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SNBDL Daily Briefing
Report prepared using big data solution Quid
Our take away from the last 72 hours news
US: As we were expecting, last Friday, NFP report confirmed that while the job market improves, wage inflation remained subdued (average wage growth +2.0%yoy in Sept.). This increases the conundrum of the Philipps Curve and supports Fed rate normalisation patience. We don’t consider that there is any conundrum with the Philipps Curve. We have been saying for many occasions that the Philipps Curve has shifted downward due to the combination of the new jobs (mobile device related jobs or Apps jobs), robotics, and less flexibility in the labor market relative to 1980s (please see our report Jackson Hole 2014 which provides more details).
Consequently, interest rates have reversed the trend which have been developing last month, as a result of the combination of a fear that geopolitical tensions which spur higher commodity prices while the “populists economy” (which have gone mainstream) will spur wage inflation.
Our views remained unchanged: interest rates will remain low for longer than market expects, while stocks will recover. This may accelerate going into December because investors have lost money being short fixed income and under-invested in stocks.
UK: BoE deputy governor played the “good cop” in the new BoE strategy. We remain that we see BoE talking about quick rate normalisation in order to avoid acting on it. In a nutshell, Scotland independence has spurred the fear that GBP could very well experience a capital account crisis, should the country face a political crisis. The recent high frequency economic data show that the speed of recovery is softening.
Eurozone: No-one likes Draghi recent meeting: 1) he postponed Sovereign QE talks until the current actions (QE ABS, Covered Bonds & T-LTRO) effects are genuinely studied, 2) hawks analysed QE ABS like“sub-prime” or junk bond buying. Both these two views are complete non-sense for us. We consider that Draghi-nomics is all about finding the goldilock conditions (not too cold, not too hot): 1) QE ABS, Covered Bonds & T-LTRO intend to reduce the cost of finding for SMEs mainly in Italy and Spain at a moment where banks are ending their asset quality review (AQR) and are willing to restart a new page (this is exactly what US banks did post TARP) while SMEs demand is picking up (many SMEs are considering automation as a way to improve their efficiency issue), 2) Draghi needs to avoid returning moral hazard (a risk should ECB undertake Sovereign QE) while keeping the hawks happy and pressing France and Italy to execute reforms (PM Valls is in London today to reassure the markets that France is genuine committed to do the necessary reforms – France has changed). « All truth passes through three stages. First, it is ridiculed. Second, it is violently opposed. Third, it is accepted as being self-evident.” said Arthur Schopenhauer. We consider that markets are still in the first stage, We are in the third.
BoJ: Governor Kuroda indicated that the JPY weakness is positive if in sync with fundamentals. This hints that any other genuine stimuli will be delayed until Japan reduces a JGB solvency crisis risk. We have been saying for many occasion that we see the trigger of a new QQE to be a second VAT hike, more indications of 3rd arrow structural reforms and a reduction in investors short Japanese fixed income. Markets consensus is likely to be disappointed again in its January forecast. We see a too close to call decision by January should the 3 triggers not introduced. The recent JPY, EUR, GBP weaknesses see to be the result of an excessive excitement about monetary divergence. We consider that going to December the market will revise down these expectations, while the economists are penciling down their high growth forecast.
Brazil: We have been in the camp of a stagflation scenario due to the government unwillingness to undertake structural reforms. We put this view under review until October 26th presidential election second round. Should Pro-Business candidate win the Presidential election (still too early to tell) he may spur a change in dynamic the same way PM Modi did in India. In the case President Rousseff remains in office, we see a need of genuine crisis to push for more reforms. In the later, the crisis may come as early as beginning 2015.
Ebola:
CDC estimated to 100 the number of people who might have been affected by Patient 1. This estimate is still accurate. These are called Patients 2 (or the inner circle). This number is likely to increase in the coming day, before it decelerated. This is the Contagion effect as know in Mathematics – which works exactly the same way a Cat video become viral (change the verb “share it” by “infect” because in mathematical terms it does not really matter). In order to avoid the paranoia, the CDC, as we were expecting, have used the power of social media and @twitter, to : improve the information (fight disinformation) and spur the motivation for social media to help reduce the outbreak. The most widely spread FALSE belief is that Ebola can mutate easily. This is possible but highly unlikely. In films and TV-shows, scenarist like to make their stories appealing but the reality is sometimes (fortunately) less scary.
From our Thursday Oct. 1st daily
Days after the WHO and the CDC revised upward their estimates for the development of the outbreak to as high as 1.4 millions by beginning 2015, the First Ebola case has been diagnosed in Texas. The 1st patient (i.e. 1st person known affected in a region – not brought affected from other places -) arrived to the US in September 20th from Liberia. The CDC has started an intensive search for anyone who might have come in contact with the patient while the person was infectious. While the spread of Ebola is less viral than Cat pictures on the internet, the fear is likely to edge up before CDC and WHO will show how capable and efficient are these two institutions. We have been discussing Apps and big data which would help report any symptoms to the public. Japan nationals and internet have been very effective mapping real-time the consequence of March 2011 Fukushima nuclear catastrophe. The same tools can be used today, although a very wide understanding of the symptoms is genuinely and urgently needed to make it succeed. We have been saying that even a non-lethal epidemic can spur fear, confidence collapse and economic headwinds. Unlike in the very good film “Contagion”, the tech tools and social media help can be very effective in reducing the spread of the disease and reporting the infectious agents. Doctors, which have been affected in Africa and brought to the US, have been saved. The experimental vaccine, which has a 100% hit ratio for primates, is likely to limit the casualties. Our only genuine fear, is that one of the affected has a political or ideological agenda and tries to spread the disease more widely. To our readers, there is no need to be stressed but please stay safe.
But more importantly, the first US case is likely to intensify, the global coordinated response which have started during the recent weeks. We have highlighted that the global coordination has been intensifying to: 1) fight disinformation (we were talking about it in our recent daily briefings), 2) provide short term medical assistance (France, US, Israel, etc.) with the help of military expertise – when numerous Western African countries are indicating the lack of medical personnel – , 3) provide financial support (wealthy donors, government funding, NGO help etc.), and 4) fast track the Ebola drug trial (the drug has had a very good result in the experimental tests).
Notwithstanding the on-going difficulties, and the short term negative economic effect, we continue to believe that the fight against Ebola will succeed and will clear the way to the increase in Africa investment and economic support (cf. our note “This time for Africa” which stressed that Africa is heading to experience the same development China had experienced when it joined the WTO in 2001 with positive consequences for both Africa and the world economy). The global coordination triggered by the response to the terrorist risk might help responding to the Ebola risk as well (due to the threat a dirty weapon using Ebola virus constitute). We disagree with the bet of Cocoa upward spiral because many analysis assumes the doom-and-gloom scenario which is unlikely to happen. We see the intensification of the worrying rhetoric as a part of the genuine action to keep the subject high in the leaders to do list.
Israel and Palestine continue to head into the right direction.
PM Netanyahu said it all during his visit: a nuclear Iran should not come with an increase in the existential threat to Israel. While we are heading to a peace process, Israel needs to secure the goldilock conditions of such a scenario. This goes through a genuine commitment by Ayattolah Khamanei that Israel should continue to flourish in peace, leaving the existential threat to ISIL and the Califat-of-Paper Abu Bakr El Baghdadi. Make no mistake : Israel will never be destroyed. Because, Israel is one of the greatest idea, in my opinion, which human brain invented during our common 13.8bn years history in creating institutions and laws to reduce universe entropy. It has nothing to do with religion or ideology, this is just pure rational thinking and science. The idea of Israel remains me that while facing adversity one move on an try to empower himself to bring: prosperity (in our parlance: jobs, growth, adequate inflation, wealth, solvency etc.). This is what, I believe, Abraham did: creating the promised land of prosperity and peace. This is why Israel can never be destroyed. Even Hitler failed, Abu Bakr El Baghdadi is doomed and Ayattolah Khamanei have to play his cards well now. He can empower his people, improve Iran economy and growth, by recognising the obvious. In 20years finance careers I’ve never seen an investment as obvious as this one. [Don’t hesitate to ask for details as usual].
Sweden recognition of Palestine constitute a first step into the right direction. External pressure on Israel, comes as a genuine help for the government to fight its hard liners and bring them to a peace solution. We see this process to last one to two years but we are convinced that peace will happen not because it’s a nice thing but because it’s where economic prosperity lies for Iran, Palestine, and Israel.
The likelihood of defeating ISIL continue to increase. Turkey and Canada decided to join the 40 countries coalition to fight ISIL. We were saying that Herve Gourdel beheading (to which we need to add Alan Henning since Friday) and the Philippines militant threat to ham a German were sufficiently evil behaviour in 2014 to create the wake up call that each of us should make something to stop these unacceptable atrocities. According to Theresa May, ISIL could acquire a dirty weapon. Saudi’s high cleric ceased the opportunity of Hajj pilgrim to call all muslims – Shia, Sunni, Maliki, Wahabi etc. – to defeat the Murderers In Iraq & Syria (known as ISIL). What we commonly name ISIL is not Islam (not I) and not a state (not S). It would be helpful to replace these two letter by “M” for Murderers. I bet that the Jihadists hiring will collapse after this simple action. The fight against the Murderers will be easy should we decrease the number of their new followers. This work like contagion or viral system. The final fight will come along with the genuine actions G-20 is saying it will undertake in Australia to improve governance. This time there is no way to escape with half-backed solution: G-20 needs to get rid of bad governance to reduce the spread of the view that “institutions are rotten to the core” (a view which helps Jihadists to hire youth on the internet). We discussed it since 2009, we have increase the data to track this bad governance since 2012. This power have moved from states to the public. Fortunately, anecdotal evidences (from UK to China) indicate that lawmakers have the same goal reducing bad governance. This is not because that’s a nice thing to do but because this were profits, shareholders values, pensioners interests, workers interests, consumer interests are. Again, we tend to reduce Entropy, this since our first day 13.8 billions years ago (Oil prices development and the number of violent deaths are an amazing reflect this fact).
Finally, as part of the evidence that data will help fight terror, France 24 broke Sunday that a Zabihullah Mujahid (Taliban spokesman) revealed mistakenly his localisation in twitter (here)
While Russia continue to prepare its isolation (VTB’s says consider that capital control is not the end of the world), Putin stays put and keep his narrative: the cost will be more harsher for EU than for Russia. Unfortunately, for President Putin, facts have no political bias or religion. Russia economy is collapsing and the Saudi oil prices cut, Iran negotiation amongst other thing are pushing oil prices to a free fall spiral and threatening the stability of the government (an Oil price at $75 will push Putin out). In our Energy Update (our call that oil might go as low as $80 for WTI) we’ve highlighted the trends we observe now. These are not only providing a boost to EU (currently mistakenly analysed by many XX Century economists as a deflationary risk) but also increasing the current Russian administration existential threat. We forecasted last February that Russia will have to go through a period of isolation, will create Eurasia by annexing Eastern Europe (we still unsure where the division will take place). We stick to this scenario. However, we are working on an alternative scenario, where the speed of oil prices collapse may over through Putin administration and oligarchs before President Putin reached his messianic goal (many economists agree with the view that some of Russian President speeches are messianic – 2007 Munich is a very telling speech-).
Ukraine President is taking the “good governance bill” to the floor. This on one hand increase the likelihood of our scenario that Ukraine – West will become a new Poland but it increases short term the risk of more actions of “bad governance agents: the self designated Eastern Republics”). I wonder what kind of economic prospect will have these Russian federation satellite. Old USSR satellite (Latvia and Bulgaria) are fighting political crisis spur by the widely spread mistrust in their government. Like during the Cold War, Russia continue to use the spread of disinformation (in the internet). But we see these posturing likely to fail, should EU Commission President pursue his genuine plan to change EU narrative (more jobs, more investment – specially in digital -). The emergence of new media companies helped by big data is likely to be another leap in defeating the disinformation and mistrust spread.
Hong-Kong political reforms protest: Events are developing as we were expecting
Pro-democracy protests have decided to change their strategy and open talks. Mainland sticks to its view that any political reform should bind by the “basic law”. We do not see HK and Mainland China governments to accept any substantial change in the short term.
However, unlike with Tian’anmen square protest, we see Chinese leadership being less “harsh” fighting the protests, as we acknowledge Chinese leader fear vis-a-vis social media power. In the medium term, we see China devoting more democratic say in HK. Our forecast is built on the view that the Chinese government is fearing a HK political change to threat its reform agenda. President Xi wants to be seen as the strong man to fight conservatism push back to the reform, specifically ahead of the IV-th Plenum, which will focus on improving governance (which creates an important shift of power from “princelings” to the reformists). After the IV-th Plenum we see President Xi and HK government coming with a middle ground solution, which could take the form of a split designation of leaders. Democracy comes with cost and responsibility. We consider that President Xi long-term objective of political reform to be intact, but he fears that “House of Cards” like politics could jeopardise his aim to avoid the middle-income trap risk should interest groups (Raymond Tusk character in the TV-show) to derail his genuine fight against conservatism and vested interests.
Catalonia: We were saying “calls for independence referendum is increasing pressure on both Madrid and EU to move forward to offer better conditions and better narrative to the public. We see PM Rajoy taking constitutional actions to deter Catalonia from conducting the referendum, at a moment where more the referendum is gaining support from the independence forces all over the world. Madrid may accept to open discussion to devote additional autonomy to Catalonia in order to reduce the pressure. This story is likely to push EUR existential threat higher short term, but we consider that EUR is likely to rebound by the end of this year, when these threats will be repriced as less likely.” (daily briefing Sept. 30 2014). Catalonia decision to suspend formal campaign is the first step in our constructive scenario. However, Artur Mas uses the threat of going ahead with the referendum, though the constitutional court has specified that’s un-constitutional. This threat is urging PM Rajoy to act which he did in Saturday by opening discussion of some kind of PM Cameron solution to Scotland independence call (i.e. more fiscal autonomy).
President Obama gave a speech on the Economy to help Democrats to keep the Senate majority. The speech did not come with any new news. However, the agenda presented could be derailed and even create a doom scenario should GOP won the Senate majority. It would jeopardise reforms (when China and EU are reforming) such as immigration, education, infrastructure etc. The doom scenario would take place should they resumed their aim to impeach the US President. We are not siding here against GOP from any ideological prospect. We do believe that it’s in GOP interest to loose, to focus on it’s internal civil war against the Tea Party. The GOP without Tea Party can be a very important driver to bi-partisan reforms agenda. With the Tea Party, not only GOP threatens the US economy but it does also threaten its own future. Remember : GOP abolished slavery. It’s now seen as in a War against Women.
US Tax inversion: Salix Pharmaceuticals Ltd , citing a « changed political environment, » said on Friday it had scrapped a deal with Italy’s Cosmo Pharmaceuticals SpA that would have allowed it to shift its tax base from the United States to Europe.
