Tag: China (page 1 of 38)

Russians & Chinese Are More Worried About ‘Fake’ Content Than Americans

The Germans are the people least worried about fake content on the internet.

According to a survey by the BBC, only 14 percent are very perturbed by content possibly being fake. Another 33 percent are somewhat worried. So, while 47 percent overall are worried to some degree, this is a low figure compared to how worried people in other countries are.

However, as Statista’s Dyfed Loesche notes, in Brazil, most people are concerned: 92 percent are worried about what’s real and what’s fake.

Perhaps most notably however, while American politicians (on the left) continue to push the narrative of ‘fake’ content, fewer Americans “worry about what is real and fake in the web” than in Russia, China, Spain, France, or Greece (though notably the percentage who ‘strongly agree’ is dramatically high relative to other nations).

Infographic: Who's Most Worried About Fake Content on the Web? | Statista

You will find more statistics at Statista

The study also finds that more people in 2017 than in 2010 say that the internet should never be regulated by government (58 percent in 2017 to 51 percent in 2010).

But slightly less people than in 2010 think the internet is a safe place to express their opinions (46 to 48 percent).

16,542 adults in 18 countries took part in the survey, of which 11.799 used the internet, conducted by GlobeScan.


Patriots, Flags, & Referenda – “We’re All Screwed”

Authored by Raul Ilargi Meijer via The Automatic Earth blog,

‘Tis the jolly time of elections, referendums, flags and other democracy-related issues. They are all linked in some way or another, even if that’s not always obvious. Elections, in New Zealand and Germany this weekend, referendums in Catalonia and Kurdistan the coming week, a looming Party Congress in China, quarrels about a flag in the US and then there’s always Brexit.

About China: the Congress is only in October, Xi Jinping looks sure to broaden his powers even more, and it ain’t all that democratic, but we should still follow it, if only because party officials will be either demoted or promoted, and some of them govern more people than most kings, queens, presidents and prime ministers. They say everything’s bigger in Texas, but in China everything really is. Including debt.

New Zealand: the election very early this morning didn’t bring a much hoped for win for Labour, or any clear winner at all, so don’t expect any grand changes in policy. New Zealand won’t wake up till its economy dives and the housing bubble pops.

Germany: Angela Merkel has set up today’s election so that she has no competition. Though she will see the ultra-right AfD enter parliament. Still, her main ‘rival’, alleged left wing Martin Schulz, is a carbon copy of Merkel when it comes to the main issues, i.e. immigration and the EU. An election that is as dull as Angela herself, even though she’ll lose 10% or so. The next one won’t be, guaranteed.

As for the US, no elections there, but another round of big words about nationalism, patriotism and the flag. Donald Trump is well aware that 75% or so of Americans say the flag must be respected, so criticizing people for kneeling instead of standing when the anthem gets played is an easy win for him. No amount of famous athletes is going to change that.

It all doesn’t seem very smart or sophisticated. But then, the US is the only western country I know of that plays the anthem at domestic sports games and has children vow a Pledge of Allegiance to it every single day. Other countries can’t even imagine doing that. They keep their anthems for special occasions. And even then only a few people stand up when it’s played. For most, it’s much ado about nothing but a strip of cotton.

What is perhaps interesting is that a whole list of NFL team owners donated a million dollars to Trump, and now speak out against him and ‘side with their players’, even though not one of them has offered Colin Kaepernick a job since he got fired for going down on one knee. Should I add ‘allegedly’? The only right way to handle the issue would seem to be to talk about why Kaepernick and others do what they do, not that they do it. There’s more than enough division in the country to warrant such talks.

Let Trump invite Kaepernick and Stephen Curry, maybe even Lebron and Stevie Wonder, to the White House with the very intention to talk about that. In the current hostile climate that is not going to happen though, even if Da Donald might want to. There’s a group of people who after 30 years of a deteriorating economy said ‘this is not my country anymore’, and voted for the only -apparent- alternative available, Trump, and another group who then said ‘this is not my president’.

And never the twain shall have a conversation. Somebody better find a way to get them to talk about it, or worse is to come. Far too many Americans identify themselves solely as not being someone else. Yeah, Trump too, but he’s been under constant siege from all sides, and of course he’ll fight back. No, that does not make me a Trump cheerleader, as some have suggested, but what’s happening today threatens to blow up the entire nation, after first having eroded the whole political system. This is a serious risk.

Now spymaster James Clapper is saying again that the whole Russia thing, for which there still is zero proof, could make the election invalid. Well, not without proof, Jimbo. And until you do have that proof, shut up, it’s poisonous (he knows). Instead, go help the 3.5 million literally powerless Americans in Puerto Rico. There are plenty issues to deal with that don’t involve bashing your president. Keep that for later.

(Proposed) referendums (referenda?) in Catalunya and ‘Kurdistan’ raise interesting questions about sovereignty and self determination. We’ll see a lot more of that going forward. I’ve repeatedly mentioned the issue of sovereignty when it comes to Greece, which cannot really be called sovereign anymore because others, foreigners, make all main decisions about its economy.

There may be plenty different definitions of sovereignty, but there can be no doubt it means that a domestic authority has control over a country. That also means that possible changes to that authority can only be made domestically. To come back to Greece briefly, I’m surprised that no constitutional lawyers or scholars have questioned respective governments handing de facto control to ‘outsiders’.

But that can be both deepened and broadened to the decision to join both first the EU, and later the euro. Have all 27 EU countries run these decisions by their constitutional lawyers and highest courts? I’ve never seen an opinion like that from any country. Does a country’s ruling authority have the power to sign away its sovereignty? I would bet in most cases it does not, or the constitution involved was/is either shoddily written or not worth much to begin with.

That any elected US president -or Congress, Senate- would have the power to sell the country to the highest bidder -or any part of it- sounds preposterous, even if I’m no constitutional lawyer or scholar. What countries CAN do, of course, is sign treaties and other agreements concerning defence or trade, among others. But any possible sovereignty violations would always need to be scrutinized at the highest domestically available level of judicial power.

Moreover, I would argue that sovereignty is not something that can be divided, split up or broken into separate parts. You’re either sovereign or you’re not. One country, indivisible, as the US Pledge of Allegiance states (but that doesn’t mean a group of people inside a country can’t seek its own sovereignty).

The ‘composition’ of the EU raises a lot of questions. Many countries have given up their rights to control over their currencies, and therefore their entire economic policies, and though the euro is undoubtedly beneficial in some areas, it has turned out to be a straight-jacket in others, when less sunny economic times arrived.

So what happens if those less sunny times are here to stay? Will countries like Greece continue to bend over for Germany, and for the ECB it controls, or will some of these countries (re-)examine their rights to sovereignty? How is this defined in the EU charter anyway? It has to be there, or many constitutions were violated to begin with when countries signed up. Sovereignty that is not properly defined is meaningless.

Another, non-economic, example concerns the Visegrad countries, Czech Republic, Hungary, Poland and Slovakia. It’s wonderfully ironic that Wikipedia says the Visegrad alliance (est. in 1991) was formed “for the purposes of furthering their European integration”, ironic because one might be tempted to think it does the opposite. The Visegrad countries refuse to be part of the EU’s scheme to resettle refugees.

And Brussels tries to force them to comply with that scheme, with threat after threat. But that too, no matter how one views the issue or where one’s sympathies lie, is in the end a sovereignty issue. And what use is it to force refugees upon a country that doesn’t want them? The bigger question is of course: why were they ever invited into the EU when they think that way, and that way is fundamentally different from that prevalent in Brussels and other member countries?

Or perhaps the even bigger question should be: how do you combine a country’s sovereignty with a political and economic union of nations that must sign away parts of their sovereignty -and therefore all of it, as argued before-. If you ask me, it’s not nearly as easy -let alone legal- as they try to make it look.

Catalunya and ‘Kurdistan’ are good examples – albeit from a different angle- of that same conundrum. A topic closely linked to sovereignty is self-determination. Wikipedia:

The right of people to self-determination is a cardinal principle in modern international law (commonly regarded as a jus cogens rule), binding, as such, on the United Nations as authoritative interpretation of the {UN] Charter’s norms. It states that a people, based on respect for the principle of equal rights and fair equality of opportunity, have the right to freely choose their sovereignty and international political status with no interference.


[..] on 11 February 1918 US President Woodrow Wilson stated: “National aspirations must be respected; people may now be dominated and governed only by their own consent.


‘Self determination’ is not a mere phrase; it is an imperative principle of action.

The Kurds have been denied that right for a very long time. For reasons related to divide and rule policies in a whole slew of different global powers both in the region and outside of it, and reasons related to oil. After being a major force in the fight against ISIS, and after seeing Turkey get ever more agressive against them -again-, the Kurds have -not for the first time- planned a referendum for a sovereign state. As the UN charter unequivocally says is their right.

The problem is, they want to establish their state on land that other countries claim is theirs. Even if the Kurds have lived there for a long time. And that’s a common theme in most of these ‘events’. Catalunya, Palestina, ‘Kurdistan’, they’re told they can perhaps have independence and sovereignty, but not on land where their people have lived for 1000s of years, because that land ‘belongs to us’.

And holding a referendum is therefore unconstitutional, says Spain, or whatever legal term is thrown out. But if the UN charter makes the international community’s position as clear as it does, how can it contradict a member nation’s constitution? Was that member not paying attention when it signed up to the Charter, or did the UN itself let that one slip?

Catalunya (Catalonia) is the northeast tip of Spain. Its people have long wanted independence and never gotten it. When present day Spain was formed, it was made part of Spain. And now the people want their own nation. It is not hard. But then again it is. We are now one week before October 1, the date the referendum was planned, and the Spanish government has done everything it could and then some to frustrate the referendum, and therefore the will of the people of Catalunya.

As the politicians who inhabit the EU and UN sit by idly, scared silly of burning their fingers. After arresting Catalan politicians and confiscating anything that could be used to hold the referendum, Spain has sent cruise ships full of police to Catalan harbors, and tried to take over control of the Catalan police force. But Catalan politicians and harbor crew have refused to let the ships dock, and Catalan police won’t obey Spanish orders.

It’s starting to look like Spain PM Rajoy wants to provoke a violent Catalan reaction, so he can send in his army and blame Barcelona and environs. What he doesn’t want to understand is that this will be the end of his government, his career, and of any chance Catalunya will remain part of Spain other than in the short term. It feels like Franco’s military, who, don’t forget, only relinquished control some 40 years ago, are still there in spirit if not physically.

For everybody’s sake, we can only hope someone does something to stop Rajoy and whoever’s behind his decisions, because if anyone ever wondered why the Catalans wanted to be independent, after those decisions there can be no question anymore. If he sends in the army, Spain as a whole will be something of the past. But first the referendum result, which was very doubtful all along, has now been settled: nearly all Catalans stand united against Rajoy today.

And Catalans are a mixed people. Many do not have their roots there, or even speak the language. But they will not turn on their friends and neighbors.

Kurdistan’s situation is even a lot more convoluted than Catalunya’s. Borders in the Middle East were drawn more or less at random by the French and British after the fall of the Ottoman Empire nearly 100 years ago. And the Kurds never got their independence, or their country. But now they want it. However, they live spread over 4 different countries, Turkey, Iran, Iraq and Syria. And some of the land they live on has oil. Lots of it. And the cradle of civilization, between the Tigris and Euphrates rivers.

