Tag: Association of Southeast Asian Nations

What Will Push Them Over The Edge?

Authored by Jeff Thomas via InternationalMan.com,

Recently, the people of two of Italy’s most prosperous regions voted in a referendum, on whether they wished to have greater autonomy from Rome.

The referendum is non-binding, but that’s not what’s most significant in the results.

What is significant is that over 95% of those who voted in Lombardy did so in favour of greater autonomy. In Veneto, the number in favour of greater autonomy was even higher, at 98%.

Roberto Maroni, president of Lombardy, said, “I now have a commitment… to go to Rome and give concrete actualization to the mandate that millions of Lombards have given me.”

It may appear on the surface that Mister Maroni intends to make an appeal for independence, but this is not what will occur. He’s a politician and won’t invite Rome to jail him for sedition. His goal will instead be to demand that a greater amount of the national income that’s generated by Lombardy and Veneto (about 20% of the total) remains within those regions.

This will not mean that he wants his people to be taxed less; his goal will be to retain a larger portion to be absorbed by the regional governments—to be in his own hands.

So much for the politicians’ agenda. But what does the referendum say about the people of the regions? Well, the extraordinarily high numbers in favour of greater self-determination demonstrate that virtually all the people in the regions have figured out that Rome is bilking them of their earnings and they’re getting pretty cheesed off.

In prosperous times, a population tends not to complain too much about being robbed through taxation. They grumble a bit, but tolerate it. However, in more stringent times, when people are finding it more difficult to make ends meet, they become more resentful of governments that are chronically both overreaching and wasteful.

Since 2008, we’ve been living in such a time, and the longer people go on without a true recovery, the more resentful they’re going to be.

Independence movements have been afoot in many countries in Europe, every state in the USA, and elsewhere on the globe, but, until recently, they’ve been minor issues, attracting primarily fringe support.

Brexit changed all that, as the people of one of the illustrious G7 countries voted to remove themselves from the parasitical EU.

This, of course, inspired the voters of “lesser” countries to consider the possibility of independence more seriously.

Some of these movements have been efforts by largely dependent entities such as Scotland to express the resentment of being the poor step-sister to a more prosperous central government, but others have been the result of the growing resentment that the province or region that’s producing the lion’s share of the national revenue is routinely having it siphoned off by the central government.

It’s predictable that any regional political leader will like the idea of independence, so that he can create his own country and become its president. However, in the present environment, we’re seeing the people of Lombardy, Veneto, Kurdish Iraq, and Catalonia voting overwhelmingly in favour of either full separation, or at least, greater autonomy.

Of course, this can’t be tolerated by the central governments, as it means that they’ll be losing all that revenue and, in many cases, this would collapse their economy.

But, at present, we’re looking at only the thin end of the wedge. There are countless other provinces and regions out there that have a similar desire to secede, and justifiably so.

After all, much of Europe, until the last century or so, was not made up of large countries. It was made up of lots of little tribal areas that sometimes worked collectively. Even the Roman Empire began as a collection of provinces.

Whilst we, today, are accustomed to a world map that’s remained largely the same throughout our lifetimes, there’s actually nothing sacred in the borders that were drawn on maps decades ago, often by people who had never been to those locales (in the case of former colonies and conquered areas). The smaller, tribal areas made more sense and actually worked more in favour of the inhabitants.

But, since World War II, the world has been headed in the direction of über states. The Unites States had already led the way in the late 18th century, but in recent times, the EU was formed and repeatedly expanded. In addition, many organisations have joined groups of countries together (ASEAN, Mercosur, Caricom, etc.).

In each case, the über states were created without the expressed majority interest of the voters. (In EU countries, referenda were sometimes held, but, in no case did a majority of voters vote in favour of joining the EU. The leaders did it in spite of the lack of support.)

Invariably, the über states were created by the political leaders and for the political leaders.

Not surprisingly, in each case in which the people of a province, state, or region have expressed a desire to secede, the central government has forcefully opposed secession. (The Americans fought their civil war, not over slavery, but over secession.)

Today, states such as Texas, which have repeatedly stated both their right and interest in possible secession, have been advised that, if they make such an attempt, they’ll be met with whatever force is required to stop it.

In Catalonia, we’re watching a standoff build between the leaders in Barcelona and Madrid, as each event unfolds.

And Catalonia is a good example of a further reason for a central government to resist the departure of a province: Should Catalonia succeed, there’s the likelihood that the adjoining regions of Valencia and the Balearic Islands might also be inspired to make an exit from Spain, and for the very same reason—because they’re the revenue producers and are having Madrid siphon off their earnings, to be spent on less-productive regions.

Governments have had a long history of claiming, “If we don’t all stick together, we’ll be doomed.” However, historically, the aggressors, more often than not, have been the empires. The smaller a country, the more likely it is to mind its own business.

In addition, the smaller a country, the more closely its leaders are to their people and, correspondingly, the more responsive they are to the people’s needs and goals.

The great majority of the armed conflict that exists today exists either in the larger countries, or, more often, due to the aggression of larger countries.

Brexit has most certainly been the cause of a trend for smaller entities to get up the courage to back away from the parasitical central governments. The hope would be that this trend will expand dramatically.

There can be no doubt that there are those who believe in and are doing their utmost to create a New World Order (they’ve been stating their intent for over a hundred years). Yet, just as we seem to be moving headlong in this direction, a reversal has begun to take place at the same time.

There can be no doubt that the reversal will be resisted strenuously; however, as the voting described above attests, this is a ground-up trend, not a government-generated trend, and, historically, strong ground-up trends have had a healthy track record of success.

*  *  *

Even “successful” independence movements never go smoothly. Extreme economic turmoil is simply built into the game. However, some people always manage to come out the other side much wealthier. We’re sharing how in our Guide to Surviving and Thriving During an Economic Collapse. Click here to download your free PDF copy now.


Key Events In The Coming Week: Taxes, Inflation, Yellen, Draghi, Kuroda And Brexit

This week’s economic calendar features several key data releases and Fedspeak. The main data release in US include: CPI inflation, retail sales, industrial production, housing data and monthly budget statement. We also get the latest GDP and CPI reading across the Euro Area; the employment report in the UK and AU, Japan GDP, China IP, retail sales and FAI. In Emerging markets, there are monetary policy meetings in Indonesia, Chile, Egypt and Hong Kong.

Market participants will also want to pay close attention to tax reform progress in Washington. The House Ways and Means Committee had voted along party lines (24-16) to deliver its bill to the full House. The Senate Finance Committee’s proposal was also revealed last week and is slated for markup this week. Both versions are essentially opening gambits by the two chambers and the hard work begins when the two bills are “reconciled”. As a reminder, the Senate version is likely to be closer to the final version. In our view, there is a decent chance that some version of tax reform can be achieved, but this is likely to be a Q1 event and there are numerous potential stumbling blocks along the way.

With respect to the data, October inflation and retail sales reports are the main focus. Tuesday, DB expects headline PPI (+0.1% forecast vs. +0.4% previously) to moderate following a spike in gasoline prices last month due to hurricane-related supply disruptions. However, core PPI inflation (+0.2% vs. +0.1%) should firm. Analyst will focus on the healthcare services component of the PPI, as this is an input into the corresponding series in the core PCE deflator—the Fed’s preferred inflation metric. Recall that healthcare has the largest weighting in the core PCE.

According to Deutsche Bank, the decline in gas prices will have a similar effect on headline CPI (0.1% vs. +0.6%) released on Wednesday. Core CPI prices (+0.2% vs. +0.1%) are expected to firm but the year-over-year growth rate should remain at 1.7%, down from 2.3% at the beginning of the year. While the market anticipates core inflation to remain tame nearterm, there are signs of an inflection point on inflation. Inflation lags output growth by about six quarters, and in this regard, some of the recent weakness reflects the soft-patch in growth in late 2015/early 2016.

Regarding retail sales, the headline (+0.1% vs. +1.6%) will likely cool due to motor vehicle sales, which slipped to a still robust 18 million units in October following a surge in hurricane impacted regions of the country. Sales excluding automobiles should fare a bit better (+0.3% vs. +1.0%). Per usual, focus will fall on retail control (+0.4% vs. +0.4%), which excludes autos, building materials and gas stations and is the portion of retail sales used to estimate goods spending in GDP. Market participants should also be mindful of revisions, which can be meaningful.

There is also a spate of manufacturing data this week beginning with the New York Fed Empire survey (26.6 vs. 30.2), which could slow after reaching multiyear highs. Thursday’s Philadelphia Fed survey (23.5 vs. 27.9) is also expected to slip but still remain firmly in growth territory. The six-month outlook for capital spending in the latter survey is notable as this has been near historic highs over the past several months and is a reliable leading indicator of capex spending.

Also on Thursday, we get the October industrial production (+0.8% vs. +0.3%) report, which should post a sturdy gain given the increase in manufacturing hours worked and utilities output last month. Indeed, there could be upside risk given hurricane disruptions to the energy and chemical refining complexes.

Rounding out this week’s data releases are Thursday’s NAHB housing market index (66 vs. 68) and Friday’s housing starts (1.220 million vs. 1.127 million) and building permits (1.230 million vs. 1.225 million). There has been some recent weakness in the housing data, and given that the NAHB has come out opposed to the House GOP plans to limit the mortgage interest deduction, sentiment could slip. That said, we anticipate a modest bounce in building activity, which should get a slight tailwind near-term from rebuilding efforts in hurricane-impacted regions.

This week’s Fedspeak may shed more light on monetary policymakers’ views on a December rate hike. Fed Chair Yellen and Chicago Fed President Evans (voter) appear on Tuesday at an ECB conference on “Communications Challenges for Policy Effectiveness, Accountability and Reputation”. Also speaking will be the ECB’s Draghi, BoE’s Carney and BoJ’s Kuroda. Also scheduled to speak throughout the day are the Fed’s Bullard, Evans and Bostic and the ECB’s Coeure and de Galhau. If that wasn’t enough then politics will also get its fair share of attention with President Trump due to attend the East Asia Summit and UK PM Theresa May’s Brexit legislation the subject of two days of examination in the House of Commons.

We may not get much from either given the topic. However, while Yellen appears intent on steering the FOMC in the direction of another rate hike next month,  Evans has been lukewarm given the soft-patch in inflation. We may hear more from Evans on Wednesday when he appears at a conference but his remarks will come before the CPI release. St. Louis’ Bullard (non-voter) will be speaking later Tuesday morning on the US economy and monetary policy and though he is admittedly the most dovish at the Fed, his presentations are often insightful.