From Sept 26th Daily Briefing: As we were expecting since the announcement of Burger King deal (which has been widely reported as being solely pursuing tax inversion objective) we’ve indicated that this would sign the end of the system. US Treasury took actions to make it harder to execute such deals, while the tax reform seems in limbo due to DC gridlock. Administrative actions taken by Treasury Secretary Lew makes it harder to execute tax inversion but does not derail it entirely. We consider that G-20 initiative to undertake OECD proposal to reform the rule of “double non-taxation” (see our previous daily briefing) will help improve the tax governance (and incidentally the rise in the mistrust in the public institutions – which are seen to be colluding with businesses -). Markets have reacted negatively to the actions taken against tax loopholes, because these are seen to be the only remaining way for Corporations to improve their EPS (while demand continue to be subdued). We disagree with this view because G-20 initiatives to tackle “tax optimisation” will come along with more investments and fiscal stimuli which would help spur more economic demand.
EU: the glass half empty view is that unemployment rate is still very elevated (23.3% in August) but it’s coming down, even before EU Commission President elected Juncker’s infrastructure plan, digital initiative, EU Council President elected Tusk’s energy union, are not in place. Though this story combined with Catalonia independence can lead, mistakenly, people to believe that “la Bastille” will be taken in days, we disagree with this view, as those who see a bloody revolution are being hired by ISIL and alike, while the overwhelming youth are working genuinely to improve their lives (alike their ancestors, Youth are adapting to the XXI Century to survive).
UK PM Cameron is expressing his say in the forthcoming negotiation ahead of Br-Exit referendum. Amongst these European Court of Human Rights ruling is considered as an important step. As we were saying, since Aug. 30th EU Council, we consider that the UK will gain some changes in order to give PM Cameron enough political capital to campaign for the Yes. We consider that the EU Commission success will be the best tool to defeat UKIP and EU-Skeptics in the forthcoming ballots.
From the economic prospective, the UK housing market is cooling off while the services sector is softening. This supports our view that BoE will not deliver the rates hike priced by markets.
In February 2014, at Sunnylands, Presidents XI and Obama had a 15minutes talk in private. Since then, I was questioning what two of the most influential leaders can exchange in 15minutes? I imagined then, that they’ve decided: “let’s make a better future by improving governance now”. This “dream” is starting to be an overwhelmingly reality as indicated by subsequent events, actions etc. This future seem to be heading toward a multi-regional coordinated global governance. FM Wang Yi visit to the US is another piece of this scenario. China is improving the governance for its own good (as well as the world economy good) in change it wants a share as a reserve currency, take it time when reforming its political system (deal with Hong Kong) and manage the peace equilibrium in Asia. This is increasing the pressure on Japan to deliver its reform agenda to improve its economy and take the other side of the balance of power in the region.
As China, Japan, and South Korea heads toward a constructive talks (as we were reporting in our previous daily briefings) and Japan and North Korea are heading toward a solution on Japanese civilians abduction, North Korea leaders close to Kim Jong Un held last weekend high level talks with South Korea minister of reunification. This indicates that the scenario of an unified Korea is advancing. We have been considering that the reunification will ultimately take place but it requires normalised relation amongst the 3 important players: China, Japan, South Korea.
RBA is working to reduce housing asset price frothiness through macro prudential actions. This is in line with the views we’ve expressed recently. But Australia continues to be seen, by markets, as a derivative to the old Chinese model (i.e. commodity provider). This view explains the high beta between Australian assets and commodity prices (or China demand for commodities). Banks shares are suffering from the combination of the increase perception of increase in risks and additional macro prudential constants to curb housing prices frothiness. Small business defined the “goldilock range” for AUDUSD to be [.90-.94]. This level is much higher than RBA own assessment (based on PPP models). We have been criticising PPP models because they do not factor any structural changes. These assume that neither China nor Australia are conducting their rebalancing agenda. We do believe that the current weaknesses offers genuine opportunity to benefit from the other drivers to the Australian economy which are not related to commodities. We see the current Australian Dollar weakness to continue at least until the USD start to weaken again when markets will realise that it has beaten too much on a quick rate normalisation. Meanwhile, from our previous daily briefing, we have gathered sufficient support to the view that the drivers of the Australian GDP are moving toward: 1) education, health and finance services provider to Asian neighbours, 2) innovation and digital sector, 3) energy resources export to Japan (the later contributes to our constructive view that the current negative Japan Energy Trade deficit will rebalance in the medium term – reducing Japanese Government bonds solvency risk – ).
New Zealand: Fontera payout cuts fuel concerns over NZ economic prospects. This increases the pressure on new PM Key Cabinet to accelerate rebalancing the economy and reforms. We have been indicating that NZ has already started a genuine shift toward new Tech agriculture, health and education services directed to Asian neighbours. The fact that PM Key secured another term supports our constructive scenario on NZ.. This constructive scenario narrative is currently overshadowed by the “search for yield” (or interest rates differential) and RBNZ fight against excessive carry trade effects.
Japan: inflation softening along with economic downgrade was widely expected as a result of the 1st VAT hike (cf our strategic note Dec 26th 2013). We see BoJ to keep the bazooka of QQE-2 un-tested until the JPY excessive depreciation and JGB solvency risk came down * investors are still short JGB expecting a Japan crisis *. The 2nd VAT hike will require some stabilisation at the current levels, though we expect that PM Abe will undertake the 2nd hike in steps, because BoJ is unlikely to be sufficiently confident to move ahead with more QQE while JPY is accelerating its depreciation. PM Abe voiced concerned over the JPY rapid depreciation, as he pointed (rightly in our opinion) to the increase in energy cost, which deteriorate further the energy trade deficit – and increase the risk of JGB solvency -. The Prime Minister confirmed in his Diet address to pursue Abenomics 3rd arrow.
However, BoJ might do some adjustment to its monetary program but nothing excessive. The news flow out of this weekend G20 meeting shows that the global community is gently pressing the government and the BoJ to pursue structural reforms, economic rebalancing, solvency improvement (through VAT 2nd hike commitment) and adequate monetary policy (not too hot – to avoid a crisis – not too cool – to avoid derailing the on-going portfolio rebalancing approach -). Japan continues to face heavy public pressure to rebalance its energy reliance to nuclear. While we believe that Japan will continue to press for reopening nuclear plants (when Nuclear Watchdog gives his green light), the medium to long term trend is that Japan will use Trade negotiation with neighbours to secure new energy sources while using this pressure to deregulate and move forward with Abenomics 3rd arrow (please see our Japan update for more on our views). We are not surprise by the fact that Russian news media are reporting the pushback to reopening nuclear plans, ahead of Japan-Russian talks (about sanctions, energy agreement, and disputed territories).
Central banks News
US: As we were expecting, last Friday, NFP report confirmed that while the job market improves, wage inflation remained subdued (average wage growth +2.0%yoy in Sept.). This increases the conundrum of the Philipps Curve and supports Fed rate normalisation patience. We don’t consider that there is any conundrum with the Philipps Curve. We have been saying for many occasions that the Philipps Curve has shifted downward due to the combination of the new jobs (mobile device related jobs or Apps jobs), robotics, and less flexibility in the labor market relative to 1980s (please see our report Jackson Hole 2014 which provides more details).
Consequently, interest rates have reversed the trend which have been developing last month, as a result of the combination of a fear that geopolitical tensions which spur higher commodity prices while the “populists economy” (which have gone mainstream) will spur wage inflation.
Our views remained unchanged: interest rates will remain low for longer than market expects, while stocks will recover. This may accelerate going into December because investors have lost money being short fixed income and under-invested in stocks.
UK: BoE deputy governor played the “good cop” in the new BoE strategy. We remain that we see BoE talking about quick rate normalisation in order to avoid acting on it. In a nutshell, Scotland independence has spurred the fear that GBP could very well experience a capital account crisis, should the country face a political crisis. The recent high frequency economic data show that the speed of recovery is softening.
Eurozone: No-one likes Draghi recent meeting: 1) he postponed Sovereign QE talks until the current actions (QE ABS, Covered Bonds & T-LTRO) effects are genuinely studied, 2) hawks analysed QE ABS like“sub-prime” or junk bond buying. Both these two views are complete non-sense for us. We consider that Draghi-nomics is all about finding the goldilock conditions (not too cold, not too hot): 1) QE ABS, Covered Bonds & T-LTRO intend to reduce the cost of finding for SMEs mainly in Italy and Spain at a moment where banks are ending their asset quality review (AQR) and are willing to restart a new page (this is exactly what US banks did post TARP) while SMEs demand is picking up (many SMEs are considering automation as a way to improve their efficiency issue), 2) Draghi needs to avoid returning moral hazard (a risk should ECB undertake Sovereign QE) while keeping the hawks happy and pressing France and Italy to execute reforms (PM Valls is in London today to reassure the markets that France is genuine committed to do the necessary reforms – France has changed). « All truth passes through three stages. First, it is ridiculed. Second, it is violently opposed. Third, it is accepted as being self-evident.” said Arthur Schopenhauer. We consider that markets are still in the first stage, We are in the third.
The Fed’s Important New Labor Market Conditions Index (LMCI)
Last Friday, the U.S department of labor announced that the U.S. unemployment rate for September was 5.9%, the lowest level since July 2008. While some have rejoiced with the figure falling below 6%, a number of fractures in the economy remain which are not reflected in the unemployment rate. One of these fractures is subdued wage growth that is not commensurate with drops in the unemployment rate as history would suggest (Justin Wolfers provides an excellent analysis of this phenomenon over at The Upshot). Another one of these fractures is the strikingly high U-6 unemployment rate (currently at 11.8%) which factors in individuals who are underemployed, working part-time for economic reasons and would rather have full-time jobs. The labor force participation rate, which has dropped to historical lows reflects the high number of individuals who have permanently left the work force (a large number who are retirees and some who are discouraged workers according to a recent Philly Fed study)
Stagnant Wages Support Fed Rate Patience Even With Job Gains
Even as unemployment slips below 6 percent, Federal Reserve policy makers have a reason to keep interest rates near zero: inflation is too low and wages aren’t growing.
Average hourly earnings were unchanged in September and up 2 percent over the past 12 months, according to today’s employment report from the Labor Department, which showed the jobless rate dropped to a six-year low of 5.9 percent.
“The earnings data was the weak spot,” said Thomas Costerg, economist at Standard Chartered Bank in New York. “Fed officials such as Chair Janet Yellen, Vice Chair Stanley Fischer and New York Fed President William Dudley are likely to call for continued patience” on interest rates.
Treasuries Gain Most in 3 Months on Yield Appeal, Inflation View
Treasuries rose the most in three months as higher yields relative to Group of Seven nations increased worldwide demand amid concern global economic growth is stalling.
U.S. debt pared a third straight weekly gain yesterday after a report showed the U.S. unemployment rate fell to a six-year low in September and employers added more jobs than forecast, boosting case for the Federal Reserve to raise interest rate next year. The difference between five- and 30-year debt narrowed to almost the least in five years as the jobs report showed little wage growth, adding to signals of contained inflation. The Treasury Department will sell $61 billion in notes and bonds next week.
“Even with the strong jobs report, you saw very weak wage growth, falling inflation expectations, a firmer dollar and a continuing weak global growth story that has kept a bid in Treasuries,” said Christopher Sullivan, who oversees $2.3 billion as chief investment officer at United Nations Federal Credit Union in New York. “The labor market is getting better, which means imminent changes to the Fed’s tone. But the closer we get to raising rates, the stronger the dollar will get, which will continue to put a cap on yields.”
The U.S. 10-year (USGG10YR) note yield, a benchmark for global borrowing costs, fell nine basis points, or 0.09 percentage point, to 2.44 percent in New York, according to Bloomberg Bond Trader data. It was the biggest drop in yield since the five days ended July 11. The 3.375 percent securities maturing in August 2024 added 26/32, or $8.13 per $1,000 face amount, to 99 15/32.
Bank of England deputy governor says still too early to raise rates
(Reuters) – The Bank of England does not yet need to raise interest rates as unemployment is still high and wage growth well below pre-crisis levels, Deputy Governor Ben Broadbent said in an interview to be broadcast later on Thursday.
Broadbent reiterated that the central bank intended to raise rates only gradually when the time came, and told broadcaster ITV that he did not expect large numbers of people to face financial difficulty as a result of higher rates.
« I would lean against the view … that any rise in interest rates would cause calamity for a very large number of households. I think that’s an exaggeration of where we are at the moment, » Broadbent said.
Economists polled by Reuters expect the BoE to raise interest rates from their record-low 0.5 percent early next year. [BOE/INT]
Europe shares bounce back to close higher; FTSE MIB up 1.5%
European shares closed higher on Friday, bouncing back after Thursday’s sell-off, after they were buoyed by better-than-expected nonfarm payrolls data from the U.S.
Banks to return 2.3 bln euros in crisis loans to ECB next week
FRANKFURT, Oct 3 (Reuters) – Banks will return 2.288 billion euros in crisis loans to the European Central Bank next week after the bank started offering banks new four-year loans at cheap rates.
The amount banks will repay on Oct. 8 is less than the 4.9 billion euros banks repaid this week and misses the 4.5 billion euros money market traders polled by Reuters had expected.
Draghi Keeps QE Herd Waiting With Stimulus Target Shrouded
Oct. 3 (Bloomberg) — Mario Draghi hasn’t moved any closer to full-blown quantitative easing.
Focusing on plans to buy private debt as soon as this month to buoy the weakest euro-area inflation in five years, the European Central Bank president yesterday left the option of purchasing government bonds in his toolbox. He also backpedaled on indications that he could boost the central bank’s balance sheet by as much as 1 trillion euros ($1.3 trillion).
Draghi’s reluctance to spell out how many assets officials might buy disappointed investors pushing him to go all-in. With the outlook for consumer prices worsening and the 18-nation economy closer to renewed recession, they’re pressuring him to honor his pledge to take further action if needed.
“For a dove, that was hawkish,” said Lars Peter Lilleore, chief analyst at Nordea Markets in Copenhagen. “The herd of market participants pining for QE will have to wait a bit longer.”
Merkel ally says Draghi turning ECB into a ‘junk bank’
(Reuters) – A leading member of German Chancellor Angela Merkel’s Bavarian sister party criticised European Central Bank chief Mario Draghi on Saturday, saying he was turning the institute into a « junk bank » with his plans to buy debt rated as junk.
In a stinging attack, Hans Michelbach of the Christian Social Union (CSU) said Draghi was endangering the stability of financial markets.
« Draghi is increasingly transforming the ECB into a junk bank, » Michelbach told Reuters.