Just about everyone, including the US, all countries in the region, and the old colonial powers, have declared their resistance to the Kurdish referendum. Getting back to the UN charter et al, isn’t that a curious position? Politicians sign lofty declarations, but when their successors are called upon to uphold them, nobody’s home. And it’s not as if self-determination is such a difficult topic to understand.

The referendum will be held on September 25 in Iraq’s semi-autonomous Kurdish region, so not in other Kurdish regions. Therefore only 900,000 people, out of some 35 million Kurds, get to vote. But the question on the ballot will be:

“Do you want the Kurdistan region and the Kurdistani areas outside the region’s administration to become an independent state?”

And that of course means something much more, and much bigger. There’s a ‘Kurdistan’ in Iran, Syria and Turkey as well. Kurds there don’t get to vote, though.

Quoting Bloomberg: “The vote will be held in the three governorates officially ruled by the KRG, as well as in disputed areas currently controlled by Kurdish forces, known as the peshmerga. The Kurds expanded their domain in 2014 when, faced with Islamic State attacks, the Iraqi army deserted the oil-rich city Kirkuk.”

Here’s where the Kurds were living according to the 2014 CIA World Factbook:

As is the case in Catalunya, Iraq’s parliament and top court have declared the vote unconstitutional. That again raises the question: how can a vote violate a country’s constitution if and when that country has signed the UN charter which explicitly defines every people’s right to self-determination? Who’s been asleep when both documents were signed?

How could the UN let countries sign its charter whose constitutions violated that same charter? Have we all just been playing fast and loose all along? Or, more interestingly, what are we all going to do now that we know about this? Are we going to take self-determination away from people, and sign that into a whole new UN charter? Or are we going to make sure the charter is upheld and make countries change their constitutions to comply with it?

There is a third option (very much in favor): to not do anything. But that gets more dangerous all the time. The days that people could just be ignored are gone. Social media have probably played a large role in that. And so have changing power relationships.

The EU is blowing itself up through increasing calls for more Europe just as people want less. I’ve said it often before: centralization stops when and where economic growth does. And despite all the creative accounting we see, economic growth is definitely gone in Europe. Just ask Greece, Spain. Ask the people, not the politicians. People will only accept their decisions being made by far away ‘leaders’ if they perceive them as beneficial to their lives, the lives of their children.

Those days are gone, no matter the propaganda. That’s true all over Europe, and it’s true all across the US. The refusal by incumbent powers to recognize this, admit to it, is what gives us the likes of Trump and Brexit and countless other challengers. That Marine Le Pen and others have failed to date doesn’t mean the status quo wins; others will follow. In that vein I was surprised to see Yanis Varoufakis, whom I hold in very great esteem, declare in name of his DiEM 25 movement that:

“I am not taking sides on whether Catalonia should be independent or not” and “What we’re promoting in DiEM25 would solve the problem. We want a real European Union that becomes a single jurisdiction, a country if you want to call it that. In that scenario, it doesn’t matter if Catalonia is part of Spain!”

Europe will not be one country. Nor should it want to be. Europe has 1000 different ways to work together, and the EU has been an utter failure at that. While it has done a ton of good, it is being -predictably- destroyed by the power politics at its top levels. Nobody ever told Europeans that they would wind up living as German provinces. But that is what they are.

As Varoufakis himself makes abundantly clear is his book Adults in the Room. That’s why Germans have no real choice in today’s election: they have such utter control of the EU they would be crazy to vote against it. But at the same time, the rest of the ‘Union’ would be crazy to let them hold that power.

And I know that DiEM25 wants to change and reform the EU, but how will they do that knowing they need Germany, more than all other countries, to accomplish it, as Germany is sitting so pretty? Calls for a one-country Europe seem at the very least irresponsibly premature. That’s very far from reality. First things first. No cheating. You can’t say it doesn’t matter what happen to the Catalans today because ‘we’ have bigger plans for tomorrow. That means abandoning them. That’s not a new Europe: that’s what they already have today.

As for ‘Kurdistan’, what can we do but hope and pray? Hope that the old European colonial powers, as well as Turkey, Iraq and Iran, plus Russia and China, live up to the UN Charter they signed, and let the Kurds show they can be a force for peace in the region, which needs one so badly?! They have shown in no uncertain terms they can defend themselves, and their land, against anyone who threatens them. The Kurdish women army, YPJ, is all you need to know when it comes to that. They are the bravest amongst us.

If they had their own country, they would continue to do just that, and better. Which just goes to show that nationalism and patriotism are not of necessity negative emotions. It gives people an identity. Which is exactly why brighter heads than the present ones put the right to self-determination in the UN Charter, at a time, 1945, when the world had seen indescribable destruction.

There’s a lesson there. That we seem to have forgotten already. And now have to learn all over again. Through Colin Kaepernick, through the unbelievable Kurdish women’s YPG army, though the streets of Barcelona. Our world is screwed up, and we need to unscrew it.


The Week’s Key Events: European Inflation, US CapEx And Non-Stop Fed Speakers

Beyond the plethora of central bank speakers, market focus will concentrate on Eurozone inflation and US data releases, including durable goods, home sales, and the personal income and spending report on Friday. We also get China PMIs, Japanese CPI and industrial production, the RBNZ meeting and Brexit negotiations (4th). Additionally, there will be monetary policy meetings in Mexico, Colombia, Czech Republic, Thailand and Egypt.

Watch for Eurozone inflation and US data: In the Eurozone, Thursday’s Spanish and German inflation releases are followed by Eurozone CPI the next day. BofA economists expect the latter to come in at 1.6% y/y in September up from 1.5% in August, as strength in oil is balanced by weaker food prices. They maintain a bearish view on core CPI, with expectations unchanged at 1.2% y/y, and do not see a sustained wages upswing, instead special factors explaining recent data.

In the US the main data releases include PCE, home sales, durable goods, personal income and the final print for 2Q GDP. Core PCE is expected to increase 0.2% m/m in August while consensus expects new home sales at 588k. The impact of Hurricane Harvey and Irma prevented a recovery from July’s decrease. Durable goods orders are expected at 1.0% m/m in August, supported by aircraft and motor vehicles. Expected a final 2Q GDP print of 3.1% q/q saar. Finally, August personal income is expected to come in at 0.2%. Additionally, we get the latest Chicago PMI and U.Mich. sentiment prints.

Central bank speakers in the spotlight

Two to look out for are Draghi on Monday, presenting the ECB perspective on economic and monetary developments, and Yellen on Tuesday, speaking about inflation, uncertainty and monetary policy. There is no change expected during the RBNZ meeting.

A full summary of the key events in the coming week is shown in the following BofA chart below.

DB’s Jim Reid breaks down the week’s key event on a daily basis:

  • Today starts with Germany’s IFO indicators on business climate, expectations and current assessment. Over in the US, there is the Chicago Fed National and Dallas Fed manufacturing activity index.
  • Onto Tuesday, Japan’s services producer price index will be out early in the morning. Then in France, there is manufacturing and business confidence indicators. In the UK, finance loans for housing are due. Over in the US, there is the CB consumer confidence index, Richmond Fed manufacturing index, CoreLogic house price data for key cities as well as new home sales data.
  • Turning to Wednesday, Italy’s July industrial orders along with confidence indicators on manufacturing, consumer and economic sentiment will be due. France’s consumer confidence and the Eurozone’s M3 money supply data are also due. Over in the US, there is durable and capital goods orders for August, pending home sales and MBA mortgage applications.
  • For Thursday, Germany’s September CPI (with state based CPI data) and GfK consumer confidence readings will be due. For the Eurozone, there is a range of confidence indicators including: consumers, business climate, economy and industrial. Over in the US, there is the third reading of 2Q GDP, Core PCE and personal consumption. Elsewhere, the Kansas City Fed manufacturing activity index, August wholesale inventories and stats on continuing claims and initial jobless claims are also due.
  • Finally on Friday, there will be numerous data out of Japan early in the morning, including: August national CPI, IP, jobless rate, retail sales and vehicle production. Further, China’s Caixin China PMI manufacturing index and UK’s GfK consumer confidence will also be out early. Then we have CPI for the Eurozone along with CPI & PPI for France and Italy. In Germany, there is unemployment change for  September. In the UK, there is the final reading of 2Q GDP along with mortgage approvals and money supply M4 stats. Over in the US, there is PCE core for August, personal income and spending, the Chicago PMI along with the University of Michigan consumer sentiment index.

Onto other events, this week we have quite a few central bank speakers.

  • Today, on the political front, Germany’s Merkel will comment on the election results, while Japan’s Abe is expected to announce a snap general election. Elsewhere, the UK Labour party conference will begin, while the next round of Brexit talks between EU and the UK will also begin. Moving onto central bankers. In the US, there are three Fed speakers, including Dudley, Evans and Kashkari. In Europe, ECB’s Draghi, Mersch and VP Constancio will also speak, while the ECB’s Coeure will chair a panel in Frankfurt.
  • On Tuesday, there is the BOJ Minutes for its July meeting. In the US, the Fed’s Mester and Bostic will speak. Further, Mrs Yellen will speak on inflation, uncertainty and monetary policy. Back in the Europe, UK’s PM May and EU president Tusk will meet to discuss Brexit, while France’s Macron will outline his plans to reform the EU.
  • Turning to Wednesday, we have three more Fed speakers, including: Bullard, Brainard and Rosengren.
  • Then onto Thursday, we have two more Fed speakers, including George and Fischer. In the UK, the BOE will hosts the “20 years on” independence conference from the government, with BOE’s Carney, Praet and Lautenschlaeger due to speak.
  • Finally, on Friday, there is BOJ’s summary of opinions for its September meeting. In the UK, IMF’s Lagarde, BOE’s Broadbent and Draghi will speak at the BOE conference. Over in the US, the Fed’s Harker will speak and round out the Fed speakers for the week.

Finally, here is Goldman’s focus only on the US, in which it notes that the key economic releases this week are the durable goods report on Wednesday and the personal income and spending report on Friday. There are several speaking engagements by Fed officials this week, including a speech by Chair Yellen on Tuesday.

Monday, September 25

  • 08:30 AM New York Fed President Dudley (FOMC voter) speaks: New York Federal Reserve President William Dudley will give a speech on workforce development at Onondaga Community College in Syracuse, NY. Audience Q&A is expected.
  • 10:30 AM Dallas Fed manufacturing survey, September (GS, consensus 11.5, last 17.0)
  • 12:40 PM Chicago Fed President Evans (FOMC voter) speaks: Chicago Federal Reserve President Charles Evans will deliver a speech on the US economy and monetary policy at the Economic Club of Grand Rapids Luncheon Meeting in Michigan. Audience and media Q&A is expected.
  • 06:30 PM Minneapolis Fed President Kashkari (FOMC voter) speaks: Minneapolis Federal Reserve President Neel Kashkari will participate in a town hall event in Grand Forks, North Dakota. Audience Q&A is expected.

