Precious metals are on sale right now, says market trader Gregory Mannarino.
The stock market is at all time highs, and bonds are selling-off. Mannarino tells Silver Doctors the environment is risk-on. He says the stock market will not allow the Fed to reduce its balance sheet or raise interest rates in any meaningful way. In the short run, stocks will continue through the roof, he predicts. But in the long run, these market distortions will end, and precious metals will be the assets that skyrocket.
With no North Korean nuclear test over the weeknd contrary to a Friday morning rumor, S&P futures rebounded and edged higher as European stocks gain, led by Spanish shares after mass demonstrations in favor of Spanish unity and speculation Catalonia may back down on unilateral independence demands, while Chinese mainland stocks reopened catching up to gains missed during the holiday week following last weekend's RRR cut.
World shares rose to start the week, with Chinese stocks hitting 21-month highs and the German index setting a new record, while political uncertainty triggered big moves in sterling, the Turkish lira and Spanish debt. US futures are also pushing higher in anticipation of the start of Q3 earnings season which begins later this week, with a number of Wall Street banks including JPMorgan, BofA and Citi set to report. While equities are open, the US bond market is closed today for the Columbus day holiday, while Asian markets were relatively quiet following holidays in Japan, South Korea and Taiwan.
European stocks climbed at the start of a week in which investors were closely watching developments in Catalonia as well as U.S. earnings season kicks off. The Stoxx Europe 600 Index adds 0.23%, following four straight weeks of gains. All industry groups except miners climb. The IBEX 35 Index is up 1% as a senior member in the Catalan administration calls for dialogue with Spain, although the gauge is still down 1.2% since Catalans voted for independence in an illegal referendum. After a weekend of mass demonstrations in favor of Spanish unity, Raul Romeva, foreign affairs chief for the separatist government in Barcelona, insisted that the door was open for talks if Prime Minister Mariano Rajoy was willing to grasp the opportunity
As Bloomberg breaks down local markets, 18 out of 19 Stoxx 600 sectors rise; 407 Stoxx 600 members gain, 171 decline. Top Stoxx 600 outperformers include: CaixaBank +2.6%, Centamin +2.5%, TDC +2.4%, Man Group +2.4%, Metro Bank +2.0%. The Stoxx Euro 600 Index also received a boost from data showing German industrial output rebounded from a summer lull with its best month in six years. The euro nudged higher, while most European bonds rose. Gold climbed and crude oil erased earlier gains.
“As regards Catalonia, it is difficult to have much conviction with respect to the eventual outcome,” JPMorgan Chase & Co strategist Mislav Matejka said in a note. “However, we believe that this will be seen as a localized issue, where the dips should be bought.”
Sterling rose 0.6 percent to $1.3112 on reports that British Prime Minister Theresa May, facing threats to oust her, might sack her foreign minister, Boris Johnson. Reports stated that the UK is said to be searching and hoping for the best, but is also continuing making preparations in case it should end up with no deal in Brexit talks. (Telegraph) Further to this, PM May is set to warn EU leaders today that Britain will make no more concessions on Brexit until they compromise on opening trade and transition talks. (Times) UK PM May reportedly suggested over the weekend that she is prepared to demote Foreign Secretary Boris Johnson as part of a cabinet rejig. However, separate reports suggest that if May was to fire him, he will simply say ‘no’, according to his allies.
“If Boris Johnson were to leave or be demoted as the weekend press is suggesting, that would be showing May’s leadership and that her vision of Brexit is the one that (the government) will be going forward with and that markets should be aligned to,” said Viraj Patel, an FX strategist at ING Bank in London.
The most notable event in European trading was the plunge in Turkey’s lira which slumped to a record low against a basket of currencies including the euro and the dollar, and the nation’s stocks slumped, after U.S. and Turkey each suspended visa services for citizens looking to visit the other country.
Also in Europe, German Chancellor Merkel’s CDU/CSU agreed on refugee cap issue which clears a major hurdle in pursuing coalition discussions. Germany and France reportedly dashed UK hopes of fast-track talks on transition deal and said that a divorce bill must be resolved first. EU was reported on Friday to significantly step up backroom Brexit talks with Labour Party over concerns PM May’s government will fall. Pressure on the BoE to raise interest rates may be building more rapidly than first thought after a mistake by the ONS led to domestic inflation being understated with companies’ employment costs rising faster than previously expected.
In Asia, the MSCI Asia Pacific Index added 0.1% to 163.41 as of 11:40 a.m. in Hong Kong, with Australian banks leading gains after a politician said he’s opposed to a regional levy. Stocks in New Zealand set a new record while the local dollar slipped as the major political parties vied to form the new government. The S&P/NZX 50 benchmark rose 0.4 percent, topping 8,000 for the first time. In Hong Kong, the Hang Seng Index slipped after hitting a 10-year high on Friday.
Chinese stocks rose as trading resumed after a week-long holiday but an Asia-wide benchmark was little changed as markets in Japan, South Korea and Taiwan were closed. On their first day of trade after a week-long holiday, Chinese blue-chip stocks touched their highest levels since late 2015, partly in a delayed reaction to a targeted cut in the amount of cash some banks must hold in reserve bank announced a week ago. Mainland Chinese markets rose Monday, although the advance faded as banks were unable to hold on to much of their early gains. The Shanghai Composite Index closed up 0.8% at 3,374.38 after rising as much as 1.8% to touch the highest since January 2016, while the Shenzhen Composite Index added 1.3%, the most since Aug. 28. Financials also took the lead in mainland China, where stocks tracked last week’s advance in offshore trading, after the central bank’s decision to cut reserve ratios.
Also notable was the big move higher in Chinese rates, with 10Y futures closing down 0.36%, the biggest one day move in 2 months. A big reason for this was the surge in the Yuan, which jumped over 300 pips, pushing the USDCNH below 6.62 from nearly 6.66 earlier.
Also worth noting that on Monday, Business activity in China's services sector grew at its slowest pace in 21 months in September as the pace of new business cooled, according to the Caixin Markit PMI survey, in contrast with official data from the National Bureau of Statistics (NBS) showing a faster pace of growth. Specifically, the Chinese Caixin Services PMI printed at 50.6 in September vs. Exp. 53.1 (Prev. 52.7); a 21-month low.
Oil trades around $50, as OPEC Sec-Gen Mohammad Barkindo says that oil producers are succeeding in re-balancing oversupplied market, though they may need to take further steps to sustain recovery into 2018. Production is increasing at Sharara, Libya’s biggest oil field, after it re-opened on Oct. 4, and is now expected to produce up to 250,000bbls/day/
In rates, Spain’s 10-year yield dipped six basis points to 1.645 percent, the lowest in more than a week. Germany’s 10-year yield decreased one basis point to 0.45 percent, the lowest in a week. Britain’s 10-year yield rose one basis point to 1.369 percent.
Gold hit a one-week high as tension over North Korea saw some investors seek safety in the metal. It rose 0.5 percent to $1,282 an ounce. West Texas Intermediate crude decreased less than 0.05 percent to $49.27 a barrel, the lowest in almost four weeks. Copper decreased 0.2 percent to $3.02 a pound.
In other news, Fed’s Rosengren (Non-Voter, Soft Hawk) said that the Fed must respond to very tight labor markets or may damage the economy and that prudent risk management would argue for the continued gradual removal of accommodation to minimize risk that could shorten the economic recovery. US House Speaker Ryan stated that tax reform is on track for implementation by January 2018.
Bulletin Headline Summary from RanSquawk
European equities trade mostly higher with Spanish assets outperforming amid hopes for some form of mediation
GBP remains a key focus for FX markets amid the shifting political landscape and potential understating of UK inflation form the ONS
Today’s calendar is particularly light. Today is US Columbus Day Holiday but markets remain open
S&P 500 futures up 0.1% to 2,548.00
STOXX Europe 600 up 0.2% to 390.24
MSCI Asia down 0.02% to 163.28
MSCI Asia ex Japan down 0.09% to 538.38
Nikkei up 0.3% to 20,690.71
Topix up 0.3% to 1,687.16
Hang Seng Index down 0.5% to 28,326.59
Shanghai Composite up 0.8% to 3,374.38
Sensex up 0.2% to 31,887.30
Australia S&P/ASX 200 up 0.5% to 5,739.26
Kospi up 0.9% to 2,394.47
German 10Y yield fell 0.7 bps to 0.452%
Euro up 0.03% to $1.1734
Brent Futures down 0.2% to $55.51/bbl
Italian 10Y yield fell 0.4 bps to 1.853%
Spanish 10Y yield fell 6.5 bps to 1.644%
Brent Futures down 0.2% to $55.51/bbl
Gold spot up 0.3% to $1,280.92
U.S. Dollar Index down 0.04% to 93.77
Top Overnight News
Trump demands that Congress deliver funding for his border wall and make dramatic changes to immigration policy in exchange for letting young people brought illegally to the U.S. as children stay in the country.
Republican lawmakers are expressing unease over the limited details about middle-class relief in the tax framework their leaders released last month.
Turkey’s markets took a hammering Monday amid a deepening standoff between the U.S. and President Recep Tayyip Erdogan’s government. The lira, stocks and bonds tumbled after the two NATO members suspended visa services for each other’s citizens.
Yuan jumped most in a month as China’s foreign-exchange reserves posted an eighth straight monthly increase in September with the pressure of cash outflows easing amid capital controls
German industry rebounded from a summer lull with its best month in six years, keeping Europe’s largest economy on a solid footing in the second half of the year as output increased 2.6% in August from July, compared to an estimated gain of 0.9%
Oil producers are succeeding in re-balancing an oversupplied market, though they may need to take further steps to sustain the recovery into 2018, OPEC Secretary-General Mohammad Barkindo said Sunday, without elaborating on any such measures
After a weekend of mass demonstrations in favor of Spanish unity, Raul Romeva, foreign affairs chief for the separatist government in Barcelona, insisted that the door was open for talks if Prime Minister Mariano Rajoy was willing to grasp the opportunity
Seafarers Fret Over New Assault on Jones Act in Wake of Storms
Big Pharma Gets a Boost as China Speeds Up New Drug Approvals
Facebook to Require Certain Ads to be Manually Reviewed: Axios
Russia May Restrict U.S. Media to Retaliate for RT: Izvestia
Equinix Buys Istanbul Data Center From Zenium for $93m Cash
Asia equity markets traded mostly higher as China reopened for the 1st time in over a week, although market closures in Japan, South Korea and Taiwan kept trade relatively quiet. ASX 200 (+0.5%) was lifted by broad strength aside from energy names which underperformed after oil prices fell 3% on Friday and Shanghai Comp. (+0.8%) surged on return from holiday as it played catch up and took its first opportunity to react to the PBoC’s targeted RRR reduction. However, some gains were later pared after a 21-month low Caixin Services PMI release, while Hang Seng (-0.5%) lagged as the mainland stole the limelight and with weakness seen in gambling and energy names. Chinese Caixin Services PMI (Sep) 50.6 vs. Exp. 53.1 (Prev. 52.7); 21-month low. Chinese Caixin Composite PMI (Sep) 51.4 (Prev. 52.4). PBoC skipped open market operations for a net daily drain of CNY 180bln, but gauged demand for MLF loans which are expected to be issued on Friday.
Top Asian News
Noble Group Explains Why Gas Sale Earned Less Than Expected
New Zealand Coalition Talks Start in Earnest, Deadline Looms
Yuan Jumps Most in a Month as Foreign-Exchange Reserves Climb
Foreigners Buy Most Mainland Chinese Shares Since August 2015
China Bank Rally Fizzles Out in Blow to Eager Hong Kong Traders
Spanish equities firmly in the green, led by the politically sensitive financial sector after demonstrations over the weekend in Barcelona and Madrid supporting pro-unity. Additionally, Caixabank (+3%) have also been permitted to move their HQ away from Catalonia. European equities in general are trading modestly higher, while the DAX yet again hit a fresh record high. Commerzbank shares are higher this morning following reports that the Credit Agricole Chief said the bank would be interested in the German lender if they were up for sale. UK Gilts lagging their core and some non-core EU counterparts, largely on reports that the ONS has miscalculated unit labour costs, which should be considerably higher (2.4% instead of the reported 1.6%), and in theory push the BoE closer towards lifting the Bank rate. Short Sterling futures also acknowledging the increased risk of near term tightening, and perhaps prone to more downside given that November hike probability remains sub-70%. Spanish debt outperforming in contrast amidst some conciliatory noises from Catalonia, with the 10 year Bono yield down around 1.64% from recent 1.80% approx. peaks and spread to German Bunds narrowing to circa 119 bp. Caution still warranted however, with the regional parliament due to convene on Tuesday and potentially ‘declaring Independence’ following the referendum. Staying with the Eurozone periphery, Portuguese bonds are in focus today as the country is high on the EU agenda, and again on Wednesday when supply comes to the table via the first cash auction since S&P upgraded the sovereign last month.
Top European News
German Industrial Output Jumps Most in 6 Years After Summer Lull
Catalonia Calls for Talks With Spain Ahead of Critical Week
Statoil’s Arctic Exploration Comeback Ends With Another Miss
This Company Says Its Software Can Pick Soccer Stars
In currencies, GBP starting the week on the front foot amid a flurry of reports over the weekend, which has subsequently led to GBP being the early outperformer. Reports over the weekend noted that PM May could look to reassert her authority with a cabinet, which may lead to Foreign Minister Boris Johnson being demoted. Alongside this, reports noted that the ONS understated its latest unit labour cost reading, consequently placing pressure on the BoE to raise rates. Last week’s decline also represents a slight opportunity to buy given expectations for a rate rise next month is at a modest 66%. NZD underperforming this morning, dampened by political uncertainty ahead of this week’s announcement by New Zealand First Party head and kingmaker Winston Peters on which party they will back to form the next government. NZD over 20 pips, which has briefly saw AUD/NZD over 1.10. TRY weakened 6% overnight after a deterioration of diplomatic ties between US and Turkey, in the latest signs of fraying relations between the NATO allies, as both sides suspended non-immigrant visa services to the citizens of the other.
In commodities, there is very little in the way of newsflow in the commodity complex, both oil and precious metal prices are firmer amid the softer greenback. Friday’s CFTC report for Oct 6th showed speculators cut net long gold and silver bets for the 3rd consecutive week BSEE stated on Saturday that 92% of current Gulf of Mexico production was shut in due to Hurricane Nate, but on Sunday reported that there was no damage to offshore oil facilities. OPEC Secretary General Barkindo stated consultations are underway for extension of OPEC cuts past March 30th and that extraordinary steps may be needed in 2018 for stability. (Newswires) Libya's Sharara oil field output has risen to 250k bpd, according to sources.
US Event Calendar: nothing major scheduled
Central Banks speakers: nothing major scheduled
DB's Jim Reid concludes the weekend wrap
It’ll likely be a slow start to this week with Columbus Day in the States today (fixed income markets closed, equities open) but it'll end with a bang with US CPI on Friday. Although if the weekend papers are anything to go by, I wouldn’t get too worried about CPI given that a guy called Dave Meade suggesting that October 15th would mark the start of a 7 year period where the world will eventually end. As of next Sunday he predicts that the world will be hit with a tempest of tsunamis, earthquakes, hurricanes and nuclear war. As an analyst who makes predictions himself I couldn’t help but look back on some of his previous calls. The most startling was that the apocalypse will take place on September 23 of this year. So unless I’ve missed something he hasn’t necessarily always been accurate. Although I’ve noticed that Liverpool haven’t won since September 23rd so maybe this is what the apocalypse feels like. Whilst we’re on the subject I certainly haven’t had a good night’s sleep since and feel shattered so the more I think about it maybe he’s on to something.
Anyway back to US CPI. As is well known now, the data missed expectations for 5 months in a row until last month so with lots of discussion about the Fed’s rate hike profile and new Chair and board composition, this number is about as big as it gets at the moment. PPI the day before will give us a teaser and the Fed minutes on Wednesday will provide some interesting context to the hawkish meeting last month. Outside of the data three US banks kick start Q3 earnings on Thursday/Friday. For a full view of the week ahead and also the key DB Research macro pieces of last week see our new document “Next week.... This week” out on Friday. This is a new document aimed at giving readers a view of the week ahead by around lunchtime UK time on a Friday. We’ve copied the text at the end for the week ahead but in the note we also include a cut out and keep table of major global events. All feedback to me as to whether you do or don’t find it useful as we’re trialling it for now.
Ahead of CPI, it was the average hourly earnings that stole the show within Friday’s payroll report. This was much less impacted by the hurricane and saw the YoY rate rise to 2.9% (2.6% expected) with a 0.2% upward revision to the previous month. 10 year US treasuries spiked from 2.364% to 2.40% in the aftermath but headlines suggesting that North Korea is planning to test missiles capable of hitting the US west coast returned them to 2.36% (+1bp) at the close. Later on, Trump tweeted that “…only one thing will work!” re NK and when asked to clarify his earlier comments on “the calm before the storm”, he said “you’ll find out”.
Back to inflation and it’s very easy to say that there’s no price pressures, but after Friday US annual average hourly earnings are now at their highest since June 2009. A few weeks ago we also showed a graph that suggested US CPI lags growth by around 18 months so it’s possible the soft inflation patch in 2017 reflects weak growth in late 2015/ early 2016. So perhaps the stronger growth since H2 2016 will mean inflation surprises an unprepared market in early 2018. Obviously many people have wrongly called the end of the disinflation trend over the last decade (perhaps longer) and been burnt but we stand by our view in last year’s long-term study that 2016 will mark the multi decade inflection point for inflation and bond yields. From this point on because of demographics, populism and the start of a shift from monetary to fiscal policy we’ve felt the trend is slowly reversing. It won’t be a straight line but for us the start of a trend is already in place.
This morning in Asia, markets are trading broadly higher. Chinese bourses (Shanghai comp +1.24%; CSI +1.85%) are up following the Golden week break, led by the banks (ICBC +2.67%) as a delayed reaction to the reserve ratio cut announced last weekend. The ASX 200 is up 0.60%, but the Hang Seng is down 0.30%, while the Nikkei and Kospi are closed today for holidays. Elsewhere, the September Chinese Caixin composite PMI came in slightly lower than the prior month (51.4 vs. 52.4 previous).
Turning to Spain’s Catalonia, over the weekend there has been more pressure on Catalan authorities to avoid declaring independence. On Saturday, a business delegation (Cercle d’Economia - with board members from CaixaBank and Banco Sabadell) met with Catalan President Puigdemont and “asked him to directly remove the shadow of a declaration by saying that it won’t happen”. Then on Sunday, crowds reportedly numbering 350k marched through Barcelona chanting “I’m Catalan and Spanish”. That said, President Puigdemont said on Sunday that “what’s happening in Catalonia is real, whether they like it or not…millions of people have voted”. Notably, the Catalan regionalgovernment was supposed to meet today (9th October) to potentially proclaim independence, a meeting which the Spanish Constitutional Court has since suspended. So we shall find out more in the coming days on how this evolves and whether they defy the courts. Finally, for those who may have missed, please refer to DB’s Marc de-Muizon’s “Catalan independence Q&A” note for background.
Over to Brexit, the FT noted that according to European diplomats, Germany and France have demanded more clarity from UK on the Brexit divorce bill before negotiations proceed to talks on a post Brexit transition deal. The fifth round of talks will resume today, so we shall find out more then. Elsewhere, UK’s PM May is apparently busy pondering a cabinet reshuffle, when asked about Foreign Secretary Boris Johnson, she said “I’m the PM, and part of my job is to make sure I always have the best people in my Cabinet.”