On Thursday, the ECB laid out plans to buy rebundled packages of debt and covered bonds, secured on solid assets such as property. It will include buying debt with a « junk » credit rating from Greece and Cyprus as long as such states are under a formal international financial programme. [ID:nL6N0RX19G]
Fed Lawyer Says AIG Got Billions Without 2008 Bailout Paperwork
Oct. 3 (Bloomberg) — The Federal Reserve Bank of New York poured billions of dollars into rescuing American International Group Inc. in September 2008 without drawing up documents that would cement the government’s control of the giant insurer, the bank’s lawyer testified.
AIG’s dire condition required an immediate infusion of cash, and paperwork memorializing the terms of the loan wasn’t complete, Thomas Baxter, the New York Fed’s general counsel, told a judge in Washington yesterday in a trial over a shareholder challenge to the terms of the rescue.
The Fed wanted to quickly get control of AIG because of concern that Rodgin Cohen, an attorney for the company, might try to re-negotiate the rescue terms, Baxter said. Cohen had succeeded in re-working the terms of JPMorgan Chase & Co.’s takeover of Bear Stearns and the Fed was worried that he might try again with AIG, Baxter testified.
“The more credit we put into AIG, the less bargaining power we had,” Baxter said.
Maurice “Hank” Greenberg’s Starr International Co., the biggest shareholder in AIG when the financial crisis struck, sued the U.S. in 2011 seeking more than $25 billion for losses from the insurer’s bailout. Starr claims the assumption of 80 percent of AIG’s stock in exchange for an $85 billion loan was an unconstitutional “taking” of private property because the Federal Reserve Board of Governors lacked the legal authority to take equity in a company in consideration of a loan.
Economic News
BoJ: Governor Kuroda indicated that the JPY weakness is positive if in sync with fundamentals. This hints that any other genuine stimuli will be delayed until Japan reduces a JGB solvency crisis risk. We have been saying for many occasion that we see the trigger of a new QQE to be a second VAT hike, more indications of 3rd arrow structural reforms and a reduction in investors short Japanese fixed income. Markets consensus is likely to be disappointed again in its January forecast. We see a too close to call decision by January should the 3 triggers not introduced. The recent JPY, EUR, GBP weaknesses see to be the result of an excessive excitement about monetary divergence. We consider that going to December the market will revise down these expectations, while the economists are penciling down their high growth forecast.
Brazil: We have been in the camp of a stagflation scenario due to the government unwillingness to undertake structural reforms. We put this view under review until October 26th presidential election second round. Should Pro-Business candidate win the Presidential election (still too early to tell) he may spur a change in dynamic the same way PM Modi did in India. In the case President Rousseff remains in office, we see a need of genuine crisis to push for more reforms. In the later, the crisis may come as early as beginning 2015.
Recession in once-booming Brazil shakes up presidential race
When presidential candidate Marina Silva takes to the stump, she shares compelling details of her life story: rising from abject poverty in the Amazon to become a senator with an advanced degree in psychoanalysis
But just as often these days, Silva uses her campaign appearances to take direct aim at incumbent Dilma Rousseff, who has presided during a downturn in the long-booming economy.
« She doesn’t deserve the support of our families, » the diminutive Silva shouted into a microphone during a recent speech in the heartland state of Minas Gerais. « What happened to growth? We’re suffering from inflation, and our interest rates are sky-high. »
American Exceptionalism Thrives Amid Struggling Global Economy
The U.S. is proving to be an oasis of prosperity in the midst of a troubled world economy.
Unemployment (USURTOT) dropped to a six-year low of 5.9 percent in September as payrolls rose by a greater-than-forecast 248,000, a Labor Department report showed yesterday. Other data this week showed U.S. factories had their strongest quarter in more than three years, while exports rose to a record in August.
St. Louis-based Macroeconomic Advisers bumped up its estimate of third-quarter growth to 3.3 percent, from 2.8 percent, after government data published yesterday showed the U.S. trade deficit shrank in August to its lowest level in seven months.
STORY: Oil Prices Fall, and the Global Economy Wins
“The internal dynamics of the economy are very strong right now,” said Nariman Behravesh, chief economist in Lexington, Massachusetts, for consultants IHS Inc. “We can withstand a lot of shocks.”
U.S. stocks rose with the dollar as the jobs data boosted confidence in the economy. After weakening earlier in the week on concerns about global growth, the Standard & Poor’s 500 Index rose 1.1 percent to 1,967.9 yesterday in New York. The Bloomberg Dollar Spot Index climbed to a four-year high.
The solid performance by the U.S. contrasts with what’s happening in much of the rest of the world. The euro area’s economy stagnated in the second quarter and is suffering from the softest inflation in five years, while a consumer-tax increase in Japan triggered its biggest economic contraction since 2009.
U.S. economist forecasts subdued outlook for global economy
WASHINGTON, Oct. 2 (Xinhua) — A U.S. economist at the Peterson Institute for International Economics forecast a more subdued outlook for the global economy on Friday, including favorable outlook for the United States and Britain and cautious optimism for China.
The euro area economies face risks of slower growth and stubbornly high unemployment. Also, prospects for numerous emerging markets have continued to darken, according to the Institute’s outlook team led by senior fellow David Stockton, who was chief economist for the Federal Reserve Board from 2000 to 2011, before joining Peterson.
Stockton forecast the pace of U.S. activity would pick up to better than 3 percent in the second half of the year and would sustain an expansion of 2.9 percent in 2015 due to the improving financial conditions of U.S. households.
BoE to hike rates before Fed but at slower pace: Goldman
The Bank of England (BoE) will start to tighten the screws of monetary policy earlier than the Federal Reserve but will raise rates at a slower pace than its U.S. counterpart, according to Goldman Sachs.
The BoE will begin raising interest rates in the first quarter of 2015, while the Fed will wait until the third quarter, Goldman Sachs economists led by Huw Pill wrote in a note on Friday. The U.K. central bank appears more hawkish than its U.S. counterpart, they said.
« We expect U.K. rates to rise by around 75 basis points per year vs. 100-125 basis points per year in the U.S. [between 2015-2018], » Pill said.
The difference in the speed of interest rate hikes comes down to the different cyclical positions of each economy.
January Is Most Popular Pick for Further BOJ Easing
Economists pushed back their forecasts on the timing of additional easing by the Bank of Japan after the yen weakened to a six-year low and business confidence improved.
Twenty-one percent estimate the central bank will expand stimulus in January, replacing October as the most favored month, according to a Bloomberg News survey conducted Sept. 26 – Oct. 2.
The yen marked the steepest decline in 20 months in September, raising the prospect of faster inflation toward the bank’s 2 percent target as import costs rise. The shifting forecasts show Governor Haruhiko Kuroda has continued to wrong-foot economists’ expectations for easing since taking the helm last year.
“The yen has rapidly weakened recently and that has boosted stocks,” said Kiichi Murashima, chief economist at Citigroup Inc. in Tokyo. “Chances for additional easing have dropped significantly.”
Citigroup economists including Murashima pushed back their forecast for further easing from October to January last month.
The yen traded at 108.86 per dollar at 4:11 p.m. after touching 110.09 on Oct. 1, the lowest since August 2008. All 33 economists surveyed by Bloomberg News forecast the central bank will keep policy on hold at the meeting on Oct. 6-7.
BOJ’s Kuroda – Weak yen positive for economy if synchs with fundamentals
(Reuters) – Bank of Japan Governor Haruhiko Kuroda said on Friday that the yen’s weakening is broadly positive for the Japanese economy as long as it reflected the underlying fundamentals.
While a weaker yen pushes up import costs and domestic prices, it also helps improve exporters’ profits, Kuroda told lawmakers in parliament.
« If the yen weakens in line with the actual state of the economy, I don’t think it will cause big problems, » Kuroda told lawmakers. « It’s probably a plus on the whole »
The comments helped the dollar gain more upside momentum against the yen. The dollar was trading at around 108.83 yen JPY=, having been on a strong bull-run over the past several weeks as investors targeted their trading strategies to synch with the diverging monetary policies between Japan and the United States.
BlackRock Buys Short-Maturity Spain, Italy Debt on ECB Loans
BlackRock Inc. (BLK) bought short-maturity Spanish (GSPG10YR) and Italian government debt on the expectation the European Central Bank’s offering of low-price loans to euro-area banks will keep interest rates from climbing.
While notes due in about four years or less have tumbled in yield in recent years, they remain attractive in terms of liquidity and ratings, according to Scott Thiel, deputy chief investment officer for fundamental fixed income at BlackRock, the world’s largest money manager with more than $4 trillion.
“We are still involved in the peripheral markets,” Thiel said yesterday by phone from London. Short-term debt from governments on the periphery of core euro-zone countries “look attractive because rates are going to be on hold for a number of years. But the huge amounts of risk that we had been running in peripherals, that’s gone.”
Since the ECB in June announced it would offer four-year loans known as TLTROs to banks intended to boost their lending to companies and households, BlackRock perceives the securities inside that maturity differently to longer-dated bonds, he said.
The money manager in recent months moved to an underweight position in longer-dated periphery debt, and it ended a key overweight position in Portuguese securities as investors priced in expectations the ECB would have to buy sovereign bonds to revive the region’s economy, Thiel said.
Ebola
Ebola:
CDC estimated to 100 the number of people who might have been affected by Patient 1. This estimate is still accurate. These are called Patients 2 (or the inner circle). This number is likely to increase in the coming day, before it decelerated. This is the Contagion effect as know in Mathematics – which works exactly the same way a Cat video become viral (change the verb “share it” by “infect” because in mathematical terms it does not really matter). In order to avoid the paranoia, the CDC, as we were expecting, have used the power of social media and @twitter, to : improve the information (fight disinformation) and spur the motivation for social media to help reduce the outbreak. The most widely spread FALSE belief is that Ebola can mutate easily. This is possible but highly unlikely. In films and TV-shows, scenarist like to make their stories appealing but the reality is sometimes (fortunately) less scary.
From our Thursday Oct. 1st daily
Days after the WHO and the CDC revised upward their estimates for the development of the outbreak to as high as 1.4 millions by beginning 2015, the First Ebola case has been diagnosed in Texas. The 1st patient (i.e. 1st person known affected in a region – not brought affected from other places -) arrived to the US in September 20th from Liberia. The CDC has started an intensive search for anyone who might have come in contact with the patient while the person was infectious. While the spread of Ebola is less viral than Cat pictures on the internet, the fear is likely to edge up before CDC and WHO will show how capable and efficient are these two institutions. We have been discussing Apps and big data which would help report any symptoms to the public. Japan nationals and internet have been very effective mapping real-time the consequence of March 2011 Fukushima nuclear catastrophe. The same tools can be used today, although a very wide understanding of the symptoms is genuinely and urgently needed to make it succeed. We have been saying that even a non-lethal epidemic can spur fear, confidence collapse and economic headwinds. Unlike in the very good film “Contagion”, the tech tools and social media help can be very effective in reducing the spread of the disease and reporting the infectious agents. Doctors, which have been affected in Africa and brought to the US, have been saved. The experimental vaccine, which has a 100% hit ratio for primates, is likely to limit the casualties. Our only genuine fear, is that one of the affected has a political or ideological agenda and tries to spread the disease more widely. To our readers, there is no need to be stressed but please stay safe.
But more importantly, the first US case is likely to intensify, the global coordinated response which have started during the recent weeks. We have highlighted that the global coordination has been intensifying to: 1) fight disinformation (we were talking about it in our recent daily briefings), 2) provide short term medical assistance (France, US, Israel, etc.) with the help of military expertise – when numerous Western African countries are indicating the lack of medical personnel – , 3) provide financial support (wealthy donors, government funding, NGO help etc.), and 4) fast track the Ebola drug trial (the drug has had a very good result in the experimental tests).
Notwithstanding the on-going difficulties, and the short term negative economic effect, we continue to believe that the fight against Ebola will succeed and will clear the way to the increase in Africa investment and economic support (cf. our note “This time for Africa” which stressed that Africa is heading to experience the same development China had experienced when it joined the WTO in 2001 with positive consequences for both Africa and the world economy). The global coordination triggered by the response to the terrorist risk might help responding to the Ebola risk as well (due to the threat a dirty weapon using Ebola virus constitute). We disagree with the bet of Cocoa upward spiral because many analysis assumes the doom-and-gloom scenario which is unlikely to happen. We see the intensification of the worrying rhetoric as a part of the genuine action to keep the subject high in the leaders to do list.
Ebola patient in Dallas takes turn for worse
(Reuters) – The first Ebola patient diagnosed in the United States took a turn for the worse on Saturday, slipping from serious to critical condition, as health officials reported fielding scores of possible cases around the country that proved to be false alarms.
Dr. Thomas Frieden, director of the U.S. Centers for Disease Control and Prevention, said news of the Ebola patient in Dallas had alerted hospitals nationwide to check incoming patients for potential risks, particularly those who had recently traveled from the center of the outbreak in West Africa.
The CDC has identified nine people who had contact with the Dallas patient from Liberia, Thomas Eric Duncan, and therefore may have been exposed to the virus, and an additional 40 are being monitored as potential contacts. None have shown symptoms, Frieden said.
Frieden also said U.S. health authorities have responded to inquiries regarding more than 100 potential cases of Ebola since Duncan tested positive earlier this week, but no new infections have been identified.
On Saturday, CDC officials dressed in biohazard suits escorted two passengers off a United Airlines jet that landed at Newark Liberty International Airport in New Jersey because they were believed to be from Liberia and exhibiting signs of illness during the flight, WABC-TV and the Record newspaper reported.
Dallas Ebola case: Crew disinfects home where patient stayed
Patient admitted to hospital in D.C. with possible Ebola symptoms ‘in an abundance of caution’
A hazardous-materials crew on Friday decontaminated the Texas apartment where an Ebola patient stayed, while local Dallas officials said the 10 people deemed to have been at the highest risk of exposure to him are now under isolation while they are being closely monitored.
The decontamination team was to collect bed sheets, towels and a mattress used by the infected man before he was hospitalized, as well as a suitcase and other personal items belonging to Thomas Eric Duncan, officials said.
Dallas Ebola case: Thomas Eric Duncan now in critical condition
Health officials monitoring 50 people for signs of the disease who may have had contact with patient
U.S., France eye stronger coalition on anti-IS effort, Ebola control
WASHINGTON, Oct. 2 (Xinhua) — U.S. Defense Secretary Chuck Hagel on Thursday met with French Defense Minister Jean-Yves Le Drian at Pentagon to reaffirm their mutual resolve to address a spectrum of issues, from anti-IS effort to Ebola control.
At a joint news conference after their meeting, Hagel lauded Le Drian for France’s leading role in the international coalition to degrade and destroy the terrorist group Islamic State (IS), noting that France was the first nation to join the United States in conducting airstrikes against the terrorist network. The coalition has since grown to include 40 nations.
American and French forces will continue to work side by side to support Iraqi forces on the ground as French aircraft patrol the skies over Iraq and provide valuable intelligence, surveillance and reconnaissance on IS targets, Hagel said.