Tuesday, September 26

  • 09:00 AM S&P/Case-Shiller 20-city home price index, July (GS +0.4%, consensus +0.2%, last +0.1%); We expect the S&P/Case-Shiller 20-city home price index to increase 0.4% in July, following a 0.1% increase in the prior month. The measure still appears to be influenced by seasonal adjustment challenges, and we place more weight on the year-over-year increase, which was 5.7% in June.
  • 09:30 AM Cleveland Fed President Mester (FOMC non-voter) speaks: Cleveland Federal Reserve President Loretta will moderate a panel discussion on the global outlook at the NABE’s Conference on “Prospects for Growth: Reassessing the Fundamentals” in Cleveland, Ohio.
  • 09:30 AM Chicago Fed President Evans (FOMC voter) speaks: Chicago Federal Reserve President Charles Evans will give opening remarks at the 17th Annual Chicago Payments Symposium.
  • 10:00 AM New home sales, August (GS +2.0%, consensus +3.3%, last -9.4%): We estimate new home sales rebounded just 2.0% in August, following a 9.4% drop in the prior month. While the level of new home sales looks depressed relative to single-family building permits, we note that Hurricane Harvey may have disrupted sales activity in the South region.
  • 10:00 AM Conference Board consumer confidence, September (GS 119.5, consensus 120.0, last 122.9): We estimate that the Conference Board consumer confidence index pulled back 3.4pt in September following a 5.6pt increase over the previous two months. Our forecast reflects sequential deterioration in higher frequency consumer surveys as well as scope for hurricane related weakness.
  • 10:00 AM Richmond Fed manufacturing survey, September (consensus 13, last 14)
  • 10:30 AM Fed Governor Brainard (FOMC voter) speaks: Federal Reserve Governor Lael Brainard will give a speech on labor market disparities at a conference hosted by the Board of Governors, which will feature research on labor market outcomes in Washington D.C. No Q&A is expected.
  • 12:45 PM Fed Chair Yellen (FOMC voter) speaks: Federal Reserve Chair Janet Yellen will be giving a speech titled “Inflation, Uncertainty, and Monetary Policy” at the National Association for Business Economics’ annual meeting. Audience Q&A is expected. At the press conference following the FOMC meeting last week, Yellen downplayed the significance of the weak core inflation data.
  • 12:30 PM Atlanta Fed President Bostic (FOMC voter) speaks: Atlanta Federal Reserve President Raphael Bostic will give a speech on the economic outlook and monetary policy to the Atlanta Press Club. Audience Q&A is expected.

Wednesday, September 27

  • 08:30 AM Durable goods orders, August preliminary (GS +0.7%, consensus +1.0%, last -6.8%); Durable goods orders ex-transportation, August preliminary (GS +0.5%, consensus +0.2%, last +0.6%); Core capital goods orders, August preliminary (GS +0.4%, consensus +0.2%, last +1.0%); Core capital goods shipments, August preliminary (GS +0.1%, consensus +0.5%, last +1.2%): We expect durable goods orders to rise 0.7% in the August report, reflecting a modest increase in commercial aircraft orders and continued firming in core measures. Orders commentary from industrial companies remains encouraging, and we estimate durable goods orders ex-transportation increased 0.5%. We also estimate firmer core capital goods orders (+0.4%). However, manufacturing production growth disappointed in August, suggesting scope for hurricane-related disruption to shipments.
  • 09:15 AM Minneapolis Fed President Kashkari (FOMC voter) speaks: Minneapolis Fed President Kashkari will give welcoming remarks at the “Tribal Community Perspectives on Higher Education” event in Minneapolis.
  • 10:00 AM Pending home sales, August (GS flat, consensus -0.5%, last -0.8%): Regional data we collect on contract signings were mixed in August, and we estimate pending home sales were unchanged in August, following a 0.7% decline in July. We have found pending home sales to be a useful leading indicator of existing home sales with a one- to two-month lag.
  • 02:00 PM Fed Governor Brainard (FOMC voter) speaks: Federal Reserve Governor Lael Brainard will give a speech on labor market disparities, similar to her earlier remarks on Tuesday, at an event hosted by the Kansas City Fed on “Banking and the Economy: A Forum for Minority Bankers”.
  • 07:00 PM Boston Fed President Rosengren (FOMC non-voter) speaks: Boston Federal Reserve President Eric Rosengren will give a speech at the Money Marketeers event in New York City.

Thursday, September 28

  • 08:30 AM GDP (third), Q2 (GS +3.0%, consensus +3.1%, last +3.0%); Personal consumption, Q2 (GS +3.3%, consensus +3.2%, last +3.3%): We do not expect a revision in the second vintage of Q2 GDP report (previously reported at +3.0% qoq saar). While we also forecast an unchanged reading for personal consumption (+3.3% qoq ar), we view the risks as skewed to the downside on account of the negative revisions to June retail sales.
  • 08:30 AM U.S. Census Bureau Advance Economic Indicators Report; Advance goods trade balance, August preliminary (GS -$65.5bn, consensus -$65.1bn, last -$63.9bn): We estimate the goods trade deficit widened $1.6bn to $65.5bn in August. Regional port statistics suggest a slowdown in container volumes, and we expect the hurricane to weigh more heavily on export activity.
  • 08:30 AM Initial jobless claims, week ended September 23 (GS 255k, consensus 265k, last 259k); Continuing jobless claims, week ended September 16 (consensus 1,995k, last 1,980k): We estimate initial jobless claims fell 4k to 255k in the week ended September 23, reflecting a further rise in Florida filings related to Hurricane Irma that is more than offset by a further decline in Texas. Continuing claims – the number of persons receiving benefits through standard programs – rose sharply in the previous week, and could edge higher again reflecting storm effects.
  • 09:45 AM Kansas City Fed President George (FOMC non-voter) speaks: Kansas City Federal Reserve President Esther George will give a speech on the US economy and monetary policy at a forum titled “Banking and the Economy: A Forum for Minority Bankers”.
  • 10:00 AM Fed Vice Chair Fischer (FOMC voter) speaks: Federal Reserve Vice Chair Stanley Fischer will give a speech on “Developments in Central Banking” at a conference hosted by the Bank of England in London. Audience Q&A is expected.
  • 11:00 AM Kansas City Fed manufacturing survey, September (last 16)

Friday, September 29

  • 06:00 AM Philadelphia Fed President Harker (FOMC voter) speaks: Philadelphia Federal Reserve will give a speech at a conference jointly hosted by Philly Fed and the Journal of Economics and Business on “Fintech: The Impact on Consumers, Banking, and Regulatory Policy”. Audience and media Q&A is expected.
  • 8:30 AM Personal income, August (GS +0.3%, consensus +0.2%, last +0.4%); Personal spending, August (GS +0.2%, consensus +0.1%, last +0.3%); PCE price index, August (GS +0.26%, consensus +0.3%, last +0.1%); Core PCE price index, August (GS +0.16%, consensus +0.2%, last +0.1%); PCE price index (yoy), August (GS +1.47%, consensus +1.5%, last +1.4%); Core PCE price index (yoy), August (GS +1.34%, consensus +1.4%, last +1.4%): We estimate a 0.3% increase in August personal spending (nominal, mom sa), reflecting weakness in retail spending and utilities consumption likely related to Hurricane Harvey, partially offset by higher gas prices. Based on details in the PPI and CPI reports, we estimate that the core PCE price index increased 0.16% month-over-month in August, or +1.34% from a year earlier. Additionally, we expect that the headline PCE price index gained 0.26% in August, or +1.47% from a year earlier. We estimate a 0.3% increase in personal income.
  • 09:45 AM Chicago PMI, September (GS 59.5, consensus 58.7, last 58.9): Incoming regional manufacturing surveys have been better than expected in September, and we expect the Chicago PMI to rebound 0.6pt to 59.5 in the September report after a flat reading in July.
  • 10:00 AM University of Michigan consumer sentiment, September final (GS 95.1, consensus 95.3, last 95.3): We expect the University of Michigan consumer sentiment index to edge down 0.2pt to 95.1 in the final September estimate, reflecting sequential softness in higher frequency consumer surveys. The preliminary report’s measure of 5- to 10-year ahead inflation expectations rose one-tenth to 2.6% in the preliminary reading, the top of its 12-month range.

Source: BofA, DB, Goldman


Global Stocks Mixed After “Nightmare Victory” For Merkel; Chinese Property Developers Crash

European stocks rose as the euro tumbled following Germany’s election result which was dubbed a “Nightmare Victory” for Merkel and could lead to potentially complicated coalition talks and perhaps even another early election. U.S. equity-index futures point to a lower open, while Asian equities slide after a plunge in Chinese property developer names over worries of new real estate curbs as well as tech stocks following more iPhone delivery concerns. S&P500 futures are steady, down slightly by just over -0.1%, after closing little changed on Friday.

For those who missed it, in the main political event over the weekend, the German election results showed Chancellor Merkel set for a 4th term after her CDU/CSU won the most votes, but performed weaker than expected and will need to undertake coalition discussions. In terms of the number of seats, CDU/CSU won 246 seats, SPD won 153 seats, AfD won 94 seats, FDP won 80 seats, Die Linke won 69 seats and Grune won 67 seats. Given the abysmal performance of the SPD (worst performance since WW2), the party have efused to enter into a Grand Coalition and instead will form the opposition (to avoid AfD becoming the opposition). As such, Merkel will now have to try and form a ‘Jamaica’ Coalition with the FDP and Green parties. However, the FDP initially distanced themselves from forming such an alliance. Furthermore, according the CSU are reportedly considering their historical alliance with the CDU following yesterday’s result. Further reports suggest that the CSU are set to vote on their alliance with Merkel’s CDU, However, according to a report on Germany’s n-tv, CSU leader Seehofer said his party would remain a partner with Merkel’s CDU, although Seehofer said he wants CSU leadership to vote on joint caucus.

“The question is obviously now what it means for policy going forward” in Germany, Mitul Kotecha, head of Asia FX and rates strategy at Barclays Bank Plc, said on Bloomberg Television in reference to the election. “Investors are going to be closely following announcements on policy, especially given that fact that the AfD is not just nationalist, but also anti-euro to some extent.” As Bloomberg adds, the process of building a new government could take weeks, so markets may well move on from the result quickly.

The Euro pushes lower through European trading as investors digested these political developments. German election fallout with smaller mandate for Merkel is coupled with latest Italian polls showing support for populist Five Star Movement. The resulting slide in the common currency, which saw the EURUSD slide below 1.189 this morning, sent European stocks modestly higher although the reaction was decided mixed among another session of near record low volumes as trader paralysis continues in a centrally-planned market.  The Stoxx Europe 600 Index fell less than 0.1%, as losses in banks and miners offset gains in travel-and-leisure and media shares. Tullow Oil jumped 6.8% after saying Ghana’s new maritime boundary as determined by a tribunal doesn’t affect the TEN fields, and it expects to resume drilling around the end of the year.

Also over the weekend, New Zealand held its general election on Saturday which resulted to a hung parliament, as no party gained the 61 seats needed for a majority. In terms of the projected results, the incumbent National Party won 58 seats, main opposition Labour Party won 45 seats, New Zealand First won 9 seats, Green Party won 7 seats, ACT won 1 seat and the Maori Party won 0 seats. The result has been broad-based weakness for the Kiwi with the AUDNZD rising over 100 pips from its Friday close of 1.0860.

Separately, North Korea’s Foreign Minister stated that President Trump’s labelling of Kim Jong Un as ‘Rocketman’ has made North Korean rockets’ visit to entire US mainland inevitable, while there were also separate reports that US Air Force B-1B Lancer Bombers flew over the waters east of North Korea on Saturday.  Elsewhere, on Monday Japan PM Abe confirmed recent rumors, and announced he would dissolve the lower house of parliament on September 28th, to call a snap election and further cement his power following the recent spike in popularity.

The yen pared a drop as Japan’s prime minister unveiled a fresh stimulus package and said he’ll dissolve the lower house of parliament ahead of a general election. Stocks in Europe edged higher helped by the weaker euro, but shares in developing nations headed for a third day retreating.