Quickly recapping market performance on Friday. US equities softened, with the S&P 500 (-0.11%) and Dow (-0.01%) down marginally while the Nasdaq rose 0.07%. The S&P didn’t therefore add to its run of 8 consecutive days of gains with most sectors modestly in the red (Telco -2.0%; consumer staples -0.95%), but partly offset by stronger tech stocks (+0.29%). European markets also retreated modestly, with the Stoxx 600 (-0.40%) and DAX (-0.09%) both down, but the FTSE rose 0.20%. Elsewhere, the VIX rose 0.46 to 9.65, but remains below 10 for the 8th consecutive day.
Turning to currencies, the US dollar index dipped 0.17%, while Euro advanced 0.16% but Sterling fell 0.40%. This morning, Lira/USD fell 2.96% back to its recent lows in April. Over the weekend, the US and then Turkey have each suspended Visa services for citizens seeking to visit the other country. The move follows the arrest of a Turkish national who works at the US consulate in Istanbul for alleged involvement in the July 2016 coup attempt against Erdogan. In commodities, WTI oil fell 2.95% to $49.29/bbl on Friday, partly in anticipation to potential impacts from hurricane Nate which hit US Gulf Coast over the weekend. However, early reports suggest damages were less severe than expected, with Oil now trading c0.3% higher this morning. Elsewhere, precious metals were modestly higher on Friday (Gold +0.67%; Silver +1.45%) following higher geopolitical tensions, while other LME base metals (Copper -0.50%; Aluminium -0.85%; Zinc -1.61%) fell slightly.
Away from markets and onto US central bankers’ commentaries where the messaging on rates was a little mixed. On the wait and see side, the Fed’s Kaplan said “I’m open-minded about December (rate hike), but I’m not there yet.” Then the Fed’s Bostic (who votes in 2018), said “If we continue to see strength and that robust energy in the economy, I will be comfortable with a conversation about increasing rates. But we have to wait and see about those things.” Finally, the Fed’s Bullard reconfirmed his more dovish take, noting that “I’m getting more concerned that we might make a policy mistake.”
Conversely, the NY Fed Dudley noted that “even though inflation is currently below our longer-run objective, I judge that it is still appropriate to continue to remove monetary policy accommodation gradually”. Then the Fed’s Rosengren followed up with “prudent risk management would argue for the continued gradual removal of monetary policy accommodation…” and that inflation “is still not at the level that I would expect it to be, but we’re definitely seeing that tight labour markets are causing wages and salaries to gradually go up as well”. Further, he noted that inflation “will be much closer to 2%” a few months into 2018. The odds of a December rate hike is now 78.5% (up c5ppt from Thursday - as per Bloomberg).
Staying in the US, the rhetoric between Trump and Senator Bob Corker intensified over the weekend after Trump tweeted that Corker “didn’t have the guts to run (for a third term), (he) wanted to be Secretary of State, I said No Thanks”. In response, Corker wrote back “it’s a shame the White House has become an adult day care centre”. It will be interesting to see how the normally budget deficit focused Corker will vote on the upcoming tax reforms now that he won’t be running a third term.
Elsewhere, as per Bloomberg, Germany’s Merkel may be one step closer in forming the Jamaica coalition government (with CDU and CSU) after agreeing to cap the annual limit on migration to 200k p.a.
We wrap up with other data releases from Friday. In the US, the September nonfarm payrolls fell for the first time since 2010 and was materially below market expectations at -33k (vs. 80k expected), mainly reflecting the disruptions from Hurricane Harvey and Irma and the difficulties in estimating this impact (consensus ranged from -45k to +260k). In the details, the leisure and hospitality sector posted a 111k fall in jobs, likely the most impacted sector from the storms. Elsewhere, the employment data was solid, with the unemployment rate at a 16 year low of 4.2% yoy (vs. 4.4% expected) and stronger than expected average hourly earnings at 2.9% yoy (vs. 2.6%, coupled with a 0.2% upward revision to previous month). Finally, the final reading of August wholesale inventories was revised slightly lower to 0.9% mom (vs. 1% expected), while consumer credit grew $13.1bln (vs. $15.5bln expected).
In Europe, the macro data was broadly higher than expected. Germany’s August factory orders beat market expectations at 3.6% mom (vs. 0.7% expected) and 7.8% yoy (vs. 4.7%). The increase in August was broad-based, with domestic orders up 2.7% mom and foreign orders up 4.3% mom. In France, the August trade balance deficit was narrower than expected at $-4.5bln (vs. -$5.4bln). Over in Spain, the industrial output for August was stronger than expected at 1.8% yoy (vs. 1%). In the UK, the Halifax house price index also beat expectations at 0.8% mom (vs. 0%) and 4.0% yoy (vs. 3.6% expected). Finally, Italian retail sales were lower than expected at -0.3% mom (vs. 0.2%) and -0.5% yoy (vs. 0.8% expected).
UAE Official Urges Qatar to Give Up World Cup to End Crisis (BBG)
Fed’s Dudley Sent Puerto Rico a Cash-Filled Jet as Money Ran Low (BBG)
Trump Pours Millions Into Money-Losing Scottish Golf Course (BBG)
How a Silicon Valley Striver Became the Alt-Right's Tech Hero (BBG)
Overnight Media Digest
- Over 20 nations have curbed North Korean diplomatic activities, more than a year after the U.S. State Department began a quiet global campaign to pressure Pyongyang. on.wsj.com/2wGy9Kn
- The White House sent Congress an expansive set of principles that would increase immigration enforcement at the border and inside the U.S. and would limit new legal arrival. on.wsj.com/2wI6fhb
- Weinstein Co's board of directors fired co-chairman Harvey Weinstein from the independent movie and television studio on Sunday, citing allegations of sexual misconduct by one of the highest-profile producers in Hollywood. on.wsj.com/2wHTjrL
- German Chancellor Angela Merkel's conservative bloc agreed to limit the number of refugees allowed to enter the country annually, in an attempt to bridge its differences on migration and form a much-needed united front in upcoming coalition talks. on.wsj.com/2wHoiE6
- Deutsche Bank CEO John Cryan has told associates he wanted nothing to do with Chinese conglomerate HNA, the bank's largest shareholder. The iciness has irked Chairman Paul Achleitner, who helped woo HNA. on.wsj.com/2wGt8l9
- The Pentagon has taken over an effort to cut the cost of the F-35 combat jet, after rejecting plans proposed by Lockheed Martin and its partners, as it tries to make a program estimated to cost $400 billion more affordable. on.wsj.com/2wHOsGE
- Walt Disney's Marvel Entertainment dropped a planned joint venture with Northrop Grumman Corp on Saturday after fans of its superheroes attacked the company via social media for its potential ties with the defense contractor. on.wsj.com/2wHa8mo
- The City of London Corporation announced plans for a centralised court focusing on fraud and cyber crime. The new courtroom complex would be located on or around Fleet Street.
- “Ball is in their court”, Britain’s Prime Minister Theresa May is expected to tell other EU countries, as she pushes to make progress in deadlocked talks.
- European regulators raided offices of banking authorities in Poland and the Netherlands on an antitrust crackdown on lenders that block fintech rivals from gaining legitimate access to customer information.
- SoundCloud rival Mixcloud has struck a licensing deal with Warner Music to start a subscription business.
- The Weinstein Company fired its co-founder Harvey Weinstein on Sunday, after an investigation uncovered allegations that he had engaged in rampant sexual harassment. nyti.ms/2hZR9kN
- The expensive science-fiction sequel "Blade Runner 2049" collapsed at the North American box office over the weekend, taking in $31.5 million, or roughly 30 percent less than analysts had expected, as younger audiences and women failed to materialize in sizable numbers. nyti.ms/2hXB8LQ
- Dove dropped a Facebook ad for Dove body wash in which a black woman removes her brown shirt and underneath is a white woman in a light shirt. nyti.ms/2hZUpN3
THE GLOBE AND MAIL
** The Canada Revenue Agency has indicated that employee discounts will now be taxed. The CRA issued a recent tax "folio" indicating that employee discounts are to be considered taxable benefits, and part of their income. tgam.ca/2y4lZPw
** The Liberal government is attempting to move past the divisive debate on pipelines by forging a national energy strategy that promotes the transition to a low carbon economy while supporting oil and gas development. tgam.ca/2y4dIuR
** The flow of Canadian lumber into the United States should be embraced and not feared by Americans, Canada has told the United States International Trade Commission. The Canadian government is leading efforts to persuade the ITC to reverse January's pro-U.S. decision in the cross-border trade dispute after the ITC issued a preliminary ruling in January, saying Canadian softwood is harming the United States lumber sector. tgam.ca/2y3cj7Q
** Tim Hortons franchisees who created an association to address their grievances with parent company Restaurant Brands International Inc have filed a C$850 million ($678 million) class action lawsuit against the company, alleging the fast food operator is trying to intimidate its restaurant owners and force the franchisees who formed the group out of their restaurants. bit.ly/2y3WnlK
** A 37 year old woman and her young twins died following an early morning fire in Quebec's Gaspe Peninsula on Sunday. Police spokeswoman Helene Nepton said there was a brief evacuation involving a dozen neighbours and none were injured. bit.ly/2y2Jg4b
- Pressure on the Bank of England to raise interest rates may be building more rapidly than first thought after a mistake by the Office for National Statistics led to domestic inflation being understated. bit.ly/2y2GAUq
- Aviva, one of Britain’s biggest property owners, has predicted the death of the traditional shop, as it warns that most physical stores on the high street will be wiped out by the relentless rise of online shopping. bit.ly/2y30myY
- Deliveroo is facing battles with local authorities over its use of kitchens on car parks and industrial estates in which chefs are making takeaway food for hip restaurants such as MEATLiquor, Busaba Eathai and Notting Hill’s Cocotte. bit.ly/2y31a6Y
- An internal study by EY of UK buyouts and merger deals involving foreign firms showed that the value of purchases of British-owned businesses fell in the first nine months of the year to its lowest level since 2010. bit.ly/2y3lV2u
- Monarch Airlines' private equity owner Greybull slashed its exposure to the airline through a complex deal with aviation giant Boeing just a year before it collapsed. bit.ly/2y3257q
- Swedish banking giant Handelsbanken has said it is committed to expansion in the UK, but added that it wants to see clarity on the terms of Brexit this year. bit.ly/2y1T0Mh
- The board of Bread Holdings, which comprises Gail's and Bread Factory, a wholesale business, has appointed KPMG to advise on options for the company. bit.ly/2y2lu8v
- RBS chairman Howard Davies warned there is now a "very, very, very tight" time frame for ministers to agree the terms of a transitional Brexit agreement with the EU, if it hopes to stop major finance firms moving jobs abroad. bit.ly/2y1Ywyn
Asian Metals Market Update: October-09-2017 By: Chintan Karnani, Insignia Consultants
North Korean tensions are once again to the fore. I always believe that natural calamity are short term pains but long term gains for any nation. Reconstruction and relief efforts create more jobs for the low skilled workers than under normal days. Storms and hurricanes in the nation surrounding the Gulf of Mexico will create more jobs than before. At the end of the day low skilled job creation is something which every nation lacks. Nature will do its job in America more than its politicians. Demand for industrial metals always rises after a natural calamity in any part of earth.
Gold Market Update By: Clive Maund
The last Gold Market update almost a month ago called the intermediate top within a day, as you may recall, and the subsequent Gold and US Dollar Interim update called the rally in the dollar the day before it started. Having seen a significant reaction back by gold, the question now is “Has it run its course?” The short answer to that is yes, although calling a bottom here is complicated by the fact that gold’s COTs have not eased as much on the reaction as we might have expected, and the dollar Hedgers’ chart is still flat out bullish for the dollar.
A Jones Act product tanker for American Petroleum Tankers delivered in December 2016. Credit: Philly Shipyard
By Daniel Flatley (Bloomberg) — On the darkened bridge of the Chesapeake Trader, with radio chatter filling the air, three officers were easing the giant freighter into San Francisco Bay when an unexpected vessel suddenly appeared on the starboard side. They scrambled to avoid catastrophe.
The computerized simulation — conducted in a landlocked office park outside Baltimore — is part of a two-week course offered by the International Order of Masters, Mates & Pilots. The union facility was once packed with students working their way up the ranks, but attendance has plunged as the number of U.S.-flagged, oceangoing freighters has fallen from nearly 3,000 in 1960 to fewer than 170 today.
The decline has occurred despite the Jones Act, a law that requires goods moving between U.S. ports and territories to be carried on American-built vessels crewed by American officers and deckhands. That’s energized opponents of the nearly 100-year-old law, who say the protectionist measure hasn’t saved the fleet and should be curtailed or eliminated once and for all.
“The Jones Act is pretty much the only reason I have a job,” said Brett Cowan, a mariner from California attending training at the facility who has been working on boats since he was 13. Changing the act, he said, “would put a lot of us out of work.”
The latest attack on the Jones Act follows President Donald Trump’s decision to temporarily waive it after Hurricane Harvey disrupted refinery operations in Houston, and again to help aid reach Puerto Rico in the wake of Hurricane Maria.
Senator John McCain, a long-time opponent of the law, took the opportunity to introduce fast-track legislation to permanently exempt Puerto Rico from the law — something that would eliminate a major shipping route from the act’s protection.
“For years, I have fought to fully repeal the Jones Act, which has long outlived its purpose to the benefit of special interests,” McCain, an Arizona Republican and former Navy officer. He said in a statement that it’s “an antiquated, protectionist law that has driven up costs and crippled Puerto Rico’s economy.”
The legislation could be included in a vote on an aid package for the island to be voted on this week, according to C. James Patti, president of the Maritime Institute for Research and Industrial Development, a trade association that represents companies with U.S. flagged ships in their negotiations with the pilots’ union.
“We didn’t like to see the waiver,” Patti said. “But on the other hand, the industry accepted it. If it enabled some people to focus on other things, then it did some good.”
But opponents of the law are mustering their cases.
“Protectionism, over and over, has proven not to be in the long-term interests of the protected industry,” said Scott Lincicome, an adjunct scholar at the free-market focused Cato Institute. “One hundred years of the Jones Act is clearly not working when it comes to maintaining the fleet.”
Lincicome and Thomas Grennes have separately undertaken in-depth analyses of the law, and they contend that the act has made goods and services more expensive in Alaska, Hawaii and Puerto Rico.
More properly known as the Merchant Marine Act of 1920, the law takes its name from it’s sponsor, Wesley Jones, a senator from Washington state. It unites an array of Democrats and Republicans, many of them with ports and shipyards in their districts.
Proponents say it provides a jobs base for American workers who can come to the country’s aid in time of war.
“There are those forces who want to do away with the Jones Act for whatever reason,” Representative Elijah Cummings, a Maryland Democrat, said at a hearing last week to assess the law. “Basically what it would do is put our shipbuilders out of business and our workers out of work. Why in the world would anybody want to do that?”
Representatives from the maritime industry have fought to preserve the law several times in recent years. The American Maritime Partnership, which represents ship owners, builders and officers who benefit from the Jones Act, spent $1.1 million on lobbying last year, Senate records show.
In 1998, a McCain-sponsored measure created the waiver process. Previously, Congress had to pass legislation to suspend the law. In 2010 he introduced legislation to fully repeal the law, reintroducing it in 2015 and again in July of this year.
A Government Accountability Office report from 2013 found that only a third of the ships calling at Puerto Rico flew the U.S. flag and said the evidence was inconclusive that repealing the act or exempting Puerto Rico from its restrictions would benefit the island’s residents.
Still “freight rates are often — although not always — lower for foreign carriers going to and from Puerto Rico and foreign locations than the rates shippers pay to ship similar cargo to and from the United States, despite longer distances,” GAO concluded.
Because of those cost advantages, exempting the island from the act could mean the disappearance of most U.S.-flag vessels from this trade, a summary of the report said.
Other reports, including one conducted by the University of Puerto Rico, have found that goods cost more on the island due to shipping costs. The study, conducted in 2010, found that the island lost about $537 million annually thanks to the law.
Executives from two shipping companies doing business on Puerto Rico — TOTE Maritime and Crowley Maritime Corp. — said that their companies have invested $500 million and $600 million in projects on the island, respectively, and employ a combined 500 people.
“The reality is that without the Jones Act there would not be an American maritime industry,” Michael Roberts, senior vice president of Crowley, said in an interview. “The international trade is dominated by foreign-flags of convenience, where you’ll register the vessel where you can get the lowest cost labor, the lowest cost regulatory system, the lowest taxes across the board.”
That view dominated the lunchtime conversation in the Masters, Mates & Pilot’s training center cafeteria last week, where the diners showed an impressive command of the Jones Act’s details — and the arguments for its necessity.
“We all keep pretty well versed on that,” said Steven Partridge, a U.S. Navy reservist who has worked a variety of jobs in domestic shipping and is trying to become a chief mate. “It’s pretty important to us.”
By Serene Cheong (Bloomberg) — One of the biggest stores of oil at sea is showing signs of emptying out.
The volume of supplies held on tankers in the Strait of Malacca in September dropped to the lowest level since August 2016, according to data from cargo-tracking and intelligence company Kpler. The waters off Singapore, Malaysia and Indonesia — one of the world’s busiest shipping channels and a major hub for what’s known as floating storage — held 8.1 million barrels late last month on a 10-day moving average basis, compared with about 30 million in May.
Some traders are giving up on ships they chartered for storing oil as potential profits from future sales no longer justify the cost of hiring the vessels. That’s after the market’s structure has flipped to backwardation, where crude for later delivery is cheaper than near-term shipments, as demand improves and OPEC-led output curbs contribute to a supply squeeze. Not all are abandoning the strategy, though, with some traders still finding ways to benefit by offering tailor-made cargoes put together at sea.
Kpler defines floating storage as the volume of oil on tankers that are idled offshore for 15 or more days. The Strait of Malacca consists of anchorage areas including Pelepas, Linggi, Batu Pahat and Tanjung Bruas.
Residents view the first iceberg of the season as it passes the South Shore, also known as “Iceberg Alley”, near Ferryland Newfoundland, Canada April 16, 2017. Picture taken April 16, 2017. REUTERS/Greg Locke
By Adam Popescu (Bloomberg) — An island with a 3,893-foot granite mountain juts out of the icy ocean in Greenland’s Karrat Fjord. Beside icebergs the size of football fields lies the seaside village of Uummannaq, which served for centuries as an economic hub until it was abruptly wiped away.
The area has been populated by Inuit people for about 5,000 years and became a Danish municipality in 1763. The village’s population of about 1,200 hauled about 100 metric tonnes of halibut out of the waters each year and catered to Arctic tourists. On the morning of June 17, an Arctic tsunami ravaged Uummannaq and neighboring Nuugaatsiaq. Evidence suggest a climate-induced disaster in which a mountain landslide created 270-foot waves.
“Those waves can travel as fast as a jet engine,” said New York University’s David Holland, who has spent 11 years in the region studying ice-ocean interaction. The wall of water demolished homes, washed boats onto the shore, and left four people dead.°
The Danish government evacuated the town, citing the threat of further tsunamis and landslides. One hundred million kroner, or about $15.7 million, were allocated to move its citizens inland. “People here are traumatized,” said Flemming G. Christiansen, the deputy director general of the Geological Survey of Denmark and Greenland.
Erosion, landslides, and tsunamis are common above the Arctic Circle. It’s a natural consequence of the seasonal expansion and retraction of the ice. As the permafrost melts and waves batter communities, millions are spent annually on beach berms and port defenses in a losing battle to protect the area.