These efforts, he added, enable Iraqi and Kurdish security forces to take the offensive against the IS.
During the press conference, Le Drian said that in the heart of Africa, from Mauritania to Libya, terrorist groups of the jihadist type are a threat to security of the Liberian state and to Europe.
As such, the cooperation among Africans, Americans and French people is a critical factor in maintaining pressure on persistent groups such as al-Qaida, the French minister explained.
UPDATE 1-U.S. ramps up Ebola troop deployments, total may near 4,000
Oct 3 (Reuters) – The Pentagon said on Friday it may send nearly 4,000 troops to West Africa to support America’s response to the Ebola crisis, almost 1,000 above its previous estimate, and cautioned its projections may change further.
The increased Pentagon forecast came as the World Health Organization hiked the estimated death toll from Ebola to 3,439 people, and as U.S. authorities scrambled to contain the spread of the virus after the first person was diagnosed with Ebola in the United States.
Rear Admiral John Kirby said American troops preparing to deploy to West Africa would take all the necessary precautions and added the Pentagon would disclose as much information as possible about the health of deployed forces, who are mainly headed to Liberia.
« We will be as transparent as we can about what we learn, should any of our troops fall ill, » Kirby told a Pentagon news conference.
Gaza
Israel and Palestine continue to head into the right direction.
PM Netanyahu said it all during his visit: a nuclear Iran should not come with an increase in the existential threat to Israel. While we are heading to a peace process, Israel needs to secure the goldilock conditions of such a scenario. This goes through a genuine commitment by Ayattolah Khamanei that Israel should continue to flourish in peace, leaving the existential threat to ISIL and the Califat-of-Paper Abu Bakr El Baghdadi. Make no mistake : Israel will never be destroyed. Because, Israel is one of the greatest idea, in my opinion, which human brain invented during our common 13.8bn years history in creating institutions and laws to reduce universe entropy. It has nothing to do with religion or ideology, this is just pure rational thinking and science. The idea of Israel remains me that while facing adversity one move on an try to empower himself to bring: prosperity (in our parlance: jobs, growth, adequate inflation, wealth, solvency etc.). This is what, I believe, Abraham did: creating the promised land of prosperity and peace. This is why Israel can never be destroyed. Even Hitler failed, Abu Bakr El Baghdadi is doomed and Ayattolah Khamanei have to play his cards well now. He can empower his people, improve Iran economy and growth, by recognising the obvious. In 20years finance careers I’ve never seen an investment as obvious as this one. [Don’t hesitate to ask for details as usual].
Sweden recognition of Palestine constitute a first step into the right direction. External pressure on Israel, comes as a genuine help for the government to fight its hard liners and bring them to a peace solution. We see this process to last one to two years but we are convinced that peace will happen not because it’s a nice thing but because it’s where economic prosperity lies for Iran, Palestine, and Israel.
TASK AHEAD OF PALESTINIANS AFTER GAZA WAR
Here is a look at the scope of destruction in the Gaza Strip after the 50-day Israel-Hamas war, based on the $4 billion reconstruction plan the Palestinian government is presenting to an international pledging conference for Gaza on Oct. 12 in Cairo.
Telethon proceeds help shelter 100 Palestinian families
Proceeds collected from the Help Gaza Telethon – a Maldivian media initiative to raise funds to help the citizens of Gaza, Palestine; are being used to provide temporary shelter to 100 Palestinian families.
A press statement released by Telethon Steering Committee read that the proceeds were being used to build one room housing units, two room housing units, and three room housing units; and that the housing units would have bathroom and kitchen facilities.
The statement read that, in addition to providing shelter, the $ 1.9 million collected through the Telethon would be used to supply equipment to health facilities, and establish a system of providing clean drinking water to 700,000 people.
Though the proceeds were originally supposed to be used to provide food; the steering committee had decided to use the aid money to provide shelter instead, as per the advice of Qatar Red Crescent.
Sweden’s New Government Pledges to Recognize Palestine State
Sweden pledged to formally recognize the State of Palestine, setting itself up to become the first major western European nation to do so.
“The conflict between Israel and Palestine can only be solved by a two-state solution, negotiated in accordance with the principles of international law,” Prime Minister Stefan Loefven said today in his government declaration speech in Stockholm. Both Israel and Palestine have “legitimate demands for national sovereignty and security” and therefore Sweden “will recognize the State of Palestine,” he said.
The recognition comes as Palestinian authorities are seeking to increase pressure on Israel to negotiate an end to a conflict. In 2012, the General Assembly voted to recognize a de facto state of Palestine in the West Bank, east Jerusalem and Gaza Strip. Since then, the U.S.-backed peace talks have broken down and a 50-day conflict in Gaza left more than 2,100 Palestinians and 70 Israelis dead.
New settlements plan threatens ties with Israel: EU
Plans for new settlements in East Jerusalem pose a threat to peace and Israel’s relations with the European Union, the 28-member bloc said on Friday, joining the United States in its criticism of the decision.
The strong language from the European Union, the biggest aid donor to the Palestinians who seek statehood in territories captured by Israel in the 1967 Middle East war, echoes criticism from Germany, France and Washington.
French Foreign Minister Laurent Fabius said the decision to build 2,610 homes in Givat Hamatos would be the first new settlement in the East Jerusalem area for 15 years.
« This represents a further highly detrimental step that undermines prospects for a two-state solution and calls into question Israel’s commitment to a peaceful negotiated settlement with the Palestinians, » the European Union’s External Action Service said in a statement.
More than 500 anthropologists join academic boycott of Israel
Academics say they oppose Israel’s `violations of Palestinian rights’ and are boycotting `Israeli academic institutions that are complicit.’
Iraq & Syria
The likelihood of defeating ISIL continue to increase. Turkey and Canada decided to join the 40 countries coalition to fight ISIL. We were saying that Herve Gourdel beheading (to which we need to add Alan Henning since Friday) and the Philippines militant threat to ham a German were sufficiently evil behaviour in 2014 to create the wake up call that each of us should make something to stop these unacceptable atrocities. According to Theresa May, ISIL could acquire a dirty weapon. Saudi’s high cleric ceased the opportunity of Hajj pilgrim to call all muslims – Shia, Sunni, Maliki, Wahabi etc. – to defeat the Murderers In Iraq & Syria (known as ISIL). What we commonly name ISIL is not Islam (not I) and not a state (not S). It would be helpful to replace these two letter by “M” for Murderers. I bet that the Jihadists hiring will collapse after this simple action. The fight against the Murderers will be easy should we decrease the number of their new followers. This work like contagion or viral system. The final fight will come along with the genuine actions G-20 is saying it will undertake in Australia to improve governance. This time there is no way to escape with half-backed solution: G-20 needs to get rid of bad governance to reduce the spread of the view that “institutions are rotten to the core” (a view which helps Jihadists to hire youth on the internet). We discussed it since 2009, we have increase the data to track this bad governance since 2012. This power have moved from states to the public. Fortunately, anecdotal evidences (from UK to China) indicate that lawmakers have the same goal reducing bad governance. This is not because that’s a nice thing to do but because this were profits, shareholders values, pensioners interests, workers interests, consumer interests are. Again, we tend to reduce Entropy, this since our first day 13.8 billions years ago (Oil prices development and the number of violent deaths are an amazing reflect this fact).
Finally, as part of the evidence that data will help fight terror, France 24 broke Sunday that a Zabihullah Mujahid (Taliban spokesman) revealed mistakenly his localisation in twitter (here)
Alan Henning’s ISIS killers must be found, U.K.’s David Cameron says
Murder of Alan Henning in Syria shows depravity of extremist group, U.K. PM says
Prime Minister David Cameron says the slaying of a British hostage in Syria demonstrates the necessity of destroying the Islamic State extremist group.
Cameron said the video posted Friday night, which showed Alan Henning reading an anti-Western message before his captor put a knife to his neck, demonstrated that ISIS was repulsive and beyond reason.
« There is no level of depravity to which they will not sink. No appeals made any difference, » Cameron said Saturday after receiving a security briefing from Foreign Office, intelligence and military officials at Chequers, his official country retreat.
A female Kurdish fighter carried out a suicide bomb attack against jihadists from the Islamic State group outside the embattled Syrian border town of Kobane on Sunday, a monitoring group said.
The Syrian Observatory for Human Rights said the woman blew herself up at an Islamic State position east of the city, killing a number of jihadists who have surrounded Kobane and are battling to seize it.
« The operation caused deaths, but there is no confirmed number, » Observatory director Rami Abdel Rahman said.
Islamic State is trying to seize the predominantly Kurdish border town and has ramped up its offensive in recent days despite being targeted by US-led coalition air strikes aimed at halting its progress.
The fighting has prompted a mass exodus of residents from the area, with some 186,000 fleeing across the border into Turkey.
Islamic State group downs Iraqi attack helicopter
BAGHDAD (AP) — Islamic State group militants armed with a rocket launcher shot down an Iraqi military attack helicopter Friday, killing two pilots and raising new worries about their ability to attack aircraft amid ongoing U.S.-led airstrikes.
Erdoğan: Turkey cannot simply watch the mass slaughter
Turkey cannot simply watch while millions of people from countries bordering Turkey are slaughtered and forced from their homes, President Recep Tayyip Erdoğan said Oct. 3.
He made the statement in his official communique on the occasion of Eid al-Adha, while also reiterating Turkey’s commitment to peace and security.
“We do not have our eye on the territories or internal affairs of any country in our region,” Erdoğan said. “But while the region is shaken by bloodshed, while the mass killing of women, children and innocent civilians continues, it is not possible for us to remain bystanders.”
Erdoğan’s message came as the Turkish Parliament approved a motion authorizing the army to conduct cross-border operations into Iraq and Syria. Parliament also authorized the deployment of foreign troops in Turkish territory, primarily to deal with the growing threat of the Islamic State of Iraq and the Levant (ISIL).
Erdoğan stressed Turkey’s « responsibility as a strong state, » saying Turkey’s heritage required that it always struggle for peace and security not only inside its borders but without as well.
Saudi Arabian cleric tells two million Hajj pilgrims Islamic State is the enemy of Islam
The enemies of Muslim nations are trying to spread « chaos and confusion », Saudi Arabia’s top cleric said during Friday prayers at the annual Hajj pilgrimage in apparent condemnation of the Islamic State (IS) jihadist group.
Speaking to two million Muslims from around the world gathered at Mount Arafat, Grand Mufti Sheikh Abdul Aziz al-Sheikh called on fellow Islamic leaders to « hit with an iron hand the enemies of Islam ».
« Your religion is threatened. Your security is threatened, » he said, according to the official Saudi Press Agency.
« These criminals carry out rapes, bloodshed and looting, » he said, and added that « these vile crimes can be considered terrorism » and their perpetrators have nothing to do with Islam.
« They are tyrants, » he said, and warned of « their deviant ideology ».
The mufti spoke from Nimrah Mosque at Mount Arafat in western Saudi Arabia, home to Islam’s holiest sites.
Tears, prayers as 2 million pilgrims mark peak of Haj
Mount Arafat— Tears flowed and prayers filled the air as the Haj by close to two million faithful from around the world reached its zenith on a vast plain in western Saudi Arabia on Friday.
“I am now a newborn baby and I don’t have any sin,” Nigerian pilgrim Taofik Odunewu said, standing at the foot of Jabal Al Rahma on the Arafat plain, tears streaming down his face.
Odunewu raised his hands to the heavens in the seamless two-piece white “ihram” outfit that he wore. “I pray for prosperity, long life and.. I pray for my country,” Odunewu said with a broad smile.
“I’m very blessed to be part of this occasion. I don’t think I will go back to the sinful way,” he pledged.
The Haj is the world’s largest Muslim gathering.
It is one of the five pillars of Islam that every capable Muslim must perform at least once. Hundreds of thousands of pilgrims arrived at Arafat on Friday carrying suitcases and other luggage among thousands of white tents which stood ready to accommodate the multitude.
From early morning, pilgrims crowded onto the Jabal Al Rahma, where Prophet Muhammad (peace be upon him) made his final sermon 14 centuries ago.
The pilgrims’ attire turned the hill white in colour. All male pilgrims dress in white ihram to symbolise a state of purity, which also emphasises their unity regardless of social status or nationality.
Some pilgrims sat alone on rocks, praying silently, as others gathered in groups, their voices in a loud appeal to Allah. Egyptian pilgrim Mohammed Ahmed, 53, sat with his wife under a yellow bag they set up as a make-shift tent.
Canada to take part in air strikes against Islamic State
(Reuters) – Canadian fighter jets will take part in U.S.-led air strikes against Islamic State militants operating in Iraq for up to six months, Prime Minister Stephen Harper said on Friday.
Harper told the House of Commons Canada also planned to send an air-to-air refueling aircraft and two surveillance planes to the region. He did not say how many jets would take part in the campaign.
Harper said Canada would not deploy ground troops against the Islamic State group, which is also known as ISIL.
The plan is subject to a vote in Parliament next Monday and is bound to be approved since the ruling Conservatives have a majority.
Both main opposition parties made clear they would vote against the plan on the grounds that the increasingly unpopular Harper, who polls show is set to lose an election scheduled for next year, had not given enough details.
« We intend to significantly degrade the capabilities of ISIL, specifically, its ability either to engage in military movements of scale or to operate bases in the open, » said Harper.
Australian warplanes to begin strikes against Islamic State targets, Prime Minister Tony Abbott says
Australian warplanes will join air strikes on Islamic State (IS) militants in Iraq, Prime Minister Tony Abbott has announced.
Six F/A-18 Super Hornet fighter jets have been on standby in the Middle East for two weeks in preparation for joining the US-led attacks on IS targets.
The National Security Committee of Cabinet met on Friday morning, followed by a full Cabinet meeting, before the public announcement was made later in the day.
« Cabinet has authorised Australian air strikes in Iraq at the request of the Iraqi government and in support of the Iraqi government, » Mr Abbott said.
« Also, subject to final legal documentation, Cabinet has authorised the deployment of Australian special forces into Iraq to advise and assist Iraqi forces.
« I want to stress that only Iraq can defeat ISIL (IS), but Iraq shouldn’t be alone and as far as Australia and our allies are concerned, Iraq won’t be alone. »
Russia
While Russia continue to prepare its isolation (VTB’s says consider that capital control is not the end of the world), Putin stays put and keep his narrative: the cost will be more harsher for EU than for Russia. Unfortunately, for President Putin, facts have no political bias or religion. Russia economy is collapsing and the Saudi oil prices cut, Iran negotiation amongst other thing are pushing oil prices to a free fall spiral and threatening the stability of the government (an Oil price at $75 will push Putin out). In our Energy Update (our call that oil might go as low as $80 for WTI) we’ve highlighted the trends we observe now. These are not only providing a boost to EU (currently mistakenly analysed by many XX Century economists as a deflationary risk) but also increasing the current Russian administration existential threat. We forecasted last February that Russia will have to go through a period of isolation, will create Eurasia by annexing Eastern Europe (we still unsure where the division will take place). We stick to this scenario. However, we are working on an alternative scenario, where the speed of oil prices collapse may over through Putin administration and oligarchs before President Putin reached his messianic goal (many economists agree with the view that some of Russian President speeches are messianic – 2007 Munich is a very telling speech-).