Asian equities fell, with the region’s benchmark set for a third day of declines from its highest level in almost a decade, as investors weighed the outlook for returns and political uncertainty prompted some to cash in some of the gains from this year’s rally. The MSCI Asia Pacific Index retreated 0.5% to 162.25 in Hong Kong as about three stocks declined for every two that gained. Japanese stocks advanced, with the Topix closing at a fresh two-year high, as the yen weakened against the dollar on speculation of fiscal stimulus by Abe. “Some investors have decided to take some of their gains from the table after the recent rally drove valuations up in many Asian markets,” said John Teja, a director at PT Ciptadana Sekuritas Asia in Jakarta. “The biggest risk for the region and global equities market in general remains the political risk on the Korean peninsula.” The Asian equities benchmark has surged about 20 percent so far this year, putting it on course for its best annual performance since 2009, underpinned by low interest rates and an improving outlook for earnings growth.

Of note, the Hang Seng Mainland Properties Index plunged more than 5% overnight, its biggest single day drop, after China introduced new curbs on real estate over the weekend. The move send the Hang Seng lower by 1.4%, its biggest drop in 6 weeks.

Also notable, China’s offshore Yuan tumbled to 6.6205 as China’s recent push to weaken the currency, including the weakest fixing since August 31, sent the CNH to the lowest level since August 28.

In rates, the yield on 10-year Treasuries fell one basis point to 2.24 percent, the lowest in a week. Germany’s 10-year yield declined four basis points to 0.41 percent. Britain’s 10-year yield fell one basis point to 1.341 percent, the largest drop in more than two weeks.

In commodities, gold fell 0.2 percent to $1,295.40 an ounce. West Texas Intermediate crude declined 0.1 percent to $50.63 a barrel, while Brent pushed to the highest level since February.

The week is full of Fed speakers, with Yellen set to discuss monetary policy on Tuesday, while the calendar sets off with Dudley, Evans and Kashkari taking the podium today. Investors will look for cues on monetary policy as Fed and ECB officials speak this week: “In the U.S., the mystery of the missing inflation will likely feature in a slate of Fed-speak, with core inflation stuck at 1.4%,” Societe Generale strategists including Stephen Gallagher wrote in note.

President Donald Trump and Republican leaders plan to release a tax framework this week that would dramatically cut taxes for corporations and the wealthy and includes a proposal to cut the corporate tax rate to 20 percent from 35 percent.  Scheduled earnings on Monday include Red Hat, Synnex.

Market Snapshot

  • S&P 500 futures down 0.1% to 2,495.75
  • VIX up 5% to 10.07
  • STOXX Europe 600 up 0.1% to 383.59
  • MSCI Asia down 0.5% to 162.23
  • MSCI Asia ex Japan down 0.9% to 533.88
  • Nikkei up 0.5% to 20,397.58
  • Topix up 0.5% to 1,672.82
  • Hang Seng Index down 1.4% to 27,500.34
  • Shanghai Composite down 0.3% to 3,341.55
  • Sensex down 1.3% to 31,494.47
  • Australia S&P/ASX 200 up 0.03% to 5,683.73
  • Kospi down 0.4% to 2,380.40
  • German 10Y yield fell 1.6 bps to 0.431%
  • Euro down 0.4% to $1.1907
  • Italian 10Y yield fell 0.2 bps to 1.814%
  • Spanish 10Y yield unchanged at 1.627%
  • WTI Futures down 0.2% to $50.6/bbl;
  • Brent crude up 0.6% to $57.18
  • Gold spot down 0.4% to $1,292.12
  • U.S. Dollar Index up 0.2% to 92.38

Top Overnight News

  • Merkel’s Christian Democratic Union-led bloc is meeting in Berlin on Monday in the wake of the defeat of its Social Democratic Party challenger even while falling to the worst result since 1949
  • Ifo Sept. german business confidence index unexpectedly dropped a second month to 115.2, vs est. 116.0
  • New Zealand Prime Minister Bill English has claimed a mandate to form the next government after winning the biggest slice of the vote in Saturday’s election, even as opposition leader Jacinda Ardern refuses to concede defeat
  • Japan’s Prime Minister Shinzo Abe said he will dissolve the lower house of parliament on Sept. 28; general election set for Oct. 22, according to three people with knowledge of his ruling coalition’s plans
  • Japan’s Abe to order relevant officials to come up with 2t yen economic package at economic, fiscal panel meeting today, Yomiuri reports, without attribution
  • Hellman & Friedman to Buy Payments Firm Nets for $5.3 Billion
  • Switch Inc. Is Said to Aim for Year’s Third- Biggest Tech IPO
  • ABB Bolsters U.S. Business With $2.6 Billion GE Unit Deal
  • Unilever Buys Korean Makeup Firm for $2.7 Billion from Goldman
  • Coty Is Said to Mull Selling Some Fragrance Brands: WWD
  • Brazil Regulator Is Said to Back AT&T/Time Warner, Globo Says
  • Blackstone Is Said to Buy UIOF for Rs800 Crore: Economic Times
  • Amazon Unit Plans to Open Data Centers in Middle East by 2019
  • IPhone Disappointment Hammers Suppliers, Fuels Taiwan Outflows
  • European, U.S. Apple Suppliers May Move After DigiTimes Report
  • Top BP Executive Warns OPEC Needs to Prolong Oil Output Curbs
  • Iron Ore Succumbs to Bear Market and May Extend Slump Into $50s
  • Equifax’s Massive Hack Has a Tiny Silver Lining
  • Trump Tax Plan Said to Cut Taxes for Wealthy and Whack NY and NJ
  • GOP Revises Obamacare Repeal With Bill Headed to Likely Defeat
  • Lockheed Says Talks Ongoing With Japan on Supply of THAAD System

Asia equity markets began the week subdued as FX took much of the focus amid post-election hangovers from New Zealand and Germany where the incumbents in both won most votes but failed to get majorities, which moves the process on to coalition negotiations. ASX 200 (+0.1%) and Nikkei 225 (+0.4%) were positive with the latter the outperformer on JPY weakness, while a 4- month high Japanese Nikkei Manufacturing PMI and reports that PM Abe is considering a JPY 2tln economic package added to upbeat tone. Chinese markets were subdued with Shanghai Comp. (-0.4%) and Hang Seng (-1.1%)  negative, as property names suffered from tighter restriction announcements, although the losses in the mainland were stemmed following a firm liquidity operation heading into next week’s National Day holidays. 10yr JGBs were relatively flat as pressure in the safe-haven from a positive risk sentiment in Japan, was counterbalanced by the BoJ’s presence in the market for a respectable amount just shy of JPY1trl in JGBs with 1yr-10yr maturities.

Top Asian News

  • China Developers Plunge as Government Expands Tightening
  • China Is Said to Plan Closer Oversight of State Company Funds
  • Unilever in $2.7 Billion Deal for Korean Cosmetics Maker

A tepid start for European bourses with a sense of anxiety among investors following the result of the German election and a surprise rise in support for the far-right AFD party, subsequently, Chancellor Merkel has been left with a less stable position. Notable underperformers have been financial and commodity related names. However, the initial opening gap in European trade was filled through the session, aided by the performance in oil markets. A slight tick lower in German yields have supported bunds this morning with the yield modestly flatter. A soft start for peripherals as spreads widen against their German counterpart with Spain and Italy wider by 1.6bps and 1bps respectively. Further, Saudi Arabia plan to return to the global conventional bond market, as the Kingdom seeks to address the budget deficit and underpin economic reform efforts. Bunds saw a bid following the results of the German Ifo, with extensions of the move evident of political German uncertainty, as Twitter reports stated that the CSU are considering their historical alliance with the CDU following yesterday’s result.

Top European News

  • BOE Seeks Brexit Deal to Protect Existing Derivative Contracts
  • German Business Confidence Unexpectedly Drops for Second Month
  • Turkish Stocks Decline As Kurdish Referendum Weighs on Sentiment
  • Peripheral Euro Bonds Sell Off in Aftermath of German Election

In FX, the EUR suffered following the weekend results despite Chancellor Merkel being set for a fourth term. Merkel’s CDU/CSU performed weaker than expected and will now need to undertake coalition discussions, likely set to attempt to form a ‘Jamaica’ Coalition with the FDP and Green Parties, with FDP being an initial hurdle. EUR/USD rejected 1.20 on Friday, and struggled as Asian trade began, trading through 1.19, now consolidating just above these levels. EUR/GBP saw similar price action, finding support ahead of September’s lows. A break through the 0.8774 area could see trade once again in the start of 2017’s trading range. NZD was also heavy following their election results, and in line with Germany, despite a victory for the National Party, a majority was also not secured. This places the next government at the hands of New Zealand First Party’s leader and effective ‘kingmaker’ Winston Peters, who is all too familiar with this obligation having supported both the National Party and main opposition Labour in past governments. NZD/USD find some support following initial selling pressure, support at September 18th’s low held, with some buying evident around these levels. AUD/NZD held just through 1.0800, yet continuing to show a downward trend following the stacked offers seen around 1.1150 through September.

In commodities, prices were mostly range-bound which kept WTI subdued, while copper was unchanged amid a subdued risk tone. Elsewhere, gold (-0.3%) was pressured from early trade due to a firmer greenback, after the currency benefitted from political uncertainty weighing on a couple of its major counterparts post-elections.

On today’s calendar we have Germany’s IFO indicators on business climate, expectations and current assessment all of which missed expectations (Current Conditions 123.6 vs Exp. 124.8; Expectations 107.4, Exp. 107.9; Business Climate 115.2, exp. 116). Over in the US, there is the Chicago Fed National and Dallas Fed manufacturing activity index.

US Event Calendar

  • 8:30am: Chicago Fed Nat Activity Index, est. -0.2, prior 0
  • 8:30am: Fed’s Dudley Speaks on Workforce Development
  • 10:30am: Dallas Fed Manf. Activity, est. 11.5, prior 17
  • 12:40pm: Fed’s Evans Speaks on Economy and Monetary Policy
  • 6:30pm: Fed’s Kashkari Speaks at Townhall in Grand Forks, North Dakota

DB’s Jim Reid concludes the overnight wrap

3 months today until Xmas. How time flies. Normally I’d associate Xmas with relaxing, lie-ins and having good family time. However Xmas will now be forever associated in my eyes with the utter chaos of my current life. I’ll let readers do their own arithmetic but 2 year old Maisie was due on September 23rd and the twins were technically due yesterday (they are nearly 4 weeks now!). So to avoid yet more chaos in 12 months’ time this Xmas you’ll be most likely to find me in a Tibetan monastery.

One wonders how whether Mrs Merkel would like her own private retreat to prepare herself for the difficult time ahead after a disappointing yet still overwhelming victory in yesterday’s German election. As we highlighted last week, the election was always going to be purely about the coalition arithmetic and deals. These are likely to be more difficult after the results. To recap Mrs Merkel’s CDU/SCU polled 33% (37% in final polls on Friday) against the SPD’s 20.5% (22% in final polls). Combined these two parties saw their lowest share of the vote since World War II (since 1949 for Merkel’s party). The AfD (Alternatives for Germany) came third with 12.6% of votes (11% expected on Friday) and will now be the first far right party in the Bundestag since the Nazi party. They beat the pro-business FDP (10.7% – Free democrats Party), Greens (8.9%) and the post-Communist Left (9.2%). Given that the SPD now want to be the main opposition rather than join in another grand coalition, the so called Jamaican coalition of the CDU/SCU, FDP and Greens is likely, but there will be some big idealogical differences to negotiate around. The FDP are known to be against further Euro integration which will be one of the key takeaways from the election. The FDP leader Christian Lindner has indicated a willingness to join in coalition talks, but said that “We want to organise a change of direction for our country” and also tweeted that “€60bn Eurozone budget flowing into France or Italy is inconceivable for us…a line in the sand”. Meanwhile, a leading Green politician told broadcaster ZDF that talks will be “very hard, we are far apart  on many issues”.