There are no permanent fixes—all human efforts in the region are eventually destroyed by nature. But without the berms and sea walls, the damage caused annually by storms and inclement weather would be far worse.
Protecting these towns isn’t an altruistic ambition. As the Arctic warms, more shipping lanes are opening to the transatlantic shipping industry. It’s a big business. In 2015, $66.9 billion worth of goods were traded between the EU and Canada through the region. Monitoring changes in the great north helps protect this business.
Nearly 1,000 bergs have drifted below 48° north this year, double the average. A cottage industry has sprouted to protect shipping in the area: blasting the ice with water cannons and lassoing it from tug boats to keep it away from oil platforms and ships. But all it takes is one strike to cause massive damage.
Approximately 200 miles south from Uumannaq lies Ilulissat. Sitting at the end of a fjord, the city—whose name means “icebergs” in Inuit—is one of the few places in Greenland where the ice cap reaches the sea. Ice chips off into the water here at a rate of 20 billion tonnes a year. More ice is dumped into the sea here than anywhere else on the planet with the exception of Antarctica. As a result, the area is the source of most Atlantic icebergs. Bergs born here are scooped up by the Labrador Current and carried south, where container ships make enticing floating targets.
“There’s been a lot more ice from Greenland coming into the ocean in the last decade,” says the University of Alaska’s Martin Truffer, who uses ground-based radar to measure glacial movement. “The destructive power of these things is phenomenal.”
Temperature increases mean more landslides, icebergs, and tsunamis. It also means more shipping and a lot more risk. That risk could be mitigated with additional funding sea walls and relocating towns (something already under way in the Alaskan Arctic). But since this polar region is so isolated and poorly represented, it’s an issue few know about and or are willing to pay for.
Christiansen said new settlements will be built according to stricter guidelines, located minimum distances from the shore, and governed by regulations to insure safety. But he sees little hope in stopping more destruction.
“There are huge icebergs everywhere floating along the coast,” said Swiss glaciologist Martin Luethi. “One would have to do maps and calculations of each glacier in each state to see how the danger evolves, but there’s no commercial interest. There’s no awareness of the danger in Greenland. The mindset is s— happens, and that’s it.”
Published on Oct 9, 2017
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Please visit Jeremy Poirier http://www.bearinglithium.com
TSXV - symbol BRZ OTC - symbol BRGRF Frankfurt - symbol B6K1
The Maricunga Project is the highest grade, undeveloped lithium salar in the Americas. It is second in grade only to the Salar de Atacama, which accounts for 100% of Chile’s lithium production and about 40% of global production.
A significant exploration and development program is underway to de-risk the project, with US$22 million to be expended by property partner to culminate in the delivery of a Definitive Feasibility Study (DFS) in 2018. Near-term catalysts include results from process test work and a Pre-Feasibility Study (PFS) in Q4/17.
Gold Seeker Closing Report: Gold and Silver Gain Roughly 1% By: Chris Mullen, Gold Seeker Report
Gold gained $10 to $1284.90 in Asia before it edged back to $1279.60 in midmorning New York trade, but it then climbed to a new session high at $1285.20 in the last minutes of the day and ended with a gain of 0.78%. Silver rose to as high as $16.986 and ended with a gain of 1.07%.
Stocks are at record highs while volatility is at a record low. Which is another way of saying that investors aren’t as worried as they probably should be about the coming year.
That’s okay. Price corrections (with their attendant volatility spikes) are normal and natural ways for markets to teach overconfident investors a little humility. Think of them as the financial word’s forest fires, clearing out the underbrush of misconception, malinvestment, and hubris.
But there’s another area of Peak Complacency that is neither natural nor benign. And that’s cyberspace. Americans – and Europeans and Japanese – have moved most of their financial lives online just as hackers and other cyber-enemies get the upper hand. Recently:
Credit rating agency Equifax – apparently through its own incompetence – allowed hackers to access and presumably copy and sell “sensitive personal information” of 146 million Americans.
Online portal Yahoo upped the number of accounts that were hacked in 2013 to – get this — 3 billion.
The National Security Agency admitted that its state-of-the-art hacking tools were stolen by hackers and are now available for sale on the dark web.
The Federal Deposit Insurance Corporation (FDIC) suffered more than 50 data breaches between January 2015 and December 2016, exposing “personally identifiable information (PII) of U.S. citizens.”
Dan Wasyluk discovered the hard way that trading cryptocurrencies such as bitcoin happens in an online Wild West where sheriffs are largely absent.
Mr Wasyluk and his colleagues raised bitcoins for a new tech venture and lodged them in escrow at a company running a cryptocurrency exchange called Moolah. Just months later the exchange collapsed; the man behind it is now awaiting trial in Britain on fraud and money-laundering charges. He has pleaded not guilty.
Mr Wasyluk’s project lost 750 bitcoins, currently worth about $3m, and he believes he stands little chance of recovering any money.
“It really was kind of a kneecapping of the project,” said Mr Wasyluk of the collapse three years ago. “If you are starting an exchange and you lose clients’ money, you or your company should be 100 per cent accountable for that loss. And right now there is nothing like that in place.”
Cryptocurrencies were supposed to offer a secure, digital way to conduct financial transactions but they have been dogged by doubts. Concerns have largely focused on their astronomical gains in value and the likelihood of painful price crashes. Equally perilous, though, are the exchanges where virtual currencies are bought, sold and stored. These exchanges, which match buyers and sellers and sometimes hold traders’ funds, have become magnets for fraud and mires of technological dysfunction, posing an underappreciated risk to anyone who trades digital coins.
The obvious conclusion is that our bank, brokerage and bitcoin accounts aren’t safe from hackers and/or cyber-attacks that shut down settlement systems and power grids.
So physical cash – always a good thing to have on hand – is a crucial part of disaster planning. And precious metals in the form of small denomination gold and silver coins are if anything even more important, since who knows what a large-scale cyber event and the subsequent central bank money printing will do to fiat currency values.
S&P futures are again modestly in the green as European shares hold steady ahead of a meeting of the Catalan regional parliament and a possible declaration of independence by Catalan leader Puigdemont, while Asian shares rise a the second day. The dollar declined for the 3rd day, its losses accelerating across the board amid growing concerns that Trump's tax reform is once again dead following the Corker spat and a rejection from Paul Ryan, with the move gaining traction after China set the yuan’s fixing stronger for the first time in seven days. Monday’s sell-off in Turkish assets seemed to have little follow-through, with emerging-market currencies all trading higher and Treasuries steady. Traders are also waiting for minutes from the Federal Reserve’s last meeting, which may provide more details on the path of interest rates and balance sheet tapering.
“The weak dollar is a cue for investors that the U.S. Fed will not be aggressive in raising interest rates and this supports the outlook for a strong equities market," said Cristina Ulang, head of research at First Metro Investment Corp. in Manila. “We will see a U.S. rate increase in December but it’s not going to be sharp since we aren’t seeing runaway U.S. economic growth."
Asia stocks advanced as traders in Japan and South Korea returned from holidays, pushing the regional benchmark to a three-week high amid a broad weakness in the dollar. The MSCI Asia Pacific Index gained 0.7% to 164.49, its highest close since Sept. 20. The biggest boost came from Samsung Electronics which also helped South Korea’s Kospi advance 1.6%. In Japan, the Topix rose to its highest close in more than a decade, driven by a string of positive economic data both at home and abroad. The Asia-wide gauge has rallied 22 percent so far this year, on course for its best performance since 2009. It’s still trading at the biggest discount to the S&P 500 Index in 15 years in terms of price-to-book.
All eyes are on Europe however, and Spain in particular, where Catalan lawmakers will meet today to consider a declaration of independence that risks an ironclad backlash from Madrid. Attention will focus on the form of words used by Catalan President Carles Puigdemont, who is due to address the parliament in Barcelona at 6 p.m. The IBEX fell alongside most national gauges across Europe. The common currency gained for a third day. It is Spain’s biggest political crisis since an attempted military coup in 1981. Madrid’s IBEX stocks index drooped 0.5 percent early on and it is now down almost 9 percent since May, though a sharp rise in the euro has also taken a toll.
“We have not witnessed any relevant statement or signal by the separatists that would hint at a change of strategy ahead of today’s discussion in the Catalonian parliament,” economists at Barclays wrote.
“Consequently, at this point, it seems likely that Catalan President Carles Puigdemont remains on track to announce a unilateral declaration of independence as early as today.”
“Rather than a full universal declaration of independence, we may see a ‘symbolic statement’ from the Catalan government,” said Fabio Balboni, economist at HSBC Bank Plc. “Signs of disagreement are starting to emerge within the regional government, with more moderate members fearing the consequences of a further step towards independence, given the lack of support from the EU, and moves by some banks and firms to leave Catalonia.”
Despite the Spain jitters, The euro remained resilient, rising to a one-week high as data showed German exports had surged in August. Traders were also still upbeat on the currency after one of the European Central Bank’s German policymakers called for an end to its stimulus.
Elsewhere, Turkey’s lira recouped some of yesterdays losses even as the U.S. signaled the crisis between the two countries could drag on. Gold rose as the greenback weakened, and West Texas oil held gains near $50 a barrel before U.S. government data forecast to show crude inventories extended declines for a third week. Japan’s Topix index closed at the highest since July 2007 and Korean stocks staged a catch-up rally after a week-long holiday.
Turkey also got some help from a weaker dollar which was down for a third straight day. The dollar index, which tracks the greenback against six major rivals, dropped 0.2 percent to 93.533 and away from Friday’s almost 3-month peak. It gave the Turkish lira a breather having been sent sprawling to a nine-month low on Monday after the United States and Turkey scaled back visa services.
Meanwhile, Mexico’s peso hovered at its weakest in more than four months, ahead of the latest round of talks over the North American Free Trade Agreement (NAFTA) on Wednesday.
Over in Asia, the offshore Chinese yuan rate surged to its strongest levels in more than two-weeks. The central bank had also set a firmer-than-expected official rate, suggesting authorities are keen to keep the currency in check ahead of next week’s key national leadership meeting.
In commodities, Crude oil prices edged slightly higher, supported by OPEC comments signaling the possibility of continued action to restore market balance in the long-term. But gains were seen as limited as oil production platforms in the Gulf of Mexico started returning to service after the latest U.S. hurricane forced the shutdown of more than 90 percent of crude output in the area. Brent crude inched up 1 cent to $55.80 a barrel. U.S. crude added 2 cents to $49.60. Gold prices hit their highest in more than a week, though gains were capped as expectations of another U.S. interest rate hike this year limited appetite. Spot gold added 0.2 percent to $1,286.52 an ounce.
Rate markets were largely unchanged, with the yield on 10-year Treasuries declined one basis point to 2.35 percent. Germany’s 10-year yield dipped one basis point to 0.44 percent, the lowest in two weeks. Britain’s 10-year yield was unchanged at 1.357 percent, the lowest in a week.
Traders are awaiting the start of the earnings season this week, with several major banks due to report, as well as Wednesday’s minutes from the Federal Reserve’s last meeting. Canadian stocks reopen after a holiday. Investors also await speeches by Fed Presidents and the minutes from the most recent Federal Reserve meeting due Wednesday. Economic data include NFIB small-business optimism. No major earnings scheduled.
E-Mini futures on S&P 500, Dow and Nasdaq 100 each up 0.2%
VIX Index down 1.7% at 10.15
STOXX Europe 600 down 0.2% to 389.47
MSCI Asia up 0.7% to 164.49
MSCI Asia ex Japan up 0.7% to 542.58
Nikkei up 0.6% to 20,823.51
Topix up 0.5% to 1,695.14
Hang Seng Index up 0.6% to 28,490.83
Shanghai Composite up 0.3% to 3,382.99
Sensex up 0.3% to 31,929.41
Australia S&P/ASX 200 down 0.02% to 5,738.11
Kospi up 1.6% to 2,433.81
German 10Y yield fell 0.4 bps to 0.44%
Euro up 0.4% to $1.1785
Brent Futures up 0.4% to $56.01/bbl
Italian 10Y yield fell 3.3 bps to 1.82%
Spanish 10Y yield unchanged at 1.677%
Gold spot up 0.4% to $1,289.21
U.S. Dollar Index down 0.3% to 93.39
Top Overnight News
Catalan President Carles Puigdemont is due to address regional lawmakers around noon New York time on the outcome of the Oct. 1 referendum that has been ruled illegal by the Spanish courts
Minneapolis Fed President Neel Kashkari, a known dove and a candidate in running for the next Fed Chair, delivers opening remarks at a conference
Allies of President Donald Trump say they fear his feud with Republican Senator Bob Corker risks unraveling the White House tax overhaul effort and that another major legislative failure could hobble the administration for the rest of his term
The U.S. Ambassador to Turkey issued a video statement saying he “can’t predict” how long the latest crisis between the two countries will last
Trump may travel to the demilitarized zone separating North and South Korea as part of his first visit to South Korea in Nov., Yonhap News reported, citing an unidentified military official; Trump is expected to send a “significant message” to North Korea during the trip, Yonhap said
Spanish police are ready to arrest Catalan President Carles Puigdemont immediately if he declares independence in the regional parliament, two people familiar with the matter said; Puigdemont has called a press conference at 1pm in Barcelona
New Zealand First Party leader to delay his public announcement about the result of talks to form a new government until Friday: NZ Herald
German exports rose 3.1% m/m in August, beating an estimate 1.1% rise
Banks in Europe have sold about 33 billion euros ($39 billion) of a new type of bank bond they’re calling “senior non-preferred”; the label allows underwriters to market the notes to managers of funds that can only hold senior debt, even though the securities can be forced by regulators to take losses in a crisis
U.K. industrial output rose 1.6% y/y in Aug. vs est. 0.9%, while the trade deficit widened to GBP14.2B vs est. GBP11.2B
Canadian Prime Minister Justin Trudeau will discuss international
security and trade during a meeting with President Donald Trump
Canadian housing data: Median estimate forecasts a drop; still, momentum for a strong housing market will still be strong
Asia equity markets were mixed after a cautious tone in the US, although the KOSPI (+1.8%) surged as it took its turn to play catch up from a 10-day closure. ASX 200 (-0.3%) was indecisive with weakness in energy names offset by strength in gold miners, while Nikkei 225 (+0.5%) found support from a weaker currency following dovish comments from BoJ Governor Kuroda. Hang Seng (+0.6%) and Shanghai Comp. (-0.3%) were subdued with profit taking seen in the mainland after yesterday’s outperformance. Finally, 10yr JGBs were flat with demand dampened amid a positive risk tone in Japan and a reserved BoJ Rinban announcement for just JPY 605bln of JGBs. BoJ Governor Kuroda said Japan's economy is expanding moderately and expects CPI to pick up pace towards 2% goal, while Kuroda added the BoJ is to expand the monetary base until inflation overshoots target.
Top Asian News
Japan-Wide Scandal Erupts Over Steelmaker’s Falsified Data
Bank Indonesia to Keep Inflation Focus Despite Aggressive Easing
Japan Stocks to Watch: Fujitsu, Honda, Retailers, Rohm, Toyota
Bank Indonesia to Keep Inflation Focus After Aggressive Cuts
Chinese Firms List at Fastest Pace Since Market Opened in 1990
PBOC Chief Quotes Phantom of the Opera in Push for Market Reform
All anticipation is on the upcoming speech from the Catalonian leader, expected at 12:00 London Time, where there overwhelming consensus is that he will officially announce the referendum result. The IBEX underperforms, yet largely in-line with the periphery European bourses, as the FTSE MIB trades close to 1% down close, with the nation clearly seeing the largest reaction to the ECB’s plan to rein in bad loans. Not the best results in terms of UK and German auctions, and the respective 10 year debt futures are acknowledging the signs of indigestion or simply tepid demand accordingly. Specifically, covers were relatively light and for the DMO the tail was lengthy, while the Buba retained around 20% of its inflation linker. Pre-issuance Eurex low holding in, for now, but Liffe setting a marginal new base and it could be a sell into dips market until or unless something changes to provide fresh leads.
Top European News
Famous Brands Plunges Most in 14 Years on Gourmet Burgers Blow
U.K. Utilities Heading for Price War to Protect Market Share
What to Watch for If Catalan Leader Says ‘Independence’ Today
Italy Industrial Output Rises Above Estimate, Boosting Outlook
Mirabaud Says Brokerage Business Targets Break-Even This Year
In currencies, the highlight data of the day came from the UK, as sterling was initially propped up by the higher than expected Manufacturing data. Cable tested 1.32 following the data, however, clearly running into offers around this key level. UK Manufacturing Output MM (Aug) 0.4% vs. Exp. 0.2% (Prev. 0.5%, Rev. 0.4%) Manufacturing Output YY (Aug) 2.8% vs. Exp. 1.9% (Prev. 1.9%, Rev. 2.7%) Goods Trade Balance GBP (Aug) 14.24B vs. Exp. -11.20B (Prev. -11.58B, Rev. -12.83B) Goods Trade Bal. Non-EU (Aug) -5.83B vs. Exp. -3.60B (Prev. -3.84B, Rev. -5.34B). The Norwegian Krone took a hit in early European trade, as the nation’s CPI report missed across the board, albeit marginally so. EUR/NOK broke out the week’s early range and spiked through Friday’s highs.
In commodities, gold has continued to recover following the bounce seen ahead of 1260.00, drawing support from global uncertainty, alongside a softer USD. However, the increased expectations of another hike from the Fed, and the tightening likely to move into 2018, upside could be curved. Oil markets have also continued to recover from last week’s lows ahead of 49.00, which is evident of pending bids. WTI trades near session highs, looking to break back through 50.00/bbl, seemingly strengthened by comments from Barkindo stating that growth in US shale had slowed compared to the first half of 2017 and growth in global demand may show further upward revisions, giving the supply cut effort tailwind.
Looking at the day ahead, the only reading due in the US is the September NFIB small business optimism print. Onto other events, The Fed’s Kashkari is scheduled to speak at a regional economic conference. The IMF and World Bank annual meetings also start today and run through to Saturday.
US Event Calendar
6am: NFIB Small Business Optimism 103, est. 105, prior 105.3
10am: Fed’s Kashkari Speaks at Regional Economic Conference
8pm: Fed’s Kaplan Speaks at Stanford Institute
Oct. 10-Oct. 15: Annual Meetings of the IMF and the World Bank
DB's Jim Reid concludes the overnight wrap
Markets were given their own lullaby yesterday with the US on partial hols thus resulting in a quiet session. It was actually a landmark day though as it marked 10 years since the pre-GFC peak in the S&P 500. At periodic intervals throughout this year we’ve marked such 10 year crisis related anniversaries with a quick performance review of the major asset classes from our regular monthly’s performance review. We repeat this today for this latest anniversary with the graph and the 10yr performance table today.
To summarise in dollar terms, the S&P 500 (+102%) actually tops our list of 38 global assets even though this point 10 years ago was the local peak. This is followed by US HY (+85%) and 6 of the top 8 in dollar terms are credit assets. Gold (+74%) breaks up the top 8. 26 of the 38 assets are in positive total return territory since this point and 12 are in negative territory led by Greek equities (-85%), European Banks (-54%) with other major underperformers including Portuguese equities (-39%), Oil (-38%), FTSE-MIB (-34%), Bovespa (-33%), Russian Micex (-30%), Shanghai Comp (-18%) and the IBEX (-2%). So although US equities and credit markets have shrugged off the impact of the crisis and have prospered, deep scars still remain especially for the European periphery and some EM equities (all dollar adjusted).