Ukraine President is taking the “good governance bill” to the floor. This on one hand increase the likelihood of our scenario that Ukraine – West will become a new Poland but it increases short term the risk of more actions of “bad governance agents: the self designated Eastern Republics”). I wonder what kind of economic prospect will have these Russian federation satellite. Old USSR satellite (Latvia and Bulgaria) are fighting political crisis spur by the widely spread mistrust in their government. Like during the Cold War, Russia continue to use the spread of disinformation (in the internet). But we see these posturing likely to fail, should EU Commission President pursue his genuine plan to change EU narrative (more jobs, more investment – specially in digital -). The emergence of new media companies helped by big data is likely to be another leap in defeating the disinformation and mistrust spread.
Brent Crude on Brink of Bear Market Amid Global Supply
Brent crude traded on the brink of a bear market on speculation that Saudi Arabia will maintain output even as supplies from the U.S. and Russia increase and demand slows.
Futures in London fell 0.6 percent after sliding yesterday to the lowest in more than two years. Prices closed almost 20 percent below their June peak yesterday, a common definition of a bear market. Saudi Arabia, the biggest exporter, cut prices this week to the lowest since 2008 for Asia, raising speculation it’s prepared to let oil fall rather than cede market share, according to Commerzbank AG. The U.S. in July exported the most oil since March 1957, according to data from the Energy Information Administration.
“Towards the end of the year the pressure will be on the downside,” Jens Naervig Pedersen, a commodities analyst at Danske Bank A/S, said by phone from Copenhagen today. “If we don’t see a reaction from OPEC, especially Saudi Arabia, it will be difficult to really put a stop to the slide.”
Russian Inflation Rate Surges to Highest in Three Years
Russian inflation accelerated to the fastest pace in three years, putting pressure on the central bank to raise interest rates even as economic growth shrivels.
Consumer prices jumped 8 percent from a year earlier in September after a 7.6 percent advance the previous month, the Federal Statistics Service in Moscow said today in an e-mailed statement. That matches the median estimate of 21 economists in a Bloomberg survey. Prices grew 0.7 percent from August.
The conflict in Ukraine has sparked an exodus from the ruble, last quarter’s worst-performing currency, while an August ban on some food imports from the U.S., Europe and other nations, retaliation for sanctions against Russia, has further stoked prices. Faster inflation has prompted the central bank to raise its benchmark rate three times this year to 8 percent from 5.5 percent in February. “Inflation will continue to quicken,” according to Vladimir Tikhomirov, chief economist at BCS Financial Group in Moscow, who cited the food import ban and the weak ruble. “Pressure on the central bank to increase rates will be mounting,” he said by phone before the release.
Suicide bomber kills five police in Russia’s Chechnya: agencies
(Reuters) – A suicide bomber killed at least five police officers and wounded 12 others on Sunday during festivities for a local holiday in Grozny, the capital of Russia’s troubled North Caucasus region of Chechnya, Russian news agencies reported.
The site of two separatist wars and a festering Islamic insurgency, Chechnya has seen a period of relative calm under the strong-arm rule of Moscow-backed leader Ramzan Kadyrov, and suicide bombings have been a rare occurrence in recent years.
The attack took place at the entrance to a concert hall where festivities were planned to celebrate Grozny’s city day holiday, which is also Kadyrov’s birthday.
« Police officers who were manning metal detectors at the entrance of the concert hall noticed a suspicious young man. When the police officers decided to check the individual, the man blew himself up, » a local police officer told RIA news agency.
There were no reports of civilian deaths or injuries, RIA said.
Latvians seen re-electing center right, Russia overshadows poll
(Reuters) – Latvia’s center-right government held a clear lead in a general election on Saturday after taking a hard line over the actions of neighbor and former ruler Russia in Ukraine.
Years of austerity after the global financial crisis have dented the coalition government’s popularity.
But the conflict in Ukraine has shifted focus from the economy to security in a country where ethnic Russians make up almost 21 percent of voters and have heavily backed the pro-Russian opposition Concord party.
Fears over Russia’s intentions in the Baltic region are often voiced by citizens, some of whom have painful memories of Russian rule, and early results showed the three-party coalition government with around 57 percent of the vote.
After voting booths had closed, the leader of Union of Greens and Farmers, part of the coalition, said the government would continue in power if current indications proved accurate.
« That is what the voter expects from us: stability for the country, a steady political course and Western values, and we will guarantee that, » Augusts Brigmanis told Latvian TV.
Latvia’s election commission said that with around 40 percent of the votes counted, the Unity party, the Nationalist Alliance and the Union of Greens and Farmers had 56.7 percent of the vote.
U.N., OSCE call for warring sides to abide by Ukraine ceasefire
(CNN) — U.N. Secretary-General Ban Ki-moon has urged Ukrainian government forces and rebel fighters to respect a fragile ceasefire following the death of a Swiss Red Cross worker in shelling in eastern Ukraine.
The humanitarian worker, identified as Laurent DuPasquier, 38, by the International Committee of the Red Cross, was killed when a shell landed near the ICRC building in the city of Donetsk.
Ban said he was « saddened and disturbed » to learn of the death, which came a day after 10 civilians were killed in the shelling of a Donetsk school, according to the Organization for Security and Cooperation in Europe.
« The Secretary-General is seriously concerned over the dangerous surge in fighting in recent days and mounting civilian casualties, » a statement from Ban’s office said.
« These recent, tragic incidents underscore the fragility of the current ceasefire and the importance of ensuring a secure environment in south-eastern Ukraine that will allow humanitarian actors to carry out their work and deliver critical assistance to those most in need. »
The volunteer war fighters of Ukraine Thousands protest Russia’s Ukraine policy
The ceasefire deal was agreed upon September 5 in Minsk, Belarus, following talks between representatives of Ukraine’s government, Russia and rebel leaders in eastern Ukraine. A subsequent agreement September 19 in Minsk set out more measures.
UPDATE 5-Rightist party set to win Bulgaria’s « last chance » election
Forming government will be difficult: GERB leader
* Bulgaria dogged by political instability
* Widespread disillusion with political class
* Exit polls suggest fractured result, record low turnout
* Bank crisis, energy woes, sluggish economy in focus (Adds partial results, details, changes date)
SOFIA, Oct 6 (Reuters) – The centre-right GERB party looked set to win Bulgaria’s « last-chance » snap general election on Sunday but will fall short of a majority, a result that could mean another shaky coalition struggling to solve a bank crisis and revive growth.
GERB’s leader, a former bodyguard and karate expert, warned it would be difficult to form a government in light of the exit poll results, but added his party would hold internal discussions on Monday on how to proceed.
The exit polls indicated GERB won about 33 percent of the vote, more than twice as much as their main Socialist opponents but leaving them around 36 to 38 seats shy of a majority. That will likely set the stage for days or weeks of haggling with smaller parties and the opposition to shore up support, or at worst send Bulgarians to the voting booths yet again.
76 million households impacted by cyber data breach: JP Morgan
NEW YORK: Data of about 76 million households and seven million small businesses was compromised in a major data breach at JP Morgan and Chase, one of the world’s largest financial services giant.
Names, addresses, phone numbers, e-mail addresses and internal JPMorgan Chase information relating to such users have been compromised, the New York-based bank said in a regulatory filing.
However, it added that it has not seen « any unusual customer fraud » related to this incident t ..
Hong Kong
Hong-Kong political reforms protest: Events are developing as we were expecting
Pro-democracy protests have decided to change their strategy and open talks. Mainland sticks to its view that any political reform should bind by the “basic law”. We do not see HK and Mainland China governments to accept any substantial change in the short term.
However, unlike with Tian’anmen square protest, we see Chinese leadership being less “harsh” fighting the protests, as we acknowledge Chinese leader fear vis-a-vis social media power. In the medium term, we see China devoting more democratic say in HK. Our forecast is built on the view that the Chinese government is fearing a HK political change to threat its reform agenda. President Xi wants to be seen as the strong man to fight conservatism push back to the reform, specifically ahead of the IV-th Plenum, which will focus on improving governance (which creates an important shift of power from “princelings” to the reformists). After the IV-th Plenum we see President Xi and HK government coming with a middle ground solution, which could take the form of a split designation of leaders. Democracy comes with cost and responsibility. We consider that President Xi long-term objective of political reform to be intact, but he fears that “House of Cards” like politics could jeopardise his aim to avoid the middle-income trap risk should interest groups (Raymond Tusk character in the TV-show) to derail his genuine fight against conservatism and vested interests.
Hong Kong student leaders agree to talks but refuse to end protest
Chief executive warns police will take ‘all necessary actions’ as deadline expires today
Protest leaders in Hong Kong said they would create access lanes to government buildings to allow civil servants to go back to work this week, but defied pressure to end their occupation of key sectors of the downtown commercial area.
Hong Kong chief executive Leung Chun-ying said on Saturday the protesters would have to be dispersed by this morning so life could return to normal. He said officials and police would take “all necessary actions” to restore order.
Andrew Chow, secretary general of the Hong Kong Federation of Students, told the crowd last night it had started preparations for talks with Hong Kong’s chief secretary, Carrie Lam, because police had met their bottom line for the dialogue – the guarantee of protesters’ safety.
“Occupy must go on to give pressure to the government, as it is why they are willing to talk to us in the first place,” he said.
If the police used rubber bullets, however, the protesters would have to disperse, he said. “There’s no way to defend against that.”
Benny Tai, one of the leaders of the Occupy Central movement, told the crowd on Saturday: “We only target CY [Leung], not other government officials. By opening a route, CY will have no reason or excuse to clear our occupation and spread foul rumours.”
Insight – Chinese troops play symbolic role in Hong Kong drama over democracy
HONG KONG (Reuters) – Major General Tan Benhong, the commander of the People’s Liberation Army in Hong Kong, was a picture of uniformed calm as he shared champagne toasts with Chinese officials on Wednesday at local celebrations marking China’s national day.
The streets surrounding the bash at the Hong Kong Convention Centre presented a starkly different scene as thousands of protesters escalated the most sustained push for full democracy since China took Hong Kong back from Britain in 1997.
As the protests enter their second week amid fresh signs of street violence, some demonstrators and ordinary Hong Kong citizens fear Tan’s troops could eventually be ordered to crush a movement unthinkable on the mainland.
Thorny political, legal and strategic realities make any such involvement of the PLA exceptionally difficult, however, and Hong Kong’s 27,000-strong police force is expected to remain in charge for the time being.
Government advisers and experts believe leaders in both Beijing and Hong Kong understand the immense political costs of ordering the PLA out of their barracks, ending at a stroke Hong Kong’s vaunted autonomy under the « one country-two systems » formula under which Britain agreed to hand over the Asian financial hub.
Protesters rally after Monday ultimatum to leave Hong Kong streets
Hong Kong: Pro-democracy protesters remained in deadlock with the Hong Kong government Sunday evening, after student organisers leading the demonstrations said they would refuse to abandon their occupation of the city until their demands were met.
This was despite the territory’s leader, Leung Chun-ying warning police would « take all actions necessary » to clear blockades of government headquarters where tens of thousands of protesters have gathered nightly.
« We are staying tomorrow, » the leader of the Hong Kong Federation of Students, Alex Chow, told reporters, referring to the government’s ultimatum that they clear out by Monday morning. He said they would only return to the negotiating table if the government agreed to investigate accusations that a violent attack on a protest site on Friday had been orchestrated.
Catalonia
Catalonia: We were saying “calls for independence referendum is increasing pressure on both Madrid and EU to move forward to offer better conditions and better narrative to the public. We see PM Rajoy taking constitutional actions to deter Catalonia from conducting the referendum, at a moment where more the referendum is gaining support from the independence forces all over the world. Madrid may accept to open discussion to devote additional autonomy to Catalonia in order to reduce the pressure. This story is likely to push EUR existential threat higher short term, but we consider that EUR is likely to rebound by the end of this year, when these threats will be repriced as less likely.” (daily briefing Sept. 30 2014). Catalonia decision to suspend formal campaign is the first step in our constructive scenario. However, Artur Mas uses the threat of going ahead with the referendum, though the constitutional court has specified that’s un-constitutional. This threat is urging PM Rajoy to act which he did in Saturday by opening discussion of some kind of PM Cameron solution to Scotland independence call (i.e. more fiscal autonomy).
CATALANS SEEK LEGAL CASE FOR SECESSION VOTE
MADRID (AP) — The pro-independence government of Catalonia said Friday it is examining possible legal arguments to persuade Spain’s Constitutional Court to lift its provisional suspension of a planned secession referendum in the region Nov. 9.
The regional government of Artur Mas met with leaders of other regional political parties that back the referendum to see how they could make a legal case for the ballot, spokesman Francesc Homs said. He said the talks could continue into the weekend.
Most lawmakers in the Catalan parliament in Barcelona favor staging a vote, saying it is their democratic right.
But the central government and most members of Spain’s national Parliament in Madrid overwhelmingly oppose it, arguing it violates the Spanish Constitution’s stipulation that only the national government can call referendums on sovereignty and that all Spaniards are entitled to vote in such a ballot.
The Constitutional Court decided unanimously last month to hear the government’s case against the referendum. That decision automatically suspended the vote from going forward until the court hears arguments and makes a decision — a process that could take months or years.
Pro-independence sentiment has surged in Catalonia in recent years following Spain’s refusal to give the region more autonomy and fiscal powers.
Catalonia pushes ahead with referendum plans despite court move
(Reuters) – The leader of Catalonia has set up a panel to supervise a contested independence referendum next month, defying Spain’s central government which has gone to the courts to block the vote.
The president of the wealthy north-east region, Artur Mas, appointed a seven-strong committee to oversee the ballot on Thursday evening, the local government said in a statement.
It was the first official move to prepare for the planned Nov. 9 vote on separation from Spain since the Constitutional Court agreed on Monday to review the legality of the referendum — a decision that effectively suspended the ballot.
Prime Minister Mariano Rajoy’s People’s Party will appeal the creation of the commission, the head of its Catalan division said. « Mas has lost his sense of responsibility, his sense of state and his common sense, » said Alicia Sanchez-Camacho.
Spanish PM calls for dialogue as Catalonia renews independence campaign
MADRID: Spanish Prime Minister Mariano Rajoy called on Saturday for dialogue with Catalan separatists « within the limits of the constitution » as the government of the wealthy region resumed its campaign for a vote on independence.