I spoke to DB’s Mark Wall after the results and we discussed the impact on euro area integration. As Mark said, earlier this summer the “Macron Pivot” suggested a surprising counter thrust against anti-EU populism. Marcon turned to Merkel for support to strengthen the euro area with a new integration push. However her capacity to reciprocate may be a lot more limited now. Some might see Macron’s proposals — due to be fleshed out in a speech tomorrow — as unhelpful in the circumstances, in timing if not in substance. Mark thinks Germany will be less able to relax its traditional demand for strong conditionality on any new common funds and the speed of progress towards an agreement could now be slower and more fraught. If the result takes upward pressure off the euro it may help cement an ECB exit announcement on 26 October in line with baseline expectations (six month extension of QE at EUR40bn), but hopes for a significant policy rebalancing for the euro area, facilitated by easier fiscal  policy/support for economic convergence, are likely to get dialled back. It could also make it more difficult for Merkel to gather the support necessary for a Weidmann Presidency of the ECB, if that was the plan. So lots to chew over.

Elsewhere, France’s Macron suffered a small set back with his party losing 6 seats as the Senate renewed 170 out of its 348 seats. Notably, the practical impact is likely limited near term as the National assembly (where Macron has a clear majority) has the final say in legislations over the Senate. However it perhaps reflects that his honeymoon as leader has been pretty short.

This morning, the EURUSD is trading a touch weaker (-0.18%) as we type. Asian markets are mixed but little changed as we type, with the Kospi (-0.44%), Hang Seng (-0.83%) and Chinese bourses (-0.3%) all down modestly, while the Nikkei (+0.58%) and ASX 200 (+0.19%) are both up slightly. Japanese stocks have been helped by reports that Japan’s Abe will announce a fresh stimulus package alongside the expected snap election decision later this morning.

After the dust has settled in Germany, the most important event of this week is likely to be the latest on the tax reform agenda in the US. This weekend in between going to 2nd birthday parties, changing tens of nappies, trying to watch Liverpool play while bathing a toddler, hours of sterilising bottle feeding and milk expressing equipment, and being forced into action every couple of hours at night, I managed to read the very useful “A primer on tax reform and the upcoming budget debate” by DB’s Brett Ryan. In reading this you get a feel for how complicated things are and how possible it’ll be that nothing gets done. Regular legislation would take 60 votes in the Senate and bipartisan support and allow for proper tax reform. However this is seemingly impossible. The reality is that any changes will likely be made through the reconciliation process. However this first requires a budget being passed by Congress which hasn’t been achieved since the Democratic super-majority in 2009-10.

The only good news is that we think that any positive tax reform has been priced out of markets so there’s a limit to how much disappointment there can be to continued failure. This week we would expect a vague outline of what will be pursued from the so-called “Big 6” (including Treasury Sec Mnuchin, Gary Cohn, Ryan, Senate majority leader McConnell). Overnight, the Washington post reported Republicans were “targeting” a corporate tax rate of 20%, but plans remains fluid. Elsewhere, Trump said “we’ll see what happens, but I hope it’s going to be 15%”, while Treasury Secretary Mnuchin said the upcoming tax plan will be “getting rid of lots of deductions”.

So with German politics in a state of flux and US politics increasingly fraught, suddenly the UK looks a bit of a stable safe haven after Mrs May’s speech on Friday. Although it hasn’t unlocked doors, it’s been seen as a step in the right direction away from the likelihood of a hard Brexit. In the speech, PM May clarified: 1) UK would seek a transitional deal that would allow continue market access on current terms for c2 years post Brexit (under the framework of ‘the existing structure of EU rules and regulations), which in effect leaves UK as a rules taker in the EU until March 2021, 2) UK is committed to the current EU budgetary round to 2020 and meeting past financial commitments, but avoided explicit numbers on the divorce bill, but 3) in terms of a future trade agreement, there was little new in terms of content, although she ruled out both EEA and Canada style options. Overall, DB’s Oliver Harvey believes the tone of her speech was constructive and the initial reaction from EU negotiator Barnier has been cautiously positive. For more details. Later on, the Times reported Mrs May is willing to pay up to GBP40bln in return for a transition deal. Focus now turns to the EU-UK Brexit talks which resume today.

Quickly recapping the market’s performance on Friday. US (S&P +0.06%) and European equities (Stoxx 600 +0.09%) were little changed following North Korea’s threat of testing a hydrogen bomb over the Pacific Ocean. Gold rose 0.47% and core bond markets were slightly firmer (UST 10y yields -2.7bp; Bunds -0.7bp; Gilts -0.9bp), partly reflecting the bias for safe haven assets. The US dollar index dipped 0.10% while Sterling fell 0.56% not helped by Moody’s late downgrade. In commodities, WTI oil rose 0.22%, while Iron Ore continues to fall (-3.83%; -12% for the week) on growing concerns of reduced  demand from Chinese steel producers.

Away from the markets and onto central bankers’ commentaries. In the US, the Fed’s John Williams said “I do expect us to need to raise rates gradually….it’s not like we need to raise rates a lot over the  next couple of years”. He also noted a “new normal” for rates may be 2.5%. Elsewhere, the Fed’s Esther George reiterated “I support an approach that removes (financial) accommodation in small doses” and the Fed’s Robert Kaplan noted “there are number of reasons the US isn’t reaching its inflation target and a number of those are not transitory”. Over in Europe, ECB’s VP Vitor Constancio noted “the recent euro appreciation may have a more limited dampening effect on inflation than what would be implied by historical averages”.

Before we take a look at today’s calendar, we wrap up with other data releases from Friday. The MarkitSeptember flash PMIs for Germany and Eurozone was above market’s expectations. In Germany, the composite PMI rose 2ppts to 57.8 (vs. 55.7 expected), marking a 77 month high. The solid growth was driven by both the manufacturing sector (60.6 vs. 59 expected) and the services sector (55.6 vs. 53.7 expected). The Eurozone’s composite PMI also surprised on the upside, with the index up 1ppt to 56.7 (vs. 55.6 expected), just below this year’s cyclical highs. DB’s Peter Sidorov noted the rise was seen in both sectors, with manufacturing reaching new cyclical highs (led by Germany). In services, there were big rebounds in both Germany and France.

Over in the US, the composite PMI fell 0.7pts to 55.6 (vs. 55.3 previous), with a 0.2pt rise in the manufacturing PMI to 53.0 more than offset by a 0.9pt decline in the services PMI to 55.1 (vs. 55.7 expected). Elsewhere, the final readings for France’s 2Q GDP was broadly unchanged at 0.5% qoq and 1.8% yoy (vs. 1.7% expected).

To the week ahead now. Today starts with Germany’s IFO indicators on business climate, expectations and current assessment. Over in the US, there is the Chicago Fed National and Dallas Fed manufacturing activity index. Onto Tuesday, Japan’s services producer price index will be out early in the morning. Then in France, there is manufacturing and business confidence indicators. In the UK,finance loans for housing are due. Over in the US, there is the CB consumer  confidence index, Richmond Fed manufacturing index, CoreLogic house price data for key cities as well as new home sales data. Turning to Wednesday, Italy’s July industrial orders along with confidence indicators on manufacturing, consumer and economic sentiment will be due. France’s consumer confidence and the Eurozone’s M3 money supply data are also due. Over in the US, there is durable and capital goods orders for August, pending home sales and MBA mortgage applications. For Thursday, Germany’s September CPI (with state based CPI data) and GfK consumer confidence readings will be due. For the Eurozone, there is a range of confidence indicators including: consumers, business climate, economy and industrial. Over in the US, there is the third reading of 2Q GDP, Core PCE and personal consumption. Elsewhere, the Kansas City Fed manufacturing activity index, August wholesale inventories and stats on continuing claims and initial jobless claims are also due. Finally on Friday, there will be numerous data out of Japan early in the morning, including: August national CPI, IP, jobless rate, retail sales and vehicle production. Further, China’s Caixin China PMI manufacturing index and UK’s GfK consumer confidence will also be out early. Then we have CPI for the Eurozone along with CPI & PPI for France and Italy. In Germany, there is unemployment change for September. In the UK, there is the final reading of 2Q GDP along with mortgage approvals and money supply M4 stats. Over in the US, there is PCE core for August, personal income and spending, the Chicago PMI along with the University of Michigan consumer sentiment index.


The EU Needs A Three-Child Policy – And China Should Pay For It!

Authored by Andrew Korybko via Oriental Review,

The EU’s policy of “replacement migration” is an economic failure and threatens to undermine China’s New Silk Road strategy for Europe by diminishing the continent’s much-needed consumer market potential, which should thereby serve as an impetus for Beijing to consider investing in social programs there as a means of encouraging replacement fertility for the EU’s citizens.

The Roots Of “Replacement Migration”

The EU’s liberal-progressive ruling elite aided and abetted the Migrant Crisis as a means of encouraging “replacement migration” to compensate for their falling populations, naively believing in the dogma of their bloc’s de-facto “Cultural Marxist” ideology that civilizationally dissimilar migrants will seamlessly adapt to their new host societies and quickly become productive citizens. They expected that the relatively impoverished and in many cases largely uneducated “New Europeans” from Africa, the Mideast, and South Asia who have uncontrollably flooded into Europe would have no problem climbing the ladder of socio-economic success in one day replacing their dying European counterparts in all professional spheres.

It should also be reminded in this vein that these “New Europeans” didn’t just appear out of nowhere, but are the product of the unipolar wars that created them in the first place and the NGO-assisted human trafficking networks that then imported these “Weapons of Mass Migration” to Europe, both activities of which the EU elite have been complicit in. As could have been anticipated by any objective observer not under the influence of “Cultural Marxism”, this irresponsible multi-layered policy has totally failed in its presumed economic intentions, though it’s cynically succeeded in planting the seeds for a massive socio-cultural reengineering of some leading European countries’ demographics.

China’s Strategic Stake In The EU

While one might be led to immediately think that the consequences of this epic disaster would be limited solely to the bloc’s borders, few people realize that it will also affect China’s grand strategy by eventually depriving Beijing of the robust consumer-driven marketplace that it needs from the EU in order to make its large-scale infrastructure investments there worthwhile. China’s One Belt One Road global vision of New Silk Road connectivity is driven by Beijing’s desire to develop and secure new consumer markets to which it could offload its overproduction, as the failure to do so would with time lead to socio-economic consequences in the People’s Republic as state-sponsored firms are forced to lay off countless workers if they dramatically downscale production or can’t make ends meet anymore.

The New Eurasia Land Bridge Economic Corridor

The New Eurasia Land Bridge Economic Corridor

The Eurasian Land Bridge, the Silk Road connectivity project through Kazakhstan and Russia, as well as the Balkan Silk Road through Greece all the way up to Central Europe, are intended to connect China’s East Asian producers with Western European consumers, but if Europe is no longer the consumption powerhouse that it once was after a decade of “replacement migration”, then the whole strategy is nullified with potentially disastrous consequences for Beijing. Although it’s “politically incorrect” to admit as much in the West, the “New Europeans” from the Global South consume more in government subsidies than they do in actual products, and when – or in many cases, if – they enter the labor force, it’s usually in low-end and low-paying sectors which aren’t in any way capable of replacing the ever-aging consumers that are steadily dying out.