* * *

A breakdown of key global events on a day-by-day basis, courtesy of DB’s Jim Reid:

  • Monday: Central bank speakers will occupy most of the focus at the start of the week with the Fed’s Harker, ECB’s Constancio and BoJ’s Kuroda all scheduled to speak. President Trump and Secretary of State Rex Tillerson are also due to take part in the US-ASEAN summit in Manilla. Data-wise the monthly budget statement in the US is the sole release. PM May will be the keynote speaker at the banquet for the City of London’s new lord Mayor. Elsewhere the Senate Finance Committee will commence mark-ups of its draft tax bill, while the House’s tax bill is expected to go to Chamber vote this Thursday / Friday.
  • Tuesday: A packed 24 hours from start to finish. The data highlights will likely be China’s industrial production, fixed asset investment and retail sales data for October, the final revisions to October CPI reports in Germany and the UK, Q3 GDP for the Euro area (second reading), US PPI for October and the late evening release of Q3 GDP in Japan. Away from the data the ECB’s Draghi, Fed’s Yellen, BoE’s Carney and BoJ’s Kuroda are all scheduled to participate on a policy panel hosted by the ECB. Also scheduled to speak throughout the day are the Fed’s Bullard, Evans and Bostic and the ECB’s Coeure and de Galhau. If that wasn’t enough then politics will also get its fair share of attention with President Trump due to attend the East Asia Summit and UK PM Theresa May’s Brexit legislation the subject of two days of examination in the House of Commons.
  • Wednesday: Another fairly packed calendar from start to finish. The overnight release in Japan includes September industrial production. In Europe we’ll receive the final October CPI report in France and the September/October employment stats in the UK. In the US the big focus will be the October CPI print while October retail sales, November empire manufacturing and September business inventories are also due. There is plenty more central bank speak scheduled with the ECB’s Lane, Praet and Hanson all due along with the Fed’s Evans and BoE’s Haldane. NAFTA negotiators from the US, Canada and Mexico are also scheduled to meet for round 5 of discussions.
  • Thursday: Following all the regional revisions during the week, Thursday will see the final October CPI report for the Euro area released. UK retail sales data for October and Q3 employment data for France will also be released.  In the US weekly initial jobless claims, Philly Fed PMI for November, import price index for October, industrial production for October and NAHB housing market index for November will be released. The BoE Carney’s, Broadbent and Haldane will all participate at a public plenary session while the ECB’s Villeroy de Galhau and Constancio are due to speak, along with the Fed’s Williams, Mester and Kaplan.
  • Friday: A slightly quieter end to the week although the ECB’s Draghi is due to give a keynote address early in the morning in Frankfurt. The Bundesbank’s Weidmann is also slated to speak while the Fed’s Williams speaks in the evening. US housing starts for October and the Kansas City Fed’s manufacturing activity index for November are the data highlights.

Finally, here is Goldman’s detailed take on event just in the US, together with consensus expectations:

The key economic releases this week are the Consumer Price Index on Wednesday and the Philadelphia Fed manufacturing index on Thursday. There are several speaking engagements by Fed officials this week.

Monday, November 13

  • There are no major economic data releases.

Tuesday, November 14

  • 03:05 AM Chicago Fed President Evans (FOMC voter) speaks: Chicago Fed President Charles Evans will speak on economic and monetary policy issues at an ECB conference in Frankfurt. The topic of his remarks is “The future of Odyssean and Delphic guidance.” Audience Q&A is expected.
  • 05:00 AM Federal Reserve Chair Yellen (FOMC voter) speaks: Federal Reserve Chair Janet Yellen will participate in a panel discussion with ECB President Mario Draghi, Bank of England Governor Mark Carney, and Bank of Japan Governor Kuroda at a conference hosted by the ECB. The topic of the panel is, “At the heart of policy: challenges and opportunities of central bank communication.”
  • 06:00 AM NFIB small business optimism, October (consensus 104.0, last 103.0):
  • 08:15 AM St. Louis Fed President Bullard (FOMC non-voter) speaks: St. Louis Fed President James Bullard will give a speech on the U.S. economy and monetary policy at an Economic Update Breakfast jointly hosted by the Association for Corporate Growth and the St. Louis Fed in Louisville, Kentucky. Audience Q&A is expected.
  • 08:30 AM PPI final demand, October (GSe flat, consensus +0.1%, last +0.4%); PPI ex-food and energy, October (GSe +0.1%, consensus +0.2%, last +0.4%); PPI ex-food, energy, and trade, October (GSe +0.2%, consensus +0.2%, last +0.2%): We estimate a flat reading in headline PPI in October, reflecting some deceleration in core producer prices and weaker energy prices. We expect a 0.2% increase in the PPI ex-food, energy, and trade services category. The September report showed firm increases in core finished and intermediate producer prices.
  • 01:05 PM Atlanta Fed President Bostic (FOMC non-voter) speaks: Atlanta Fed President Raphael Bostic will give a speech on the economic outlook and monetary policy at the 35th Annual Economics Forum at Auburn University in Alabama. Audience Q&A is expected.

Wednesday, November 15

  • 03:00 AM Chicago Fed President Evans (FOMC voter) speaks: Chicago Fed President Charles Evans will speak on economic and monetary policy issues at a UBS European Conference in London. Audience and media Q&A is expected.
  • 8:30 AM CPI (mom), October (GSe +0.10%, consensus +0.1%, last +0.4%); Core CPI (mom), October (GSe +0.20%, consensus +0.2%, last +0.1%); CPI (yoy), October (GSe +2.04%, consensus +2.0%, last +2.2%); Core CPI (yoy), October (GSe +1.74%, consensus +1.7%, last +1.7%): We estimate a 0.20% increase in October core CPI (mom sa) and we expect the year-over-year rate to remain at +1.7%, though risks are skewed to the upside. Our forecast reflects stronger new car prices and a rebound in the lodging away from home category. On the other side, promotions from wireless carriers could weigh on the communications category. We estimate a 0.10% increase in headline CPI, primarily reflecting a drag from energy prices. This would leave the year-over-year rate two-tenths lower at 2.0%.
  • 08:30 AM Retail sales, October (GSe -0.1%, consensus flat, last +1.6%); Retail sales ex-auto, October (GSe +0.1%, consensus +0.2%, last +1.0%); Retail sales ex-auto & gas, October (GSe +0.3%, consensus +0.3%, last +0.5%); Core retail sales, October (GSe +0.2%, consensus +0.3%, last +0.7%): Our forecast reflects an expected pullback in grocery store sales from elevated levels likely boosted by Hurricane Irma, as well as a sequential decline in auto sales and gasoline prices. On the positive side, we expect a boost in the building materials category from post-hurricane construction activity.
  • 08:30 AM Empire state manufacturing survey, November (consensus +25.0, last +30.2)
  • 10:00 AM Business inventories, September (consensus flat, last +0.7%)
  • 04:00 PM Total net TIC flows, September (last -$125.0bn)
  • 04:00 PM Boston Fed President Rosengren (FOMC non-voter) speaks: Boston Fed President Eric Rosengren will give remarks at the Economic Policy Forum at Northeastern University in Boston.

Thursday, November 16

  • 8:30 AM Initial jobless claims, week ended November 11 (GSe 235k, consensus 235k, last 239k); Continuing jobless claims, week ended November 4 (consensus 1,910k, last 1,901k): We estimate initial jobless claims fell 4k to 235k in the week ended November 11, reflecting some normalization in a few states where claims appeared elevated in the most recent week. Continuing claims – the number of persons receiving benefits through standard programs – are expected to edge higher.
  • 08:30 AM Import price index, September (consensus +0.4%, last +0.7%)
  • 09:15 AM Industrial production, October (GSe +0.6%, consensus +0.5%, last +0.3%); Manufacturing production, October (GSe +0.5%, consensus +0.5%, last +0.1%); Capacity utilization, October (GSe 76.2%, consensus 76.3%, last 76.0%): We estimate industrial production rose 0.6% in October, recovering further after the sharp fall in August on storm-related disruptions. We expect manufacturing production rose 0.5% in October.
  • 09:10 AM Cleveland Fed President Mester (FOMC non-voter) speaks: Cleveland Fed President Loretta Mester will give a keynote address at a conference on monetary policy at the Cato Institute in Washington, DC. Audience and media Q&A is expected.
  • 10:00 AM Philadelphia Fed manufacturing index, November (GSe 25.3, consensus 24.1, last 27.9): We estimate the Philadelphia Fed manufacturing index pulled back in November (-2.6pts to 25.3), though still remaining at expansionary levels, consistent with other recent manufacturing surveys.
  • 10:00 AM NAHB homebuilder sentiment, November (consensus 67, last 68)
  • 01:10 PM Dallas Fed President Kaplan (FOMC voter) speaks: Dallas Fed President Robert Kaplan will participate in a moderated Q&A at the CFA Society in Houston. Audience and media Q&A is expected.
  • 03:45 PM Fed Governor Brainard speaks (FOMC voter) speaks: Federal Reserve Governor Lael Brainard will deliver a keynote speech at a conference on FinTech at the University of Michigan.
  • 04:30 PM New York Fed Executive Vice President Potter speaks: New York Fed Executive Vice President Simon Potter will give a speech on the Fed’s balance sheet at the Federal Reserve Bank of New York.
  • 04:45 PM San Francisco Fed President Williams (FOMC non-voter) speaks: San Francisco Fed President John Williams will give the keynote speech at the San Francisco Fed’s 2017 biennial Asia Economic Policy Conference. Audience and media Q&A is expected.

Friday, November 17

  • 8:30 AM Housing starts, October (GSe +5.0%, consensus +5.8%, last -4.7%): We estimate housing starts rose 5.0% in October, reflecting recovery from the disruptions related to Hurricanes Harvey and Irma, which likely lowered starts in September in the South region. While the impact of higher mortgage rates has likely weighed on single family demand and construction this year, we suspect this drag is now waning (particularly given the pullback in mortgage rates since March).
  • 11:00 AM Kansas City Fed manufacturing index, November (consensus +20, last +23):
  • 05:30 PM San Francisco Fed President Williams (FOMC non-voter) speaks: San Francisco Fed President John Williams is scheduled to speak with reporters present at he San Francisco Fed’s 2017 Asia Economic Policy Conference.

Source: BofA, DB, GS


From “BTFD” To “Sell The Rip”: Global Stocks Slide, Nikkei Tumbles, Pound Plunges

S&P futures gave up early gains and were trading down -0.2%, as Donald Trump completes his first Asian tour and as pressure mounts on U.K. Prime Minister Theresa May, sending the pound plunging. European stocks fell, tracking many Asian shares as the Nikkei plunge accelerated.

In Europe, the Stoxx 600 fell as much as 0.4%, resuming last week’s pull-back. 17 of 19 industry groups fall, with financial services, retail and banking shares leading the selloff; the broad European index is down 2.7% from the intraday high hit on Nov. 1. The Stoxx 600 drop also triggered a key technical level, with the Stoxx 600 sliding below the 50-DMA for first time since early September, while the Stoxx 600 Bank index dropped below the 200 DMA following a downgrade of European banks by Kepler Cheuvreux.

“Nothing has changed in the past few weeks in terms of fundamentals. Investors are just looking for excuses to book some profits after what has been a pretty strong year,” Fabrice Masson, head of equities at BFT Investment Managers, told Bloomberg: “Some of the stocks have risen 50% since the start of the year. If their earnings are good but don’t show a clear acceleration in the trend, it’s tempting to just sell.”

Well, something did change: earlier in the session, investment bank Kepler downgraded European stocks to underweight, saying last week’s pull-back marks the point at which equity markets shift from “buy-on-dip” to “sell-on-strength.”

In equities, the big mover overnight was Japan, where shares slumped and the Nikkei 225 tumbled by 1.3%, down to 22,380.99, its biggest drop since April 6, as investors found no new reasons to buy after driving benchmarks to their highest in a quarter century just one week ago. The Nikkei is now down 4.3% from the intraday high on Nov. 9. The Topix index slid for a third day and the Nikkei 225 retreated for a fourth session following gains last week that pushed them to levels unseen since 1991 and 1992 respectively. A combination of solid quarterly results, positive economic data and massive foreign buying had driven the rally. U.S. shares fell Friday after U.S. consumer sentiment data unexpectedly dropped by the most in a year amid expectations for faster inflation and higher interest rates.

“Investors who were hoping for the market to stage a rebound during the day may have sold in disappointment towards the end” exacerbating the decline, said Naoki Fujiwara, chief fund manager at Shinkin Asset Management Co. in Tokyo. “With corporate results behind us and no major economic data in sight, the market is in for a tussle between those waiting to buy and those trying to take profits.” The benchmark indexes finished at the day’s lows as declines accelerated in the last half hour of trading. “Stock futures, which started declining in late afternoon, dragged down stocks and the leveraged funds,” said Mitsuo Shimizu, deputy general manager at Japan Asia Securities. Next Funds Nikkei 225 Leveraged Index ETF, an exchange traded fund product managed by Nomura Holdings Inc., fell 2.7% , the most since April 6. As investors and market observers try to gauge the extent of a downward correction in domestic equities that begun late last week, optimism has yet to fade among some participants.