The government of Catalonia had temporarily suspended campaigning for a Nov. 9 referendum on whether to break away from Spain after Spain’s constitutional court agreed last week to Madrid’s request that it review the legality of the vote.
But the regional administration of Artur Mas said in a new television advertisement on Saturday that it « has agreed to take the legal, political and institutional initiative to guarantee the right to decide the political future of Catalonia ».
The film begins with the same images as a previous pro-referendum ad but after a few seconds the screen turns black and a voiceover in the local Catalan language informs viewers about the central government’s move to block the vote.
US News
President Obama gave a speech on the Economy to help Democrats to keep the Senate majority. The speech did not come with any new news. However, the agenda presented could be derailed and even create a doom scenario should GOP won the Senate majority. It would jeopardise reforms (when China and EU are reforming) such as immigration, education, infrastructure etc. The doom scenario would take place should they resumed their aim to impeach the US President. We are not siding here against GOP from any ideological prospect. We do believe that it’s in GOP interest to loose, to focus on it’s internal civil war against the Tea Party. The GOP without Tea Party can be a very important driver to bi-partisan reforms agenda. With the Tea Party, not only GOP threatens the US economy but it does also threaten its own future. Remember : GOP abolished slavery. It’s now seen as in a War against Women.
US Tax inversion: Salix Pharmaceuticals Ltd , citing a « changed political environment, » said on Friday it had scrapped a deal with Italy’s Cosmo Pharmaceuticals SpA that would have allowed it to shift its tax base from the United States to Europe.
From Sept 26th Daily Briefing: As we were expecting since the announcement of Burger King deal (which has been widely reported as being solely pursuing tax inversion objective) we’ve indicated that this would sign the end of the system. US Treasury took actions to make it harder to execute such deals, while the tax reform seems in limbo due to DC gridlock. Administrative actions taken by Treasury Secretary Lew makes it harder to execute tax inversion but does not derail it entirely. We consider that G-20 initiative to undertake OECD proposal to reform the rule of “double non-taxation” (see our previous daily briefing) will help improve the tax governance (and incidentally the rise in the mistrust in the public institutions – which are seen to be colluding with businesses -). Markets have reacted negatively to the actions taken against tax loopholes, because these are seen to be the only remaining way for Corporations to improve their EPS (while demand continue to be subdued). We disagree with this view because G-20 initiatives to tackle “tax optimisation” will come along with more investments and fiscal stimuli which would help spur more economic demand.
White House says US is prepared to stop spread of Ebola
DALLAS — Health officials Friday narrowed down to 10 the number of people considered most at risk of contracting Ebola after coming into contact with an infected Liberian man. They also moved the four people who had shared an apartment with the man from their potentially contaminated quarters, as local and federal officials tried to assure the public that the disease was contained despite initial missteps here.
The four people, a girlfriend of Thomas E. Duncan, the Liberian who is the first person in the United States to develop symptoms of Ebola, and three of her relatives had been under orders not to leave their home, and Texas officials apologized to them for not moving faster to have the apartment cleaned of potentially infectious materials.
The cleanup began Friday afternoon, more than a week after Duncan first went to the hospital but was sent home because information about his travels from Liberia was not properly relayed. Workers in yellow protective suits scoured the apartment, whose entryway and balcony were covered with a black tarp.
“I want to see them treated as I would want my own family treated,” said county Judge Clay Jenkins, the top elected official of Dallas County, who visited the family inside the apartment Thursday night. The four were in quarantine Friday at a private residence.
UPDATE 1-Settlements spared bankrupt Detroit costly litigation – manager
Oct 2 (Reuters) – Without a series of settlements, Detroit would face years of costly litigation from creditors and others, with no guarantee that the city would win, Kevyn Orr, Detroit’s emergency manager, said on Thursday.
Orr, on the stand for a second day at a federal court hearing, also defended Detroit’s 1,111-page bankruptcy plan, saying it was crafted in good faith and provides a framework and resources for the city’s renaissance.
An attorney for the city’s last major hold-out creditor peppered Orr with questions concerning the fairness of the plan’s disparate treatment of the city’s unsecured creditors.
Orr, appointed by Michigan’s governor in March 2013 to salvage Detroit’s finances, is considered the key witness in the city’s historic bankruptcy trial. Under Orr’s watch, Detroit filed the largest municipal bankruptcy in U.S. history in July 2013.
The emergency manager, during questioning by Ed Soto, attorney for Financial Guaranty Insurance Co, verified several times that certain unsecured creditors fare worse than the city’s pensioners under the plan. The bond insurance company, which local media has reported is in settlement talks with Detroit, faces a recovery of 10 cents to 13 cents on the dollar for its $1.1 billion exposure from insuring Detroit pension debt.
GOP EYES VOTER ROLLS AMID CLOSE ILLINOIS CAMPAIGN
CHICAGO (AP) — In a sign of how close the contest for control of President Barack Obama’s home state is expected to be, Illinois Republicans are mounting what they call an unprecedented and costly campaign to have ineligible people purged from voter lists and recruit their own election judges before November.
With their sights on unseating a Democratic governor and winning back several congressional seats, Republicans have allocated $1 million in Cook County alone — from fundraising and the Republican Governors Association — to examine voter rolls and recruit 5,000 GOP election judges to watch over polling places in Democrat-heavy Chicago.
In two counties east of St. Louis, the party is examining obituaries to ensure the deceased are removed from the rolls and tracking down death certificates. They’re looking for addresses where utility service has been cut off to determine if registered voters have moved. And they’re checking to see whether people are voting from addresses for vacant lots or commercial properties. Similar efforts are planned for Cook County.
State election officials say they also have noticed an uptick of GOP inquiries about voter registrations in at least two other counties in central Illinois.
Republicans say they’re guarding against voter fraud and responding to Democratic maneuvering to boost their side’s turnout, including adopting same-day registration and putting several non-binding questions on the ballot to appeal to liberal and working-class voters, such as whether Illinois should tax millionaires. The GOP fears outdated voter rolls and a last-minute Democratic push to the polling stations will allow ineligible votes.
« We’re not trying to silence anyone’s vote, » said Aaron Del Mar, chairman of the Cook County Republican Party, noting Chicago’s » vote early, vote often » reputation for past fraud. « Everyone should vote. It should only be once though. »
Drop in U.S. Labor Force Hard to Pin on Discouraged Workers
Oct. 3 (Bloomberg) — It’s getting increasingly difficult to blame the incredibly shrinking U.S. workforce on bummed-out Americans.
The pool of discouraged workers, those who are no longer hunting for a job because they believe none is available, shrank to 698,000 in September from 775,000 the prior month, according to Labor Department figures. The participation rate, which measures the number of Americans employed or looking for a job as a share of the working-age population, decreased to 62.7 percent, the lowest since February 1978.
That probably means that what economists call structural or secular elements, including the retirement of baby boomers or people deciding to leave work to start families or go back to school, are more likely behind the continued exodus that is helping drive down unemployment. Federal Reserve policy makers have little influence over these trends since an improving economy won’t bring many of those people back.
“More of the decline in the participation rate is secular,” said Tom Porcelli, chief U.S. economist at RBC Capital Markets LLC in New York, who projected the jobless rate would fall. If this continues, “the participation rate is going to continue to decline as a result.”
The number of people going from being unemployed to leaving the labor force was at 2.19 million in September, close to the 2.15 million February reading that was the lowest since November 2008, according to the Labor Department. Because the data are volatile, it’s probably best to look at the average over the past three months, which at 2.25 million was the lowest since January 2009.
OBAMA HIGHLIGHTS ECONOMIC, MANUFACTURING GAINS
PRINCETON, Ind. (AP) — Boosted by the lowest jobless rate in six years, President Barack Obama on Friday heralded September’s hiring rate as the longest uninterrupted stretch of private sector job growth in U.S. history and declared that the United States is surpassing combined job creation in other advanced economies.
The Labor Department’s report Friday that employers hired 248,000 and that the jobless rate fell to 5.9 percent came as Obama was reviving his economic message ahead of the November midterms, calling attention to industrial gains that have helped restore some higher-wage jobs during the recovery from the Great Recession.
« We’re on pace for the strongest job growth since the 1990s, » Obama said.
Obama was speaking at a steel manufacturing plant in Princeton, Indiana, as part of a new fall political campaign push to promote his pocketbook policies and to claim credit for the upturn in the economy. The visit coincided with a White House announcement for a competition to create a manufacturing innovation institute concentrated on photonics, or the use of light in technology, ranging from lasers to telecommunications.
With large rolls of sheet steel behind him, Obama held a campaign-style question and answer session where he faced pointed questions about his push to raise the minimum wage, escalating health care costs and government environmental policies about coal.
Obama defended increases in the minimum wage, noting that most major companies pay over the current minimum, said health care premiums are rising at the slowest rate in 50 years and said coal is facing tough competition from other energy sources.
« The real war on coal is natural gas, » he said. « Because of new technologies, we are now extracting at a rate that is unbelievable. »
US Calls On All Parties in Ukraine to Abide by International Humanitarian Law
WASHINGTON, October 3 (RIA Novosti), Lyudmila Chernova – The United States calls on the sides of the Ukrainian conflict to take all feasible precautions, abide by international humanitarian law, allow for access for humanitarian organizations, and respect facilities, US State Department spokesperson Jen Psaki said Friday.
« We call on all parties to take all feasible precautions to prevent the loss of innocent life, comply with international humanitarian law, and respect facilities of humanitarian organizations, » Psaki said at a press briefing.
She also expressed condolences to the victims, including the Red Cross employee killed in the deadly shelling in Eastern Ukraine on Thursday.
« In the last 24 hours shelling and attacks have intensified in Eastern Ukraine most notably in the city and the airport of Donetsk, » Psaki said, adding that since the ceasefire was signed on September 5 the continued violence had killed over 200 people. « Many of them are innocent men, women, and children. Our thoughts and prayers are with the families of all victims including Red Cross worker Laurent DuPasquier. »
Earlier on Friday Moscow called for an unbiased and thorough investigation into the death of a Red Cross humanitarian worker in eastern Ukraine. The Russian Foreign Ministry said in a statement that it had « noted the hasty reaction by the Ukrainian authorities, who hurried to shed all responsibility for the death of a member of this reputed international humanitarian organization. »
Morning Scan: JPMorgan Joins the Mega Breach Club; Bernanke’s Refi Denied
Hack Attack at JPMorgan: JPMorgan Chase is the newest member of the mega breach club. The bank disclosed in a Thursday regulatory filing that hackers stole the names, email addresses, phone numbers and mailing addresses of 76 million households and seven million small business customers this summer. JPMorgan is assuring customers that it has seen « no unusual fraud activity related to this incident » and says « there is no evidence » that hackers were able to access more sensitive information like account numbers, passwords, Social Security numbers and dates of birth. Perhaps more worrisome is the fact that the attack « went unnoticed for about two months this summer » before JPMorgan identified the breach and put a stop to it in August, according to anonymice who spoke with the Wall Street Journal.
The matter of how cybercriminals gained access to JPMorgan’s systems is still unclear. The Journal’s sources say hackers used malware to breach JPMorgan’s network via an employee’s personal computer. The New York Times reports hackers « obtained a list of the applications and programs that run on JPMorgan’s computers …. which they could crosscheck with known vulnerabilities in each program and web application, in search of an entry point back into the bank’s systems. » Both papers suggest the attack may be traced back to Russia. The Times goes so far as to say the « lack of any apparent profit motive » in the attack has led some to suspect that the Russian government may be behind it. The Financial Times also notes that the New York Times reported a possible second cyberattack at JPMorgan Thursday, which the bank has denied. Wall Street Journal, Financial Times, New York Times, Washington Post
Fed Under Fire: Lawmakers are questioning whether the Federal Reserve Bank of New York is willing to play bad cop with big banks in the aftermath of secret recordings released last week detailing the regulator’s supervision of Goldman Sachs. « Committees in the Senate and House of Representatives are looking at whether to hold hearings or conduct more extensive investigations into the Fed’s oversight of Goldman and other banks, » the Times reports. A joint report by ProPublica and « This American Life, » based on tapes made by former Fed examiner Carmen Segarra, suggests Fed employees were deferential to Goldman Sachs even as they questioned a « shady » deal with Santander. New York Fed chief William Dudley defended the Fed’s integrity at the end of a speech at New York University on Thursday. « We will continue striving to improve, but I don’t think anyone should question our motives or what we are attempting to accomplish, » he said. Meanwhile, Sen. Elizabeth Warren called for further investigation into the Fed’s supervisory tactics. « The tapes reveal a basic cultural issue: The Fed can identify problems, but can’t bring itself to make the banks fix those problems, » she said in a statement Thursday. Wall Street Journal, New York Times
28 words that Democrats really wish President Obama didn’t say today
President Obama was at Northwestern University on Thursday to deliver an economic speech that, he and his team hoped, would lay out the case for why the public is better off today than they were six years ago — even if they didn’t feel it in their everday lives. Instead, Obama just gave every Republican ad-maker in the country more fodder for negative ads linking Democratic candidates to him.
Here are the four sentences that will draw all of the attention (they come more than two thirds of the way through the speech): « I am not on the ballot this fall. Michelle’s pretty happy about that. But make no mistake: these policies are on the ballot. Every single one of them. » Boil those four sentences down even further and here’s what you are left with: « Make no mistake: these policies are on the ballot. Every single one of them. »
You can imagine Sen. Mark Pryor of Arkansas or Sen. Kay Hagan in North Carolina or Alison Lundergan Grimes in Kentucky grimacing when they heard those 28 words. That trio has spent much of the campaign insisting that this election is NOT about Barack Obama, that it is instead about a choice between themselves and their opponents.
Obama Says Workers Not Benefiting as Productivity Gains
President Barack Obama said that while the economic recovery is lowering the jobless rate, the economic recovery is helping the wealthy and not middle-class workers.
“There’s still a lot of folks having trouble paying the bills,” he said today at a steel plant in Princeton, Indiana. “Wages and incomes have not moved up as fast as all the gains we’re making in productivity.”
As a result, he said, “too much of the wealth is going to the very top.”
UPDATE 2-Salix calls off inversion deal amid U.S. government crackdown
NEW YORK, Oct 3 (Reuters) – Salix Pharmaceuticals Ltd , citing a « changed political environment, » said on Friday it had scrapped a deal with Italy’s Cosmo Pharmaceuticals SpA that would have allowed it to shift its tax base from the United States to Europe.
The deal termination came less than two weeks after the U.S. Treasury Department took a series of steps to curb « inversion » deals that let companies avoid U.S. taxes by reincorporating abroad.