In addition, many of the “New Europeans” self-segregate themselves by refusing to assimilate and integrate into their host countries, which in and of itself increases domestic tensions even without considering the crime wave that some of them have helped contribute to. When the newly imported “replacement population” does acquire a little bit of extra money to spend on the economy, they’re more prone to patronize local neighborhood stores run by their fellow ethnic or religious compatriots (usually migrants themselves) inside of their anchor communities. Altogether, these socio-economic habits undermine the whole Silk Road spirit of inclusivity and are extremely problematic for China because of the country’s future dependency on EU consumption trends remaining as traditionally strong as they used to be.

Migrants in Europe

Looming Problems

Left unchecked, “replacement migration” in the EU will inevitably lead to a decrease in the bloc’s economic prowess, which in turn will jeopardize China’s grand strategy of using its New Silk Roads – and especially the EU-Chinese vectors of the Eurasian Land Bridge and Balkan Silk Road – as a vehicle for realigning global trade patterns and therefore building the sustainable framework for the emerging Multipolar World Order. In what could be seen as both a blessing and a curse, however, the rise of populist sentiment in the EU could divert the bloc’s present globalist trajectory towards a more “nationalist” course in both of its interlinked socio-cultural and economic manifestations. On the one hand, the masses might succeed in pressuring the elite to downscale or outright suspend their “replacement migration” policies, but on the other, they might also naturally advocate for semi-protectionist trade measures such as the “investment screening framework” that European Commission President Jean-Claude Junker recently proposed.

This initiative aims to give EU governments the power to selectively prevent the sale of strategic economic assets to foreign state-controlled or state-funded companies and is generally thought to be directed against China. Although grounded in plausible national security concerns and already implemented to varying extents in some EU and non-EU countries, the timing and nature of Junker’s proposal suggests that he’s more interested in capturing European markets for the bloc’s leading German, French, and Italian companies by crafting legislation which could deny their Chinese competitors equal access to them. Even though it’s being spearheaded by one of the EU’s most reviled bureaucrats and outspoken enemies of populism, this motion is expected to enjoy a surprising level of grassroots support because of its superficial channeling of populist energy, particularly as it relates to the perception of non-European foreigners taking over the continent.

China is therefore presented with a dilemma because it arguably stands to lose in the long-term if the “Cultural Marxist” policy of “replacement migration” is allowed to mature and begin systematically degrading the EU’s consumer market capabilities, but it also gains from the associated globalist policy of allowing unregulated investment from Chinese state-affiliated companies into strategic EU industries. From the reverse perspective in respect to populism, China’s Silk Road strategy would be safeguarded if “replacement migration” was done away with and replaced with populist initiatives encouraging the increased fertility of a nation’s population, though Beijing needs to be wary of the “economic nationalism” manifestation of populism which could see severe restrictions placed on its plans to invest in more of the EU’s strategic industries and maintain access to their national markets.

First Chinese cargo trains arrives in Hamburg

A Populist Solution For The Silk Road

The best approach that China could follow in encouraging higher birthrates in its top Silk Road target market while simultaneously pioneering creative ways for its state-linked companies to ingratiate themselves with their host states is to replicate the West’s new economic model in the “Third World” but apply it to European “First World” conditions. What’s meant by this is that China should “sweeten its deals” with the promise of investing in, or dispersing grant money to, soft infrastructure projects such as schools, healthcare facilities, and job-training programs in order to improve the quality of life of its partner state’s citizens. Western companies rarely implement this strategy like they’re supposed to because they’re more concerned about using it as a public relations ploy for boosting their attractiveness in other markets, and the host governments generally don’t hold them accountable because the ruling party/elite are often bribed through this plausibly deniable money-transferring channel to keep quiet about it.

China, however, doesn’t have to fall into this short-term trap and could order its state-linked companies to adhere to this model like it was originally intended in improving the living conditions of the recipient state and “winning hearts and minds” because of it. In the context of contemporary populism and with an eye on Beijing’s long-term New Silk Road interests in protecting the EU’s future consumer market potential, China could even subsidize (whether openly or discretely) the financial incentives that populist governments hand out to their citizens in encouraging higher fertility. After all, China knows that replacement birthrates produce better consumers than “replacement migration” does, and Beijing’s Silk Road strategy hinges on the EU retaining its impressive consumer market potential. Likewise, populists are against “replacement migration” and in favor of improving their citizens’ fertility, so this theoretically represents a win-win solution for both sides.

EU China trade

Concluding Thoughts

To reiterate the main point being expressed in this proposal, China needs to find a way to confront the dual challenges of the expected drop in the EU’s consumer market potential following the “successful” implementation of its “replacement migration” policy and also devise a creative strategy for preventing its state-affiliated companies from being denied access to the bloc’s strategic industries due to superficially populist initiatives such as Juncker’s “investment screening framework”. This necessitates that China craft a comprehensive policy which highlights its value-added differentiators in appealing to the rising populist zeitgeist in Europe, one which has already seen the Central European countries of Poland and Hungary promote higher birthrates through state subsidies and could probably become the continental standard in the next decade if the failed policy of “replacement migration” is eventually replaced. That said, this could only happen if the EU countries experience a surge in births across the coming decades, but many of them might not be able to afford the social costs that that this entails and would therefore have to look abroad for financial support if want to have any chance at sustainably implementing this proposal.

Therefore, the ideal win-win solution that China and the populists (whether in each individual EU country or the bloc as a whole) could forge with one another would be if Beijing agrees to an arrangement to bankroll an ambitious fertility-increasing policy and its attendant social requirements (schools, healthcare facilities, job-training programs, etc.) in exchange for continued and preferential access to their strategic industries and markets. Considering how far behind the EU’s population replacement rate is, then China and its partners should set the bar high by aiming for a three-child policy that the People’s Republic would help pay for by channeling its “communist spirit” to redistribute some of its state-supported companies’ wealth to the host country’s citizenry so as to ensure Beijing’s long-term interests with respect to the Silk Road. So long as China can succeed in preserving the EU’s consumer market strength and even enhancing its capacity, then Beijing won’t have much to worry about regarding its long-term strategy for Western Eurasia, but if the “Cultural Marxists” win by having “replacement migration” ruin all of this, then China will face a major threat which could jeopardize its future global leadership plans.


Visualizing The Massive Impact Of EVs On Commodities

What would happen if you flipped a switch, and suddenly every new car that came off assembly lines was electric?

It’s obviously a thought experiment, since right now EVs have close to just 1% market share worldwide. We’re still years away from EVs even hitting double-digit demand on a global basis, and the entire supply chain is built around the internal combustion engine, anyways.

At the same time, however, as Visual Capitalist's Jeff Desjardins notes, the scenario is interesting to consider. One recent projection, for example, put EVs at a 16% penetration by 2030 and then 51% by 2040. This could be conservative depending on the changing regulatory environment for manufacturers – after all, big markets like China, France, and the U.K. have recently announced that they plan on banning gas-powered vehicles in the near future.


We discovered this “100% EV world” thought experiment in a UBS report that everyone should read. As a part of their UBS Evidence Lab initiative, they tore down a Chevy Bolt to see exactly what is inside, and then had 39 of the bank’s analysts weigh in on the results.

After breaking down the metals and other materials used in the vehicle, they noticed a considerable amount of variance from what gets used in a standard gas-powered car. It wasn’t just the battery pack that made a difference – it was also the body and the permanent-magnet synchronous motor that had big implications.

Courtesy of: Visual Capitalist

As a part of their analysis, they extrapolated the data for a potential scenario where 100% of the world’s auto demand came from Chevy Bolts, instead of the current auto mix.


If global demand suddenly flipped in this fashion, here’s what would happen:

Some caveats we think are worth noting:

The Bolt is not a Tesla

The Bolt uses an NMC cathode formulation (nickel, manganese, and cobalt in a 1:1:1 ratio), versus Tesla vehicles which use NCA cathodes (nickel, cobalt, and aluminum, in an estimated 16:3:1 ratio). Further, the Bolt uses an permanent-magnet synchronous motor, which is different from Tesla’s AC induction motor – the key difference there being rare earth usage.

Big Markets, small markets:

Lithium, cobalt, and graphite have tiny markets, and they will explode in size with any notable increase in EV demand. The nickel market, which is more than $20 billion per year, will also more than double in this scenario. It’s also worth noting that the Bolt uses low amounts of nickel in comparison to Tesla cathodes, which are 80% nickel.

Meanwhile, the 100% EV scenario barely impacts the steel market, which is monstrous to begin with. The same can be said for silicon, even though the Bolt uses 6-10x more semiconductors than a regular car. The market for PGMs like platinum and palladium, however, gets decimated in this hypothetical scenario – that’s because their use as catalysts in combustion engines are a primary source of demand.


China’s ICO Crackdown Boosts Hong Kong’s Hopes Of Becoming Blockchain Hub

China’s decision to shutter digital-currency exchanges based on the mainland, a strategy meant to extinguish the rampant fraud and abuse associated with initial coin offerings, or ICOs, is brightening Hong Kong's hopes of asserting itself as a hub for blockchain technology.

As Bloomberg reports, while China has at least nominally embraced blockchain technology – even building a prototype digital yuan – Hong Kong’s city government has gone a step further by encouraging blockchain startups to set up shop in the city. One firm run by Johnson Leung, who has found success in finance and shipping, and now runs a blockchain startup, is focusing on applications for container ship operators.

The city’s embrace of blockchain is its latest attempt to nurture a domestic technology industry that could compliment the city’s dominance in banking and shipping. But as Bloomberg notes, betting on blockchain, a technology that has generated a ludicrous amount of hype, much of it undeserved, could be a risky proposition. Despite Hong Kong’s status as a financial hub, the city, one of the most expensive in the world for average working families, has zero “unicorns” – a term for startups valued at over $1 billion.

Skeptics say it’s a risky bet on an unproven technology – one with more than its fair share of hype and, in some cases, fraud. But a growing number of Hong Kong entrepreneurs and policy makers are convinced the online ledger system that underlies cryptocurrencies like bitcoin will eventually reshape everything from financial services to supply chains. They say the city’s laissez faire approach toward regulation, along with its expertise in finance and logistics, make it a natural hub for blockchain startups.


“I don’t see why Hong Kong can’t be a leader of blockchain technology,” said Leung, who co-founded 300cubits.tech after more than a decade in the financial industry that included stints as a research analyst at JPMorgan Chase & Co. and Jefferies Group LLC. “It’s so new that it’s not like any country has a huge advantage compared to us.”

As Bloomberg explains, the city’s government has been throwing resources at the technology, developing its own digital currency and testing different blockchain use-cases.

The city’s monetary authority is developing its own digital currency and is testing blockchains for trade finance, mortgage applications and e-check tracking. Hong Kong’s securities regulator has joined R3, a global consortium that develops blockchain technology for financial transactions, while a government-backed research institute has worked on a blockchain-based system for tracking property valuations, among other initiatives. Hong Kong Exchanges & Clearing Ltd., the city’s publicly-traded exchange monopoly, plans to start a blockchain platform for early-stage companies and their investors next year.


