on Monday with regard to its military activities in Gaza this summer during Operation Protective Edge.
“At this stage it is the only UN forum to which Israel will provide information with regard to Operation Protective Edge,” a Justice Ministry spokeswoman said on Sunday.
Its delegation will answer questions on Gaza when it appears before the UN’s Human Rights Committee, which is holding its periodic review of Israel’s compliance with the International Covenant on Civil and Political Rights.
Israel ratified the covenant in 1991 and was one of the initial signatories to the covenant when the UN first adopted it in 1966.
China News
China: The IV-th plenum was expected to focus on improving governance and reducing corruption but it came with two other game changing announcement : focus on “rule of law” and the introduction of separation between juridical power and the other branches of the government.
We will focus in the coming day on the decision as they come. By the meantime, the development is very supportive to our constructive view on China. The country is genuinely rebalancing while soft landing.
Furthermore, Australian police have agreed to assist China in the extradition and seizure of assets of corrupt Chinese officials who have fled with hundreds of millions of dollars in illicit funds, the Sydney Morning Herald newspaper reported (see more below).
We see any stimuli to be small and targeted because 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-.
While the recent decisions strengthen President Xi power, we foresee the first objective of the Chinese President to be rebalancing the Chinese economy while cooling the pressure which have developed in China.
China hackers may have hacked Apple’s iCloud
Apple’s iCloud storage and backup service in China was attacked by hackers trying to steal user credentials, a Chinese web monitoring group said, adding that it believes the country’s government is behind the campaign.
Using what is called a « man-in-the-middle » (MITM) attack, the hackers interposed their own website between users and Apple’s iCloud server, intercepting data and potentially gaining access to passwords, iMessages, photos and contacts, Greatfire.org wrote in its blog post.
Australia set to help China seize assets of corrupt Chinese officials: reports
(Reuters) – Australian police have agreed to assist China in the extradition and seizure of assets of corrupt Chinese officials who have fled with hundreds of millions of dollars in illicit funds, the Sydney Morning Herald newspaper reported.
The operation will make its first seizure of assets in Australia within weeks, the newspaper quoted Bruce Hill, manager of Australian Federal Police (AFP) operations in Asia, as saying in an interview.
China announced in July an operation called Fox Hunt to go after corrupt officials who have fled overseas with their ill-gotten gains. The campaign is part of President Xi Jinping’s broader crackdown on graft.
Getting cooperation from Australia would be a coup for Beijing, which has struggled to get its hands on suspects in Western countries, whose governments have been reluctant to hand over wanted Chinese over concerns whether they would get fair trials back home.
UPDATE 9-Oil ends up after China demand news, fragile recovery seen
* China implied oil demand up 6.2 pct to 10.3 mln bpd in September
* China Q4 GDP growth at 7.3 pct, weakest since 2008/09 crisis (Adds API data and Brent reaction, paragraphs 5, 7)
By Barani Krishnan
NEW YORK, Oct 21 (Reuters) – Brent crude oil ended up almost 1 percent on Tuesday, helped by data showing stronger-than-expected China demand and some technical price recovery after weeks of almost uninterrupted selling.
Analysts and traders cautioned, however, that global economic data, especially out of Europe, was still weak amid strong fears of oversupply in crude markets.
« Because of their deep slide over the past couple of weeks, oil prices are kind of overdone on the downside and vulnerable to turnarounds now, » said Gene McGillian of Tradition Energy, an oil services advisory firm in Stamford, Connecticut.
« But whether we have hit bottom or not remains a question. I would think not given the market’s recent performance, the continued swoon of the European economies and the idea that we have more than ample supplies of oil sloshing around the world. »
China grows at ‘new normal’, but still at 5 yr low
China grew 7.3 percent in 3Q of 2014, the lowest since 2009. The government said it was quite comfortable with a slowdown from a 7.5 percent growth in the previous period, as all of its partners in the emerging markets and in the EU are losing steam.