Raleigh, North Carolina-based Salix, which makes drugs for gastrointestinal disorders, said in July it would merge with Cosmo’s Irish subsidiary. Since then, it has faced pressure from top shareholders to cancel the deal and instead sell itself to a larger drugmaker, Reuters reported last month.
« The changed political environment has created more uncertainty regarding the potential benefits we expected to achieve, » Salix Chief Executive Officer Carolyn Logan said.
US Welcomes Australia, Turkey, Denmark Joining Anti-IS Operation: White House
MOSCOW, October 4 (RIA Novosti) – The United States welcomes the decision of Australia, Turkey and Denmark to join the international military operation against the Islamic State (IS) targets in Iraq, White House Press Secretary Josh Earnest said Friday.
« The United States welcomes the Australian government’s deployment of fighter aircraft to participate in airstrikes on ISIL in Iraq as well as its intention to deploy Special Forces to Iraq to advise and assist Iraqi Security Forces, » the White House statement read.
« We also welcome the decision by the Danish parliament to authorize a contribution of F-16 fighters to join American, Iraqi, and international forces in countering ISIL positions in Iraq and to provide trainers to advise and assist Iraqi Security Forces, » the White House stated.
« The United States also welcomes the Turkish parliament’s strong vote recognizing ISIL as a threat to Turkey’s national security and authorizing Turkish military activity against ISIL in Iraq and Syria. We look forward to working closely with the Government of Turkey to incorporate Turkey’s unique capabilities into the growing international coalition to counter ISIL, » the White House announced.
Europe News
EU: the glass half empty view is that unemployment rate is still very elevated (23.3% in August) but it’s coming down, even before EU Commission President elected Juncker’s infrastructure plan, digital initiative, EU Council President elected Tusk’s energy union, are not in place. Though this story combined with Catalonia independence can lead, mistakenly, people to believe that “la Bastille” will be taken in days, we disagree with this view, as those who see a bloody revolution are being hired by ISIL and alike, while the overwhelming youth are working genuinely to improve their lives (alike their ancestors, Youth are adapting to the XXI Century to survive).
UK PM Cameron is expressing his say in the forthcoming negotiation ahead of Br-Exit referendum. Amongst these European Court of Human Rights ruling is considered as an important step. As we were saying, since Aug. 30th EU Council, we consider that the UK will gain some changes in order to give PM Cameron enough political capital to campaign for the Yes. We consider that the EU Commission success will be the best tool to defeat UKIP and EU-Skeptics in the forthcoming ballots.
From the economic prospective, the UK housing market is cooling off while the services sector is softening. This supports our view that BoE will not deliver the rates hike priced by markets.
UK’s Cameron threatens to ignore European Court of Human Rights rulings
LONDON (Reuters) – Prime Minister David Cameron’s Conservative Party toughened its stance on Europe on Friday, announcing a pre-election plan to quit the European Court of Human Rights unless it agrees that Britain’s parliament has the final say over its rulings.
Cameron, who is seeking to counter a growing threat from the anti-European Union UK Independence Party in May’s national election, has said rulings by the European rights court had prevented Britain deporting suspected militants.
He has also criticised the Strasbourg-based court, which was set up in 1959, for insisting on human rights on the battlefields of Afghanistan and upholding the rights of prisoners to vote.
The Conservatives are trying to bolster their support ahead of a probably close election next year, and the announcement received a warm welcome from Britain’s right-leaning newspapers which have been vocal critics of the court, with the Daily Mail running a front page headline: « End of human rights farce ».
David Cameron makes surprise visit to Kabul, pledges British support
KABUL — British Prime Minister David Cameron made a surprise visit to Kabul on Friday, pledging to support Afghanistan’s new coalition government as it seeks to enact reforms and prevent the Taliban from resurging as most foreign troops prepare to leave by year’s end.
Cameron, the first top Western leader to visit since an electoral crisis was resolved, said Britain was committed to working with the new government to rid Afghanistan of al-Qaeda, which he said was in the interests of both nations. Britain, like many Western countries, is concerned about terrorist plots on its soil by jihadists trained in Afghanistan and other militant havens.
“We all share a common goal, which is a more secure, stable and prosperous Afghanistan,” Cameron told reporters at a news conference with Afghanistan’s new president, Ashraf Ghani. “We want an Afghanistan that is no longer a safe haven for terrorists or a threat to the security of either of our countries.”
Cameron added that Britain has paid “a heavy price” for its efforts to bring stability to the country, a reference to the 453 British troops who have died fighting the Taliban insurgency over the past 13 years. After the United States, Britain has contributed the most troops to the international force that has sought to stabilize the country since the United States and its allies intervened in Afghanistan after the Sept. 11, 2001, terrorist attacks.
UBS faces fine of up to $6.3 million in French tax probe: Report
ZURICH: Switzerland’s largest bank UBS could face a fine of up to $6.3 billion if found guilty in an investigation in France into whether it helped wealthy customers there avoid tax, a Swiss newspaper reported on Friday.
A French court has already ordered UBS to deposit a 1.1 billion-euro ($1.4 billion) guarantee to cover a portion of potential fines in the case, but Swiss newspaper Le Temps said it had seen a legal document showing the bank could face a penalty of up to 5 billion euros.
France expects to monitor Ukraine ceasefire in coming days
PARIS, Oct 5 (Reuters) – France expects to launch a joint operation with Germany « in the coming days » to monitor a ceasefire between the Ukrainian army and separatists in the east of the country, the French defence minister said on Sunday.
Last month, France and Germany offered to deploy drones as part of efforts by the Organisation for Security and Cooperation in Europe (OSCE) to reinforce monitoring of the ceasefire in Ukraine, and a German government source said on Saturday that Berlin was considering deploying soldiers.
« We are studying with Germany how we can together reinforce monitoring of the ceasefire and the buffer zone, » Jean-Yves Le Drian said in an interview with RTL radio and news channel LCI.
He confirmed that France and Germany, which are in discussions with the OSCE, would offer drones but did not mention the deployment of soldiers or give further details.
Growth back on the agenda for UK financial firms: industry survey
LONDON (Reuters) – Growth is back on the agenda for Britain’s financial services companies, which have been posting rising profits and adding staff in recent months, an industry survey showed on Monday.
Following the 2007-09 financial crisis, many of Britain’s banks and financial services firms were forced to trim costs and cut jobs and cope with a raft of new regulations.
According to the latest quarterly review of the industry by the Confederation of British Industry (CBI) and consultancy PwC, firms may be starting to move on from the painful period of restructuring.
Business volumes grew at their fastest rate since 2007 in the quarter to September, while 60 percent of firms reported greater profits, the survey of 109 companies found.
UK services PMI slips in September as economy loses pace
LONDON, Oct 3 (Reuters) – Rapid growth in Britain’s services sector eased slightly in September and a broader measure of private-sector expansion fell to a six-month low, a major business survey showed on Friday, raising the prospect of an end-of-year slowdown.
The Markit/CIPS services purchasing managers’ index (PMI) dropped to a three-month low of 58.7 in September from August’s nine-month high of 60.5, falling slightly more than economists had forecast in a Reuters poll.
The index is still well above historic averages and the 50-mark that separates growth from contraction. But combined with Wednesday’s weak manufacturing PMI, a composite measure for the whole of the private sector dropped to its lowest in six months, sinking to 58.1 from 59.7.
Markit’s chief economist Chris Williamson said the index suggested gross domestic product growth of 0.8 percent in the three months to September, only a shade lower than the 0.9 percent achieved in the second quarter.
Euro zone business activity hits 10-month low
Business activity in the euro zone fell to a 10-month low in September as the downturn in two of the region’s biggest economies – France and Italy – continued.
Markit’s composite Purchasing Managers’ Index (PMI), which combines activity in the manufacturing and services sector, fell to 52.0 from 52.5 in August.
The average reading for the third quarter as a whole – 52.8 – was also the lowest so far in 2014.
U.K. Home Prices Seen Falling Next Year in First Drop Since 2011
U.K. house prices are set to fall in 2015, the first drop in four years, as the prospect of higher interest rates quells demand, according to the Centre for Economics and Business Research.
Values will slip 0.8 percent after increasing 7.8 percent in 2014, the CEBR said in a statement. That would be the first annual decline since 2011, the group said.
The forecast underscores signs of a loss of momentum in Britain’s housing market after record-low borrowing costs and improving confidence propelled prices to all-time highs. Values declined for the first time in almost a year and a half in September, Nationwide Building Society said last week.
China, Germany ready to seek steady development of bilatral ties
UNITED NATIONS, Sept. 27 (Xinhua) — Chinese Foreign Minister Wang Yi on Saturday met with his German counterpart Frank-Walter Steinmeier, and the two sides agreed to make continued efforts to secure the steady development of bilateral relations.
The meeting took place on the sidelines of the ongoing annual high-level debate of the United Nations General Assembly, which entered its fourth day here Saturday.
China-Germany relations have scored robust growth this year, Wang said, adding that the two nations should make continued efforts so that China-Germany relations could always take the lead among China’s ties with other European countries.
To this end, he suggest the two sides maintain high-level visits, cement strategic mutual trust, advance all-round cooperation, further exploit their economic complementarities and promote cooperation in new-type industrialization.
« We should also facilitate personnel contacts and promote extensive exchanges between people from various circles of our societies, » said Wang.
For his part, Steinmeier said the steady growth of the Germany-China relations is an important positive factor in a world afflicted with incessant conflicts and it is not only in the interests of bilateral cooperation in the coming years, but will also be conducive to world peace and economic growth.
China News
In February 2014, at Sunnylands, Presidents XI and Obama had a 15minutes talk in private. Since then, I was questioning what two of the most influential leaders can exchange in 15minutes? I imagined then, that they’ve decided: “let’s make a better future by improving governance now”. This “dream” is starting to be an overwhelmingly reality as indicated by subsequent events, actions etc. This future seem to be heading toward a multi-regional coordinated global governance. FM Wang Yi visit to the US is another piece of this scenario. China is improving the governance for its own good (as well as the world economy good) in change it wants a share as a reserve currency, take it time when reforming its political system (deal with Hong Kong) and manage the peace equilibrium in Asia. This is increasing the pressure on Japan to deliver its reform agenda to improve its economy and take the other side of the balance of power in the region.
As China, Japan, and South Korea heads toward a constructive talks (as we were reporting in our previous daily briefings) and Japan and North Korea are heading toward a solution on Japanese civilians abduction, North Korea leaders close to Kim Jong Un held last weekend high level talks with South Korea minister of reunification. This indicates that the scenario of an unified Korea is advancing. We have been considering that the reunification will ultimately take place but it requires normalised relation amongst the 3 important players: China, Japan, South Korea.
PRECIOUS-Gold falls 1.8 pct after payrolls; down 10 pct from July high
* Bullion drops about 11 pct from July’s intraday high
* Spot gold posts biggest one-day drop since mid-July
* Gold nears most oversold level since June 2013
* Platinum on Friday hit lowest since Sept 2009 (Updates market activities)
NEW YORK/LONDON, Oct 3 (Reuters) – Gold fell 1.8 percent on Friday, dropping below $1,200 an ounce for the first time this year, as the dollar surged after strong U.S. jobs data bolstered bets that the Federal Reserve will raise interest rates next year.
Bullion has now dropped 11 percent from its July high at $1,345, entering into a correction, defined as a 10 percent drop from its most recent high. It is also within sight to a four-year bottom at below $1,180 an ounce.
Platinum dropped 3 percent and other precious metals and commodities also tumbled as the dollar index rallied to a four-year high.
Obama, Chinese FM meet on relations
WASHINGTON, Oct. 1 — U.S. President Barack Obama met at the White House on Wednesday with Chinese Foreign Minister Wang Yi to discuss relations between their two countries, prior to Obama’s upcoming visit to China.
Obama spoke highly of the constructive role that China has played in international affairs.
Obama said that he is looking forward to his visit to China in November, in which he will make in-depth exchange of views with Chinese President Xi Jinping on further promoting the establishment of a new type of major-country relationship between the United States and China.
He said he will also talk with Xi about the ways to promote practical cooperation between the two countries in various fields and to jointly respond to challenges of international and regional issues including climate change, the Ebola epidemic and terrorism.
Wang said that China agrees with the U.S. proposal that China and the U.S. should work together to maximize cooperation, and minimize difference.
China welcomes Obama’s visit and is willing to work together with the U.S. to deepen strategic mutual trust, expand cooperation of mutual benefit in various fields, and promote practical fulfillment of efforts for developing a new type of major-country relationship between China and the U.S., Wang said.
North Korean leaders close to Kim Jong-un make surprise visit to South
Three senior leaders arrive for the closing ceremony of the Asian Games, sparking speculation on inter-Korean relations
Top North Korean leaders made a surprise trip to South Korea on Saturday, with the rivals holding their highest level face-to-face talks in five years.
After months of tension expectations for any breakthrough were low, but the visit itself was significant, allowing valuable contact between confidants of the North Korean leader Kim Jong-un and Seoul’s senior official for North Korean affairs.
The divided neighbours have exchanged a steady stream of insults in recent weeks, and North Korea has fired an unusual number of missiles and rockets.
The North Korean delegation, ostensibly for the closing ceremony of the Asian Games in Incheon, was led by Hwang Pyong-so, the top political officer at the Korean People’s Army and considered by analysts to be the country’s second most important official after Kim.
Rumours have swirled in the South about the health of Kim, who has made no public appearances since 3 September and skipped a high-profile recent event he usually attends. A recent official documentary showed footage from August of him limping and overweight and mentioned his “discomfort”.
The two sides met briefly in the morning. Unification ministry spokesman Lim Byeong Cheol told reporters that the North Korean officials would hold their main talks over lunch with South Korean unification minister Ryoo Kihl-jae and national security director Kim Kwan-jin before flying home later on Saturday.
It is the first senior visit of this kind to the South since president Park Geun-hye took office in early 2013. The last such trip was in 2009. It wasn’t clear what the officials talked about. Lim said there were no plans for the North Koreans to meet Park.
Australia News
RBA is working to reduce housing asset price frothiness through macro prudential actions. This is in line with the views we’ve expressed recently. But 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 – ).
Australia deploys special forces, joins air strikes in Iraq
Australia’s cabinet Friday authorised the deployment of special forces and military air strikes to tackle the Islamic State of Iraq and the Levant (ISIL) in Iraq, Prime Minister Tony Abbott said.
« Today, cabinet has authorised Australian air strikes in Iraq at the request of the Iraqi government and in support of the Iraqi government, » Abbott said.
« Also, subject to final legal documentation, cabinet has authorised the deployment of Australian special forces into Iraq to advise and assist Iraqi forces. »
About 200 troops, including special forces soldiers, arrived in mid-September in the United Arab Emirates, a staging post for military operations into the region, as part of a 600-strong deployment as Australia geared up to join the US-led campaign.