Turning to Catalonia, Spanish markets slightly rebounded on Monday (IBEX +0.50%, 10y bonds -3bp) following increased pressure over the weekend on the Catalan authorities to avoid declaring independence. We should have more clarity today as Catalan President Puigdemont is expected to address the regional Parliament in Barcelona (Tuesday, 6pm local time). Back on Monday, Spanish newswire Efe reported Puigdemont plans to declare independence, but is also likely to insist Catalonia wishes to negotiate with the Spanish government with the help of external mediators. Elsewhere, as per Bloomberg, Catalan secessionists have tried to urge the Spanish opposition Socialists to form a coalition to oust Spanish PM Rajoy, which they have since refused. A member of the Socialists’ executive board (Carmen Calvo) said her party is focused on ensuring that the Spanish Constitution is observed.
Over to Brexit, the UK government has published White papers or contingency plans for leaving EU without a new Brexit deal. In the papers, the UK will set up its own customs regime where it will set its own tariffs, quotas and classification of goods, broadly in line with WTO requirements. However, the FT noted that British officials admit these contingency plans are at early stages and the government has not really invested in staff and systems to build a new customs system yet. Following up, PM May spoke yesterday, noting “it is our responsibility as a government to prepare for every eventuality” and that these white papers “support that work”, which sets out “steps to minimise disruptions for businesses and travellers”. Further, she noted that re the Brexit talks the “ball is in their court”. However, the EU commission spokesman responded “the ball is entirely in the UK court for the rest to happen”. In view of the stalemate, we note that the fifth round of Brexit talks are currently underway and will conclude this Thursday.
This morning in Asia, markets are trading marginally higher as we type. The Kospi is up +1.93% after markets reopened following a 10 day break. Elsewhere, the Nikkei (+0.34%) and ASX 200 (+0.06%) are up slightly, while the Hang Seng (-0.06%) and Shanghai Comp. (-0.25%) are slightly lower.
Turning to Turkey, the Lira/USD fell to a 6 month low (Lira -2.46%; equities -2.73%) yesterday after the US and then Turkey suspended Visa services for citizens seeking to visit the other country over the weekend. While the White House has remained silent, the U S ambassador to Turkey went onto YouTube to say “we hope (the situation) will not last long, but…we can’t predict how long it will take to resolve this matter”. Later on Monday, Turkey’s Erdogan spoke during a news conference, noting “the implementation of such decision (suspending Visa services) by the US ambassador is very saddening. Turkey is a state of law, not a tribal state”. As a reminder, Turkey represents c1% of the MSCI emerging market index, c23% of its government debt is held by foreigners (highest since Aug. 2015) and c37k US citizens travelled to Turkey in 2016.
Onto market performance yesterday now. US bourses softened on limited news flow and trading, with the S&P 500 (-0.18%), Dow (-0.06%) and Nasdaq (-0.16%) all slightly down on light volumes. Within the S&P, marginal gains in the energy and utilities sectors were more than offset by losses from healthcare and industrial names. Conversely, European markets were modestly higher, aided by a rebound in Spain's IBEX (+0.50%) and a solid IP reading from Germany. Across the region, the Stoxx 600 and DAX both rose c0.2% while the FTSE dipped 0.20%. The VIX has halted its trend of 8th consecutive days of being below 10, rising 0.68 to 10.33, likely reflecting increased geopolitical tensions. The record stretch was 10 days in July this year.
Bond markets were slightly firmer, with core European 10y bond yields down modestly, with Bunds (-1.6bp), OATs (-1.7bp) and Gilts (-0.6bp) all rallying. Elsewhere, peripherals slightly outperformed with Spanish and Italian 10y yields both down 3.4bp. At the 2y part of the curve, changes were more modest, with Bunds (-0.4bp) and OATs (-0.3bp) slightly down while Gilts were unchanged. Most key currencies were little changed with the US dollar index down 0.13% while the Euro gained 0.09%. Notably, Sterling had a solid day (+0.58%), partly due to a positive data revision to the UK labour cost figure (likely a better measure of pay growth). The Office of National Statistics conceded an error in its 2Q growth in unit labour costs, as it should be 2.4% yoy rather than 1.6% as reported on Friday. In commodities, WTI oil rose 0.59%, following reports that Saudi Arabia plans to make further cut to its crude supplies in November. Elsewhere, precious metals (Gold +0.58%; Silver +0.79%) were slightly higher, while other base metals were mixed, but little changed (Copper -0.27%; Zinc -0.13%; Aluminium +0.99%).
Away from the markets, ECB Executive Board member Sabine Lautenschlaeger said “we should begin reducing our bond purchases next year” and exit QE as soon as possible, but noted that “it is important that we really move towards the exit – step by step, but steadily and in a clear direction”. On inflation, she noted “looking to the future, we can be confident that inflation will return to our objective”.
Staying in Europe, some words of caution from politicians and central bankers. The ECB policy maker Klass Knot said it feels “increasingly uncomfortable” to have low volatility in markets while there are risks in the global economy. Elsewhere, in his departing interview with the FT as Germany’s longest servicing finance minister, Schaeuble warned that investors are “concerned about the increased risks arising from the accumulation of more and more liquidity and the growth in public and private debt, “I myself am concerned about this, too”.
Over in Japan, with only 12 days till the election, the latest polls suggests the challenger – Tokyo governor Koike’s new Party of Hope may be losing steam. According to a small survey by Yomiuri newspaper over the weekend, 13% of respondents said they will vote for her party, down from 19% a week ago. Notably, support for Abe’s LDP is at 32% and 27% of respondents are still undecided. Staying in Asia, China’s long serving People’s Bank of China Governor Zhou Xiaochuan reiterated calls for further opening up of China’s financial sector, as per Bloomberg. He said “we could take bigger steps to increase the market access for financial institutions and the opening up of the financial market”. The interview is perhaps conveniently timed before the Chinese Community Party meets tomorrow for a final time before the big party congress later in the month (potentially 18th October).
The latest ECB CSPP numbers were out yesterday. The average daily run rate last week was €356mn (vs. €349mn average since the CSPP started). This is at the low end of the recent range but the CSPP/PSPP ratio is still notably above the pre-taper ratio. The current week saw the ratio at 12.9% and is above the 11.6% seen before the taper (vs. 16.6%, 14.8%, 19.2%, 13.6% in the last few weeks). So still strong evidence that the ECB is tapering PSPP more than CSPP. It’ll be interesting to see what happens after the expected additional taper likely to be announced in just over two weeks.
Before we take a look at today’s calendar, we wrap up with other data releases from yesterday. In Germany, August IP was materially above expectations at 2.6% mom (vs. 0.9% expected) and 4.7% yoy (vs. 2.9%). Notably this stronger month follows two consecutive months of decline, so annualised growth over the quarter is c3.4% saar for total production. Our German team needs a strong Sep. IP and retail sales to get to their expected 0.6% qoq increase in 3Q GDP, although positive sentiment indicators makes them optimistic that we are getting there. Elsewhere, the Eurozone’s October Sentix investor confidence index slightly beat at 29.7 (vs. 28.5 expected) to a new post-GFC high, while France’s business industry confidence was a tad softer at 104 (vs. 105 expected).
Looking at the day ahead, it’s a fairly busy day, particularly in Europe. The most significant releases in Europe include the August industrial production prints for France (1.5% yoy expected), Italy (2.9% yoy expected) and the UK (0.9% yoy expected) along with August trade data for Germany and the UK. The only reading due in the US is the September NFIB small business optimism print. Onto other events, The Fed’s Kashkari is scheduled to speak at a regional economic conference. The IMF and World Bank annual meetings also start today and run through to Saturday.
Uber says giving UK drivers worker rights would cost tens of millions of pounds (Reuters)
Cryan Is Losing Support of Top Deutsche Bank Owners (BBG)
Netflix fends off criticism over Canada investment (Reuters)
Wal-Mart Wants to Break Into the Ivy League Recruiting Circuit (BBG)
OPEC Secretary General urges U.S. shale oil producers to help cap global supply (Reuters)
Google Unearths Russia-Backed Ads Related to Politics on Its Platforms (WSJ)
Overnight Media Digest:
- Bowing to mounting pressure, General Electric is giving activist investor Trian Fund Management a seat on its board as the struggling industrial company looks for ways to revamp its operations and reverse its slumping stock price. on.wsj.com/2wKfTQo
- The Trump administration is formally withdrawing federal limits on carbon emissions at power plants, triggering the next stage of what is likely to be a years long fight over the government's centerpiece regulation for slowing climate change. on.wsj.com/2wJpLtu
- More than a dozen wildfires in Northern California destroyed at least 2,000 houses and businesses, killed 10 people and turned parts of the state's bucolic wine country into an inferno. on.wsj.com/2wK0jnK
- Weinstein Co is considering changing its name as it moves to distance itself from former co-chairman Harvey Weinstein, the larger-than-life Hollywood mogul who was once the studio's biggest asset, but who has become its biggest liability. on.wsj.com/2wK0pvC
- Google found that Russian-linked entities bought tens of thousands of dollars worth of politically motivated ads on its platform before and after the U.S. election. on.wsj.com/2wK0yza
- ESPN suspended network host Jemele Hill for violating its social media policy, after she advocated a boycott of Dallas Cowboys sponsors who are also ESPN sponsors. on.wsj.com/2wJpQ0g
- Unilever pulled an online video ad for its blockbuster body wash brand Dove and apologized after critics called the spot racist. on.wsj.com/2wKhCW0
- Singapore’s City Developments on Monday offered 552.5p a share to buy 35 percent of Millennium & Copthorne Hotels Plc it does not already own.
- BAE Systems is expected to cut more than 1,000 jobs. The move will hit the company’s centre of air combat expertise at Warton in Lancashire.
- Royal Mail is to lodge an application with the High Court for an injunction in a bid to stop the first nationwide strike hitting the UK postal service since it was privatised.
- Britain Prime Minister Theresa May was told by a group of 10 business leaders, who met her on Monday, that a transition period after Brexit was absolutely essential.
- General Motors said it had acquired Strobe, a company that specializes in laser-imaging technology geared toward enhancing the development of autonomous vehicles. nyti.ms/2wJJXLM
- The Los Angeles Times said it had named Lewis D'Vorkin, previously a senior executive at Forbes, its top editor. nyti.ms/2wJqafB
- Alphabet Inc's Google has found evidence that Russian agents bought ads on its wide-ranging networks in an effort to interfere with the 2016 presidential campaign. nyti.ms/2wJAJPY
- With competitors such as Airbnb nipping at their heels, Marriott International Inc, with 30 hotel brands, including Starwood and Ritz-Carlton, and other hotel companies are marshaling their clout to attract sports stars, including professional surfers, and even a National Geographic photographer. nyti.ms/2wKlA0C
- The Trump administration announced on Monday it would take formal steps to repeal former U.S. President Barack Obama's signature policy to curb greenhouse gas emissions from power plants, the Clean Power Plan, setting up a bitter fight over the future of America's efforts to tackle global warming. nyti.ms/2wJkBxD
THE GLOBE AND MAIL
** After facing widespread criticism from key players in Canada's cultural industries, Netflix Inc has started a public relations campaign to "set the record straight" about its pledge to spend C$500 million ($400 million) on Canadian productions over the next five years. tgam.ca/2y6X3XC
** Ottawa has chosen nine industry consortiums that will qualify to receive C$950 million under the Liberal government's flagship innovation initiative known as its "superclusters" program, The Globe and Mail has learned. tgam.ca/2y6tZzn
** Canadian special forces have played a central role in hunting down, detecting and dismantling stockpiles of chemical weapons used by Islamic State militants in Iraq, according to sources with knowledge of the top-secret operations. tgam.ca/2y75DWh
** The federal government is warning it will impose tougher rules for companies involved in oil and gas, mining and forestry that are working in the boreal forest unless provinces act to protect endangered caribou. tgam.ca/2y70q0I
** The secretary general of NATO, Jens Stoltenberg, says the military alliance will be there to protect Canada, if called upon, in the event of a nuclear threat from North Korea. bit.ly/2y7ke4c
The average rental price for new tenancies rose to 927 pounds ($1,218) a month in September, compared with 908 pounds in the same month last year, suggesting that rents have not yet reached the peak of affordability, despite rising inflation, sluggish wage growth and economic uncertainty. bit.ly/2fWTDMh
Statoil ASA has highlighted its continued appetite for investing in the North Sea after finding an oil deposit that could contain up to 130 million barrels. bit.ly/2ySVWYk
Former British prime minister David Cameron has taken a job with the electronic payments firm First Data Corp, his first major private sector job since leaving office. bit.ly/2zaiyV6
Britain's switch to greener energy will take another significant step forward this week with the opening of an industrial-scale battery site in Sheffield. bit.ly/2fVtT2M
The UK government is under scrutiny by European competition authorities over allegations of providing illegal state aid to BT Group Plc via the business rates regime, amid plans to boost investment in Britain's broadband infrastructure with new tax breaks. bit.ly/2yc4Ked
The majority owner of Millennium & Copthorne Hotels Plc has moved to take the company private with a bid that values the UK-listed business at 1.8 billion pounds. bit.ly/2yBCPpz
In an interview for Sky News, eBay Inc's UK Vice President Rob Hattrell said that Brexit was "an opportunity" for the companies that used eBay's trading platform. bit.ly/2g7EETA
BAE Systems Plc, Britain's biggest defence contractor, is to axe more than 1,000 jobs this week in a bitter blow for Britain's manufacturing industry. bit.ly/2y74bAQ
Royal Mail Plc has said that it will lodge an application with the High Court for an injunction to prevent a 48-hour strike from happening, in a dispute over pensions and pay. ind.pn/2gottTw
Tens of thousands of airline passengers have been told their flights have been cancelled by the latest French air traffic control strikes. The main air-traffic controllers' unions are stopping work as part of a national strike against the labour reform policies of President Emmanuel Macron. ind.pn/2g6Jhg
Asian Metals Market Update: October-10-2017 By: Chintan Karnani, Insignia Consultants
Lack of news will imply a technical trade. Gold investment demand has been steadily increasing in Germany. Asian demand will be the key to gold prices. Asian demand for gold will be high only if prices remain firm. Buyers will vanish if there is any hint that gold prices will move into a short term bearish phase.
S&P500 futures point to a slightly lower open, as Asian stocks rise to trade near decade highs, with Japan’s Nikkei 225 closing at highest since 1996. European stocks are little changed, with Spanish shares gaining after Catalan President rows back from an immediate declaration of independence. MSCI's all-world stocks index briefly hit a fresh record high in opening European trading as a 1.5% jump in Spain's IBEX added to a 10-year high set by Asian shares overnight.
In early trading, the euro extended gains spurred by Catalonia’s pullback from an immediate declaration of independence from Spain, while the dollar drifted as investors awaited minutes from the last Federal Reserve meeting. Spanish stocks ralied sharply, with the IBEX 35 index rising as much as 2%, helped by a rise in banking shares which rallied as much as 4%, after Catalan President Carles Puigdemont said he’ll seek talks with Madrid over the future of his region in Spain delaying any independence announcement for “weeks”, rowing back from an immediate declaration of independence.
“There was a chance Puigdemont would have made a decisive declaration, so now yields are dropping because there is room for negotiation left,” said DZ Bank strategist Christian Lenk.
At the same time, the Spanish 10y bond yield dropped 5bps to 1.65%. However, shortly before 5am ET, the EURUSD slumped without a specific catalyst, while the European rally fizzled modestly as renewed fears over the fate of the Catalan region re-emerged. Puigdemont’s backtrack averted an immediate confrontation over independence for Catalonia, though Spanish leaders are maintaining a hard line. Deputy Prime Minister Soraya Saenz de Santamaria accused Puigdemont of irresponsible leadership even as he sought to reassure companies fleeing the region. Prime Minister Rajoy convened an extraordinary meeting of his cabinet in Madrid on Wednesday to discuss his next move.
Elsewhere in Europe, the FTSE 100 climbed to as high as 7,550.17, surpassing its record closing level of 7547.63, after rising steadily the past 3 weeks. However, the index was down fractionally at last check. The pound has been under pressure in the past month as Brexit negotiations remain stuck on questions over the divorce terms, such as the size of the U.K.’s exit payments and the future of EU citizens’ rights. Stocks elsewhere on the continent, however, struggled for traction, with the Stoxx Europe 600 gauge flat as a drop in industrial metals led miners lower.
Asian equity markets were mostly positive as the region got a tailwind from Wall Street where all 3 major indices posted fresh all-time highs. This supported sentiment with ASX 200 (+0.6%) also lifted by energy names after WTI reclaimed the USD 51/bbl level to the upside. Shanghai Comp. (+0.2%) and Hang Seng (-0.4%) were choppy after a feeble liquidity effort by the PBoC and with Hong Kong benchmark just about kept afloat amid Chief Executive Lam’s policy address and profit tax cut announcement.
The most notable overnight move was the jump in Japanese shares, with the Nikkei 225 closing at its highest since December 1996, propped by companies in industries ranging from technology to retail. Machinery maker Fanuc Corp., Recruit Holdings Co., FamilyMart UNY Holdings Co., SoftBank Group Corp. and Terumo Corp. were the biggest contributors to the Nikkei 225’s gain, while scandal-whipped Kobe Steel Ltd. was the worst performer, falling a record 36 percent over two sessions. Railway companies and insurers propelled the benchmark Topix index to a decade-high for a second straight day.
“Expectations for upward revisions in local companies’ annual profit targets are pretty high ahead of the earnings season kicking off later this month,” said Yoshihiro Ito, chief strategist at Okasan Online Securities Co. in Tokyo. “It also reflects anticipation of a victory for the Abe administration in the upcoming election.”
Japan’s stock market has been buoyed by a series of upbeat economic data. A Cabinet Office report released before the market opened Wednesday showed Japan’s core machinery orders for August climbed more than analysts expected. The yen’s weakness against the dollar has further fanned speculation for robust growth in quarterly earnings. Japanese voters will head to the polls on Oct. 22 for a general election in which Prime Minister Shinzo Abe’s Liberal Democratic Party will be challenged by Tokyo Governor Yuriko Koike’s new Party of Hope. Support for the LDP was up marginally to 31.2 percent in an opinion survey conducted Oct. 7-9, compared with a poll from last week, according to public broadcaster NHK.
In the US, President Donald Trump’s public feud with Tennessee Senator Bob Corker, an influential fellow Republican, has raised concern that his push for a tax-code overhaul could be harmed. At the same time, the Federal Reserve will publish the minutes from its last minute later with a third U.S. rate hike of the year now looking nailed on for December.
“Squabbles surrounding Trump’s efforts come as no surprise, but it is still not helping the dollar,” said Yukio Izhizuki, senior currency strategist at Daiwa Securities in Tokyo.
Overnight, Trump tweeted dismisses rumours that Chief of Staff Kelly will be fired soon, in which he blames dishonest media and says the chief is doing a fantastic job. Elswhere, Fed's Kaplan (voter, soft hawk) said will be assessing progress of US economy towards full employment and looking for more signs of upward inflation. Kaplan added that he is mindful waiting too long to raise rates could leave the Fed behind the curve and increases chances of a recession, but also commented that the Fed can afford to be patient on rate hikes because economic growth is not running away. US may seek stricter NAFTA rules of origin and may require 85% of content to come from 3 NAFTA countries, may also seek 50% US content requirement, according to reports.