“I don’t want to use the word ‘correction’ — it’s too tough to predict these markets,” Chris Ailman, chief investment officer of the California State Teachers’ Retirement System, said in a Bloomberg Television interview. Markets have gotten ahead of themselves and “I’ll call it a pause to refresh.” The yen is a concern, but the fund is very optimistic about Abenomics and in favor of Japan’s corporate governance overhauls, he added.

Elsewhere in Asia, equities also retreated, with industrial and material shares leading declines, after tax-cut pessimism weighed on U.S. equities Friday. The MSCI Asia Pacific Index declined 0.6% to 170.25, falling for a second trading day. Industrial stocks led losses, dropping the most in almost a year. Hyundai Heavy Industries Co. fell the most among South Korean shipyards after losing an offshore order to a Singapore rival. Iida Group Holdings Co. plunged by record in Tokyo after first-half results missed the company’s targets. “Uncertainties over U.S. tax cuts are prompting investors to take profit after big rallies in the last few weeks,” said Linus Yip, Hong Kong-based strategist at First Shanghai Securities.South Korea’s Kospi lost 0.5%. Hong Kong’s Hang Seng Index climbed 0.3% to close at its highest in almost a decade after reversing an earlier loss.

Curiously, the Shanghai Composite ignored the noise from its neighbors, and staged an impressive comeback, closing up 0.4% at 3,447, the highest level in 22 months, led by banks, steelmakers and chipmakers.

More interesting, however, was the plunge in China’s government bonds: the 10Y yield rose to the highest level in 3 years, while 10-yr treasury futures plunged 0.67%, the biggest since the end of October, as bond yields kept climbing and the curve kept inverting with the 5-year yield breaking 4% at one point this morning, while the 10-yr yield approaches 4%.

In FX, the big mover was the pound, which came under heavy selling pressure as the U.K.’s political and Brexit troubles mount (see below); the dollar inched modestly higher, shrugging off stronger Treasuries; Gilts pushed higher from the open, providing support as European bonds gained across the board; the euro and the yen steadied on gamma trading.

The UK Brexit drama reached new heights over the weekend. As discussed earlier, 40 Conservative MP’s are reportedly calling for UK PM May to step down. This number is 8 short of the amount required to trigger a leadership challenge Other sources also suggest that UK PM May is facing a rebellion from pro-European Tory MPs who have vowed to vote against her “crass” plans to enshrine the date the Britain leaves the European Union in law. Sources suggest that a menacing secret memo from Boris Johnson & Michael Gove to UK PM May dictating terms for a hard Brexit has triggered a new Cabinet rift. Britain must not cave in to EU demands for a bigger Brexit divorce bill after Brussels set a two-week deadline for the UK to concede, allies of Boris Johnson have warned. Brexit Secretary Davis stated that he still believes that a trade deal with the EU can be negotiated within the given timeframe. However, separately, Chief EU Brexit Negotiator Barnier noted that the EU is preparing for possible collapse of Brexit talks. 

The U.K. data won’t be the only numbers on investors’ minds. U.S. inflation and growth numbers are also on the docket, and they could be key to the Federal Reserve’s determination to lift rates next month. Talks on tax legislation may also play into market thinking; pessimism over the likelihood of successful reforms helped drag global equities down from this month’s record high late last week. Measures of equity-market volatility have risen, albeit from low levels.

Over in Catalonia, Spain PM Rajoy visited the region for the first time since the government retook control. He called on “the silent or silenced majority” voters that oppose secessionism to “convert its voices into votes” in the upcoming 21 December regional election. Further, he noted “it’s urgent to return a sense of normality to Catalonia” and that he “ask all companies that have worked in Catalonia not to leave”.

In rates, the yield on 10Y TSY dropped two bps to 2.37%, the largest drop in more than a week. Germany’s 10Y yield fell two basis points to 0.39 percent, also the biggest fall in a week. Britain’s 10Y gilt fell three basis points to 1.309 percent.

In commodities, gold and most industrial metals rose, and West Texas oil dropped below $57 a barrel.

Market Snapshot

  • S&P 500 futures down 0.1% to 2,578.20
  • MXAP down 0.6% to 170.26
  • MXAPJ down 0.3% to 558.68
  • Nikkei down 1.3% to 22,380.99
  • Topix down 0.9% to 1,783.49
  • Hang Seng Index up 0.2% to 29,182.18
  • Shanghai Composite up 0.4% to 3,447.84
  • Sensex down 0.8% to 33,061.20
  • Australia S&P/ASX 200 down 0.1% to 6,021.77
  • Kospi down 0.5% to 2,530.35
  • STOXX Europe 600 down 0.4% to 387.11
  • German 10Y yield fell 2.2 bps to 0.388%
  • Euro down 0.1% to $1.1649
  • Brent Futures down 0.1% to $63.43/bbl
  • Italian 10Y yield rose 3.0 bps to 1.58%
  • Spanish 10Y yield fell 2.4 bps to 1.552%
  • Gold spot up 0.3% to $1,278.27
  • U.S. Dollar Index up 0.2% to 94.58

Top Overnight News

  • Trump attends two days of meetings on regional security affairs hosted by the Association of Southeast Asian Nations before heading home
  • Sterling fell for the first time in three days; May has a bad start to the week following a Sunday Times report saying 40 of her own Conservative lawmakers have agreed to sign a letter of no confidence in her, nearly enough to trigger a leadership challenge, just days after the EU gave the U.K. two weeks to make “clarifications” so Brexit talks can advance
  • The U.K. Labour Party offered May a cross-party Brexit deal saying she’s lacking the support within her Conservative Party to deliver the Brexit she aims for
  • AT&T’s Merger Fight Is Said to Head Toward Thanksgiving Showdown
  • China Credit Growth Trails Estimates as Deleveraging Prioritized
  • Tesla Model 3 Depositors Staying Put as Wait in Line Lengthens
  • Noble Group Is Said to Lose Key Bank Prop as DBS Cuts Loans
  • Trump Hails ‘Great’ Ties With Duterte, Skirts Human Rights
  • Trump Is Shattering His Own Tweet Records With Non-Stop Barrage
  • Russian President Vladimir Putin meets Turkish counterpart Recep Tayyip Erdogan in Sochi, Russia
  • It prompted the opposition Labour Party to question her ability to deliver the Brexit transition period she’s proposed
  • Fed Bank of Philadelphia President Harker said he’s looking for another rate increase this year and the balance sheet unwind will be “boring”
  • “With a labor market this tight, inflation is likely to reassert itself at some point,” he says in text of speech in Tokyo
  • There’s been a marked turnaround in Europe’s economy. The 19-nation euro-zone bloc is already enjoying the strongest growth in a decade; economists at Credit Suisse Group AG and Oxford Economics are declaring that it’s heading toward a golden period of low- inflationary expansion
  • ECB Vice President Constancio said on Monday the recovery was broad-based, robust and resilient

Asian indices were mixed, with no fresh catalyst for a decisive move. Japan’s Nikkei 225 (-0.1%) continued to edge away from the multi decade highs set last week. Elsewhere Australia’s ASX (-0.1%) ebbed lower, while China’s Shanghai Comp. (+0.4%) and Hong Kong’s Hang Seng (+0.2%) tiptoed higher supported by a record breaking Singles’ Day event at the end of last week. Fixed income dealing was rangebound with Treasuries edging away from worst levels in a modest bull flattening move, despite FOMC voter Harker reiterating that he had pencilled in a December hike and three further hikes in 2018, inflation dependent. JGB’s moved lower as the BoJ refrained from engaging in Rinban operations today, with the long end experiencing a degree of mild underperformance. PBoC sets the CNY mid-point at 6.6347 vs. Prev. 6.6282. RBA Deputy Governor Debelle said that there is a risk that wages will stay lower for longer, although he did concede that some pockets of the economy are exhibiting wage pressure, and that he expects the recent uptick investment to last a while.

Top Asian News

  • Alibaba’s Rise Creates 10 Billionaires Not Named Jack Ma
  • Widening Citizenship Fiasco Threatens Aussie Confidence
  • Hong Kong Stocks Rise to 10-Year High as AAC Tech and AIA Jump
  • Noble Group Shares Extend Slump to 16% as DBS Said to Cut Loans

European bourses have kicked the week off modestly higher/flat (Eurostoxx 50 +0.1%) with outperformance in the FTSE 100 amid the softer GBP. In terms of sector specific moves, health care names have seen a modest bout of outperformance with Novartis at the top of the SMI following a positive drug update. Elsewhere, financial names underperform after Italian banks have seen little benefit from news on Friday that ECB can only impose capital requirements on banks to provide for bad loans on a case-by-case basis. Bunds and Gilts have slowly extended their respective recoveries from last Friday’s closes and intraday lows, the former finding traction when intraday tech support at 162.18 held, and gathering a bit of momentum when 162.34 (resistance and 50% retrace of the previous session sell-off) was surpassed. The next upside objective on some charts is the 162.50-56 area vs a  162.49 high so far, and if that is achieved then 162.73 will close a gap. Market contacts suggest that longs may not get twitchy unless Friday’s 162.13 low is breached. The 10 year UK debt future has traded up to 124.66 for a  35 tick gain on the day, and aside from short covering after the pre-weekend there has been plenty of incentive for bulls to step back in on the latest PM May/Government turmoil. US Treasuries also stabilising following recent bear-steepening that was deemed to be at least partly due to re-positioning (ie flatteners unwound).

Top European News

  • Ultra Electronics Drags Defense Stocks on CEO Ouster, Forecast
  • Four in 10 London Homesellers Cutting Prices in Tough Market
  • U.K. Labour Says May Lacks Power to Deliver Brexit Transition
  • European Stocks Downgraded, Seen as Vulnerable Zone at Kepler

In FX markets, GBP has been the main mover overnight with pressure mounting on UK PM May amidst reports of a rising rebellion within the Conservative Party ranks. Cable has now retreated through 1.3100 and bears will be targeting the post-BoE rate hike low of 1.3040, if 1.3050 is breached on the downside (reportedly an objective for one major bank). Elsewhere, the EUR is firmer vs the Greenback as the pair consolidates recent gains above 1.1650, but a confirmed topside break of the 1.1550-1.1170 range only seen if 1.1690 (21 DMA) near term chart resistance is breached. Comments from ECB’s Constancio this morning have come in on the dovish side, stating that “Much-feared inflationary pressures have not materialised, nor can they be foreseen in the immediate future”. AUD is currently capped below 0.7700 after dovish or bearish on balance comments from RBA deputy Governor Debelle (wages to remain low for some time).