“Blockchain is a very high priority for us,” said Charles d’Haussy, head of fintech at InvestHK, a government economic development agency.

To be sure, the city is, like China, imposing restrictions on some of the shadier aspects of the blockchain ecosystem – namely ICOs, a new financing trend that involves selling a digital token that’s tied to a given platform or product. In theory, these tokens should get more valuable as the underlying product becomes more widely used. Some ICOs have raised millions of dollars, all without a working prototype – only a white paper that sketches out the company’s idea.

That doesn’t mean Hong Kong is giving the industry carte blanche. This month, the city’s Securities and Futures Commission told investors to be on the lookout for fraud in initial coin offerings – a form of cryptocurrency fundraising – and warned ICO issuers that they may be subject to local securities laws.


“We have to be very careful with this because on the one hand, we encourage innovation and free markets, but on the other hand, we do have to look after our small investors,” Paul Chan, Hong Kong’s financial secretary, said in a Sept. 11 interview.


Still, the city is taking a softer approach toward regulation than China, which banned ICOs this month and called for a halt in trading on domestic cryptocurrency exchanges.

In its battle to lure blockchain companies, Hong Kong is competing directly with its longtime rival, Singapore, which has also taken many steps to explore uses for blockchain technology while also encouraging the creation of a thriving startup community. As Bloomberg points out, Hong Kong doesn’t have a great track record when it comes to tech startups. Its Cyberport business incubator has been criticized as a housing development in disguise, while many local workers are reluctant to leave their steady jobs for riskier ventures because of the extremely high cost of living.

Building a sustainable blockchain hub in Hong Kong won’t be easy. Many applications for the technology, including Leung’s proposal to create digital tokens for the shipping industry, are still largely theoretical. (Leung says his tokens could be used in conjunction with so-called smart contracts to reduce the risk of default on shipping agreements.)


At the same time, competition to lure the most promising blockchain firms is fierce. Singapore, Hong Kong’s biggest regional rival, is pouring resources into its local fintech industry, as are other financial hubs including Dubai.

One official with InvestHK, the portion of the city government responsible for luring foreign investment, said that the city is keenly aware of the hype surrounding blockchain but has decided to move ahead anyway.

“There is hype, and there is the fast grab of money with ICOs in some cases,” d’Haussy said. “But what we are looking at building here in Hong Kong is an infrastructure for new businesses and existing businesses, to make sure the technology and innovations remain a key enabler for financial sector growth.”

So far at least, blockchain has been closely associated with fintech, or financial technology, which city officials believe should give Hong Kong an edge in attracting companies, given its large financial sector. Many of the city’s early startups include financially focused firms like BitMEX, a bitcoin derivatives exchange; Bitspark, a remittance platform; and Kenetic Capital, a blockchain investment firm. While Hong Kong doesn’t publish statistics on the growth of the local blockchain industry, InvestHK’s d’Haussy said anywhere from 10 to 20 companies are expected to raise funds via ICOs in the city over the next six months.

However, with the technology still largely unable to scale, the question of whether these companies will be able to survive long enough to achieve profitability before their backers throw in the towel. Not every function – especially not in the world of finance – is suitable for automation and decentralization. What works with blockchain, and what doesn’t, has yet to be thoroughly explored.

Which is, of course, one of the reasons why the industry is so interesting: The risks are large, but the payoffs, in terms of job creation and the attendant tax-revenue and growth bump, is potentially huge.


FX Week Ahead: Market In Need Of Brain-Changer, Not Game-Changer

Submitted by Shant Movsesian and Rajan Dhall MSTA at FXDaily.co.uk

After the FOMC meeting last week, it was (yet) again apparent that the Fed are still keen to maintain a normalisation path designed to not only get rates back to neutral levels, but also build up the policy tool kit again as well as staving off excessive leverage which has boosted stock markets to record highs.  In the latter part of that, many of us believe we have already gone way past the point of excess, and therein lies the delicate situation the Fed is faced with.  As such, it is steady as she goes, and as we can see with the plans on balance sheet reduction, the reinvestment caps are barely scratching the surface.  

On these bases, the market is happy to continue 'taking on' any USD recovery, and alongside this, we also have a persistent bid in the EUR, as the pace of economic expansion shows greater acceleration in Europe – what we call gamma in the options market.  Consequently, the prospects of a meaningful pullback in EUR/USD look slim, but over-exhaustion and the constantly communicated concerns from the ECB limit gains to the degree that sellers above 1.2000 are also a little more confident in 'playing the range' for now.  As we noted a few weeks back, 1.1800 will prove to be a strong support point given president Draghi revealed this level as the reference point in the last staff projections, and will be seen to be tacit 'acceptance' of fair value – for now. 

On Friday, we saw the EU wide PMIs pointing to continued expansion in activity, and looking to the 5 days ahead, we expect the German IFO survey on Monday to do the same.  Midweek we get Italian trade and industrial orders which have also been improving at a rapid pace, while in Germany again, we get Sep inflation data, retail sales and unemployment.  At the end of the week however, we also have EU wide inflation, but this will have to dip significantly to derail EUR sentiment.  

So from the US perspective, Thursday's final Q2 GDP number will be the focal point, preceded by the volatile durable goods orders reported the day before.  This is expected to remain at 3.0%, and traders will naturally pounce on this if we miss on expectations.  Any upside surprise will likely have less of an effect given a series of downgrades due to the impact of Hurricanes Harvey, Irma and Maria.  On Friday we then core PCE for Aug as well as the personal income and spending components, so we expect a cautious start to the week for all USD pairs, with limited upside likely unless we get some good news on fiscal policy.  

The Trump administration reverts focus back to efforts on tax overhaul, which has slipped up and down the priority list as the GOP look for some form of progress here as well as in health-care reform and the multitude of trade agreements and disputes including China and NAFTA. Working from a low base – ie, none – one could argue that from this perspective, the USD 'risk' is to the upside, but after so many falls over hurdles, the market confidence is low.  

This may well be one of the more supportive factors for USD/JPY, with the pick up in Treasury yields having run their course.  10yr has tested and held first 'target' at 2.30%, and odds for a Dec Fed move are back up to 70%, so above 112.00 there is and has been little momentum to drive us to the next target area which we see closer to 114.00. That said, we see limited downside from here in the meantime, though this has room to extend into the mid to lower 110.00's.  

Barring any fresh developments emanating from North Korea, the JPY pairs should be relatively stable through the week, but as ever, this carry trade relies on stock market performance.  AUD, CAD and NZD rates are all off better levels, but will be seen to represent a dip buying opportunity for now.  

Lots of Japanese data to look to, chief of which is the inflation number on Friday.  Core CPI is expected to rise from 0.5% to 0.7% in Aug.  Later on in the session, industrial production and construction orders also stand out, less so retail sales, but all expected to show market improvement in Aug.  

Friday is also the focal point of UK data watchers as we get the latest estimates of Q2 GDP and also business investment.  The BoE believe this is strong enough to weather a rate increase in order to tame inflation first and foremost, but I remain firmly in the camp that a 25bp move – now widely priced into November – would be a case of 'one and done'.  Little else to note earlier in the week other than the CBI's distributive trades survey – recall last week – industrial trend orders on Friday saw the index weaken from 13 to 7.  

On Brexit, the hype over Theresa May's speech in Florence was overdone, but this comes as little surprise for a market hungry for event risk – and Brexit is good source of this.  Even so, judging by comments from the EU's Barnier, it was relatively well received in terms of spirit, but including the line that 'no deal is better than a bad deal', there is clearly a line which the UK government will not cross, no matter how conciliatory they have been in recent weeks and months.  

GBP gains from here should be limited – indeed, some will have been surprised that we have extended this far, with the present day market hanging on every word of central banks.  That said, some of the data has been holding up well under the circumstances, but numbers such as the strong retail sales print last week should be taken in context – in this case seasonality.  Cable has hit a wall of selling interest above 1.3600, and with the CofT positioning somewhat lightened, we cannot count on short covering to drive GBP south at this stage, with EUR/GBP losses having taken us back to key levels in and around 0.8800.  

Little of note of Australia again, with the AUD tone softened a little after comments from gov Lowe that even though the next move in rates is likely up, we should not expect any imminent change. 

Over in NZ, the election result means another hung parliament and coalition to be formed, so it will be an interesting start to NZD trade when Asian markets get underway, with the Nationals and Labour vying for the support of New Zealand First to form government.  As if that is not enough, we also have the RBNZ meeting and announcement Wednesday, but in the current climate, no change and or material change in their statement will be anticipated.  Trade data on Monday to note, but likely to be overshadowed.  

AUD/NZD will be as volatile as NZD/USD, with both pairs reacting to the polls last week which saw the Nationals back in the lead – the vote count so far matching the 46% touted, but uncertainty from here set to weigh again.  AUD/USD levels to watch for lie at .7900 and .8100, and are largely dependent on the USD from here.  

This may also be the case for the CAD, though on Friday, we saw core CPI in Canada sticking to 0.9% while the headline rate rose less than expected from 1.2% to 1.4%.  Growth and improving economic activity have pushed the BoC to reverse the rate cuts from 2015, so from here we would not be pursuing the steep rate profile the market is now pricing in, so we see further room for CAD correction. 

BoC gov Poloz is speaking next week and may well take a more cautious tone in light of the strong CAD appreciation, which the central bank are now monitoring along with the impact of higher rates.  Jul GDP on Friday is the only key data point of note, with a rise of 0.1% expected (seems a little low) vs 0.3% in Jun.  

Retail sales data in both Norway and Sweden to look to as well as Norwegian unemployment and Swedish trade.  From a policy point of view, both central banks are on the cautious side, more so the Riksbank, but the Norges bank will not have been encouraged the slippage in inflation – a global phenomenon (UK excluded) which the market seems to forget at times.  NOK/SEK still well contained.  


An Insider’s View Of The Bitcoinization Of Venezuela

With Venezuela 'almost' defaulting on their government debt this week, Daniel Osorio, of Andean Capital Advisors, has had a front-row seat in the collapse of the socialist utopia, spending at least a week every month in the almost-failed state.

In a brief but fascinating interview on CNBC, Osorio discussed the fact that as Washington unleashes ever tougher sanctions on Maduro, China and Russia are all that's left for the country with the largest proven oil reserves in the world.

Then exposed the realities of living under Maduro's crazed policies:

"Venezuela was one of the richest per-capita nations in the world… but now, hyperinflation is a very difficult thing to understand until you have to buy lunch…"


"The country has not yet dollarized…  but there's not enough dollars in Venezuela for that to have happened…"


"Venezuela is becoming a cashless society… we are starting to see in Venezuela, the first bitcoinization of a sovereign state."

Watch the full interview below…

As we detailed previously, as oil prices continued their descent and Maduro’s mismanagement of the country’s economy intensified, Venezuelans chose a new way to protect themselves financially.

Venezuela Turns to Cryptocurrencies

Between 2014 and 2016, the number of users on just one Venezuelan Bitcoin exchange skyrocketed from just several hundred to over 85,000 users. Cheap, subsidized electricity and a failing currency pushed a number of young entrepreneurs to build their own mining operations. One trader, John Villar, Caracas-based software developer, most eloquently stated "Bitcoin is a way of rebelling against the system." While the currency remained a niche form of payment in the country, many users purchased food and goods online through online marketplaces such as Amazon.com, albeit indirectly through gift cards purchased with the cryptocurrency.