In FX, most Asian emerging currencies were higher after China fixed the yuan stronger and as news on Catalonia encouraged risk-taking, while concerns over U.S. tax reform and geopolitical risks lingered. Taiwan’s dollar was the biggest gainer, followed by Thailand’s baht while the offshore yuan fell. The euro rose to the highest level in two weeks after Catalan President Carles Puigdemont said that while an Oct. 1 referendum had given him the mandate to pursue independence, he would “suspend” the result for some weeks for dialogue with Spanish Prime Minister Mariano Rajoy’s administration. Catalan concerns have been rolled over to a future date and the yuan has been stronger, which are among the positive factors for Asia’s emerging currencies, said Stephen Innes, Singapore-based head of trading for Asia Pacific at Oanda Corp.
“Not too surprisingly, Asia’s EM FX is looking a lot brighter.” The Bloomberg Dollar Spot Index declines and the 10-year U.S. Treasury yields stayed below their recent highs of 2.4 percent, amid a feud between U.S. President Donald Trump and high-ranking Republican Senator Bob Corker that’s put the tax-reform agenda in question. The yen strengthened against the U.S. currency amid persistent concerns about North Korea. The Australian dollar rose, while the kiwi was steady
The dollar was little changed against its peers before FOMC minutes; stock futures held to tight ranges after Tuesday’s record high, while Treasury yields slipped. The euro held above 1.18 as options suggested further upside, while Spanish bonds outperformed on lower Catalan risks and the Turkish lira climbed for the first time in nine days. The Bloomberg Dollar Spot Index edged lower as London came into the market, reversing gains in the Asia session; the euro edged higher for a fourth day of gains against the dollar; Aussie dollar caught a bid from offshore funds following strong response to record bond auction; dollar-yen edges lower but trades above 112.00; cable steady around 1.3200 but neared 0.9000 against the euro as evidence emerged of further splits within the U.K. government over Brexit; Spanish bonds rallied as Catalans put off an immediate declaration of independence and sought dialogue.
Treasuries stuck in tight ranges through Asian hours and edge higher early in Europe as stocks unwind opening gains. Treasuries continue to outperform bunds, with spread 3bps tighter, though no evidence of large cross-market block trades that helped drive the tightening on Tuesday
In geopolitics, North Korea is reportedly looking as if it could be ready to launch multiple scud missile. US President Trump was briefed by Defence Secretary Mattis and a top military leader, in which they discussed a range of options to respond to any North Korea aggression. There were reports that 6 planes including 2 US B1-B bombers flew over the Korean peninsula as a show of force.
In the U.S., investors will parse Wednesday’s FOMC minutes for further confirmation a December rate increase is on track. Ten-year U.S. Treasury yields nudged lower after President Donald Trump said Tuesday he plans to make changes to his tax plan within the next few weeks, while dismissing concerns that his public spat with Senator Bob Corker would scuttle an overhaul. BlackRock, Delta among companies set to report earnings.
Bulletin headline summary from RanSquawk:
European bourses trade in the green with Spain leading the charge following yesterday’s announcement by Puidgemont
FX trade has been limited early in the European session, as markets digest the Catalonian announcement, and wait in anticipation for the latest FOMC minutes
Looking ahead, highlights include US JOLTS, FOMC minutes, Fed’s Evans, Williams and ECB’s Praet
S&P 500 futures down 0.09% to 2,546.25
STOXX Europe 600 down 0.01% to 390.12
MSCI Asia up 0.1% to 165.00
MSCI Asia ex Japan up 0.3% to 544.82
Nikkei up 0.3% to 20,881.27
Topix up 0.1% to 1,696.81
Hang Seng Index down 0.4% to 28,389.57
Shanghai Composite up 0.2% to 3,388.28
Sensex down 0.06% to 31,905.31
Australia S&P/ASX 200 up 0.6% to 5,772.15
Kospi up 1% to 2,458.16
German 10Y yield rose 1.7 bps to 0.459%
Euro up 0.2% to $1.1833
Italian 10Y yield rose 1.3 bps to 1.833%
Spanish 10Y yield fell 2.8 bps to 1.667%
Brent Futures up 0.2% to $56.74/bbl
Gold spot up 0.05% to $1,288.69
U.S. Dollar Index down 0.2% to 93.14
Top Overnight News
Dallas Fed President Robert Kaplan says he’s undecided on a rate move, with U.S. economy solid and inflation pressures probably building
European Central Bank policy makers are poised to preserve their commitment to ultra-low interest rates as they wrangle over how long to keep their bond-buying program going, according to central bank officials, who declined to be named because such matters are confidential
Bets on EUR/USD through options suggest that traders are the most bullish on the euro since 2009 on prospects for ECB tapering
China is moving forward with plans to issue its first dollar-denominated bonds since 2004, with the Ministry of Finance scheduled to meet with bankers in Beijing Wednesday to discuss the sale, according to people familiar with the plans
Expect High Fees in Cohen’s Hedge Fund Relaunch; Fed Minutes May Fan Inflation Debate; Trump to Renew Offensive on Tax Plan
President Donald Trump said Tuesday he plans to make changes to his tax plan within the next few weeks, while dismissing concerns that his public spat with Senator Bob Corker would scuttle an overhaul
Billionaire trader Steven Cohen, who may stage a comeback to the business next year when his regulatory ban on managing client money expires, has considered charging management fees of at least 2.75 percent and may pass on certain costs to investors for the first time
The scandal engulfing Kobe Steel Ltd. deepened Wednesday as the steelmaker said it may have falsified data about two more products, triggering a further collapse in its shares and intensifying concern that compromised material found its way into cars, trains and aircraft
China is moving forward with plans to issue its first sovereign bonds in dollars since 2004 in a deal that will put a symbolic seal of approval on the booming offshore Asian debt market
Spain maintained its hard line against Catalonia’s secession campaign after the regional leader in Barcelona stopped short of the declaration of independence his allies wanted
Asian equity markets were mostly positive as the region got a tailwind from Wall St where all 3 major indices posted fresh all-time highs. This broadly supported sentiment with ASX 200 (+0.6%) also lifted by energy names after WTI reclaimed the USD 51/bbl level to the upside. Nikkei 225 (+0.3%) pared opening weakness as USD/JPY nursed losses, although Kobe Steel woes persisted after further confirmation of product data falsification. Shanghai Comp. (+0.2%) and Hang Seng (-0.4%) were choppy after a feeble liquidity effort by the PBoC and with Hong Kong benchmark just about kept afloat amid Chief Executive Lam’s policy address and profit tax cut announcement. Finally, 10yr JGBs were subdued amid a positive risk tone in Japan and after a mixed 30yr auction where the b/c increased but accepted prices declined from last month. PBoC injected CNY 20bln via 7-day reverse repos. PBoC set CNY mid-point at 6.5841 (Prev. 6.6273)/
Top Asian News
Noble Group Said in Advanced Talks to Sell Oil Unit to Vitol
Hong Kong Developers Won’t Get Lower Land Premiums, Lam Says
India Oil, Gas Service Providers Surge After Sales Tax Clarity
Japan Shares Rise With Nikkei 225 Closing at Highest Since 1996
Deutsche Bank’s Japan Investment Bank Chairman Said to Leave
Most EU bourses are trading marginally in the green, while outperformance has been seen in Spanish assets with the IBEX surging higher, led by banking names. This comes after yesterday’s press conference from the Catalan leader, whereby Puigdemont announced that he had requested the mandate to pursue independence from Spain but said it would not be implemented for a few weeks. A strong German 5 year auction could induce a bid and re-test of the intraday highs, but debt futures are still lacking any real conviction ahead of the after-hours Fed minutes and latest from Spain on Catalonia (PM Rajoy holding a news conference at 11.00BST). However, Spanish Bonos and EZ peripheral paper overall continue to outperform, with Portuguese bonds deriving additional support from well received 5 and 10 year supply, even though this was destined to draw decent investor interest as the first bond offerings since S&P upgraded the sovereign in September. Conversely, UK Gilts remain the laggards after Tuesday’s lacklustre DMO 20 year tap, with Brexit and BoE tightening expectations all weighing on sentiment/direction
Top European News
Europe’s Natural Gas Traders Have a Bone to Pick With Italy
Pound to Climb Toward $1.40 Amid Floundering Brexit: Saxo Bank
Italy New Electoral Law May Not Enhance Governability: Citi
Smith and Nephew Gains After Report of Elliott Stake Building
Mondi Falls as Rising Costs, Currency Moves Weigh on Earnings
In currencies, trade has been limited early in the European session, as markets digest the Catalonian announcement, and wait in anticipation for the latest FOMC minutes. The greenback has backed off this morning, with the DXY finding support around yesterday’s lows, just ahead of 93.10. As such, Dollar counterparts have ticked up, with EUR/USD edging higher following marginal bids amid the Catalonian leader avoiding making a formal declaration of independence from Spain, to test its August 29th high. In fact, the EUR has seen a slight bid against all its counterparts, as EUR/GBP grinds higher through the 0.8940 consolidation, while EUR/CAD attacks September’s high of 1.4812, where offers are likely placed. USD/JPY has edged away from 112.50, with option expiries the theme this week, (2bln worth of expiries between 112.80 and 113.00).
In commodities,trade has also been quiet throughout the session with WTI crude futures mildly extending on yesterday’s 3% increase to briefly break above the USD 51/bbl level. Of note, today will see the release of the API crude report after US close and the monthly OPEC report at 1200BST. Gold climbed 0.1 percent to $1,288.98 an ounce, the highest in more than two weeks.
Looking at the day ahead, China’s Xi Jinping is due to deliver a communique following the meeting of the Chinese Communist Party. The UK’s Philip Hammond will face questions in the House of Commons, including on Brexit related issues. In the US, the big focus in the US will be the FOMC meeting minutes from the September meeting. Datawise we’ll receive August JOLTS data prior to this, while the Fed’s Evans and Williams are both due to speak later on. The ECB’s Praet is also due to deliver comments this evening.
US Event Calendar
7am: MBA Mortgage Applications, prior -0.4%
7:15am: Fed’s Evans Speaks on Economy and Monetary Policy
10am: JOLTS Job Openings, est. 6,135, prior 6,170
2pm: FOMC Meeting Minutes
2:40pm: Fed’s Williams Gives Community Leaders Speech
DB's Jim Reid concludes the overnight wrap
Markets spent yesterday mostly waiting for Catalan President Carles Puigdemont’s address last night to the regional parliament. It seemed he’d increasingly been boxed in by differences of opinion within his own coalition and also the fact that 6 of the 7 Catalonian based companies in the IBEX 35 have made strong overtures towards relocating their legal bases away from the region. Given that his options had seemingly been reduced over recent days he played his hand relatively well by saying the referendum had given the region a mandate for independence but that they would hold off for now to enter into dialogue with PM Rajoy and his administration. He said “we propose the suspension of the effects of the declaration of independence for a few weeks, to open a period of dialogue”.
Later in the evening, Bloomberg reported that Catalan lawmakers (including Puigdemont) are signing a document titled “Declaration of the representatives of Catalonia”, but are delaying its implementation. On the other side, the Spanish Deputy PM said “neither Mr Puigdemont nor anyone else can draw conclusions from a law that doesn’t exist, from a referendum that hasn’t taken place…” We shall find out more soon as the Spanish PM Rajoy will convene an extraordinary cabinet meeting in Madrid today (9am local time) and will address the Spanish Parliament later in the day.
Outside of this, the big focus today will be the FOMC meeting minutes from the September meeting (2pm local time). Our US team believes inflation will be a heavily debated topic, but given the recent Fed speak, it appears that most voting members are looking through some of the recent weakness and prefer to continue the “gradual” removal of monetary accommodation. For example, based on the forecasts submitted at the meeting, 12 of the 16 FOMC participants favoured at least one more rate hike this year. Elsewhere, the Fed’s Rosengren said over the weekend that inflation “is still not at the level that I would expect it to be, but we’re definitely seeing that tight labour markets are causing wages and salaries to gradually go up as well” and that inflation “will be much closer to 2%” a few months into 2018. As a reminder, the voting Chicago Fed Evans (today) and Fed Governors Brainard and Powell (tomorrow) will be speaking over the next day or so. Data wise, the September PPI is due tomorrow, followed by the big CPI release and retail sales on Friday. So plenty of opportunity for the rate debate to move on.
Turning to the proposed US tax reforms now. When asked if the latest public rhetoric with Senator Corker would undermine his tax efforts, President Trump said “I don’t think so. I think we’re well on the way”. Further, he noted “we’ll be adjusting (the plans) a little bit over the next few weeks to make it even stronger…”. Later on, the White House Press Secretary Sanders noted that “… the final piece of legislation has not been finalised….(but) the framework is still the same”. For now we wait and watch, perhaps not for too long, as according Kevin Brady (Chairman of the Ways and Means Committee), his committee will release the tax bill “very soon” after both Chambers of Congress adopt a budget resolution later this month.
Circuling back to Brexit. The EU President Donald Tusk said the EU was not preparing for a full collapse of Brexit talks, but if talks “continue at a slow pace and that sufficient progress has not been reached, then we will have to think about where we’re heading”. Elsewhere, Chancellor Hammond has written for The Times overnight and noted that the UK government is “planning for every outcome and we will find any necessary funding and will only spend it when it’s responsible to do so”. We shall know more this Thursday post a wrap up news conference by EU negotiator Michel Barnier.
Staying with politics. Over in Italy, the Premier Gentiloni’s cabinet has called a confidence vote to pass a new electoral law which could potentially penalise the 5-Star Movement party (5SM). The new system (Rosatellum 2.0) would likely be used in next year’s election and could allow the formation of broad coalitions before the ballot. The new system allows 36% of lawmakers elected on a first-past-the-post basis and 64% via proportional representation. The 5SM candidate for PM (Luigi Di Maio) said “this is a mortal blow to democracy…the aim is to destroy us”. However, as per Reuters, the Rosatellum, even if passed, still looks unlikely to lead to a clear parliamentary majority, with opinion polls showing the centre-left, centre-right and 5SM splitting the vote three ways. For now, the voting process for the new law is expected to end this Thursday with the likely backing from the ruling PD party, Berlusconi's opposition centre-right Forza Italia, the Northern League and the small centrist Popular Alternative (AP) group. Then the bill will go to the upper house senate where the government apparently has no clear majority.
This morning in Asia, markets are following the positive lead from the US. The Nikkei (+0.26%), Kospi (0.86%), ASX 200 (+0.61%) and Shanghai Comp. (+0.33%) are all modestly up, but the Hang Seng is broadly flat as we type.
Turning to market performance yesterday. US equities rebounded towards its record high, with the S&P 500 (+0.23%), Dow (+0.31% to a fresh all time high) and Nasdaq (+0.11%) all up slightly. Within the S&P, gains were led by the utilities and consumer staples sector with minor offset from the consumer discretionary sector. Wal-Mart jumped 4.47% after announcing a US$20bln share buyback (c8% of market cap) with positive guidance to its e-commerce sales. European equities broadly softened yesterday ahead of Catalan President’s address which took place after market hours. The Stoxx 600 (-0.01%), CAC (-0.04%) and DAX (-0.21%) dipped marginally, while the IBEX fell 0.92% but the FTSE 100 advanced 0.40%.
Bond markets were mixed but little changed. Core 10y bond yields were broadly flat (UST +0.2bp; Bunds -0.2bp; OATs unch), while Gilts (+0.6bp) and peripherals such as Italian BTPs (+1bp) and Spain (+1.5bp) were slightly higher. At the 2y part of the curve, Bunds and OATs were broadly flat, but Gilts and Spanish yields rose 1.7bp and 2.3bp respectively.
Turning to currencies, the US dollar index fell 0.41% while Euro and Sterling gained 0.58% and 0.46% respectively, partly aided by higher than expected macro data and the more conciliatory tone from the Catalan President’s address. WTI oil rose 2.70% to US$50.89/bbl ahead of EIA data, which are expected to show crude inventories declined for a third week. Precious metals were slightly higher (Gold +0.31%; Silver +0.90%) while other base metals were mixed but little changed (Copper +0.56%; Zinc +0.67%; Aluminium -0.93%).
Away from markets, the Netherlands has just formed a new coalition government 208 days after the actual election. Mark Rutte of the People’s Party for Freedom and Democracy will lead the coalition along with three other parties, although with only a 1 seat majority (76 out of 150) in the parliament. As per the FT, some of the government’s early focus include: i) support the unity of the remaining 27 EU members and protect the interests of the Dutch fishing sector and ii) any common Eurozone debt instruments are undesirable, in part as all member states cannot shift the negative impact of their policies onto other countries.
Looking at the day ahead, China’s Xi Jinping is due to deliver a communique following the meeting of the Chinese Communist Party. In Europe the final September CPI revisions for Spain are due. Onto other events, The UK’s Philip Hammond will face questions in the House of Commons, including on Brexit related issues. Across the pond, the big focus in the US will be the FOMC meeting minutes from the September meeting. Datawise we’ll receive August JOLTS data prior to this, while the Fed’s Evans and Williams are both due to speak later on. The ECB’s Praet is also due to deliver comments this evening.
Nuclear Anxiety Hasn’t Stopped This Fund From Investing $500 Million in South Korea (BBG)
Bulletin headline summary
- Activist investor Nelson Peltz narrowly lost his bid to win a board seat at Procter & Gamble, but his campaign isn't going away, promising to keep pressure on P&G to change. on.wsj.com/2y9j0Fq
- Driver's license data for around 10.9 million Americans was compromised during the breach of Equifax's systems, according to people familiar with the matter. on.wsj.com/2y7NLdQ
- Fire officials issued grim tallies as more than a dozen wildfires tore through Northern California: at least 17 people dead and more than 100 missing. on.wsj.com/2y9jDPi
- A Turkish court sentenced Wall Street Journal reporter Ayla Albayrak to two years and one month in prison Tuesday, declaring her guilty of engaging in terrorist propaganda in support of a banned Kurdish separatist organization through one of her Journal articles. on.wsj.com/2y9M67O
- Wal-Mart Stores will deepen its cost-cutting and introduce zero-based budgeting in some units, efforts to free up funds for new e-commerce and store improvements in an increasingly competitive retail environment. on.wsj.com/2yah9Ap
- A systems error during a technology test Tuesday inadvertently published scores of erroneous test headlines and articles on Dow Jones Newswires. on.wsj.com/2y94rSq
- 6,500 Home Office staff currently working on immigration will not be able to cope with the challenges posed by Brexit of registering the 3.6 million EU citizens living in UK, two former senior immigration officials have told MPs.
- James Harding, BBC’s head of news, will step down at the end of the year to start his own news media venture. In an address to the BBC staff, Harding said that he was considering starting his new venture over the summer.
- UK’s National Audit Office has accused Nuclear Decommissioning Authority of mishandling a 6.2 billion pound ($8.19 billion) contract, one of the largest awarded by the UK government.
- Agriculture and Horticulture Development Board have predicted average UK farm income to fall to 15,000 pounds per year from 38,000 pounds unless UK strikes a free-trade agreement with the European Union.