They are backed by Australian air force aircraft, including F/A-18F Super Hornet jets, an E-7A Wedgetail Airborne Early Warning and Control aircraft, and a KC-30A multi-role tanker and transport aircraft.
The special forces were « not envisaged » to become directly involved in combat missions but would be « helping Iraqi forces with the planning and coordination of operations », Abbott stressed.
He added that they would operate on a « much smaller scale » than their allied counterparts.
« The Americans certainly have quite a substantial special forces component on the ground already, » Abbott said.
Parliament burqa plan to be reviewed
A plan to force burqa-wearing Parliament House visitors to view debates from behind glass is being reviewed.
Parliamentary officers decided people with facial coverings could only watch parliament from glassed-off galleries usually reserved for school children.
But Prime Minister Tony Abbott requested a rethink of the controversial plan, saying people in public areas of parliament ought to be allowed to wear what they want.
« There are some places where it isn’t appropriate to obscure the face, » Mr Abbott told reporters on Friday.
« There are other places where people should be free to do absolutely whatever they like and wear absolutely whatever they want because that’s right and proper. »
The interim decision – made by Speaker Bronwyn Bishop and Senate President Stephen Parry – came after a week of debate about the burqa.
Outspoken Palmer United Party senator Jacqui Lambie plans to introduce a private senator’s bill banning the burqa in all public spaces, and the idea has the backing of Liberal senator Cory Bernardi and Liberal National Party MP George Christensen.
The prime minister ruffled some feathers earlier in the week when he admitted he finds the Islamic garb confronting and wishes people chose not to wear it.
He isn’t backing down from that position but says it’s not the role of a democratic government to tell people how to dress.
BHP Billiton ramps up iron ore battle with Rio Tinto
The world’s biggest miner, BHP Billiton, will on Monday outline plans to overtake Rio Tinto as Australia’s lowest cost producer of iron ore.
The company will aim to reassure investors that it can weather a sustained downturn in iron ore prices as it prepares to show off its substantial Pilbara assets in far north Western Australia to analysts.
BHP’s iron ore president Jimmy Wilson will update the market on its outlook and its efforts to boost efficiency and cut costs, which have become increasingly important as analysts cuts their forecasts for the price of the key steel making ingredient.
He is set to outline a plan to grow exports from the 225 million tonnes per year seen in 2014 to 290 million tonnes by 2017.
But the highlight of the presentation to be given by iron ore president Jimmy Wilson surrounds the cost levels that BHP believes are possible.
BHP believes it can produce iron ore, before the cost of shipping and government royalties, for less than $US20 per tonne.
The miner estimated that figure would represent a 25 per cent reduction compared to the results achieved in 2014, and the company believes it will require a lower level of sustaining capex over the next few years of growth than its rivals will.
RBA Makes Hawks Cry With Turn From Rate Tools: Australia Credit
The Reserve Bank of Australia’s plan to push non-interest rate measures to cool house prices has sent hawkish economists into retreat.
TD Securities and AMP Capital Investors Ltd. joined traders in drawing back from forecasts for early rate increases in response to policy makers’ hardening rhetoric on curbing mortgage lending to housing investors. RBA Governor Glenn Stevens is forecast to keep the benchmark unchanged at a record low tomorrow.
“We remain concerned that macroprudential tools are being considered to be a substitute for well-managed monetary policy,” said Annette Beacher, head of Asia-Pacific research at TD Securities in Singapore. If regulators “are determined to cool the housing market with unconventional, and untested, tools, as a substitute for a higher cash rate, then our March timing for the first RBA hike has to be pushed out towards mid-year.”
Australia’s housing market has been pumped up by the RBA keeping its cash rate at 2.5 percent for more than a year, as it seeks to bolster an economy hampered by the end of a mining boom and a currency that policy makers have called too high. Investors accounted for a record 49 percent of new home loans in July. Demand for high-risk mortgages, including interest-only loans, is setting the stage for a jump in mortgage delinquencies when interest rates rise, Moody’s Investors Service said last month.
Have the Aussie dollar bears won the argument?
Despite a long downtrend in commodity prices, the Australian dollar has managed to keep a loyal set of diehard fans among currency traders and analysts — but now some of them are throwing in the towel.
« We’ve been constructive on Australian dollar throughout 2014, consistently forecasting it to be the relative G-10 outperformer after the U.S. dollar, » Geoffrey Kendrick and Vandit Shah, analysts at Morgan Stanley, said in a note last week.
But since the payrolls data release last month, the bank’s bullish assumptions have been called into question. Morgan Stanley cut its forecast for the Australian dollar to $0.84 by the end of 2014 and $0.76 by the end of 2015, a sharp drop from its previous expectation of $0.95 by the end of this year and $0.88 by the end of next.
New Zealand News
New Zealand: Fontera payout cuts fuel concerns over NZ economic prospects. This increases the pressure on new PM Key Cabinet to accelerate rebalancing the economy and reforms. We have been indicating that NZ has already started a genuine shift toward new Tech agriculture, health and education services directed to Asian neighbours. The fact that PM Key secured another term supports our constructive scenario on NZ.. This constructive scenario narrative is currently overshadowed by the “search for yield” (or interest rates differential) and RBNZ fight against excessive carry trade effects.
New Zealanders urged to live in peace with Muslims
WELLINGTON, Oct. 3 (Xinhua) — New Zealand’s most senior race relations official on Friday urged the public to stand alongside the country’s Muslims in peace and compassion as terrorist tensions rose in neighboring Australia.
Race Relations Commissioner Susan Devoy issued her call after the Federation of Islamic Associations of New Zealand (FIANZ) published a statement unreservedly rejecting the Islamic State (IS) insurgency in Syria and Iraq.
« We must not label all Muslim New Zealanders with a barbarism they have totally rejected. Muslim Kiwis and their families deserve understanding, » Devoy said in a statement.
« If New Zealanders want peace overseas — we need to start right here at home. Human rights begin at home, » she said.
« We mourn the tragic loss of lives in overseas conflicts but we must honor their lives by standing for peace and human rights at all costs. »
Environmentalists threaten boycott over rare New Zealand dolphin
WELLINGTON – Environmentalists are threatening to call a boycott of New Zealand’s billion-dollar seafood export industry unless the government boosts efforts to save the world’s rarest dolphin, which has dwindled to a population of just 50.
The Maui’s dolphin, the world’s smallest and scarcest sub-species, is found only in shallow waters off North Island.
It is listed as critically endangered and scientists from the International Whaling Commission (IWC) have called for urgent action to prevent extinction, including a ban on fishing in the dolphin’s habitat.
While the government has taken some steps, environmentalists say it has not gone far enough due to fears of damaging the fishing industry, making a boycott the only way they can get their message across.
“We’ve exhausted all other avenues of making progress,” Barbara Maas, an endangered species specialist with conservation group NABU International, said. “We’ve repeatedly argued the scientific merits of the case and been ignored.
“So if it’s all about money, as has become apparent, then we need to change the economic landscape in order to make them reconsider.”
Japan News
Japan: inflation softening along with economic downgrade was widely expected as a result of the 1st VAT hike (cf our strategic note Dec 26th 2013). We see BoJ to keep the bazooka of QQE-2 un-tested until the JPY excessive depreciation and JGB solvency risk came down * investors are still short JGB expecting a Japan crisis *. The 2nd VAT hike will require some stabilisation at the current levels, though we expect that PM Abe will undertake the 2nd hike in steps, because BoJ is unlikely to be sufficiently confident to move ahead with more QQE while JPY is accelerating its depreciation. PM Abe voiced concerned over the JPY rapid depreciation, as he pointed (rightly in our opinion) to the increase in energy cost, which deteriorate further the energy trade deficit – and increase the risk of JGB solvency -. The Prime Minister confirmed in his Diet address to pursue Abenomics 3rd arrow.
However, BoJ might do some adjustment to its monetary program but nothing excessive. The news flow out of this weekend G20 meeting shows that the global community is gently pressing the government and the BoJ to pursue structural reforms, economic rebalancing, solvency improvement (through VAT 2nd hike commitment) and adequate monetary policy (not too hot – to avoid a crisis – not too cool – to avoid derailing the on-going portfolio rebalancing approach -). Japan continues to face heavy public pressure to rebalance its energy reliance to nuclear. While we believe that Japan will continue to press for reopening nuclear plants (when Nuclear Watchdog gives his green light), the medium to long term trend is that Japan will use Trade negotiation with neighbours to secure new energy sources while using this pressure to deregulate and move forward with Abenomics 3rd arrow (please see our Japan update for more on our views). We are not surprise by the fact that Russian news media are reporting the pushback to reopening nuclear plans, ahead of Japan-Russian talks (about sanctions, energy agreement, and disputed territories).
Asian Stocks Rise First Time in Seven Days on U.S. Payrolls, Yen
Asian stocks rose, with the regional benchmark index heading for its first advance in seven days, as a better-than-forecast U.S. payrolls report boosted confidence in the world’s largest economy and weakened the yen.
The MSCI Asia Pacific Index (MXAP) rose 0.3 percent to 138.46 as of 9:00 a.m. in Tokyo. The measure retreated 7.6 percent from a six-year high in July through last week amid concern Chinese growth is slowing and that the Federal Reserve may increase U.S. interest rates sooner as it ends asset purchases. U.S. employers added 248,000 workers to payrolls last month, exceeding the 215,000 increase predicted by economists.
“We’ve had good news from the U.S. which should place the market well,” Mark Konyn, Hong Kong-based chief executive officer of Cathay Conning Asset Management Ltd., said on Bloomberg Television. “It’s a critical week for the Hong Kong protests. There’s been a significant shortfall in visitors from the mainland and that clearly has a significant impact on the city’s economy.”
North Korean officials pay rare and surprising visit to the South
KYOTO, Japan— North and South Korea have agreed to hold another round of high-level talks after a top-level Northern delegation, including the men thought to be second and third in command behind Kim Jong Un, paid a surprise visit to the South on Saturday.
The unusual and unannounced trip — the first such high-level visit in more than five years — comes at a time of intense speculation about North Korea’s leadership, given that Kim, the third-generation leader of the communist state, has not been seen in public for a month.
It also comes amid a steady stream of disparaging comments from both sides, with South Korean President Park Geun-hye recently calling for the international community to help in “tearing down the world’s last remaining wall of division,” and the North calling Park an “eternal traitor” in response.
“It’s a big deal, it’s really a big deal, because it’s completely unprecedented,” said Andrei Lankov, a North Korea scholar who studied in Pyongyang and now teaches in Seoul.
The 11-strong group from North Korea was led by Hwang Pyong So, widely considered Kim’s deputy. He’s the top political official in the Korean People’s Army and vice chairman of the National Defense Commission, which is led by Kim.
Typhoon leaves U.S. airman dead, two missing in Okinawa
A powerful typhoon was heading toward Tokyo late Sunday after lashing southern Japan, where it killed at least one U.S. airman on Okinawa Island and left two others missing, officials said.
Typhoon Phanfone was off the coast of Shikoku in southwestern Japan on Sunday night, packing winds of up to 144 kph (90 mph) after hitting the southern regions of Okinawa and Kyushu, the Meteorological Agency said.
Three U.S. Air Force service members were washed away by high waves Sunday, with one found dead and the other two still missing, the Japan Coast Guard said. Tsuguyoshi Miyagi, an official at the Coast Guard’s Okinawa branch, said the airmen were on the island’s northern coast.
The U.S. Air Force confirmed that three of its airmen were washed out to sea and that one had died. It said the search for the other two had been interrupted by rough seas.
The names of the three airmen were being withheld pending notification of their relatives, the air force said in a statement.
Hong Kong’s geopolitical threat tests China’s economic drive
TOKYO — Hong Kong’s so-called umbrella revolution is starting to rock the global financial boat. The scale of the pro-democracy protest has grown to the biggest since the British colony’s 1997 handover to China.
Hong Kong stocks came under strong selling pressure on Sept. 30. This trend carried over to Japan and South Korea, after dragging down U.S. and European stocks. Market players are snapping up « safer » U.S. Treasury bonds, sending the dollar higher against other major currencies.
Amid Hong Kong market woes, mainland China’s equity market remains intact. Shanghai stocks appear to be immune to the disturbance, with the Shanghai Composite Index moving at its highest level in about 18 months. Meanwhile, Beijing has tightened its online censorship, affecting everyday life of its citizens.
The Chinese government stands by its « one country, two systems » policy, while clamping down on Hong Kong, limiting the city’s political space. This has ignited the current backlash.
Behind much of the unrest in Hong Kong is the drastic improvement in mainland China’s economy over 17 years since Hong Kong was returned to China. In 1997, mainland China’s nominal gross domestic product stood at slightly over $950 billion, five times that of Hong Kong’s $180 billion GDP. As of 2013, mainland China’s GDP was 33 times that of Hong Kong’s; just under $9.2 trillion and just over $270 billion, respectively.
This great economic prowess has allowed mainland Chinese companies and citizens to go on spending binges for property and luxury goods in Hong Kong. There has been a particular fondness for places that include the name « Central, » the term used for Hong Kong’s financial district — and the current location of the protests. A local fund manager believes mainlanders are eager to rent offices in central, according to a former Japanese official at a trading company who made a business trip to Hong Kong last week.
Hugging ‘tranquility chair’ one of many therapeutic products targetings seniors
There are times in everyone’s life when only a hug will do. Now one Japanese company has come up with a chair that’s always ready to give a comforting cuddle.
The “tranquility chair” is built in the shape of a larger-than-life fabric doll with a friendly face and a fetching hat, but more importantly, it has long arms that wrap around the user in an affectionate embrace.
“It makes you feel safe. Anyone can use it, but it is designed for older people,” said a spokesman for UniCare, which is selling the chair, at the International Home Care and Rehabilitation Exhibition in Tokyo.
Around a quarter of Japan’s population is over the age of 65, a figure expected to rise to 40 percent in the coming decades.
The chair is priced at ¥46,000 ($419) and there is also a version adapted for wheelchair users.
Alongside specialist vehicles, beds and toilets on display at the three-day show were a variety of unusual products designed to lift the spirits of older people, who are starting to live on their own in increasing numbers.
UniCare’s Life Rhythm Dolls are programmed to remind their owners to take their medicine or go to the toilet at certain times of day.
“They are comforting for people who live alone — they can talk to them and hug them. They also play old Japanese music, which is nostalgic for older people” said the company spokesman.
Also on display were the baby seal robots known as Paro that have been making a splash in therapeutic treatment since 2004.
The cute animatronic devices, developed by Japanese automation pioneer AIST, allow people who are not allowed to keep live pets because of apartment rules to enjoy the soothing company of a robotic creature.
“Real animals can scratch and poo, but this one won’t,” said a demonstrator at the Paro stand.
The lifelike seal cubs move, squeak and open and close their eyes in response to their surroundings — and they even get angry if you poke them.
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