In energy markets, WTI and Brent crude futures trade modestly lower with reports of an earthquake in Iraq and tensions in the Gulf
region ultimately doing little for oil prices. Additionally, press reports from over the weekend suggested that the Saudi King has no
plans to step down while the Iraqi oil minister has ordered an acceleration of repair works at the Bai Hasan and Avana oilfields near
Kirkuk; exports remain at a halt. In metals, gold prices have ticked higher in recent trade in a mild retracement of Friday’s losses.
Elsewhere, Chinese steel rebar futures were supported overnight amid output reductions in some of the nation’s lager steelmaking
cities. Finally, Chinese iron ore demand is forecast to fall by 6mln tonnes in November as China plans to curb steel production
during the winter to meet air pollution targets, according to the CISA (China Steel & Iron Association)
Oman Oil Minister says does not believe there will be deeper production cuts. (Newswires)
The Iraqi oil minister has ordered an acceleration of repair works at the Bai Hasan and Avana oilfields near Kirkuk. However,
exports remain at a halt

US Event Calendar

  • Nov. 13-Nov. 17: MBA Mortgage Foreclosures, prior 1.29%
  • Nov. 13- Nov. 17: Mortgage Delinquencies, prior 4.24%
  • 2pm: Monthly Budget Statement, est. $58.0b deficit, prior $45.8b deficit

DB’s Jim Reid concludes the overnight wrap

It’s almost a pleasure to get back to work to see what happens next after a fascinating last couple of days for markets (ok it’s all relative). Although 2016 marked a turning point for our structural view on rates and inflation (higher) due to populism (more fiscal), peak QE, demographics (peak labour supply around middle of this decade), and perhaps peak regulation, we must admit that the dovish taper from the ECB over two weeks ago made us wonder whether the next leg to our trade might delayed for a few months. We still felt the unfunded US tax cut was under-priced by markets which was still the main avenue for higher yields. However up until Wednesday evening everything was becalmed – equities continued to hit new record or multi-year highs, bonds were moving towards multi-month lows in yields and volatility was low again with the VIX back below 10 and the MOVE index (Treasury vol) back down around all-time lows. Then Thursday started with a wild (in today’s terms) swing in the Nikkei and we then saw a rare simultaneous sell-off in equities, rates and spreads.

Just for ease, below we’ll detail the 2-day sell off in a number of assets with Friday’s move in brackets. All bond market moves are 10yr yields. USTs +6.4bp (+5.7bp), Bunds +8.4bp (+3.5bp), Gilts +11.7bp (+7.9bp) and BTPs +9.9bp (+3bp). In equities, DAX -1.91% (-0.42%), CAC -1.66% (-0.50%), FTSE -1.28% (-0.68%), FTSE-MIB -1.18% (-0.36%), and the Bovespa -2.96% (-1.05%). In credit, Crossover +10.6bp (+1.4bp) and CDX HY +8.2bp (+1.1bp).
Obviously these moves are still relatively small in the greater scheme of things and only bring us back to levels days before rather than months before in most indices (HY US ETFs an exception as back to March levels) but the suddenness of the move without warning or catalyst has provoked a lot of attention. The blame has been placed on the following factors, none of which fully explain the reversal but are worth highlighting. Weak EMFX and (US) HY over the last few weeks, continuous flattening of global yield curves since the ECB meeting, difficulties in the tax reform plan, and Saudi tensions from last weekend and the associated rise in Oil that this has encouraged.

Indeed Oil is up 9.3% over the last three weeks and up 30.4% since the lows in June. Maybe with this rise in Oil, 10 year Bunds shouldn’t be flirting with 30bps as they did on Wednesday regardless of the ECB. Given these moves, this week’s inflation numbers are the perfect opportunity for things to calm down or volatility to continue to pick up. The most significant is the October CPI report in the US on Wednesday. The consensus is for a small +0.1% mom lift in the headline and +0.2% mom lift in the core. Remember though that the latter has missed relative to market expectations in six out of the last seven months. We think we may see more positive surprises in 2018 but not necessarily yet. Also due this week will be final October CPI revisions for Germany and the UK tomorrow, France on Wednesday and the Euro area on Thursday. In the UK the older inflation measure RPI is expected to go above 4% for the first time since December 2011. Looking further back, since May 1992 we’ve only seen RPI above this level for 42 months (13.8% of the time) out of the last c25 years. Meanwhile even with the late week Gilt sell off, 10-year yields remain at a lowly 1.34%. Not a brilliant real return potential in our opinion!

So inflation is the big thing this week but we’ll also see Euroarea Q3 GDP tomorrow although no change from the +0.6% qoq flash print is expected. Also tomorrow China sees its monthly bulk activity numbers and US retail sales is out on Thursday. As you’ll see in the week ahead at the end its a packed week for central bank speakers with the highlight being tomorrow’s ECB policy panel discussion in Frankfurt which includes a star studded line up with the ECB’s Draghi, Fed’s Yellen, BoE’s Carney and BoJ’s Kuroda all participating. Elsewhere Mr Trump’s Asia tour comes to an end in the first half of the week where he will attend the East Asia Summit to discuss strategic political and security issues in the region and tomorrow Mrs May’s Brexit legislation is the subject of two days of examination in the House of Commons. The full day-by-day week ahead is available at the end and a reminder that our  new “Next Week… This Week” document from Friday includes all this and an easy to read cut-out and keep of all upcoming events.

Now on to the US tax plan, the House’s version of the tax bill is expected to go to a full House vote this week (either Thursday or Friday), while the Senate’s plans will begin its mark-up process today with an expectation for a full senate vote before 23 November. Over the weekend, there was more rhetoric across the spectrum. The House and Means Committee Chairman Brady noted he will not budge on certain things, noting that “I’m committed to” a compromise that would preserve the deduction for state and local proper taxes vs. the Senate’s plans which expect a full elimination. Elsewhere, President Trump’s top economic adviser Gary Cohn said he expects the tax bills go to a conference committee that reconciles differences between the House and Senate versions before returning a report to both chambers for final passage. He noted that the conferees “will decide what stays and what goes” and they’ll pick and choose the different parts that they think are important”. Indeed, it feels like both versions of the tax plans are opening gambits and the hard work begins when the bills are reconciled. Our US economist believes there is a decent chance that some version of tax reform can be achieved, but this is likely to be a Q1 event with potential stumbling blocks along the way.

In the UK, the Sunday Times reported that 40 Conservative MPs have agreed to sign a letter of no confidence in the UK PM, almost enough to trigger a leadership challenge (need eight more MPs). This morning, Sterling is down 0.56% against the USD and as mentioned earlier, PM May’s Brexit legislation will be debated in the House of Commons this week.

This morning in Asia, markets are mixed. The Nikkei (-0.68%), Kospi (-0.45%) and ASX 200 (-0.24%) are down modestly, while Hang Seng is up 0.17% as we type. Elsewhere, Bitcoin has dropped -10.21% this morning (c17% in two days), in part as Bloomberg reports that traders are buying its alternative instead (Bitcoin cash). Over in Japan, the October PPI was above expectations at 0.3% mom (vs. 0.1% expected) and 3.4% yoy (vs. 3.1% expected).

Now briefly recapping other markets performance on Friday. US bourses softened and posted its first down week since September (-0.21%) amid uncertainty over US tax reforms. The S&P (-0.09%) and Dow (-0.17%) fell slightlywhile Nasdaq was virtually flat. Within the S&P, modest gains in the consumer staples and telco sector were more than offset by losses from energy and healthcare names. The US dollar index dipped 0.06%, while Euro and Sterling gained 0.20% and 0.39% respectively. The VIX jumped 7.52% and was up 23.5% for the week at 11.29.

Despite the pull back in US equities last week, our global asset strategists remain bullish. They note the duration of the equity rally “without” a typical 3-5% pullback has been very unusual. Further the speed and the size of the current rally have not been unusual and that while multiples are high relative to their historical averages, they are in line with their historical drivers. Overall, they see S&P 500 EPS growth of 11% in 2018, supported by stable robust US growth, a pickup in global growth and assuming a range bound dollar. At 19.5x PE, they have an S&P target of 2850 for 2018 but expect more regular (3%-5%) pullbacks to resume next year. Refer to the link for more details.

Over in Catalonia, Spain PM Rajoy visited the region for the first time since the government retook control. He called on “the silent or silenced majority” voters that oppose secessionism to “convert its voices into votes” in the upcoming 21 December regional election. Further, he noted “it’s urgent to return a sense of normality to Catalonia” and that he “ask all companies that have worked in Catalonia not to leave”.

Back to China’s financial sector liberalisation measures announced back on Friday, including: i) foreign investors can own controlling stakes (51%) in local securities JVs, ii) removing restriction that foreign companies can only own less than 20% of a Chinese bank and iii) allowing foreign insurance companies to own up to 51% of local individual insurance company 3 years from now (100% in 5 yrs). Our China Chief economist notes that this is a big step toward opening up the service sector to the world and consistent with the message from the 19th Party Congress. They expect the reform will help to promote FDI inflows and offset some of the capital outflows. Refer to the link for more details.

Before we take a look at the calendar, we wrap up with other data releases from Friday. In the US, the November University of Michigan consumer confidence was lower than expectations at 97.8 (vs. 100.8). At the end of last week, the Atlanta Fed’s GDPNow estimate of 4Q GDP growth was 3.3% saar while the NY Fed’s Nowcast estimate sits at 3.2% saar.

In the UK, the macro data was above expectations. The September IP was 0.7% mom (vs. 0.3% expected) – the 6th consecutive month gain, leading to annual growth of 2.5% yoy (vs. 1.9% expected). Elsewhere, manufacturing production also beat at 0.7% mom (vs. 0.3% expected) and 2.7% yoy (vs. 2.4% expected). In France, the September IP slightly beat at 0.6% mom (vs. 0.5% expected) and 3.2% yoy (vs. 3.1% expected), but manufacturing production was lower than expected at 0.4% mom (vs. 0.8%) and 3.1% yoy (vs. 3.4% expected). Italy’s September IP also disappointed, at -1.3% mom (vs. -0.3% expected) and 2.4% yoy (vs. 4.8% expected).


Meanwhile, In The Philippines

It’s clearly time for a caption contest.

President Trump joins other world leaders in a handshake with President Rodrigo Roa Duterte,
right, during the opening ceremony of the 31st ASEAN Summit. Photo @dougmillsnyt

Also, how did Medvedev get an exemption?


Bank Stocks, Dollar Slide Hit By Fresh Tax Reform Doubts

U.S. equity futures are little changed as European and Asian shares retreated, led by sliding bank stocks and a drop in the dollar as doubts over republican tax cuts and ongoing bond curve flattening hurt sentiment and prompted fresh questions over the viability of the US expansion.

Investor concerns also returned to geopolitics as Trump continued his tour of Asia with a mission of rallying the world to stand up to the North Korean threat. Calling out by name Russia and China, he said Wednesday that all responsible nations must join forces to deny Kim Jong Un’s regime any form of support. As Bloomberg reports, Trump is also expected to discuss trade with his Chinese counterpart, Xi Jinping. But the biggest overnight catalyst was a renewed fear about the fate of GOP tax cuts, as fresh doubts emerged about tax reform progress after the Washington Post reported Senate Republican leaders were considering holding cuts back by a year, while they are also said to be considering repealing deductions for state and local taxes.

Derek Halpenny, head of research at Mitsubishi UFJ in London told Reuters he was dubious over the progress of the tax cuts program being urged by U.S. President Donald Trump’s campaign. “The initial phases of discussions within the House (of Representatives) have brought up a lot of divisions and problems … If the story is true that they’re considering a delay of one year to the corporate tax cut, those big differences will need to be sorted,” he said. Francois Savary, chief investment officer at Prime Partners, said the doubts over the tax issue reinforce the case for some consolidation in the market, which has been fully priced for good news. “It’s something that would impact the domestic stocks in the U.S. and would be a setback for the market in general (and) it’s more than stock specific as people would reassess earnings growth expectations to the downside,” he said.

In addition to hitting the dollar, tax fears also led to renewed flattening in the yield curve, which sent Goldman shares 1.5% lower and weighed the most on the main stock index. The 2s10s curve dropped below 69bps and has now flattened for 8 sessions in a row which is the longest run since November 2015. The 5s30s curve also fell below 79bps and both are at 10 year lows. Clearly rates markets are saying something about the prospect of the tax bill as it stands so it’ll be interesting to see if that changes when we see the Senate version.  Ongoing flattening, which precedes an inversion, also implies that investors are expecting a slowdown if not recession.