- Apple Inc is digging into the more than $1 billion it has set aside for original programming to create its first known television project: a revival of a Steven Spielberg series from the 1980s. nyti.ms/2gurOMc
- After a failed effort to find a solution to save the company, Sears Canada Inc said on Tuesday that it would shut down operations, leaving about 12,000 employees out of work. nyti.ms/2gvhCTJ
- American technology and manufacturing company Honeywell International Inc said on Tuesday that it planned to spin off parts of its business but would retain its aerospace technology operations, against the recommendations of an activist investor. nyti.ms/2guqOYh
- Pharmaceutical giant Pfizer Inc said it had begun a strategic review of its consumer health care unit that could result in the business, whose products include Advil, Centrum supplements and ChapStick, being spun off or sold. nyti.ms/2i2QDT1
THE GLOBE AND MAIL
** Sears Canada Inc said it plans to liquidate its remaining 131 stores and put 12,000 employees out of work, after an attempt by its executive chairman to save the department store retailer failed. tgam.ca/2guGsTs
** Canadian auto-parts giant Magna International Inc has joined a consortium led by BMW AG that is developing a self-driving vehicle platform that can be used by multiple auto makers. tgam.ca/2gujPPa
** Starlight Investments, one of the largest privately held apartment landlords in Canada, is creating a $1.3 billion partnership with two of the largest pension funds in the country to look for multi-family assets in south United States, a region largely free of rent control. bit.ly/2guMZ0j
** Sabrina Geremia is taking over as director of Google's Canadian Operations, the company said Tuesday, after filling in as interim leader since Sam Sebastian left for Pelmorex Media Inc in July. bit.ly/2guaYwQ
Royal Bank of Scotland Plc's 425 million pound ($561.43 million) "challenger" fund's grant policy has come under attack from new lenders and politicians because one of its chief beneficiaries could be Banco Santander SA. bit.ly/2fZVzUb
Britain will miss out on the best global economic conditions since 2011 as the post-Brexit outlook holds the country back next year, the International Monetary Fund has warned. bit.ly/2kF7NXy
Network Rail is set to be granted an enhanced budget, likely to be more than 40 billion STG, to run Britain's railway. bit.ly/2yaEpf3
Workers from Bombardier Inc's Belfast plant on Wednesday will unfurl a banner outside the Houses of Parliament in London demanding that Theresa May and her ministers do more to safeguard their jobs. bit.ly/2i2Zd4d
Equifax Inc on Tuesday said it is contacting nearly 700,000 customers in the UK to alert them that their data had been stolen in the attack. The company had earlier estimated that the number of people affected in the UK was "fewer than 400,000." bit.ly/2yXIaU3
Convenience chain Nisa has recommended its 1,190 shopkeeper members to agree to a 143 million STG takeover from The Co-operative Group after four months of stop-start talks. bit.ly/2wLMkxP
The asset management firm Old Mutual Global Investors is in talks to take a stake in payments app TransferWise. bit.ly/2yXzjlo
Unilever Plc is shifting approximately 140 UK-based jobs to the Netherlands as part of a plan to create a new global headquarters for brands such as PG Tips and Magnum ice cream. bit.ly/2ybULnP
Lord Myners, the former City minister and now Labour peer, has called for an inquiry to be held into Monarch Airlines as the after shocks from the airline's collapse continue. ind.pn/2yE3sdx
The Office for Budget Responsibility of UK on Tuesday said it anticipates significantly reducing the assumption for potential productivity growth over the next five years. ind.pn/2yEQEUk
Asian Metals Market Update: October-11-2017 By: Chintan Karnani, Insignia Consultants
Political developments from every nook and corner of earth make me believe that I should increase my contingency fund and also increase the allocation to physical gold. Short term corrections (if any) are a part and parcel of a long term bull rally. The pace of rise of gold and silver will be slow till the end of next year. Gold and silver are not for make a quick buck and vanish. Hit or miss traders should trade in bitcoins and not in gold or silver.
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Guest Opinion: More stupidity and arrogance from the financial sector
By Donald Markert
11 hrs ago
Once again the financial sector of our economy has placed us at risk.
The Equifax hack is another example of the overwhelming stupidity and arrogance that exists in the financial sector. This is the fourth attack on the Equifax database. Previous hacks occurred in 2013, 2016, and earlier in 2017. Did they not learn anything?
Is Equifax attempting to improve its bottom line by offering compromised individuals one year free credit monitoring? The risks associated with Equifax’s failure will not disappear after a year. Affected consumers could be required to pay for these credit monitoring services for the rest of their lives, making Equifax huge profits.
After the 2008 economic collapse spawned by the financial sector's speculation and gambling, Congress failed to act to prevent a re-occurrence. It merely placed a Band-aid on an arterial hemorrhage.
The USA has experienced internet hacking in both the public and private sector for many years, yet major repositories for critical information have not secured themselves or us from the potential for data losses due to hacking.
Equifax’s response to the hack was even more telling of the total lack of respect they have for us.
What did Equifax do?
• Delayed notification to the public by well over a month.
• Top executives sold stock to profit from the current price instead of from the post-release stock price.
• Said their credit scoring database was unaffected by the breach; that credit scores were unchanged; offered up one year of free credit monitoring with a proviso that affected individuals accepting the free credit monitoring would waive their right to sue for damages resulting from Equifax’s negligence.
• Rescinded the waiver to sue only after external pressure was applied.
• Didn't offer to pay for credit freezes, identity theft prevention or restoration, reimbursement for any and all financial losses or consequences resulting from the breach.
In essence, they are doing nothing but pursuing profit at our expense!
The recurrent failures of our financial sector represent a clear danger to the economic stability and security of citizens! We must demand that:
• The financial sector accept responsibility for their failures.
• Congress and the financial sector address and correct the underlying problems creating the cyclical economic instability we are experiencing at ever increasing frequency.
• The financial sector be held accountable for its failures, not rewarded, as we saw following the 2008 economic collapse when the very people responsible for the failure received multi-million dollar bonuses.
• The financial sector submit to regulation and oversight to prevent future economic calamities.
• Oversight and regulations are enforced by independent agents not affiliated with the financial sector.
• Agencies responsible for oversight and regulation of the financial sector are empowered to act to prevent further economic catastrophes.
• Equifax provide free services necessary for each of us to protect ourselves from the effects of their negligence, including credit monitoring, credit freezes, legal services, financial reimbursement for any losses and costs, identity restoration, and other consequences. And it should pay for services provided by other agencies.
For its part, Congress should act by passing legislation that will protect us from the stupidity, arrogance and negligence of the financial sector.
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In a trend observed every day this week, S&P futures are slightly in the red ahead of a post-open ramp with the VIX rising to 9.91, as Asian shares climb, European stocks are little changed. WTI crude pares recent gains, slipping below $51 after API showed an unexpected crude build. Earnings season launches with bank earnings reports from JPMorgan and Citigroup, while Economic data include PPI figures, jobless claims.
As Reuters notes, broader investor risk sentiment has improved this week after Catalonia dialed back plans to break away from Spain, with MSCI’s 47-country world stocks index reaching a record high. Global equities now appear to be taking geopolitical developments such as the secessionist push in Spain and tensions on the Korean peninsula in their stride, to reach those record tops.
Analysts will be keeping a close eye on banks Q3 reports: Trading probably dropped from the same period a year earlier. Executives from JPMorgan, Citigroup and Bank of America Corp. told investors last month to expect declines ranging from 15 percent to 20 percent. Goldman Sachs Group Inc., coming off its worst first half for the trading business in more than a decade, said the third quarter remained challenging. Subdued volatility, especially compared with the turmoil from Brexit and the U.S. election a year earlier -- made the period particularly tough.
The Bloomberg Dollar Spot Index held a four-day decline as buying interest remained low after some Federal Reserve policy makers expressed concern in the account of the latest FOMC meeting that weak inflationary pressures are more than just transitory. The minutes of the FOMC’s Sept. 19-20 meeting were interpreted as dovish, posing risks to the path of interest rate rises investors price in for 2018 onward should inflation be weaker than targeted. The importance of U.S. CPI growth data due Friday is highlighted by overnight volatility in euro-dollar, which hit a more than two-week high, surpassing the levels seen ahead of U.S. payrolls last week, although it was unable to hold on to gains and fizzled to session lows after the European open.
Asian stocks advanced for a 5th day, sending the regional benchmark to a fresh 10-year high on Thursday, after minutes of the latest U.S. Federal Reserve meeting boosted optimism that rate increases in the world’s biggest economy will remain gradual, while the dollar sagged after the Federal Reserve showed a more guarded view towards inflation. The MSCI Asia Pacific Index rose 0.5 percent to 165.80 as of 4:40 p.m. in Hong Kong, heading for the highest close since November 2007. As Bloomberg reports, SoftBank was the second-biggest contributor to the regional gauge’s advance as Japan’s Topix also added to decade-long highs.
The Fed minutes released Wednesday showed officials debated hard last month over whether forces holding inflation down were persistent or temporary, with several policy makers looking for stronger evidence of price gains before supporting a third interest-rate increase this year.
“We expect that only a further unanticipated decline in inflationary pressures would prevent the Fed from moving in December,” said David Sloan, senior economist at Roubini Global Economics. “Looking further ahead, however, inflation is likely to need to show some improvement if three more rate hikes are to be delivered in 2018.”
“The Fed minutes signify the U.S. economy is on a recovery path and that succeeding rate increases will not be sharp," easing concerns of market shocks, said Lexter Azurin, analyst at Manila-based AB Capital Securities. “An improving U.S. economy is taken positively by market for its big role in the global economy."
European equities kicked off the session on a relatively tame footing with very little seen in the way of direction. In terms of sector specific performance, things are also relatively contained with some very modest underperformance seen in financial names in the wake of yesterday’s slightly more dovish than anticipated FOMC minutes release. Individual movers include Deutsche Lufthansa (+2.6%) amid expectations the Co. will purchase 81 planes from Air Berlin and retain 3k of their staff, with easyJet (+2.2%) supported by a pre-market broker move. ECB's Praet said deflation risks have disappeared, but that Euro area inflation remains subdued and that sustained inflation adjustment will guide QE exit. Praet added that a substantial amount of stimulus is still required and that ECB should communicate more on reinvestment policy
In the U.K., sterling rose for a fourth day even as the fifth round of Brexit negotiations draws to a close with seemingly little progress. The U.K.’s chief negotiator David Davis and his EU counterpart Michel Barnier are due to brief reporters before noon in Brussels. Brexit negotiations are at a virtual political standstill, with no notable advances made in the fifth round of negotiations, according to several diplomats briefed on the discussions, the FT reported.
Overnight, President Trump stated we cannot allow North Korea situation go on. The President also commented on his tax plan, saying that he is looking at around 10% repatriation tax rate and vowing to lower corporate taxes to a maximum 20% from 35% and above, also pledges to cut small business tax marginal rate by 40%.
Treasury yields dropped as the market looks to inflation data out of the U.S. due Friday.
Gold continued its rally to climb above its 21-DMA, rising 0.2% to $1,294.66 an ounce, the highest in more than two weeks. West Texas Intermediate crude declined 0.7 percent to $50.93 a barrel.
Bulletin Headline summary from RanSquawk
Greenback sees a marginal recovery as DXY finds support at 92.80
European equities trade subdued, failing to follow Asia and the US, likely hampered by the bullish EUR and lack of newsflow
Looking ahead, highlights include weekly jobs data, US PPI, DoEs and a slew of central bank speakers
S&P 500 futures down 0.2% to 2,548.80
VIX Index up 0.6%, at 9.91
STOXX Europe 600 up 0.06% to 390.40
MSCI Asia up 0.5% to 165.79
MSCI Asia ex Japan up 0.6% to 548.24
Nikkei up 0.4% to 20,954.72
Topix up 0.2% to 1,700.13
Hang Seng Index up 0.2% to 28,459.03
Shanghai Composite down 0.06% to 3,386.10
Sensex up 0.5% to 31,991.46
Australia S&P/ASX 200 up 0.4% to 5,794.47
Kospi up 0.7% to 2,474.76
German 10Y yield fell 1.4 bps to 0.449%
Euro up 0.03% to $1.1862
Italian 10Y yield rose 5.9 bps to 1.892%
Spanish 10Y yield rose 0.7 bps to 1.645%
Brent Futures down 0.5% to $56.65/bbl
Gold spot up 0.4% to $1,296.56
U.S. Dollar Index down 0.09% to 92.93
Top Overnight News from Bloomberg
Republican lawmakers from high-tax states are set to meet with House Majority Leader Kevin McCarthy and Ways and Means Chairman Kevin Brady Thursday to discuss GOP proposals to end the state and local tax deduction
U.S. and Turkish officials will meet in the coming days to try to defuse a diplomatic crisis over Turkey’s arrest of some U.S. citizens and local consular workers, Turkey’s Deputy Prime Minister Bekir Bozdag said
Fed’s Bostic said that with a relatively strong and improving labor market and stable inflation expectations, “I am looking for inflation to drift up to 2 percent over the next year or so”
Kevin Warsh has emerged as the leading candidate to run the Federal Reserve next year, jumping ahead of current Chair Janet Yellen, according to a Bloomberg survey of economists Oct. 6–11; Jerome Powell, until now seen as a long-shot, vaulted into a tie for second with Yellen in the poll
Germany wants the European Union to be prepared to grant U.K. financial companies transitional access to the EU if the Brexit process drags on, according to a government strategy document
Global oil supply and demand estimates for 2018 indicate that inventories may not fall further, potentially capping prices, following a projected drop in stocks this year, the International Energy Agency said in its monthly report
Trading Revenue in Focus at JPMorgan, Citi; Warsh Favored as Next Fed Chair; Trump on Iran, Tax and Health Care
President Donald Trump said his tax plan would simplify the tax code and save money for millions of U.S. businesses and families as he campaigns against criticism the proposal is a giveaway to the rich
U.S. central bankers are looking for clues that underlying strength in the economy will underwrite their plans to raise interest rates for a third time this year, a record of their meeting last month showed, as officials wrestled with why inflation remains so low
Comcast Corp., 3M Co. and Wal- Mart Stores Inc. are among the companies buying back bonds now in transactions that could save them millions of dollars if the latest proposed tax changes from the Trump administration and Congress end up becoming law
Prime Minister Mariano Rajoy gave his Catalan antagonist Carles Puigdemont five days to clarify whether he has declared independence from Spain or not as the country prepared for its national holiday on Thursday
Passive investments, already eating away at active managers’ assets, are getting another boost from MiFID and two other new rules
Trump Is Said to Demand Tax-Break Change to Protect Middle Class
Brexit Talks Edge Backward as U.K. Prepares for the Worst
Proxy War Over Iran Nuclear Agreement Divides U.S., Europe at UN
BMW Said to Make Mini Brand Outside Europe in New China Tie-Up
China Sept. Auto Sales Rise 3.3% Y/y: CAAM
Bitcoin Strengthens Above $5,000 for the First Time
Asian equity markets traded mostly positive after another set of fresh record levels for all major indices in US, where focus was on the FOMC minutes which suggested concerns over weak inflation. The positive momentum helped Nikkei 225 (+0.35%) extend on its highest levels in over 2 decades and test the 21,000 level, while ASX 200 (+0.40%) was somewhat muted as weakness in miners capped upside. Elsewhere, Hang Seng (+0.24%) and Shanghai Comp. (-0.06%) were mixed with underperformance in the mainland after another lacklustre PBoC liquidity operation which led to a net daily drain of CNY 40bln. 10yr JGBs were relatively flat as demand lacked amid a mostly positive risk tone and reserved BoJ Rinban announcement for JPY 710bln of JGBs in the belly to the super-long end. PBoC injected CNY 20bln via 7-day reverse repos for a net daily drain of CNY 40bln.
Top Asian News
Hong Kong Slaps Banker With Ban for Mobile Phone, WeChat Use
Sri Lanka Makes Arrests in $60 Million Taiwanese Bank Cyberheist
Japan Stocks Set Fresh Highs Amid Optimism of Abe Election Win
European equities have kicked off the session on a relatively tame footing with very little seen in the way of direction. In terms of sector specific performance, things are also relatively contained with some very modest underperformance seen in financial names in the wake of yesterday’s slightly more dovish than anticipated FOMC minutes release. Individual movers include Deutsche Lufthansa (+2.6%) amid expectations the Co. will purchase 81 planes from Air Berlin and retain 3k of their staff, with easyJet (+2.2%) supported by a pre-market broker move. A firmer tone overall, with Bunds leading the way after an initial blip to set a fresh high for the week so far, but then running into selling above 161.50 (albeit with relatively tight stops). Some caution evident ahead of 30 year US long bond issuance, while BTPs also pared best gains ahead of Italy’s multi-tranche offering. However, EZ peripheral debt still marginally outperforming on dovish ECB comments (Praet) and a brief period of calm on the Catalonia-Spain front. Contrasting fortunes for Italy’s BTP issuance, with the top end of the range raised, but yields mixed and covers not that liberal overall – hence, the 10 year benchmark yield showing little net change since the results, but still a tad softer on the day around 2.144%. If anything, the cost of borrowing reflects modest curve flattening, and note that this is the first tap of the long dated 30 year maturity that was launched via syndication
Top European News
Italy Bank Bulls Say Bad Loan Panic Overdone as Stocks Slide
European Refiners Hardest Hit If Kurdish Oil Disrupted, IEA Says
Serco Is Said to Be Among Bidders for Carillion Health Unit
Event-Driven Hedge Fund Melqart Plans to Stop Taking New Money
Tallinna Sadam Eyes Passenger Growth, Nordic Cargo Ahead of IPO
In FX markets, the USD has regained some ground against its major counterparts that was seen in the wake of the aforementioned FOMC minutes with ranges overall relatively tight. This is likely as a by-product of a quiet European calendar and macro newsflow with a bulk of today’s releases and speakers not due until the latter half of the session. SEK has seen some weakness early doors with Swedish inflation metrics all falling short of expectations and subsequently providing the Riksbank with further ammo to stand pat on existing policy despite recent calls from the market to reconsider their approach. In option activity, 2bln worth of expiries loom in EUR/USD between 1.1790 – 1.1805 with another 7.5bln worth of expiries between 112.00 and 113.05 in USD/JPY. AUD benefited from stronger than expected Home Loans data, printing 1.0% vs. Exp. 0.5%. EUR/AUD ran into key levels ahead of the data, rejecting June’s high around the 1.5224 area.
In commodities, WTI and Brent crude futures continue to remain in close proximity to their post-API lows with the latest report revealing a surprise 3.1mln bbl build and subsequently pushing WTI back below USD 51/bbl. This morning’s IEA release has done little to instigate price action with key findings including expectations that OPEC will maintain output steady around current levels and their measure of compliance standing at 88%. Gold prices have remained supported by the broadly softer USD while copper was flat overnight and held onto recent advances amid a mostly positive global risk tone during Asia-Pac trade.
US Event Calendar
8:30am: PPI Final Demand MoM, est. 0.4%, prior 0.2%; Ex Food and Energy MoM, est. 0.2%, prior 0.1%; Ex Food, Energy, Trade MoM, est. 0.2%, prior 0.2%
8:30am: PPI Final Demand YoY, est. 2.6%, prior 2.4%; Ex Food and Energy YoY, est. 2.0%, prior 2.0%; Ex Food, Energy, Trade YoY, prior 1.9%
8:30am: Initial Jobless Claims, est. 250,000, prior 260,000; Continuing Claims, est. 1.93m, prior 1.94m
9:45am: Bloomberg Consumer Comfort, prior 49.9
DB's Jim Reid concludes the overnight wrap
Markets should be wide awake over the next 30 hours or so as we have US bank earnings kicking off Q3 reporting (JPM and Citi today), PPI today, US retail sales tomorrow and then possibly the data highlight of the month at the moment, namely US CPI. Before all that, the Fed kickstarted the second half of the week with their minutes last night where there was a clear debate on inflation but the tone - coupled with the two Fed speakers - was perhaps a bit more dovish than market expectations with UST 10y down 1.3bp. The odds of a December rate hike is c77% (per Bloomberg) though and not much changed.