The Chinese Government called the third quarter result a ‘new normal’, as they expect the full year result to be at 7.5 percent. The fresh data released Tuesday by the Chinese National Bureau of Statistics comes at a time when other emerging economies are slowing and the EU member states risk falling into a triple – dip recession.
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 – ).
Former Australian prime minister Gough Whitlam dies at 98
CANBERRA, Oct. 21 (Xinhua) — One of the giants of Australian politics, former Labor Prime Minister Gough Whitlam, died at the age of 98, and current Australian political leaders immediately offered condolences to his family with Prime Minister Tony Abbott describing him as « a giant of his time. »
Whitlam led the country through a period of massive social change from 1972 to 1975 before his controversial ousting by Governor-General Sir John Kerr in a seismic national event that became known as The Dismissal.
As a prime minister, Whitlam was an agent of change and reform. Despite being in power for only three turbulent years, he launched sweeping reforms of the nation’s economic and cultural affairs, cementing his place as one of Australia’s most revered leaders.
He put an end to national conscription, introduced free university education, materially helped indigenous communities, pulled troops from Vietnam, abolished the death penalty for federal crimes and reduced the voting age to 18.
Chinese Demand for Aussie Mortgages Boosts Macquarie Firm
Almost a third of the home loans written in September by a mortgage provider part-owned by Macquarie Group Ltd. (MQG) were to Chinese investors, the chairman of the firm said.
Yellow Brick Road Holdings Ltd. (YBR), 18.4 percent owned by Macquarie, lent A$320 million ($281 million) to Chinese investors out of a total A$1.1 billion in disbursements last month, Mark Bouris said yesterday in Sydney. The proportion of Chinese borrowers has doubled in the past year, he said.
Australian lenders and property developers are gaining from surging demand out of China, where the housing market is faltering. Chinese purchasers overtook Americans to become the biggest buyers of real estate in Australia in the 12 months through June 2013, plowing A$5.9 billion into commercial and residential property, a 42 percent increase from the previous 12 months, according to the Foreign Investment Review Board.
“The foreign investment loans have been a feature in the past seven to eight months,” Bouris said. “It’s a big ratio at the moment and we get them verified in China with facilities we have. They are supporting new developments.”
Consumer prices up 0.5% as fruit prices surge
A surprise jump in fruit prices has helped drive consumer prices 0.5 per cent higher in the September quarter as the weaker Aussie dollar increased the cost of imported produce.
House prices, property rates, and vehicle charges also increased, partly offset by falls in prices for electricity, petrol and telecoms equipment and charges.
The Consumer Price Index (CPI) reading for the three months to the end of September leaves the headline 12-month inflation rate at 2.3 per cent, according to the Australian Bureau of Statistics.
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The quarterly figure, while slightly higher than market forecasts, is unlikely to change the Reserve Bank of Australia’s view on interest rates, economists said.
The median forecast in a Bloomberg survey of economists had predicted the quarterly growth rate to be 0.4 per cent, and the annual inflation rate, 2.3 per cent. This compares with 0.5 per cent and 3 per cent year-on-year in the June quarter.
Economists had speculated that the quarter’s CPI would be influenced by lower petrol and fruit and vegetable prices, plus the impact of scrapping the carbon tax. The ABS said the removal of the tax had been the main factor in a 5 per cent drop in the cost of electricity.
Japan News
Japan: Although two cabinet ministers resign over scandal, creating more questions about Abenomics, we do not see this derailing PM Abe objectives. Recent decision to crack down on tax dodgers is another piece of evidence that Japan is heading toward reforms and improving governance.
Futhermore, BoJ continues to behave as we expected: Cautious while the rebalancing is taking place in the country (e.g. GPIF upward allocation to equities). We consider that whatever pressure or sell-off should be an opportunity to strengthen positioning.