European bonds were also snared by yield curve flattening, with yields on long-term German bonds falling to two-month lows on Wednesday.

In European equities, the Stoxx Europe 600 Index declined, with banks underperforming following disappointing results from Credit Agricole SA. European banking stocks were the worst performing sector as share indexes across the continent opened lower, following a poor session for U.S. banks. The two main European banking indices suffered the most, falling 1.1% and 0.9%, respectively, dragging an index of pan-European stocks lower 0.2%.

Elsewhere, in a largely risk-off session seen through the European periphery without a clear catalyst, Spanish bonds led a sell-off, with the 10Y Spain underperforming Italy by 2.5bps as large block trade sent bund futures to session high. European equity markets mirror peripheral underperformance, with smaller Italian banks particularly weak, while Credit Agricole slumped -4.5% after a poor earnings report. The retail sector was supported by Marks & Spencer (+0.9%) after positive trading numbers. In the U.K., Prime Minister Theresa May was weighing whether to fire a member of her cabinet only seven days after her defense secretary quit in a sexual harassment scandal.

Earlier, Asian shares wrung out another decade peak as data showed China’s demand for imports remained buoyant, pushing the MSCI world equity index to a fresh high. Beijing reported imports in October rose 17.2% from a year earlier, beating forecasts of 16%, but export growth was just under estimates at 6.9%.  Some more from Goldman on China’s trade numbers:

October exports and imports growth moderate, in line with consensus


Exports growth for China moderated to 6.9% yoy in October from 8.1% yoy in September, and import growth also slowed to 17.2% yoy from 18.6% yoy in September. Both readings are in line with consensus. The moderation in year-on-year growth may be partially due to the mid-autumn festival distortion, though probably to a lesser extent compared to those seen in Korea and Taiwan data. In sequential terms, exports fell 0.1% mom sa non-annualized, down from a modest increase of 0.2% in September. Imports increased by 0.3% mom sa non-annualized, moderating from 2.5% in September. The trade surplus increased to US$38.2bn from US$28.6bn in September.


For exports to major destinations, growth of exports to the EU and Japan improved to 11.4% yoy and 5.7% yoy, from 10.4% yoy and 0% yoy in September, respectively, while that to the US and ASEAN moderated to 8.3% yoy and 10.1% from 13.8% yoy and 10.7% in September.


For commodity imports, the imports growth decelerated both in volume and value terms. Specifically, in volume terms, iron ore imports fell 1.6% yoy, vs. +10.6% yoy in September; crude oil imports grew 7.8% yoy, vs. 11.9% yoy in September; steel products imports contracted 12.0% yoy, vs. +9.7% yoy in September. In value terms, iron ore imports decelerated to 16.9% yoy from 30.2% yoy in September; crude oil imports grew 29.1% yoy, vs. 29.4% yoy in September; steel products imports decelerated to 9.3% yoy, from 28.6% yoy in September.

Both exports and imports growth moderated in October

An index of Asian stocks held steady at a decade high following the WaPo report that Senate Republicans are considering a one year delay in the implementation of a corporate-tax cut. The MSCI Asia Pacific Index rose 0.2% to 171.76 at 4:28 p.m. in Hong Kong after earlier rising to its highest since 2007 for a second day following little change in U.S. stocks on Tuesday. Consumer discretionary stocks including Sony Corp. and Toyota Motor Corp. gained, while energy companies dropped. The regional benchmark has to add less than a point to set a new record.

“The U.S. tax cut plan is looking like a long-drawn process and thus softer leads from equities overnight are weighing on Asian stocks,” said Jingyi Pan, market strategist at IG Asia Pte in Singapore. A lack of tax cuts as the earnings season draws down may set Asian stocks up for a correction, she added. Japan’s Topix index rose to the highest close since November 1991 amid optimism over corporate earnings, while the Nikkei 225 Stock Average retreating from its highest close since January 1992 marked Tuesday.

Emerging-market stocks slipped for the first time in three days, led by declines in the Middle East, while currencies were little changed. Goldman and Blackrock both said the developing-nation equity rally has further to go.  Shares in Saudi Arabia continued to decline even as kingdom sought to ease tension among global investors over a crackdown that’s seen princes and billionaires arrested. Stocks indexes in the U.A.E., Qatar, Oman and Saudi Arabia fall, led by a 1.9% drop in Dubai’s DFM General Index, the steepest in a year; Saudi Arabia’s anti-corruption purge and deepening feud with Iran spur a selloff across Gulf stock markets to the tune of almost $7 billion in three days.

The dollar weakened vs all G-10 peers except the pound and Treasuries were underpinned by the abovementioned corporate tax delay report; EUR/USD rose to session high in London trading with interbank names unwinding euro shorts. The pound fell a second day against the dollar, weighed by concern that U.K. PM Theresa May could lose a second member of her cabinet within a week as she is pondering whether to fire her International Development Secretary Priti Patel who held unauthorized meetings with Israel behind May’s back. USD/JPY was sold by leveraged accounts in Tokyo. Aussie gains despite weaker-than- forecast China trade surplus.
Chinese crude imports slipped they lowest level in a year, pushing oil prices lower, although traders said the overall market remains well supported because of OPEC-led supply cuts. WTI was also pressured ahead of the release of U.S. crude stockpiles data, while Treasuries were supported after bunds rallied on the back of block trades. U.S. crude oil was lower 0.2% at $57.06 while Brent crude futures were steady at $63.72 and off a over two-year peak of $64.65 hit earlier in the week.

Expected economic data include MBA mortgage applications and crude inventories. 21st Century Fox, Manulife Financial and Monster Beverage are among companies scheduled to report earnings

Market Snapshot

  • S&P 500 futures little changed at 2,586.70
  • STOXX Europe 600 down 0.06% to 394.40
  • MSCI Asia up 0.1% to 171.74
  • MSCI Asia ex Japan down 0.04% to 560.49
  • Nikkei down 0.1% to 22,913.82
  • Topix up 0.2% to 1,817.60
  • Hang Seng Index down 0.3% to 28,907.60
  • Shanghai Composite up 0.06% to 3,415.46
  • Sensex down 0.6% to 33,180.32
  • Australia S&P/ASX 200 up 0.03% to 6,016.27
  • Kospi up 0.3% to 2,552.40
  • German 10Y yield rose 0.5 bps to 0.332%
  • Euro up 0.1% to $1.1601
  • Italian 10Y yield fell 8.3 bps to 1.437%
  • Spanish 10Y yield rose 5.0 bps to 1.458%
  • Brent futures up 0.2% to $63.79/bbl
  • Gold spot up 0.3% to $1,279.04
  • U.S. Dollar Index down 0.08% to 94.83

Top Headline News

  • U.S. Tax: Senate Rep. leaders are considering a delay in corp tax cut by 1-year; would save $100b: Washington Post
  • Eyeing 2018 Midterms, Democrats Score Wins in Key Governor’s Races
  • President Donald Trump arrived in Beijing where he’ll meet with President Xi Jinping. Representatives from about 40 U.S. companies are expected to accompany Trump’s trade mission to China and sign deals for billions of dollars
  • BOJ board member Yukitoshi Funo says the central bank won’t necessarily keep policy the same until 2% is hit
  • China data: Oct. exports 6.1% y/y vs est. 7%; imports 15.9% y/y vs est. 17.5%; trade balance 245.5b yuan vs 280.5b yuan
  • Moody’s: Healthy economic growth and synchronized global expansion seen in 2017 likely to continue next year; global sovereigns have stable outlook for 2018
  • Federal Reserve Bank of Philadelphia President Patrick Harker suggested he’ll likely support a third 2017 interest-rate increase next month, but said he wants to see signs of inflation moving higher before backing tightening next year; has penciled in three increases for 2018
  • Catalan separatists missed the deadline to form an alliance to run as a united block, boosting Spain’s chances of restoring some normality to the rebel region
  • The House tax- writing committee entered its third day of work to hammer out the details of the Republican tax cut plan
  • The Asia-Pacific Economic Cooperation (APEC) CEO Summit is held in Danang, Vietnam
  • Fed’s Harker: Fed on track for Dec. hike; wants to see progress on inflation before 2018 hikes; repeats currently 3 hikes next year are penciled in by him
  • BOE Agents’ Summary of Business Conditions: pay growth had edged up and now expected to be somewhat higher in 2018; pay settlements expected to be 2.5-3.5% next year vs 2-3% in 2017
  • API inventories according to people familiar w/data: Crude -1.6m; Cushing +0.8m; Gasoline +0.5m; Distillates -3.1m
  • China Oct. trade balance: $38.2b sv $39.1b est; Exports 6.1% vs 7.0% est; Imports 15.9% vs 17.5% est.

Asian equities traded mixed with profit taking initially dragging down major bourses, while the rally in commodities ran out of steam. Additionally, US equity futures were also off marginally following reports that Senate GOP is said to consider delaying corporate tax rate cut for a year. ASX 200 (+0.07%) initially pulled away from its recent 10yr high seen yesterday, while Commonwealth Bank shares outperformed after a firm earnings report. Similarly, the Nikkei 255 (-0.1%) also retreated from its recent highs with financials leading the losses, while Toyota shares surged higher after strong earnings. Both the Shanghai Comp (+0.5%) and Hang Seng (+0.3%) moved into positive territory fuelled by tech stocks as shares in China Literature doubled on their debut trading session, in turn shrugging off the Chinese trade data which missed analyst estimates. In credit markets, JGBs have been supported by spill over buying in USTs while the Japanese curve has been noticeably steeper with the short-end yet again outperforming as the 2yr yield falls 1.5bps.

Top Asian News

  • Thailand Holds Key Rate Near Record Low as Growth Gains Momentum
  • Bharti Airtel Drops After Qatar Fund Seeks $1.5 Billion Selldown
  • IPO Fever Hits Hong Kong Market as 1-in-20 People Try to Buy

European equities continue the week’s trade in a subdued fashion, and reside in the marginal green. Utilities outperform, led by EON and SSE, following stela earnings from the latter, leading the FTSE higher. Energy struggles, albeit marginally so as oil markets slow their weekly gains, failing to help boost the sector. We suspected that there was more positive momentum building than any real desire to push prices lower, and that it was probably only a matter of time before the previous 10 year futures high was breached. However, follow-through buying has perhaps not been as strong or pronounced as anticipated (yet), despite reports of some 15k lots purchased from  163.40 (ie a tick above yesterday’s Eurex session peak) to the new 163.51 peak. To recap, 163.69 is the closest bullish objective on some charts, and that would nudge the equivalent yield down to 0.30%, which could be sticky. Elsewhere, and in keeping with the general fixed friendly trend, Gilts have extended gains to 125.67/1.217% in cash terms and T-notes have traded at 125-15/2.31% approx.

Top European News

  • ABN Amro Falls as Quarterly Net Interest Income Misses Estimates
  • SSE Leads U.K. Shares Higher on Retail Energy Merger With Innogy
  • Marks & Spencer Woes Deepen as New Chairman Tightens Hold
  • Paschi Declines Further as Lending and Commissions Disappoint
  • Maersk Closer to Drilling Deal After $1.8 Billion Writedown

In FX, markets are likely to await comments from BoE’s Carney and McCafferty, expected both in the early European evening. Cable has seen some marginal downside in early trade, as the majority of FX markets struggle to find any real direction following the lack of impetus from Asia. Sterling has struggled against the EUR in recent trade, edging toward yesterday’s 0.8835 highs. Falling yields have been the theme of recent trade, as the US curve trades around flattest levels since 2007. USD/JPY remains undeceive however, retaining lows around November’s 113.55- 113.70 support range and looking back toward 114.00, with the
large option expires between 113.50 and 114.50 signalling that the pair will remain in a tight range.
The lack of trade is evident of anticipation for the RBNZ later this evening, with rates expected to remain at 1.75%. The implied vol
indicates minimal risk, at the lowest levels of the year, helped by big expiries contacting – 640mln 0.6920-25 and 651mln at

In commodities, WTI and Brent crude futures have retraced from 2y highs, as the bulls take a breather, as the former trades around 57.00/bbl. It has been noted that China Oct crude oil imports have dropped to their lowest levels in over a year. Precious metals have traded largely sideward throughout the European and Asian sessions, as much focus remains on global risk sentiment as Trump continues his tour of Asia.