In the details, the minutes noted “many participants expressed concerns that the low inflation this year might reflect not only transitory factors…” and that several policy makers said their decision on whether to raise rates this year “would depend on whether the economic data in the coming months increased their confidence” that inflation is on track to reach the Fed’s target. Further, “it was noted that some patience in removing policy accommodation while assessing trends in inflation was warranted”. Elsewhere, some participants were more worried about upside risks to inflation arising from “a labour market that had already reached full employment and was projected to tighten further”. Notably, many participants continued to believe that labour market pressure would show through to higher inflation eventually.
Onto the Fedspeak. The more dovish Fed Evans said “it’s too early” to make a call on a December rate hike and that “I really don’t see any harm in waiting longer just to take more stock of the inflation situation”. Further, he added that while price pressure should emerge from a stronger labour market, “it might take something like 3.5% unemployment rate before you really see inflation pick up”. Elsewhere, the Fed’s Williams said that with the unemployment rate now down to 4.2% in September, the Fed had “not only reached the full employment mark, we’ve exceeded it”. He expects the unemployment rate to fall below 4% and remains optimistic that core PCE inflation should rise to 2% “over the next couple of years”.
Staying on the inflation debate, DB’s US economics yesterday published a note looking at demographics and inflation and find that aging has in fact been positive for US inflation in recent decades and that population aging should continue to act as a tailwind for inflation in the years ahead. Most people assume ageing is deflationary. I disagreed with that in last year’s long-term study and this report looks at the theme in much more detail. For more details, refer to Link. Also worth noting that Sweden’s September inflation reading (0.4% mom; 2.4% yoy expected) is due today and as George Saravelos reminded us yesterday it's interesting as they the only G10 economy to see core inflation hit its target over the last few months. Although the Riksbank has previously said they are not fully convinced with the recent upside surprises and don't see the price pressures as sufficiently broad based enough to be too concerned.
Over to Catalonia, Spain’s PM Rajoy has given the Catalan President Puigdemont until next Monday (10am local time) to formally clarify whether he has declared independence or not. The formal request for clarity is a necessary step if PM Rajoy decides to trigger legal procedures (Article 155 of the constitution) which could lead to the suspension of the Catalan Government. PM Rajoy noted “if Mr Puigdemont makes clear his wish to respect the law and return institutions to normality, he would end a period of uncertainty and rupture” and that he “just needs to say he didn’t declare independence”. Spanish markets responded positively, with IBEX up 1.34% and 10y yields down 5.8bp. The spread between Bunds and Spain has now narrowed to 116bp (-15bp than 7 days ago).
Staying with politics, the Italian government has won two of three confidence votes to pass a new electoral law, which could potentially penalise the 5-Star Movement party (5SM). A final confidence vote will be held today before the bill goes to the upper house senate later on where the government apparently has no clear majority. As a reminder, the new voting system allows 36% of lawmakers elected on a first-past-the-post basis and 64% via proportional representation. This development coupled with the latest over in Spain may have assisted the Italian markets too, with the FTSE MIB up 0.97% and 10y bond yields down 2.7bp yesterday.
Turning to the US 3Q reporting season which has kicked off this week. DB’s Chief asset allocation strategist Binky Chadha noted that the bottom up consensus expects 2.9% EPS growth yoy in 3Q, but adjusting for a typical beat (+3.4%) this suggests growth more like 6.3%, although still down from the 12.2% in 2Q, partly driven by the hurricanes. Across sectors, median growth is expected to be stronger for the cyclical sectors, led by Energy (67%), Tech (12%) and the Industrials (11%), with Financials (+8%) in the middle and then lowest for several defensives sectors like Telecoms (-1%), Utilities (+1%) and Staples (+4%). Link Elsewhere, JP Morgan (3Q adj. EPS $1.65ps consensus; +19% yoy, +4% qoq) and Citi’s (3Q adj. EP $1.32ps consensus; +14% yoy, +9% qoq) 3Q results will be out later today, with expected themes likely to be slowing loan growth, sound credit quality and weaker trading income. Notably, the latter has been well flagged by management, with Citigroup and JP Morgan previously suggesting trading income could decline c15% and c20% yoy respectively.
This morning in Asia, markets are building on the positive US lead and are trading higher as we type. The Nikkei is up 0.42% back around 21-year highs. The Kospi (+0.46%), Hang Seng (+0.26%) and ASX 200 (+0.29%) are all slightly up. Quickly recapping other markets performance from yesterday. US equities nudged higher to another fresh record high, with the S&P and Dow both up 0.18% while the Nasdaq rose 0.25%. Within the S&P, modest gains in the real estate (+0.54%) and utilities sectors were partly offset by losses by telco and financial names. In Europe, excluding the Spanish (+1.34%) and Italian (+0.97%) markets, other indices were little changed (Stoxx 600 flat; DAX +0.17%; FTSE -0.06%).
Over in government bonds, core European bond yields rose modestly while peripherals outperformed. Bunds (10y +2bp), Gilts (+1.7bp) and OATs (+1.4bp) rose modestly while peripherals such as Spain (-5.8bp), Portugal (-5.2bp) and Italy (-2.7bp) all outperformed. At the 2y part of the curve, core bond yields were little changed, with Bunds broadly flat but Gilts rose 2bp.
Turning to currencies, the US dollar index weakened 0.29%, while Sterling and the Euro gained 0.15% and 0.43% respectively, with the latter partly assisted by the Spanish developments. In commodities, WTI oil rose 0.75% following OPEC raising its demand forecasts for next year, but some of those gains are being reversed this morning following a surprise increase in US crude inventories. Elsewhere, precious metals were marginally higher (Gold +0.29%; Silver +0.31%) while other base metals were mixed, but little changed (Copper +1.82%; Zinc -0.96%; Aluminium -0.37%).
Away from the markets, the ECB board member Peter Praet reiterated “a very substantial degree of monetary accommodation is still needed” and “in the next few weeks, the governing council will again assess….its package of measures…and will recalibrate its instruments accordingly”. On the calibration of QE, the ECB’s Smet sounded a bit dovish, noting “given that we still need more confidence on inflation….” and “when there is more uncertainty, you would probably see more merits from a higher (pace of purchases)”. Earlier in the day, Bloomberg noted that according to Euro-area central bank officials, policy makers are expected to preserve their pledge to not raise interest rates until “well past” the end of bond buying. We shall find out more in the next ECB meeting on 26th October.
Over in the US, President Trump spoke in Pennsylvania to rally support for his tax reform. He provided more details on how the plans could benefit middle class families, claiming it will eventually translate into a “$4,000 pay raise for an ordinary worker”, albeit over an eight year timeframe (as per Trump’s economic advisers). For Congress, Trump noted “all I can say is, you better get it (tax plans) passed”. Elsewhere, Trump will reportedly meet with one of the Fed Chair candidates (John Taylor – Stanford Uni. Economist) this week, while Politico reported that Treasury Secretary Mnuchin has privately recommended Fed Governor Powell to Trump. Either way, it sounds like we may have a winner pretty soon.
Turning to Japan, a series of larger opinion polls suggest PM Abe could secure a two third majority in the election on the 22nd October. Kyodo news polled 90k people on 10-11 October and estimated Abe’s LDP party and his coalition partner could win a total 319 seats (out of 465). Elsewhere, the Asahi and Nikkei newspaper predicted the coalition could win c300 seats (c65%). The Kyodo polls estimates Governor Koike’s new Party of Hope could win 60 seats (c13%).
Finally, turning back to Brexit. While the EU and UK are reportedly closer on issues such as citizens’ rights, the actual Brexit talks are still likely in stalemate with a key issue being the potential financial obligations UK owes to the EU bloc. Chancellor Hammond said “we have to be prepared for a no deal scenario unless or until we have clear evidence that is not where we will end up”. When pressed further, he indicated that he would start investing money (for plan B contingency plans) as soon as January if progress hasn’t been made in the talks.
Before we take a look at today’s calendar, we wrap up with other data releases from yesterday. In the US, the August JOLTS job openings was lower than consensus at 6.08m (vs. 6.13m expected) as well as last month’s record level of 6.14m. The quits rate edged down 0.1pts to 2.1%. Elsewhere, the weekly MBA mortgage applications fell 2.1% (vs. -0.4% previous), but the 4-week average still rose 4.4% yoy. Over in Spain, the final reading for September inflation was broadly unchanged at 0.6% mom and 1.8% yoy (vs. 1.9% expected).
Looking at the day ahead, in France we’ll receive the final September CPI revisions, while Eurozone’s August IP will be out (0.6% mom; 2.6% yoy expected). The BoE will also release the latest credit conditions and bank liabilities surveys mid-morning. In the US, the big focus will be on the September PPI report (0.2% mom; 2% yoy expected for core), while the latest weekly initial jobless claims will also be released. Onto other events, today is a busy day for speakers with the ECB’s Draghi and Fed’s Brainard due to take part in a monetary policy panel in the afternoon, while the Fed’s Powell will speak shortly after at a conference in Washington. President Trump is also tentatively scheduled to give a speech on US policy towards Iran. Earnings season also gains some early momentum with JP Morgan and Citi scheduled to report.
Asian Metals Market Update: October-12-2017 By: Chintan Karnani, Insignia Consultants
Gold and silver rose as the FOMC did not say anything new on the economy or interest rate cycle. Low inflation could derail the Federal Reserve interest rate cycle. Physical gold and silver demand will be on the higher side in Asia as well as Europe if prices rise today. I also expect short positions to get converted into long positions if gold and silver rise. There are all of the ingredients for a new gold rally...
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Optimism grows for significant freight rate increases
Report says many fleets are 'bullish as we've ever heard.'
Oct 10, 2017 Neil Abt
A letter from J.B. Hunt executives to customers called the current environment “one of the highest periods of turbulence and volatility in supply we’ve ever experienced, and we don’t think it will abate anytime soon." (Photo: J.B. Hunt)
Trucking industry reports indicate capacity continues to tighten, and significant freight rate increases are expected in the coming months.
Recent hurricanes, the pending electronic logging device (ELD) mandate, and an uptick in overall freight demand has “unquestionably” given trucking fleets the upper hand in 2018 negotiations, according to a report from analyst Jason Seidl of Cowen and Co.
The report said private fleets and third-party logistics (3PL) firms are “as bullish as we’ve ever heard,” with rate increases possibly reaching 15%.
Seidl said one 3PL has informed a customer it will not honor a rate agreement from the spring because “the market has moved so significantly since then.”
John Larkin of Stifel noted that in recent weeks truckload volumes and spot rates have remained strong, and “contract rates began to move in the positive direction for the first time in a year and a half."
The report from Cowen called the spot market as hot as any time in the past three years, and for truckload carriers, the higher pricing translates into stronger rates on contract freight.
A letter obtained by Fleet Owner from J.B. Hunt Transport Services informed customers to prepare for rate hikes.
“This is one of the highest periods of turbulence and volatility in supply we’ve ever experienced, and we don’t think it will abate anytime soon. We predict our cost environment will be fluid and more responsive to the supply of drivers and capacity, as well as the additional constraints anticipated by the upcoming ELD mandate. With the expected impact of these conditions, we advise budgeting for transportation cost increases that may reach 10 percent or more," the Hunt letter said.
On the less-than-truckload side, volumes have been “up significantly” with some truckload overflow freight, industrial sector strength, and continued growth in the e-commerce sector.
In another report, IHS Markit said while spot rates have stabilized since the hurricanes, they remain elevated.
“Tightening in freight capacity, even before the hurricanes hit, will have an effect on increased transportation costs in the third and fourth quarters of 2017,” IHS said. “Demand for flatbed and specialized trucks will increase.”
One result of the rate increases, Larkin said, could be major increases in driver pay.
Growing market optimism was also evident in FTR’s preliminary September report on trailer orders, which came in at 21,500 units, up 47% from August and 84% from a year earlier.
“When fleets begin ordering more trailers in September, it indicates the market should be robust the following year,” said Don Ake, FTR’s vice president of commercial vehicles. “Freight expansion early next year will severely strain industry capacity, and fleets will need to add trailers to handle the added loads.”
World stocks rose to a 4th consecutive record highs, while the dollar headed for its worst week; U.S. stock-index futures are steady, with European and Asian stocks higher ahead of much anticipated US inflation data, which is expected to give cues on the outlook for the Federal Reserve’s interest rates. MSCI’s all world equity index was up 0.1% after hitting record highs on Thursday. Earlier in Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan hit a 10-year high, up 0.3 percent on the day.
The Stoxx Europe 600 Index rose 0.3%, led by steelmakers and miners as most industrial metals gained and WTI crude rose back above $51 a barrel. The dollar nudged lower as investors awaited the U.S. latest inflation data. Sterling pared gains after European Commission President Jean-Claude Juncker said “new problems” were emerging “day after day” in the Brexit withdrawal process. The British currency had rallied earlier on a report that the EU may offer the U.K. a two-year transition period to stay in the union.
Elsewhere, Asian stocks rose for a sixth day, the longest winning streak in three months, on optimism that U.S. economic data will prompt gradual rate hikes by the Federal Reserve. The MSCI Asia Pacific Index rose 0.5 percent to 166.47 as of 4:59 p.m. in Hong Kong, the highest level since November 2007. In Tokyo, the Nikkei 225 powered past 21,000 and completed a nine-day winning streak. The equities benchmark in the Philippines rose to a record, while mainland Chinese shares trading in Hong Kong extended their advance to a two-year high. The MSCI Asia Pacific Index has advanced 23 percent this year, poised for its sharpest annual gain since 2009. The gauge is trading at 14 times 12-month forward estimated earnings, highest since January.
The Asian highlight was once again Japan’s Nikkei 225 Stock Average, which completed a nine-day winning streak to close above 21,000 for the first time since November 1996. Fast Retailing Co., which accounts for about 6.5 percent of the measure, contributed most to its rise, after the company predicted that international sales for its Uniqlo chain will surpass those in Japan this fiscal year and reported the biggest jump in annual earnings in more than a decade on Thursday. The Topix index rose to a fresh decade-high even as the yen advanced against the dollar for a second day. The gauge was boosted by electronics makers and retailers. Both indexes posted a fifth consecutive week of gains, the longest weekly rally this year. The market will target the 22,000 mark next for the Nikkei 225, anticipating a currency rate of 115 yen per dollar and positive earnings continuing in the following fiscal year, said Takuya Takahashi, a strategist at Daiwa Securities Co. in Tokyo.
The U.S. later today will publish data on consumer prices and retail sales for September. Fed minutes released Wednesday showed several policy makers looking for stronger evidence of price gains before supporting a third interest-rate increase this year.
“The market is pricing another rate increase in December and it won’t derail the bounce in the U.S. economy because there won’t be a sharp rate ascent," said Noel Reyes, chief investment officer at Security Bank Corp. in Manila. “Also, improving economic outlook in Asia, Europe and the U.S. are translating to better performance for stocks."
Among the main overnight reports which pushed European bonds higher was a trial balloon "leak" to bother Reuters and Bloomberg, according to which the ECB was considering cutting quantitative easing in half to €30 billion euros a month from the current pace of €60 billion, according to officials familiar with the debate. While the central bank’s governors are split on the need to identify an end date for purchases, a pledge to keep buying bonds until September may offer grounds for compromise, they said.
“For the ECB, duration of the program should trump monthly purchases,” Royal Bank of Canada economists including Sam Hill said in a client note. “This should anchor front-end rates firmly, through the forward guidance linking interest rates to the duration of the bond buying, and steepen the yield curve.”
Following the reports, the EURUSD first dropped, then spiked, and ultimately dumped on what, on the surface at least, would look like hawkish news.
Also overnight we got the latest trade data from China, which missed modestly on exports, even as imports rose more than expected.
Chinese Trade Balance (CNY)(Sep) 193.0B vs. Exp. 266.05B (Prev. 286.50B). (Newswires)
Chinese Exports (CNY)(Sep) Y/Y 9.0% vs. Exp. 10.9% (Prev. 6.9%)
Chinese Imports (CNY)(Sep) Y/Y 19.5% vs. Exp. 16.5% (Prev. 14.4%)
Chinese Trade Balance (USD)(Sep) 28.47B vs. Exp. 38.00B (Prev. 41.99B). (Newswires)
Chinese Exports (USD)(Sep) Y/Y 8.1% vs. Exp. 10.0% (Prev. 5.5%)
Chinese Imports (USD)(Sep) Y/Y 18.7% vs. Exp. 14.7% (Prev. 13.5%)a
Commenting on the data, Goldman said, "Exports growth for China accelerated to 8.1% yoy in September from 5.6% yoy in August, slightly below consensus. Imports growth was also up to 18.7% yoy from 13.5% yoy in August, above expectations. In sequential terms, exports grew by 0.2% mom sa non-annualized, up from a fall of 0.2% in August. Imports increased by 2.4% mom sa non-annualized, moderating from 3.2% in August. The trade surplus moderated significantly to US$29.2bn from US$41.0bn in August. Sequential momentum in exports remained mild in September though picking up a bit, and has weakened significantly in Q3 as a whole to -4.5% from a significant rise of 12.0% in Q2. Trade prices might have decelerated modestly in Q3 (data on September trade prices have not been released), but sequential growth in real exports should have also moderated. This is consistent with our previous expectation that the strong exports growth we saw in H1 could probably be hard to maintain in H2. Going forward, sequential momentum in real exports should remain modest, and year-on-year growth will probably moderate due to a high base of Q4 last year."
Elsewhere, in the U.S., the Trump administration’s tax plan clouded up as the president was said to voice frustration with certain aspects of the existing framework. Some Congressional Republicans have aired concerns, though Treasury Secretary Steven Mnuchin reiterated his confidence that a plan will get passed this year. Data Friday on prices and retail sales may give more clues about the Fed’s policy path amid a debate about whether low inflation is temporary or permanent.
“The hurricane effects will mean that interpretations of the data will be difficult,” John Cairns, a strategist at Rand Merchant Bank in Johannesburg, said in a client note. “Anyway, the Fed has made it clear that it intends to raise rates in December even if inflation remains weak.”
Overnight Fed's Rosengren (Non-Voter, Soft Hawk) said a December hike is appropriate and that 3 rate hikes next year seems appropriate, while he added that low inflation gives the Fed the luxury of being gradual. Meanwhile, Fed's Bostic (Non-Voter, N/A) repeated he is unsure if Fed will hike rates in December and said US is moving quickly towards full employment.
In geopolitical updates, the White House will keep the Iran nuclear deal for now, but wants Congress to make a list of actions that would prompt sanctions, according to NYT
Meanwhile, overnight bitcoin soared to just shy of $6,000 before easing back modestly.
In rates, the yield on 10-year Treasuries climbed one basis point to 2.33%. Germany’s 10-year yield dipped two basis points to 0.43 percent, the lowest in more than two weeks. Britain’s 10-year yield gained two basis points to 1.363 percent, the highest in more than eight months. Spain’s 10-year yield fell three basis points to 1.608 percent, the lowest in more than a week.
In commodities, West Texas Intermediate crude gained 1.6 percent to $51.41 a barrel, the highest in more than a week. Gold climbed less than 0.05 percent to $1,293.86 an ounce. Copper increased 0.3 percent to $3.13 a pound, hitting the highest in almost five weeks with its fifth consecutive advance.