North Korea decision to free Jeffrey Fowle, a US Citizen, is a positive indication that the relations with NK are improving in what we see as first genuine steps toward a reunification solution which would involve China, South Korea and Japan. We see the next China – Japan summit as instrumental for reducing the tension between the two countries and to move ahead with reunification talks.
Japan to crack down on wealthy tax dodgers fleeing abroad
TOKYO — Japan is considering taxing the capital gains on stocks and other financial assets held by residents moving overseas, part of an effort to prevent the super rich from escaping tax bills.
The Finance Ministry presented the proposal to the government’s tax commission on Tuesday. Some within the ruling Liberal Democratic Party are calling for swift action. The government hopes to include the new levy in a tax reform package for fiscal 2015, which the ruling coalition will draw up in December.
When Japanese residents sell stocks, capital gains are subject to a 20% tax, including income and residential taxes. But if they move abroad while owning stocks that have unrealized gains, they do not pay taxes to the Japanese government but to their new country when the stocks are sold. A growing number of Japanese are ducking payment by moving to places that do not tax capital gains, such as Singapore, Hong Kong and Switzerland.
France, Germany and Canada are among those nations that already tax unrealized capital gains when residents move abroad. Japan plans to adopt the same measures for those with financial assets of more than 100 million yen ($927,000). About 100 people are expected to be subject to this levy each year.
Japanese Ebola Vaccine: Fujifilm’s Experimental Drug Avigan Can be Used to Combat Norovirus
An experimental Japanese Ebola vaccine may also be used to fight the winter vomiting bug, which causes over 200,000 deaths each year.
British researchers have found a study in mice show Avigan, also known as Favipiravir, the experimental Ebola drug created by the Fujifilm group company Toyama Chemical, may also reduce and even eliminate norovirus infection.
Norovirus is spread via fecally contaminated food and water or by person-to-person contact, causing vomiting, diarrhoea and other serious complications for patients with compromised immune systems.
Now, researchers have found Avigan, which is being tested as a possible treatment for Ebola, can lower levels of norovirus in mice.
Professor Ian Goodfellow, who led the study at the University of Cambridge, said: « Norovirus is an unpleasant bug that spreads quickly. Most of us will have experienced it at some point and will know that the only option is to ride out an infection, drinking plenty of fluids.
« But some patients get infections that can last months or years, and this has a real impact on their quality of life, and the potentially serious health problems norovirus can cause people with weakened immune systems means that we desperately need a way to treat infection. »
Abduction mission to N. Korea may leave Monday
Japan has sounded out North Korea about sending a delegation next Monday to check its investigation into the fate of people abducted by Pyongyang decades ago, government sources said Tuesday.
The delegation, to be led by Junichi Ihara, director general of the Foreign Ministry’s Asian and Oceanian Affairs Bureau, is expected to be in North Korea for four to five days, the sources said.
Earlier Tuesday, Foreign Minister Fumio Kishida said the government had yet to decide on the timing of the dispatch as the two countries are still discussing the matter through their embassies in Beijing.
Kishida said that once it arrives, the mission will “tell a person at a suitable position that the abduction issue is the highest priority for our country and ask questions about the current state of the investigation.”
In an attempt to advance the investigation into the abductees, Japan appears poised to arrange talks between the mission and So Tae Ha, chairman of the North’s special investigation committee, and receive a briefing on the probe directly from him. So is also vice minister of state security.
North Korea unexpectedly frees American Jeffrey Fowle
(Reuters) – North Korea has freed Jeffrey Fowle, one of three Americans detained by the country, and he is being flown home to his family in Ohio, the White house said on Tuesday
Spokesman Josh Earnest said the United States welcomed the move, but pressed Pyongyang to free the two remaining Americans.
« While this is a positive decision … we remain focused on the continued detention of Kenneth Bae and Matthew Miller and again call on the DPRK to immediately release them, » Earnest said, referring to the country’s official name of Democratic People’s Republic of Korea.
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