Looking at what appears to be a fairly light day ahead, BoJ meeting minutes from the October meeting are due this evening while Germany’s Merkel speaks this morning and the BoE’s Kohn speaks around lunchtime. With little in the way of other data, expect the US tax developments to remain a focus along with President Trump’s trip around Asia. Deutsche

US Event Calendar

  • 7am: MBA Mortgage Applications, prior -2.6%

* * *

DB’s Jim Reid concludes the overnight wrap

A Happy Trumpiversary to all our readers this morning. Yes, believe it or not, today marks exactly 12 months since the US election on November 8th 2016. A lot has happened in the last year, not least the President increasing his Twitter following by 29,111,914 people, or slightly more than the population of Ghana.

Twelve months on from the election and while markets have been a bit mixed in the last 24 hours it feels like most investors are still somewhat sitting of the sidelines waiting for further developments on tax reform. The general feeling is that we should get the Senate bill on Thursday, which as we noted yesterday will be closely watched given that it’s likely to include some significant differences relative to the House bill. Republican Senator Ted Cruz was reported as saying yesterday that GOP lawmakers need “to do more” than what is on the table so far. In the meantime markups to the House bill continued for a second day yesterday and will likely continue into today also.

As noted above it was a bit of a mixed session for the most part yesterday although US markets did end up closing a bit firmer in the last 30 minutes or so of trading. Indeed after the Stoxx 600 and DAX had closed -0.49% and -0.66% respectively in Europe, the S&P 500 closed broadly flat (-0.02%), not helped by a softer performance for banks. It appears that the latest developments in Saudi Arabia drove the early price action with the Gulf nation expanding its crackdown on anti-corruption.

The news yesterday was that Saudi Arabia had ordered banks to freeze bank accounts for dozens of individuals who have not been arrested. Bloomberg also reported that the Saudi Arabia Monetary Authority had sent a list of  hundreds of names to lenders which told them to freeze bank accounts linked or under those names. Later on, Saudi authorities moved to calm concerns and noted that the bank accounts frozen only relate to individual suspects, not of the companies they control.

The most eye-catching move yesterday in markets though was perhaps that of peripheral bond markets. BTPs rallied 8bps yesterday to 1.689% while 10y yields in Spain and Portugal closed 6.1bps and 9.7bps lower respectively – with the latter below 2% for the first time since April 2015. We’ve been scratching our heads a bit to explain the price action. With Treasuries (-0.2bps) and Bunds (-0.8bps) little changed there was some suggestion that the move was a bit of a delayed reaction to the Sicily regional election result on the weekend given the fairly muted price action on Monday. In any case the moves stood out given the relatively benign changes elsewhere. It is however worth noting that yesterday was another day of flattening across the Treasury curve. The 2s10s curve dropped below 69bps and has now flattened for 8 sessions in a row which is the longest run since November 2015. The 5s30s curve also fell below 79bps and both are at 10 year lows. Clearly rates markets are telling us something about the prospect of the tax bill as it stands so it’ll be interesting to see if that changes when we see the Senate version.

Jumping to the overnight news now where most of the headlines are focused on Trump’s address at the National Assembly in Seoul. The President said that North Korea’s Kim has turned the nation into “a hell that no person deserves” and called for more help from Russia and China, noting “…to those nations that choose to ignore this threat…the weight of this crisis is on your conscience”. The words appear in stark contrast to a much calmer rhetoric from Trump about 24 hours ago. The President is scheduled to visit China next where he is due to have a private dinner with President Xi.

Markets in Asia appear to have largely ignored Trump’s comments overnight though with the Kopsi (+0.19%), ASX 200 (+0.13%) , Shanghai Comp (+0.38%) and Hang Seng (+0.30%) up slightly and the Nikkei (-0.19%) currently the only index in the red. After the bell in the US, Snap Inc. dropped 17% following its’ softer than expected 3Q result and that appears to be weighing on US equity futures.

Moving over to the ECB now where there was a bit of interest in a Bloomberg story yesterday which suggested that three significant ECB policymakers had pushed at last month’s policy meeting to link the overall level of monetary stimulus (rather than just asset purchases) with the outlook for inflation. The article highlighted that the three policy makers were Board member Coeure, Bundesbank President Weidmann and Bank of France Governor Villeroy de Galhau. Earlier in the month, Bloomberg reported that Coeure didn’t oppose having an open-ended QE, but hopes “this will be the last extension”.

Staying with the ECB, yesterday we heard from President Draghi who spoke on banks and bad debts. He noted that European banking supervision “has been instrumental in building a stronger banking sector” and while non-performing loan levels have been coming down, from 7.5% of loans in early 2015 to 5.5% now, “the problem is not yet solved”.

Prior to this, ECB board member Sabine Lautenschlaeger noted “I would have liked a clear exit (for QE) and a different decision” in the October ECB meeting, perhaps in part as “for (her) that was ok to say (as) we can…now move gradually… out of non-standard measures, as the monetary policy stance will still be very accommodative and very expansionary”. On inflation, Lautenschlaeger said that “I am very confident that inflation will pick up and that in the medium term… we will achieve our goal”. Elsewhere on banks, she noted profitability is low for many banks and that they need to diversify their sources of revenue and seek a sustainable business model, but “all banks have to adapt to more stringent rules…they come at a cost, but in the long run, their benefits are greater”. Finally, the head of Supervision at the ECB Daniele Nouy noted that 50 banks have discussed their Brexit business relocation plans with authorities in the EU bloc.

Over at the Fed, new Chief of Bank Regulation Randal Quarles didn’t give too much away in his public debut. He noted that in terms of regulation, “everything is up for a fresh look” and that “in a very short period of time”, the Fed will be looking for ways to make the regulatory process more transparent. Further, since starting at the Fed, he has found ‘quite an openness” for “taking a fresh look at regulation”. Elsewhere, Democratic Senator Tester noted members of the Senate Banking Committee are “getting very close” to agreeing on a bill to ease regulation on financial institutions.

Away from the markets, OPEC revealed in its annual report yesterday that it now expects North American shale output to jump to 7.5m barrels per day in 2021, which is c.56% higher than its forecasts made last year, in part as OPEC’s output cuts have supported an oil price recovery that should help the US producers. OPEC and its partners are scheduled to meet on 30th November to decide whether or not to extend the oil production cuts from March 2018. WTI oil dipped -0.26% yesterday and is trading marginally lower this morning.

Before we look at the day ahead, it was a fairly light day for economic data yesterday but for completeness we note that in the US, September JOLTS job openings were in line at 6,093k (vs. 6,075k expected), while consumer credit grew stronger than expected at US$20.8bln (vs. US$17.5bln).

In Germany, the September IP was below expectations at -1.6% mom (vs. -0.9%) and 3.6% yoy (vs. 4.5% expected), with production of capital goods and energy weighing on growth. Notably, growth in 3Q remained reasonably sound at 0.9% qoq. In Europe, both the Eurozone and Italian September retail sales beat expectations, coming in at 0.7% mom (vs. 0.6% expected ) and 0.9% mom (vs. 0.2 expected) respectively. Over in the UK, the October Halifax house price index was broadly in line at 0.3% mom (vs. 0.2% expected) and 4.5% yoy. Elsewhere, BRC reported same-store retail sales fell 1.0% yoy in October, which is the worst result since March.

Looking at what appears to be a fairly light day ahead, BoJ meeting minutes from the October meeting are due this evening while Germany’s Merkel speaks this morning and the BoE’s Kohn speaks around lunchtime. With little in  the way of other data, expect the US tax developments to remain a focus along with President Trump’s trip around Asia.


Trump Departs For Longest Asian Tour Since Bush Vomited On Japan’s PM

President Donald Trump is leaving his administration’s push to pass comprehensive tax reform before year’s end in the hands of his trusted deputies while he embarks this morning on a 10-day tour to Asia, where he’s expected to discuss, among other topics, the security threat that North Korea poses to both the region and to the world more broadly.

As Reuters points out, it will be the longest Asia tour by a US president since George H.W. Bush vomited on Japan’s then-prime minister, Kiichi Miyazawa, during a trip to Asia in 1992 just weeks before the New Hampshire primary. While Trump, whoso gastro digestive system is in far better shape, will likely not suffer the same embarrassment, the possibility of a diplomatic fiasco is high for obvious reasons. Meanwhile, tensions run high: to underscore the seriousness of the biggest problem at hand, two US strategic bombers carried out military drills over South Korea Thursday, the U.S. Air Force said, raising tensions with North Korea, which accused the US of carrying out simulated bombing drills near its territory. In a move that is sure to further trigger the Kim regime just as Trump touches down in the region, the US has sent three aircraft carriers to participate in unprecedented 3-way drills off the Korean penninsula. Thursday’s drills were first reported by North Korean state news agency KCNA on Friday, which described the exercises involving South Korean and Japanese fighter jets were a “surprise nuclear strike drill," Reuters reported.

Meanwhile, South Korean intelligence told local media that it had detected movement near one of the North’s missiles test-launch sites, activity that could be a sign of another test – what would be the North’s first since it launched an intermediate-range missile over the northern Japanese island of Hokkaido.

To underscore the militant theme of the visit, Trump will first head to the military base at Pearl Harbor on Friday before arriving in Asia on Sunday, beginning his first trip to the region in Japan before heading to South Korea and China, then Vietnam and the Philippines. Trump will participate in two international summits. As NBC News notes, the president heads overseas during a period of decline for US influence in Asia – a sign of the abject failure of former President Barack Obama’s ‘pivot to Asia’ strategy. While NBC says it’s unlikely that Trump returns from his trip with any clear wins, security in the Pacific has become one of the paramount issues of his presidency.

White House national security adviser H.R. McMaster hinted Thursday during an appearance at the White House press briefing that the president is unlikely to tone down his rhetoric toward North Korea on his upcoming trip to Asia, insisting that it is North Korea’s behavior, not Donald Trump’s heated words for Kim Jong Un, that have inflamed tensions.

“I don’t think the president really modulates his language. Have you noticed him do that? I mean, he's been very clear about it,” McMaster said Thursday at the White House press briefing. “I've been aware of the discussions about, ‘hey, is this inflammatory?’ And what's inflammatory is the North Korean regime and what they’re doing to threaten the world."

Trump has three primary goals during his trip, according to McMaster: 

  • Strengthening international resolve to denuclearize North Korea;
  • promote a free and open Indo-Pacific region;
  • advance American prosperity through fair trade and economic practices.

Of course, as NPR points out, trade policy will also be an important topic of discussion. While Trump yesterday praised his newly emboldened “partner” Chinese President Xi Jinping for his help in containing North Korea, the latter’s successful consolidation of power could increase tensions surrounding discussions of trade policy and security. And while Trump has expressed satisfaction with Xi’s efforts to bring the restive North to heel, McMaster emphasized that there’s more to be done.

"China is definitely doing more. But obviously it's not enough," McMaster said. "This isn't the United States or anyone else asking China to do us a favor. China recognizes it is clearly in China's interest — and all nations' interest — to denuclearize the peninsula.