Today we get earnings from Bank of America and First Horizon. Also on
the agenda are a number of data points, including CPI, retail sales and
Bulletin headline summary from RanSquawk
ECB is reported to mull reducing QE to EUR 30bln/month from January and extending it until at least September 2018
Indecisive trade in major EU bourses this morning with the Eurostoxx 50 relatively flat; traders await tier 1 US data
Looking ahead, highlights include US CPI, retail sales, business inventories, Uni. of Michigan and a slew of central bank speakers
S&P 500 futures little changed at 2,550.25
VIX Index down 0.4%, at 9.87
STOXX Europe 600 up 0.3% to 391.42
MSCI Asia up 0.5% to 166.47
MSCI Asia ex Japan up 0.3% to 549.57
Nikkei up 1% to 21,155.18
Topix up 0.5% to 1,708.62
Hang Seng Index up 0.06% to 28,476.43
Shanghai Composite up 0.1% to 3,390.52
Sensex up 0.9% to 32,463.58
Australia S&P/ASX 200 up 0.3% to 5,814.15
Kospi down 0.05% to 2,473.62
German 10Y yield fell 1.9 bps to 0.426%
Euro down 0.03% to $1.1827
WTI crude up 1.5% at $51.40
Brent up 1.8% to $57.25/bbl
Italian 10Y yield fell 4.4 bps to 1.848%
Spanish 10Y yield fell 1.7 bps to 1.62%
Gold spot up 0.03% to $1,294.15
U.S. Dollar Index down 0.02% to 93.04
Top Overnight News
The Trump administration is cutting tens of millions of dollars from organizations that help Americans enroll in Obamacare health plans
Trump is expected to refuse to certify that the multinational accord to curb Iran’s nuclear program sufficiently serves U.S. interests, though he will stop short of abandoning it, according to two senior administration officials; Trump’s Iran Decision Throws New Uncertainty Into Business Plans
European Central Bank officials are considering cutting their monthly bond buying by at least half starting in January and keeping their program active for at least nine months, according to officials familiar with the debate
China’s overseas shipments rose from a year earlier amid robust external demand, the latest sign Asian trade is strengthening as the global outlook brightens
Equity funds globally record inflows of $11.6b in the week to Oct. 11, the largest in 17 weeks, BofAML strategists write in note, citing EPFR Global data
Emerging markets equity funds see inflows of $3.3b, largest in 21 weeks; Japanese equity funds see inflows of $0.3b, first in 4 weeks
Turkey sent special forces and commandos over the border into Syria, the start of a joint mission with Russia and Iran whose stated goal is to monitor a cease-fire agreement and pacify a stronghold for Islamic militants -- but one that also has major implications for the region’s Kurds
Trump Digs In on Health Care, Iran Deal; Bank of America, Wells Fargo Earnings; Samsung’s CEO Steps Down as Profit Beats
President Donald Trump’s administration took its most drastic step yet to roll back the Affordable Care Act on Thursday evening, cutting off a subsidy to insurers just hours after issuing an executive order designed to draw people away from the health law’s coverage markets
JPMorgan Chase & Co. and Citigroup Inc. kicked off banks’ earnings season by showing the effects of muted trading and concerns about consumer credit; both beat earnings as JPMorgan relied on improved lending margins, while Citigroup continued to squeeze costs
The chief executive officer of Samsung Electronics Co. is stepping down in a surprise resignation after decades at the company
The strength of the U.S. shale boom and prospects for electric vehicles are stoking fears for the oil industry’s future. But that’ll only make crude more valuable, one analyst says, boosting prices as high as $80 a barrel by 2022
Asia-Pac equity markets shrugged off the pullback in US stocks from record levels, although upside was somewhat capped as the region digested the latest Chinese trade figures. ASX 200 (+0.45%) and Nikkei 225 (+1.0%) were mildly ositive with Australia underpinned by defensive stocks, while Nikkei 225 tested 21,200 and was led by strength in index heavyweight Fast Retailing after the Co. reported its FY net more than doubled. Elsewhere, Shanghai Comp. (+0.1%) and Hang Seng (+0.1%) traded indecisive after the PBoC skipped open market operations but then offered funds via its MLF facility and as participants mulled over mixed Chinese trade data. Finally, 10yr JGBs were initially subdued with demand sapped amid a positive risk tone in Japan, before an improved enhanced liquidity auction result for longer-dated JGBs supported in late trade. MAS (Singapore central bank) kept the appreciation of SGD NEER unchanged at 0%, while it also maintained the width and level of the policy band. MAS made a reference to neutral policy being appropriate for an extended period of time from the October 2016 Monetary Policy Statement and said that it sees Singapore economy likely to expand at a steady, but slightly slower pace in 2018 compared to 2017.
Top Asian News
China Exports Remain Resilient as Import Gains Signal Strength
Big Banks Winning in China Battle of Unequals as Curbs Bite
In Surprise Move, Samsung CEO to Step Down After Record Profit
‘Enigma Network’ Crash Spurs Hong Kong’s Largest Financial Raid
Nomura Probe Said to Find No Evidence of Aomori Stock Sale Leaks
In European markets, there has been indecisive trade in major EU bourses this morning with the Eurostoxx 50 relatively flat. Focus in the session will be on the slew of central bank speakers and US data later in the session. Energy names have been supported by the upside in WTI and Brent crude futures, in which Brent briefly made a break above USD 57. In stock specific news, Bayer shares are outperforming in the DAX after reports that BASF is to purchase the company’s seed unit for EUR 5.9bln. FTSE 100 the laggard today, slipping 0.4% amid the move higher in GBP, while the worst performing stock in the FTSE, GKN, has seen a sharp drop after a profit warning. Bunds bolstered by latest ECB source reports and a technical short squeeze, which lifted the core 10 year bond future through this week’s previous peak and a new high for the month. EZ periphery debt also benefiting from suggestions that QE could be extended by 9 months at least (longer end of the previously touted 6-9 month range), and seemingly unperturbed by talk that the monthly pace of asset purchases could be scaled down relatively sharply to Eur30 bn from January 2018. Conversely, some signs of compromise in the form of a contingent 2-year Brexit transition offer from the EU, per media reports, has left UK Gilts languishing and underperforming again, with similar divergence seen at the short end of the curve (ie Short Sterling contracts down vs firmer Euribor and Eurodollar peers). US Treasuries largely holding modest gains made in wake of a solid 30 year auction, and braced for Friday’s key data (CPI and retail sales, latter possibly carrying an upside skew on above consensus PPI).
Top European News
ECB Is Said to Consider Cutting QE Flow in Half in Next Year
Saudis Mull Slower Subsidy, Spending Cuts to Support Economy
Greece Dreams of Bailout-Free Existence as Creditor Audit Looms
More Than 400 Firms ‘Expelled’ From Catalonia: PP’s Hernando
Romania Ruling Party Defuses Crisis as Three Ministers Quit
BASF Enters Seeds Market as Bayer Sells $7 Billion in Assets
In currencies, Much of the latest FX volatility occurred post European close yesterday, as reports from Handelsblatt circulated, stating thatmEU Brexit negotiator Barnier could offer the UK a two-year transitional deal, with the offer tied to the UK meeting its exit obligations to the EU. Sterling has recovered all and more of the losses prompted by Barnier’s earlier comments on Thursday, as Cable breaks through 1.33, and above October’s previous highs to resume this week’s overall bullish trend. Comments could continue to dictate Sterling direction as many will await BoE’s Carney this evening. EUR/GBP initially followed the trend of the bullish pound, however, marginal support was seen on reports that the ECB is set to mull reducing QE to EUR 30bln/month from January and extending it until at least September 2018, while sources also stated that policymakers are in agreement about extending asset purchases at the October meeting, but are still debating the taper size. EUR 30bln over nine months was initially perceived by markets as marginally hawkish. Nevertheless, the Euro has been offered against most of its major counterparts in early European trade, amidst comments from ECB’s Weidmann, stating again that he is against softening the capital key, and thus favouring Bunds. The Yen has outperformed generally, up 0.37% for the session vs the Usd, despite this week’s option expiries closing with just short of 2bln between 112.65 – 113.00. The pair trades sub-112.00, looking at the 200 DMA at 111.82. The dollar index has been muted, with much of the trade impetus coming from the other major currencies, as anticipation turns to tier 1 data (CPI and retail sales), then Yellen who is set to speak over the weekend.
In commodities, WTI and Brent crude futures hovering near intra-day highs this morning. Participants will be keeping an eye out on President Trumps remarks over the Iran nuclear deal, where it is expected that he will refuse to certify Iran’s compliance with the accord and as such this may lead to sanctions on Iran yet again. Additionally, Chinese trade data out last night showed that Chinese imports of crude oil climbed to the second highest level on record.
Looking at the day ahead, in the US it’s all eyes on the September CPI report, while last month’s retail sales numbers are also worth keeping a close eye on. The preliminary October University of Michigan consumer sentiment reading will also be out along with August business inventories data. Onto other events, the Fed’s Evans, Kaplan and Rosengren are all on the cards to speak on Friday. President Trump will speak on Iran later in the day and Wells Fargo / Bank of America also report earnings.
US Event Calendar
8:30am: US CPI MoM, est. 0.6%, prior 0.4%; CPI Ex Food and Energy MoM, est. 0.2%, prior 0.2%
US CPI YoY, est. 2.3%, prior 1.9%; CPI Ex Food and Energy YoY, est. 1.8%, prior 1.7%
Real Avg Weekly Earnings YoY, prior 0.88%
8:30am: Retail Sales Ex Auto MoM, est. 0.9%, prior 0.2%; Retail Sales Ex Auto and Gas, est. 0.4%, prior -0.1%; Retail Sales Control Group, est. 0.4%, prior -0.2%
10am: U. of Mich. Sentiment, est. 95, prior 95.1; Current Conditions, est. 111.6, prior 111.7; Expectations, est. 85.3, prior 84.4
10am: Business Inventories, est. 0.7%, prior 0.2%
DB's Jim Reid concludes the overnight wrap
there’s definitely chocolate inflation in the modern world but is there any outside of the ‘brown gold’? Today’s US CPI number will likely cast a large shadow over the next month’s trading and is therefore a key release. The market’s expectation is for a +0.6% mom headline number and +0.2% mom for the core. DB in is line with the market. Remember that last month (+0.2% core) marked the first time in 6 months that US CPI didn’t undershoot expectations. In terms of the details, headline CPI should get a boost from gas prices post the hurricane disruption so be a bit careful when interpreting this part. In terms of the core, DB’s Brett Ryan expects some modest negative payback for rent and owners’ equivalent rent following a big monthly gain in August. Lodging away from home prices may also dip reflecting the weather events, as evidenced by the post Hurricane Katrina data. In fairness though this is overall a small part of the CPI data though. Don’t forget US retail sales is realised at the same time so something else to add to the mix.
Ahead of this the most interesting story yesterday was around Brexit with wildly conflicting stories buffeting the currency. Indeed Sterling had a bit of a roller coaster ride yesterday versus the Euro, falling as much as 0.9% intraday but closing up 0.55%. Initially, markets were disappointed on how negative Chief EU negotiator Michel Barnier was in his press conference after the fifth round of Brexit talks. He noted that “we have reached a state of deadlock…” over the Brexit divorce bill and “no deal will be a very a bad deal (for the UK)” and then followed up with firm comments like “to be clear on our side, we’ll be ready to face any and all eventualities”. However, Sterling rebound after Handlesblatt reported (after the UK closed) that Barnier may still offer the UK a two-year transition deal provided that the deadlock can be overcome and there is still hope that sufficient progress can be made by the December summit if the UK provided more clarity on what PM May alluded to back in her Florence speech. DB’s Oliver Harvey believes next week's European Council meeting will be an important turning point for talks. If unsatisfactory, it could increase the risks to the UK growth and may undermine market’s confidence in a BOE hike at its November meeting.
Onto the US tax reforms, where the plan continues to be to get something done by the end of the year. However, the rhetoric is stepping up now, with House speaker Paul Ryan noting “we’re going to keep everybody (in Congress) here to Christmas if we have to, I don’t care, it’s that important”. He added that he wants to wake up on New Year’s Day 2018 with the new tax code.
Staying with politics, the Italian government has now won all of the confidence votes to pass a new electoral law (375 vs. 215 against), which could potentially penalise the 5-Star Movement party (5SM). The bill will now go to the upper house later in the month where the government has no clear majority. Italy’s bond markets slightly outperformed yesterday, with 10y yields down 4.6bp, while core bond yields (UST 10y -3bp; Bunds -1.7bp; OATs -2.1bp) were also down slightly, but Gilts was broadly flat. At the 2y part of the curve, yields were mixed but little changed, with UST (-0.6bp) and Bunds (-1bp) down marginally, but Gilts (+0.6bp) and Italy BTPs (+1.2bp) rose.
Turning to equities and US bank results yesterday. US equities softened, with the S&P 500 (-0.17%), Dow (-0.14%) and Nasdaq (-0.18%) down slightly, impacted by weakness in the financials and telco sector, where AT&T dropped 6.1% after losing 90k video subscribers in 3Q due to heavy competition and the recent Hurricanes. Both Citi and JPM’s 3Q EPS beat consensus, mainly driven by better than expected cost discipline (at Citi) and lending margins (at JPM),but shares fell 3.43% and 0.88% respectively, partly due to concerns of a higher than expected build up in provisions for credit losses, albeit off a low base. Elsewhere, 3Q total trading income was weak but broadly similar to management’s prior guidance (JPM: -21% pcp vs. -20%; Citi -11% on pcp vs. -15%).
European markets were mixed but little changed, with the Stoxx (+0.03%) broadly flat, but the DAX (+0.09%) and FTSE 100 (+0.30%) both nudged up to a fresh record high. Elsewhere, the CAC (-0.02%) and Italy’s FTSE MIB (-0.68%) fell slightly.
Turning to the search for the next Fed Chair, White House Chief of Staff John Kelly said “all of the people who’ve been in to interview (with President Trump) have been first round draft choices…..we still have more to come”. He didn’t specify who the candidates were, but prior reports suggests a shortlist including: Mrs Yellen, Fed governor Jerome Powell, former Fed governor Kevin Warsh, Stanford University economist John Taylor and National economic council director Gary Cohn. Elsewhere, Treasury Secretary Mnuchin said President Trump hopes to make a decision within a month.One of the candidates, the Fed’s Powell echoed his peers by saying “it’s likely that the process of (monetary) normalisation will proceed without significant disruption”, but cautioned that “significant risks of more adverse scenarios remains”. One area he has flagged is corporate debt in emerging markets, where the current situation may not be alarming, “but risks can be significant and bear close watching, especially in China”, where “markets reactions to even small surprises can be outsized”. For those who have missed it, our note “The next financial crisis” takes a closer look at this and other developing risks. Elsewhere, he said differences in the projections of interest rate moves between the Fed’s dot plot and market prices should be ‘taken with a grain of salt”.
Staying with central bankers’ commentaries. The Fed’s Brainard was a bit dovish, noting that temporary factors impact inflation both ways, “so that (temporary factors) cannot fully account for what we’ve been observing in the inflation data” and “…it seems to be that the Phillips curve is just not very important in the overall inflation process”. Further, she added that a lot of time-series work would suggests that we have actually seen “a reduction in the underlying trend rate of inflation that’s material”. Elsewhere, ECB’s Draghi reiterated that interest rates will remain low “well past” the end of QE. He added that the “well past” reference is “very, very important”. On wage inflation, he is seeing some progress, but “we’re still not there” yet.
This morning in Asia, markets are trading slightly higher.The Nikkei (+0.23%), ASX (+0.30%), Chinese bourses (up c0.2%) and Kospi (+0.15%) are up slightly, while the Hang Seng (-0.08%) is marginally down.
Quickly recapping other markets performance yesterday. Excluding Sterling, currencies were little changed with the US dollar index up 0.05% while Euro/ USD dipped 0.24%. In commodities, WTI oil fell 1.36% despite the last EIA report showing lower US crude inventories, in part as the IEA estimated that the decline in supply could be offset in 2018 due to rising output from US and other countries. Elsewhere, precious metals were marginally higher (Gold +0.15%; Silver +0.43%) while other base metals also increased slightly (Copper +0.93%; Zinc +1.53%; Aluminium +1.13%).
Away from the markets, the IMF’s MD Christine Lagarde was reasonably optimistic on global economic growth, noting “it’s broad based, more solid and it should get better”, but added that “it needs to get sustainable and benefit all”. The Fed’s Powell also agrees, noting “there have been signs lately that a sustainable global recovery may finally be materialising” although caveat it with “significant risks and uncertainties remain”.
This Sunday, we’ll see another election, this time over at Austriawhere the centre-right People’s Party (OVP) led by its 31 year old leader Sebastian Kurz is expected to win c33% of the votes. As per the Independent, an average of major pollsters (The Independent) suggest the other two parties are currently neck and neck, with FPO at c26% and the Social Democrats (SPO) at c24.4%. A renewed coalition between OVP and SPO is seen as less likely, which makes the far right, anti-immigrant and euro-sceptic FPO party in a strong bargaining position when forming the next coalition government. Mr Kurz has been Austria’s foreign minister since 2013, with one of his key policies being “above all, we want to stop illegal immigration so there is order and security in our country”. So it will be interesting to see what an OVP & FPO tie up would mean for Europe if it eventuates.
Turning to job security in the world of politics. In the US, White House Chief of Staff Kelly said “I’m not getting fired and I don’t think I’ll fire anyone tomorrow”. In the UK, former Finance Chief Nigel Lawson suggested PM May should fire Chancellor Hammond over his negative Brexit comments, noting “what he is doing is very close to sabotage”. Later on, a spokesman for PM May said “May has full confidence in Hammond”. Elsewhere, the FT reported the UK government is planning to hire 2,000 more staff to deal specifically with Brexit. So all this is bubbling along in the background while tax reforms and Brexit alks are underway.
Before we take a look at today’s calendar, we wrap up with other data releases from yesterday. In the US, the core September PPI (ex food and energy) was above consensus at 0.4% mom (vs. 0.2%) and 2.2% yoy (vs. 2.0% expected). Notably, the healthcare costs component edged up 0.1% mom so that throughyear inflation was broadly steady at 1.2% yoy, which at least suggests that healthcare will not be a drag on core PCE inflation like it was last month. Elsewhere, the weekly initial jobless claims (243k vs. 250k expected) and continuing claims (1.89m vs. 1.93m expected) were both lower than expectations, with continuing claims down to a new 44-year low.
The Eurozone’s August IP was higher than expectations at 1.4% mom (vs. 0.6%) and 3.8% yoy (vs. 2.6% expected), while France’s final September CPI reading was broadly in line at 1.1% yoy. In the UK, the BOE released its 3Q Credit Conditions Survey and Bank Liabilities Survey. For households, i) the availability of secured credit has increased slightly in 3Q, but ii) the availability of unsecured credit has decreased in 3Q and lenders expected a further substantial decrease in 4Q, likely a response to rising default rates for these loans. Finally, there was no change in the availability of credit to the corporate sector.
Looking at the day ahead, we get the final September CPI revisions for Germany and Italy. In the US it’s all eyes on the September CPI report, while last month’s retail sales numbers are also worth keeping a close eye on. The preliminary October University of Michigan consumer sentiment reading will also be out along with August business inventories data. Onto other events, the Fed’s Evans, Kaplan and Rosengren are all on the cards to speak on Friday. President Trump will speak on Iran later in the day and Wells Fargo / Bank of America also report earnings.