Noel Alvarez, former president of the Venezuelan Federation of Chambers of Commerce, stated that “A maximum of one per cent of the population has access to it, but it is very useful in our situation.”

Bitcoin’s popularity in Venezuela continued to grow. It became the country’s leading parallel currency. Some vendors even begun accepting Bitcoin exclusively. A popular online travel agency, Destinia, cited that, due to the bolivar’s instability and the trouble many Venezuelans experience when attempting to leave the country, “Giving priority to Bitcoin as a payment method could be of help."

While Destina admitted that Venezuela is not a primary focal point for their company, they chose to prioritize Bitcoin payments in the Venezuelan market to facilitate the travel needs of the people in light of the persisting economic downturn.

With infrastructure in place, trading and mining becoming more popular, and the crisis escalating, Maduro’s government began to take notice.

Maduro’s War on Bitcoin

The Venezuelan government began to crack down on the Bitcoin community, with police extorting citizens for “misusing electricity” or undermining the country’s economy. These grievances intensified over time, however, and the attack on miners became more apparent. In the largest raid, two miners were caught with 11,000 mining computers and were charged with cybercrime, electricity theft, exchange fraud, and even funding terrorism.

In Feb. 2017, following the incident, Surbitcoin, Venezuela’s most popular exchange went offline. The company encouraged users to withdraw their money immediately as Banesco, the company’s banking partner, was set to revoke the account associated with the exchange. Rodrigo Souza, the founder and CEO of Surbitcoin, noted that "When it was found that there were 11,000 mining computers consuming the energy to power a whole town at a time when there are severe electricity shortages, it triggered a reaction.” Souza went on to say that the company was not contacted by the government, but Banesco revoked their account as it did not want to be associated with such an operation. Surbitcoin resumed operations two weeks following.

The economic crisis continued to escalate as oil prices remained stagnant and Venezuela’s oil production shuttered

What’s Next?

On July 31st, in a highly controversial election, Venezuela voted for a new constituent assembly giving President Nicolás Maduro even greater control in the country on the brink of civil war. The new pro-Maduro constituency will now have the power to re-write the country’s constitution.

Critics of the election have suggested that the vote was manipulated. National Assembly President Julio Borges tweeted the vote was “the biggest electoral fraud in our history."

Following the election, Maduro set his sights on opposition parties. At midnight on August 1st, two opposition leaders, Leopoldo Lopez and Antonio Ledezma, were pulled from their homes by teams of heavily armed guards.

U.S. President Donald Trump announced in a statement "The United States holds Maduro – who publicly announced just hours earlier that he would move against his political opposition – personally responsible for the health and safety of Mr López, Mr Ledezma and any others seized."

"We are evaluating all of our policy options as to what can we do to create a change of conditions, where either Maduro decides he doesn't have a future and wants to leave of his own accord, or we can return the government processes back to their constitution,” Trump added.

The United States has since frozen the assets of Maduro and is considering deeper sanctions, possibly even targeting PDVSA, Venezuela’s state-held oil company. An action which could send the country over the edge.  As tensions rise, the country is entering a state of chaos.

With the collapse of the economy, Venezuelans are running out of options. Bitcoin could come as a saving grace to many people. It has kept food on the tables of families, helped Venezuelans escape the distraught nation, and acted as a voice of rebellion against the oppressive government. But how Maduro’s regime will proceed remains to be seen.


China’s Maritime Strategic Realignment

Authored by Brian Kalman, Daniel Deiss, Edwin Watson via SouthFront.org,

China has begun construction of the first Type 075 Class Landing Helicopter Dock (LHD).

Construction most likely started in January or February of this year, with some satellite imagery and digital photos appearing online of at least one pre-fabricated hull cell. The Type 075 will be the largest amphibious warfare vessel in the Peoples’ Liberation Army Navy (PLAN), with similar displacement and dimensions as the U.S. Navy Wasp Class LHD. The PLA has also made it known that the force plans to expand the current PLA Marine Corps from 20,000 personnel to 100,000.

As China completes preparations for its new military base in Djibouti, located in the strategic Horn of Africa, it has also continued its substantial investment in developing the port of Gwadar, Pakistan. Not only will Gwadar become a key logistics hub as part of the China-Pakistan Economic Corridor (CPEC) and the “One Belt, One Road” trade initiative, but will also be a key naval base in providing security for China’s maritime trade in the region.  When these developments are viewed in conjunction with the decision to reduce the size of the army by 300,000 personnel, it is obvious that China has reassessed the strategic focus of the nation’s armed forces.

The PLAN’s intends to expand the current force structure of the PLA Marine Corps fivefold, from two brigades to ten brigades. At the same time, the PLAN will be increased in size and capabilities, with many new, large displacement warships of varying types added to the fleet. Of particular interest, are the addition of at least two Type 055 destroyers, an indigenously designed and built aircraft carrier of a new class, two more Type 071 LPDs, and the first Type 075 LHD.

China is rapidly gaining the ability to project power and naval presence at increasing distances from its shores. Not only is the PLAN expanding in tonnage, but its new vessels are considerably more capable. The PLAN will be striving to add and train an additional 25% more personnel over the next half a decade, in an effort to add the skilled crews, pilots, and support personnel that will facilitate such an ambitious expansion.

The Chinese military leadership previously decided to double the number of AMIDs starting in 2014. A 100% increase in the PLA AMIDs and a 500% increase in the PLAMC denotes a major strategic shift in the defense strategy of the Chinese state. With the successful growth of the Silk Road Economic Belt/Maritime Silk Road Initiative, it becomes readily apparent that China must focus on securing and defending this global economic highway. China has made a massive investment, in partnership with many nations, in ensuring the success of a massive system of economic arteries that will span half of the globe. Many of these logistics arteries will transit strategic international maritime territories. In light of these developments, a military shift in focus away from fighting a ground war in China, to a greater maritime presence and power projection capability are quite logical.

China began construction of a maritime support facility in Djibouti in 2016, to protect its interests in Africa, facilitate joint anti-piracy operations in the region, and to provide a naval base to support long range and extended deployments of PLAN assets to protect the shipping lanes transiting the Strait of Aden. In addition, China invested approximately $46 billion USD in developing the China-Pakistan Economic Corridor, including major investment in the infrastructure of the port of Gwadar. The governments of both nations desire the stationing of a flotilla of PLAN warships in the port, and possibly a rapid reaction force of PLA Marines. Gwadar is well positioned to not only protect China’s economic interests in Pakistan, but also to react to any crisis threatening the free passage of maritime traffic through the Strait of Hormuz. The forward positioning of naval forces will allow the PLAN to protect the vital crude oil and natural gas imports transiting the Suez Canal, the Gulf of Aden and into the Indian Ocean from routes west of the Horn of Africa. In light of the fact that 6% of natural gas imports and 34% of crude oil imports by sea to China transit this region, the desire to secure these waterways becomes readily apparent. Not only would the presence of PLAN warships and marines help to secure China’s vital interests in Pakistan and the China-Pakistan Economic Corridor in particular, but would also afford the PLAN a base of operations close to the Strait of Hormuz. Approximately 51% of all Chinese crude oil imports by sea transit the strait, as well as 24% of seaborne natural gas imports. Any closure of the Strait of Hormuz due to a theoretical military conflict or an act of terrorism or piracy would have a huge impact on the Chinese economy.

Although the maritime trade routes transiting the Indian Ocean are of vital importance to keeping the manufacturing engine of China running uninterrupted, the South China Sea is of even greater importance. Not only does the region facilitate the passage of $5 trillion USD in global trade annually, but much of this trade is comprised of Chinese energy imports and exports of all categories. The geographic bottle neck of the Strait of Malacca, to the southwest of the South China Sea, affords the transit of 84% of all waterborne crude oil and 30% of natural gas imports to China. The closure of the strait, or a significant disruption of maritime traffic in the South China Sea, would have a devastating impact on the Chinese state. It is in the vital national interest of China to secure the region based on this fact alone. In addition, establishing a series of strategically located island outposts, covering the approaches to the South China Sea, affords China a greater ability to secure the entire region, establish Anti-Access/Area Denial (A2/AD) and defend the southern approaches to the Chinese mainland, while enforcing the nation’s claims to valuable energy and renewable resources in the region.

China continues to expand and reinforce its island holdings in both the Paracel and Spratly archipelagos. The massive construction on Mischief Reef, Fiery Cross Reef and Subi Reef will likely be completed later this year. These three islands, in conjunction with the surveillance stations, port facilities and helicopter bases located on a number of key smaller atolls, afford China the capability to project power and presence in the region at a level that no other regional or global power can match.

As China moves forward in expanding the PLAMC and the amphibious divisions of the PLA, it has maintained a swift schedule in shipbuilding which aims to provide a balanced and flexible amphibious sealift capability. China intends to tailor a modern and sizable amphibious warfare fleet that is capable of defending the growing maritime interests of the nation, and which can provide a significant power projection capability that can be employed across the full breadth of the Maritime Silk Road.

The first two classes of amphibious vessels that were seen as essential to design, construct and supply to the PLAN were the Type 072A class Landing Ship Tank (LST) and the Type 071 class Landing Platform Dock (LPD). There are a total of six Type 071 LPDs planned, with four currently in service and the fifth vessel reaching completion this year.

Plans to build a large LHD began in 2012, with a number of different designs contemplated. The class was known in intervening years as the Type 075 or Type 081. The Type 075 design was finalized and plans were made to begin construction in 2016. Although many analysts believe that the PLAN intends to build two such vessels, there will most likely be a need for one or two additional vessels of this class to meet the growing maritime security and power projection requirements of the nation. All signs point to the PLAN’s intentions of establishing two to three Amphibious Ready Groups (ARGs), as they have slowly and methodically developed a modern amphibious warfare skillset over the past two decades. They have taken a similar approach to establishing a modern carrier-based naval aviation arm.

From what is known, the Type 075 will displace 40,000 tons, have an LOA of 250 meters, and a beam of 30 meter. The Type 075 will be fitted with a large well deck, allowing for amphibious operations by LCACs, AAVs, and conventional landing craft. Each LHD could theoretically carry approximately 1,500 to 2,000 marines, a full complement of MBTs and AAVs (approximately 25-40 armored vehicles), 60 to 80 light vehicles, and ample cargo stowage space. The helicopter compliment will most likely consist of approximately 20 Z-8 transport helicopters, two Z-18F ASW helicopters, one or two Ka-31 AEW helicopters, four Z-9 utility helicopters, and possibly 6 to 8 naval versions of the Z-10 attack helicopter. With no VSTOL fixed wing attack aircraft in service, the PLAN would most likely opt for using a rotary wing attack element for the LHDs.

China has been slowly and methodically building the foundations of economic and military security and is offering those nations that cooperate as part of the New Silk Road/Maritime Silk Road a seat at the table. In order to create a mutually beneficial trade and transportation network, one that may soon supersede or compete against others, China must secure its vital interests, backed up by military force, and build a viable and sustainable naval presence in key maritime regions.

China has clearly signaled that its defense strategy is changing.

The Chinese leadership feels that the sovereignty of mainland China is secure and is shifting focus to securing the vital maritime trade lifeline that not only ensures the security of the nation, but will allow China to increase its economic prosperity and trade partnerships with a multitude of nations.

Whether the United States decides to stand in the way of China’s growth or chooses to participate more constructively in a mutually beneficial relationship is yet to be determined. Without a doubt, China has set its course and will not deviate from this course unless some overwhelming force is brought to bear.