Beyond North Korea, Jonathan D. Pollack, a senior fellow at the Brookings' Center for East Asia Policy Studies, said Trump needs to articulate a broader policy governing the US’s relationship with regional powers.


"The real question now," Pollack said, "is whether or not you can, on any kind of a viable long-term basis, keep some kind of a larger strategic focus in mind, as opposed to being pulled into some immediate perception of potential crisis, for which the stakes are incredibly high."


One possible source of tension between Trump and Xi, who have maintained a surprisingly cordial public relationship, could be what US military commanders in the Pacific see as an increasingly aggressive Chinese air force and military presence.

Those looking for literal fireworks may be disappointed: Trump has said he won’t visit the DMZ during his visit to South Korea, but the US president and his South Korean counterpart Moon Jae-in, will discuss imposing unilateral sanctions on the North.

In Danang, Vietnam, Trump will attend the Asia-Pacific Economic Cooperation summit, which brings together leaders of 21 countries around the Pacific Rim. He'll also speak to a gathering of corporate executives being held alongside the summit. Trump is expected to discuss the important role Asia plays in the U.S. economy as well as the U.S. commitment to a free and open "Indo-Pacific region." Still, lingering resentments over Trump’s decision to withdraw from the 12-nation trade pact at the center of Obama's pacific agenda could complicate his trade talks in Vietnam. However, Trump's APEC speech will be an opportunity for the president to offer an alternative vision for U.S. engagement in the region.

Importantly, Russian President Vladimir Putin will also attend the APEC summit. The White House has not said whether Trump and Putin will meet one-on-one.

While Trump will join the 10-nation ASEAN summit, he is skipping a broader East Asia Summit that follows. Some observers say that's a missed opportunity for Trump to demonstrate US commitment to the region. But White House aides defended the decision, noting the trip is already running long.

"The president has to come back to work," one senior administration official told NPR. "We can't have him away from Washington forever."


Oil Giants At Odds As Saudi-Russian Ties Improve

Authored by Nicholas Trickett via OilPrice.com,

Oil Royalties

Saudi King Salman bin Abdulaziz Al Saud visited Moscow last Wednesday, the first such visit by a Saudi monarch since the Soviet Union collapsed. Two topics dominated the agenda: Syria and oil. Saudi Arabia has likely found itself in the uncomfortable position of accepting Assad’s grip on power into the future in hopes of drawing Russia further away from Tehran in trying to resolve the Syrian Civil War. To that end, Saudi Arabia is reportedly buying Russia’s S-400 missile system and signed a Memorandum of Understanding (MoU) on industrial cooperation in the defense sector. Saudi Arabia is trying to use its leverage – financial resources – to influence Russia on other priority areas, namely Iran. As expected, energy played a big role during the visit and deals associated with it.

Reports say that $3 billion in projects have been agreed to between the two countries, including a $1.1 billion petrochemical plant to be constructed in Saudi Arabia by Russia’s Sibur and an agreement between Saudi Aramco and Gazprom Neft on drilling technology. A $1 billion investment fund for energy and technology was also announced. Russia and Saudi Arabia have worked together to try and raise crude prices by lowering production 1.8 million bpd with other producers. But these cuts have disproportionately affected Saudi Arabia’s standing on Asian markets and Russia’s state oil major Rosneft has jumped at the chance to grab market share and assets in Asia. As is so often the case, today’s solutions laid the seeds of tomorrow’s conflict. Saudi Aramco and Rosneft are positioning for a post-cut market, and Saudi Arabia may be offering cooperation to spite Qatar as well as temper the risks of its increasingly active foreign policy and proxy wars with Iran.  

China Syndrome

China has understandably played the leading role in Russia’s attempts to broaden its role as an energy supplier in Asia. Rosneft recently sold 14.16 percent of its shares to CEFC China Energy for about $9 billion by way of the Qatar Investment Authority and Glencore. The move reflected the challenges financial sanctions have created for the firm as well as China’s growing clout as an importer. Chinese demand hit 11.67 million barrels per day (bpd) and had risen 6 percent year-on-year in July. Rosneft was smart to finalize supply agreements with PetroChina set to boost its daily exports to China from 400,000 bpd to 600,000 bpd next year. Rosneft also signed an agreement with CEFC to jointly explore for Eastern Siberian reserves and increase direct deliveries to China.

These deals play into Russian-Saudi competition for the Chinese market. China’s oil imports are up 12.3 percent year-on-year, but cuts haven’t hit Russian exports. Saudi oil exports to China hovered at 1.03 million bpd so far this year, a 1.7 percent drop. Russia’s stood at 1.16 million bpd, a 13.2 percent increase. After closing the CEFC deal, Rosneft announced it expected to deliver 40 million tons of oil to China by year’s end, a 9 million ton increase on their expected deliveries. That would average out to around 800,000 bpd from Rosneft alone, assuring Rosneft’s dominant control over Russian supplies to the Chinese market. The increase in supplies has paralleled a long-standing project to develop a refinery in Tianjin. But the project, first announced in 2009, has no clear end date despite a press release concerning its implementation with CNPC in January.

Saudi Arabia has disproportionately lost share in China for several reasons. For one, it bears the burden of cut compliance. Angola overtook it because of China’s dominant position there and didn’t feel the need to comply. For another, Russian firms have built up new assets and export capacity in Eastern Siberia and the Far East. Russian blends have more physical access to Asia-Pacific markets, making them more competitive than they’ve historically been. Finally, spreads on the market between light and heavy crude have narrowed, making Russia’s lighter crudes more competitive against Saudi heavy crudes. But Saudi Arabia is not without a means of responding.

Saudi Aramco reached a refinery deal with state-owned China North Industries Group Corp. in May around the Belt and Road summit. Though the refinery is smaller than that proposed in Tianjin, Saudi Aramco has one considerable advantage over Rosneft: it lacks the same messy history Rosneft has with China’s state firms and it’s not sanctioned. CEFC was a logical partner for Rosneft in China because, unlike CNPC and state-owned players, it could more easily afford to take the sanctions risk. It can also dangle shares to China. Further, the refinery deal signals a willingness to work with China’s independent refiners. These so-called “teapot” refineries have driven demand growth and provide Aramco greater diversity in business opportunities longer-term than Rosneft’s relationships with CNPC and CEFC afford it.

Ever since the company started talking about an IPO of 5 percent of its shares, China has been a logical partner. A sale to Chinese firms in exchange for investments into China’s downstream would be huge win. The Kingdom also signed a similar agreement for an investment platform with China worth $20 billion in late August, just as it became clear CEFC would acquire stakes in Rosneft. That throws a fair bit of shade on Russia’s $1 billion fund agreed to this last visit. Topping it all off, King Salman and Aramco also signed deals reportedly worth $65 billion with China in March.

Judging Saudi Arabia’s position against Russia’s on daily barrel counts alone is misleading. But Rosneft has signaled intentions to buy some Sinopec assets in Argentina, a move presaging greater interest in China’s petrochemical market. To access that market, it will need Sinopec in particular, a state firm, to ignore sanctions risks. If Aramco can beef up its relationships with private firms and independent refiners, it can limit Rosneft’s room to develop synergies between upstream and downstream operations on the Chinese market.

The Kingdom and India

Rosneft made a major splash by acquiring 98.6 percent of India’s Essar Oil with partners Trafigura and United Capital Partners, gaining the company’s refinery in Vadinar, a port, and 3,500 filling stations. The Vadinar refinery has a daily capacity of 400,000 bpd and assures Rosneft access to India’s growing oil market. However, the sale was meant to deleverage 60 percent of the Essar Group’s debt. There remains the perception that Indian firms lost out on the country’s growing downstream sector. India’s Intelligence Bureau and Home Ministry also red-flagged the deal on security grounds, citing the port’s proximity to the border with Pakistan and nearby military installations. Whatever the reason, there’s clearly significant concerns in India about the sale.

Saudi Aramco was bidding for the Vadinar refinery but didn’t match Rosneft’s willingness to pay off billions in Essar’s debt. As King Salman was in Moscow on Wednesday, Aramco issued statements that it plans to open an Indian subsidiary in the coming weeks. Back in June, the company showed its interest in exclusive talks with Indian counterparts like Indian Oil Corp., Hindustan Petroleum Corp., and Bharat Petroleum Corp. for a stake of a proposed 1.2 million bpd refinery on India’s west coast. Prime Minister Modi is likely facing pressure from two directions on the country’s energy security needs: China has thrown considerable financial resources at Saudi Arabia and now owns shares of Rosneft and India’s firms would be better positioned on Asia-Pacific oil markets with a more diverse array of international partners.

Saudi Arabia’s exports to India dropped 8.4 percent in the first half of 2017 as Russia has begun exporting more. Rosneft already owns an asset, though the US Treasury Department did throw up roadblocks last year. That places it firmly ahead on India’s market. But Saudi Aramco is most likely taking a hit now in the name of driving up prices for its public listing, which will provide a cash infusion exponentially larger than that gained from Rosneft’s privatization of shares last December considering estimates for Aramco’s market valuation. India is also signing more supply deals for exports from the US. Aramco has much better relationships on the U.S. market, particularly evidenced by its complete ownership of the Port Arthur refinery and its 600,000 bpd capacity. The U.S. Senate is looking to scrutinize any potential Rosneft acquisition of Citgo by way of Venezuela. Needless to say that Rosneft has few friends in the United States these days.

The ASEAN+ way forward

Aramco has moved to secure its position in Southeast Asia ahead of its IPO even though production cuts have led it to cut Southeast Asian exports to protect market share on larger markets like Taiwan, South Korea, and Japan. Despite lower exports, Saudi Aramco bought a 50 percent stake of the PRPC Polymers project from Petronas Chemicals Group Berhad (PCG), signing a strategic partnership agreement. Aramco is investing $7 billion into the project, slated for completion in 2019, and will provide up to 70 percent of the petrochemical plant’s crude oil needs.

Last December, Aramco reached an agreement with Indonesia’s Pertamina for a $5 billion expansion and 45 percent stake of a refinery. The expansion, slated for completion in 2021, will put the refinery’s capacity at 400,000 bpd. Aramco sources most of the refinery’s crude supplies. Pertamina and Rosneft are reportedly expected to finalize a refinery deal at the end of this year for a new refinery at the same ownership split, but Pertamina is unlikely to get access to Russian upstream projects.

Russian crude blends have been more attractive to refiners in Northeast Asia but Saudi Arabia has defended its turf. Aramco held on to 40 percent of Japan’s imports in the first half of 2017 without any sustained gains for Russian crudes and agreed to add 1.9 million barrels of crude oil storage on Okinawa. The storage site on Okinawa is also used to deliver crude oil cargoes to South Korea and China. Rosneft has no such relationships, reportedly dangling shares before last year’s privatization in exchange for developing joint projects and creating joint ventures at different stages of production and marketing. But Japanese firms linked political concessions regarding the Northern Territories to any deal, a nonstarter.

Saudi Arabia is mulling the construction of 17.6 gigawatts worth of nuclear power plants by 2032 with the help of firms from China, South Korea, and France. South Korea is set to hold a ministerial visit on October 26 to discuss cooperation in several sectors, including nuclear power. As Saudi Arabia works out the tenders for nuclear projects, it has an opportunity to cement its energy security relationship with South Korea. Nuclear power will free up oil used for domestic power generation, possibly putting downward pressure on prices in Asia-Pacific markets as demand growth slows in the medium-term. Russia’s Rosatom has not gotten any attention for Saudi contracts.

The best laid plans of oil giants

Cooperation is set to deepen between the two countries’ energy sectors, but Rosneft and Aramco have different strategic outlooks that suggest that many of these moves are tactical on Saudi Arabia’s part and opportunistic on Russia’s part.

Most of the deals signed were MoUs, important symbols but relatively insubstantial commitments from either party unless more specifics emerge. Deals focused on Eurasia Drilling Co. and Novatek’s Arctic LNG 2. MoUs touched on Sibur, Gazprom, Gazprom Neft, and Lukoil’s trading arm Litasco. There was talk of cooperation between Rosneft and Aramco on crude oil trades, but there is a fundamental mismatch between the two countries’ intentions: Russia wants investment without political strings attached and Saudi Arabia wants Russia to back off of Iran.

Aramco targeted Rosneft’s competitors for memoranda and deals that would lead to projects for several reasons. Were Gazprom to gain access to Saudi fields or allow Aramco into Russia, it would gain considerable clout as a negotiator and lobby for policy pertaining to Saudi Arabia. Sibur is owned by Gennady Timchenko, a close friend of Putin’s who was named chair of the Russia-China Business Council. China has shown policy success by investing into projects owned by those close to Putin while balancing against drawing too much sanctions scrutiny. In short, Aramco wants to give other players in Russian policy circles a boost against their primary Russian competitor.

The U.S. Treasury Department revised its sanctions prohibitions on new debt on September 29, tightening the limits on Rosneft’s ability to finance major deals with U.S. partners. EU sanctions continue to target state oil firms like Rosneft rather than gas and remain an impediment. Rosneft’s debt to capital ratio has improved in the last year, a good sign for its fiscal health but not necessarily enough to avoid the byzantine dealing it went through for the privatization of shares last December. For its part, Aramco is set to benefit from up to $120 billion in debt Saudi Arabia is aiming to issue by 2020 as the country looks to increase its investments into renewables like solar. That debt alongside the IPO is likely to happen sometime late next year or early 2019 and will provide a dramatic infusion to state coffers to finance reform projects aimed at reducing Saudi Arabia’s oil dependency.

Aramco is set to take its trading operations further afield to begin trading non-Saudi crude oil with an eye towards feeding its growing range of refinery and petrochemical assets. The company is retreating to advance by targeting competitive moves into downstream projects and trading to minimize the effects of losses in market share. The issue remains that higher oil prices are needed for the IPO to maximize the money raised to finance projects like a $50 billion renewable energy initiative that would increase the amount of oil available for export.

Rosneft would also like higher prices, but has already sold all the shares it can while remaining a state-owned firm. CEO Igor Sechin is also fighting to undermine any institutional or informal constraints on his power in the country. Gazprom’s piped gas export monopoly, for example, is in his crosshairs. As a result, Rosneft has no time to waste. It’s going full bore, trying to acquire assets abroad to break out of the financial limitations of sanctions and grow and larger portfolio, expanding Russia’s foreign influence. There’s a reason the company has maneuvered in Venezuela, Kurdistan, and Libya in the last year.

Rather than count barrels, it would be best to consider how the two firms’ interests differ. Rosneft is feeding large amounts of military spending in Russia and is angling for greater power domestically. To a much greater extent, Aramco is the state in Saudi Arabia. It can afford a more measured approach given it always has the nuclear option: a radical break with production cuts and massive increase in production. As such, Aramco is preparing for an Asia-Pacific market where diversifying petrochemical assets will outweigh crude oil market share for profits. Rosneft is moving in the same direction, but may find that sanctions and domestic rivalry will hinder its attempts. Sechin has been on a winning streak for some time, but the elections may change things up. Aramco doesn’t have that problem looming on the horizon.


Myanmar’s Rohingya Crisis: George Soros, Oil, & Lessons For India

Authored by Shelley Kasli via GGINews.com,

"When George Soros comes to this or that country… he looks for religious, ethnic or social contradictions, chooses the model of action for one of these options or their combination and tries to 'warm them up'," Egorchenkov explained…

 The ongoing crisis in Myanmar including tensions between Buddhist and Muslim communities and the military crackdown by Myanmar Army and police seems to be a multidimensional crisis with major geopolitical players involved according to a report by Sputnik International.

As per the report Dmitry Mosyakov, director of the Centre for Southeast Asia, Australia and Oceania at the Institute of Oriental Studies of the Russian Academy of Sciences, told RT that the conflict “was apparently fanned by external global players” and “has at least three dimensions”.

First, this is a game against China, as China has very large investments in Arakan [Rakhine],” Mosyakov told RT.


“Second, it is aimed at fuelling Muslim extremism in Southeast Asia….


Third, it’s the attempt to sow discord within ASEAN [between Myanmar and Muslim-dominated Indonesia and Malaysia].”

The conflict is mostly concentrated in the country’s northwestern region in the Rakhine State which consists of vast reserves of hydrocarbons located offshore. This vast reserve of hydrocarbon is the major reason why external players are using the conflict to undermine Southeast Asian stability, according to Mosyakov.

“There’s a huge gas field named Than Shwe after the general who had long ruled Burma,” Mosyakov said.

In 2004 this massive Rakhine energy reserves were discovered and by 2013 China had connected Myanmar’s port of Kyaukphyu with the Chinese city of Kunming in Yunnan province with oil and natural gas pipelines. Through this oil pipeline China can bypass the world’s most congested shipping choke points – the Malacca Straits, while through the gas pipeline hydrocarbons from Myanmar’s offshore fields are transported to China.

The development of the Sino-Myanmar energy project coincided with the intensification of the Rohingya conflict in 2011-2012 when 120,000 asylum seekers left the country escaping the bloodshed.

Dmitry Egorchenkov, deputy director of the Institute for Strategic Studies and Prognosis at the Peoples’ Friendship University of Russia doesn’t believe that this is a coincidence. Although there are certain internal causes behind the Rohingya crisis, Dmitry believes that the crisis might be fueled by external players, most notably, George Soros.

By destabilizing Myanmar they could directly target China’s energy projects.

George Soros funded Burma Task Force has been actively operating in Myanmar since 2013 although Soros interference in Myanmar’s domestic affairs goes deeper than that.

In 2003, George Soros joined a US Task Force group aimed at increasing “US cooperation with other countries to bring about a long overdue political, economic and social transformation in Burma [Myanmar].”

A document published by the Council of Foreign Relation’s (CFR) in 2003 entitled “Burma: Time For Change,” states that “democracy… cannot survive in Burma without the help of the United States and the international community” and calls for an establishment of a group to implement the project.

“When George Soros comes to this or that country… he looks for religious, ethnic or social contradictions, chooses the model of action for one of these options or their combination and tries to ‘warm them up,'” Egorchenkov explained, speaking with RT.

According to Mosyakov, it is a globalist management policy to sow discord in nations by fuelling regional conflicts which allows them to exert pressure on those nations and ultimately gain control over their sovereignty. A recent example is the Ukrainian Crisis and the Greek Crisis before that. When the flames are out and the country ravaged with the crisis, it is time for the vultures to descend.




What one should understand is that a crisis just doesn’t take a toll on the infrastructure and human lives but it also ruptures the economy and puts the country in huge debt. And it is through this debt that the global players dictate their terms to sovereign nations for decades or even centuries if there is no course correction. That is the reason why both Ukraine and Greece appointed Rothschild as their debt adviser to assist with their growing debt crisis.

Lesson for India


Even India is hunting for a solution to its Bad-Debt Crisis (read the corporate loans that state-owned banks wrote off, which were taken by arousing nationalistic sentiments in the media) which is a Rs 1.14 lakh crore (this is a conservative figure) scam as we explained in our special Demonetization issue War on Cash. However, a solution has already been prescribed by the deputy governor of Reserve Bank of India, Viral Acharya. His solution is to simple sell-off state owned units to foreign players bankrupted in the 2008 crisis. You can read all about it here – PARA – A New Central Bank For Strategic Sale Of India.

These Money Masters doesn’t lose anything in case the situation escalates and war erupts between China and Myanmar, infact they have everything to gain from it; just like they had everything to gain from the Russian-Ukrainian conflict. Educated folks call it Balance of Power. It is through this same strategy of Balance of Power that even the India-China conflict is being orchestrated. But we don’t have to rely on war to be in debt, our policy makers are already doing a good job at it. We are already in the midst of a major crisis, be it agriculture, economy, civil society and press or defense and security. This is the direction our policy makers have set for us, and it leads directly to destruction, unless we do a major course correction.

Could such a crisis be orchestrated in India?

This is the hypothetical question we raised after Liquor baron Vijay Mallya was allowed to flee India to take refuge in London. This was not the first time a person fleeing local law in foreign countries had taken shelter in London. Since decades, high-profile foreign offenders with considerable wealth have found refuge and a safe place to park their assets and enjoy a peaceful life in Britain.

Similar is the case of Russia. Immediately after the collapse of the Soviet Union large-scale privatization of state-owned assets was implemented. From Glasnost and Perestroika (liberalization and privatization or globalization) – the tools created by the East India Company for enslavement of their colonies (known at the time as Free Trade) emerged the Oligarchs – who amassed vast wealth by acquiring state assets very cheaply (or for free) during the privatization process.

After coming to power Vladimir Putin set about on a massive purging of these oligarchs from Russia, the power struggle that continues to this day. The most famous case is that of Mikhail Khodorkovsky. In 2003, Khodorkovsky was believed to be the wealthiest man in Russia (with a fortune estimated to be worth $15 billion) who accumulated considerable wealth through obtaining control of a series of Siberian oil fields unified under the name Yukos, one of the major companies to emerge from the privatization of state assets during the 1990s. Khodorkovsky was later backed up by Henry Kissinger, George Soros and Rothschilds as a candidate to run for a Presidential election against Putin as well as for an attempted revolution.

UK has been traditionally the largest sanctuary to not just money launderers and fraudsters but foreign terrorists and extremists as well. Everybody, who is somebody in the world of terrorism, has found a rear base in the UK.

There are as many as 131 pending pleas for extradition of wanted criminals from Britain by India alone.

Below are just some of the cases of individuals wanted in India and living in Britain:

  1. Vijay Mallya (financial offences)
  2. Lalit Modi (financial offences)
  3. Ravi Shankaran (accused in the Indian Navy war room leak case)
  4. Tiger Hanif (wanted in connection with two bomb attacks in Gujarat in 1993)
  5. Nadeem Saifi (music director accused and acquitted in the Gulshan Kumar murder)
  6. Raymond Varley (accused in child abuse cases in Goa)
  7. Lord Sudhir Choudhrie (one of India’s most notorious arms-dealers and Italian consortium’s middleman in Finmeccanica helicopter scandal)
  8. Several individuals related to the Khalistan movement
  9. Several individuals related to the LTTE
  10. Several individuals related to ISIS

Even MQM leader Altaf Hussein resides in London, under the protection of the British government, which has refused Pakistani government requests for his extradition to face trial for murder.

Last year, Khodorkovsky said Open Russia (a George Soros funded organisation) would provide logistical backing to 230 candidates running from various opposition parties or on independent tickets in September from the headquarters of his Open Russia foundation in London. With rise of Indian Oligarchs increasingly finding asylum in Britain, is it a far-fetched scenario for India as well when these Indian Oligarchs would be used for inciting revolution in India or even orchestrating elections – that is in case India goes for course correction?

Even so, there is a way to avert such a scenario as well as the impending crisis.

After Putin kicked them out of Russia the same Oligarchs setup shop in India under the same tried and tested ideology of enslavement – Glasnost and Perestroika (called in India as Liberalization and Privatization) during the 90s.

It is this group of Oligarchs or Robber Barons (as they are known in the United States of America) that is still operational in India.

What our intelligence agencies should be doing instead of spying on opposition political parties and depending on foreign agencies for information and direction is to track this shadow network and dismantle its grip on India as was done in America (the process that still continues to this day).