Ukraine Defense Minister Warns Of “Worst Conflict Since WWII”, Shifts Forces To “Combat Full-Scale Russian Invasion”

Unless they are tilting at windmills, the rhetoric this morning from Ukraine’s defense minister is the strongest and most actionable yet. Via his Facebook page, Valeriy Galetey accused Russia of “open aggression,” and explained that:

  • *RUSSIA SHIFTED TO ‘FULL-SCALE’ INVASION OF DONBAS, GELETEY SAYS
  • *UKRAINE HALTS ATTEMPTS TO DISLODGE REBELS: DEFENSE MINISTER
  • *UKRAINE SHIFTS FOCUS TO HALTING RUSSIAN INVASION, GELETEY SAYS

Earlier in the morning, US Senator Bob Menendez said he has “no doubt Russia has invaded Ukraine,” and following Ukraine requests for assistance from Europe and US, NATO responded by noting a reaction force or 3-5,000 can be ready in 48 hours.

 

First, Barroso claims Putin ‘blackmailed’ Europe

Jose Manuel Barroso, who has just heard Putin. He says that when he asked about the military boundless in Ukraine, the Russian leader went to the threats: “The problem is this,” according to Barroso, “if I want to, I can take Kiev in two weeks.” As if to say, do not provoke me to anger with new sanctions.

Then the US chimes in…

  • *U.S. SENATOR ROBERT MENENDEZ SPEAKS IN KIEV
  • *UKRAINE NEEDS ASSISTANCE FROM EU, U.S., MENENDEZ SAYS
  • *UKRAINE-NATO ASSOCIATION IS A LONG-TERM PROSPECT, MENENDEZ SAYS
  • *UKRAINE-NATO PARTNERSHIP PACT WOULD BE A GOOD STEP: MENENDEZ
  • *UKRAINE NEEDS WEAPONS TO DEFEND ITSELF, MENENDEZ SAYS
  • *MENENDEZ SAYS HE HAS NO DOUBT RUSSIA HAS INVADED UKRAINE

Then NATO responds…

  • *NATO’S REACTION FORCE TO BE DEPLOYABLE IN 48 HOURS: OFFICIAL
  • *REACTION FORCE TO BE AGREED BY NATO LEADERS AT SEPT. 4-5 SUMMIT

 

  • *NATO FORCE SPEARHEAD MAY BE 3,000 TO 5,000 TROOPS: OFFICIAL

And then Ukraine steps it up…

  • *RUSSIA SHIFTED TO `FULL-SCALE’ INVASION OF DONBAS, GELETEY SAYS
  • *UKRAINE HALTS ATTEMPTS TO DISLODGE REBELS: DEFENSE MINISTER
  • *UKRAINE SHIFTS FOCUS TO HALTING RUSSIAN INVASION, GELETEY SAYS
  • *UKRAINE WARNS ON BIGGEST CONFLICT IN EUROPE SINCE WORLD WAR II
  • *UKRAINE ARMY SAYS REBELS BEING REPLACED BY PROFESSIONAL TROOPS

*  *  *

Seems like the right time to be buying US stocks..?




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Federal Agent Thinks Dad Taking Picture of Daughters Is Sex Trafficking

DHSEvery summer for the past 14 years, Jeff
Gates has taken a picture of his two daughters hugging on a
ferry boat as they travel to their summer home on the Jersey Shore.
This year, as he was completing the annual ritual, a stranger came
up to him and said, “I would be remiss if I didn’t ask if you were
okay.”

He was talking to the daughters. It took a minute before Gates
realized what the stranger meant by the comment. As he recounts in

The Washington Post
:

At first none of us understood what he was talking
about. His polite tone and tourist attire of shorts, polo shirt and
baseball cap threw us off. It took me a moment to figure out what
he meant, but then it hit me: He thought I might be exploiting the
girls, taking questionable photos for one of those “Exotic Beauties
Want to Meet You!” Web sites or something just as unseemly. When I
explained to my daughters what he was talking about, they were
understandably confused. I told the man I was their father. He
quickly apologized and turned away.

Gates and his wife had adopted the girls from China, making the
Gates a mixed-race family. Should that automatically set off
warning signals? Gates thought no. So, after a time, he tracked the
man down and confronted him:

I walked outside to where he was standing and calmly said:
“Excuse me, sir, but you just embarrassed me in front of my
children and strangers. And what you said was racist.”

The man didn’t seem at all fazed. He replied: “I work for the
Department of Homeland Security. And let me give you some advice:
You were standing there taking photos of them hugging for 15
minutes.”

And there we have it: He’s from Homeland Security. He
is paid by the government to suspect the very worst at all times
and butt in.

When the government is telling Americans that we should be on
guard against everyone, everywhere, at all times (“If you see
something, say something”), it might start to seem
plausible—likely, even—that a sex trafficker would take photos of
his sex slaves, in public, for 15 minutes. In reality, of course,
that’s absurd.

Gates continues:free-range-kids

A week later, on the ferry ride home, as my oldest and
I were walking on deck, I suggested that we imagine the other
passengers through this man’s eyes. She grimaced but agreed. It was
so easy to project suspicious stories onto the white woman trying
to grab a black child — instead of seeing a mother running after
her son. Or to suppose that an old man was taking inappropriate
photos of a young girl — instead of seeing a grandfather capturing
a special moment with his granddaughter. We talked about this as we
walked around the deck. 

The deliberate decision to engage in worst-first
thinking—thinking of the very worst case scenario
first and proceeding as if it’s likely to happen—is
not only what gets fathers treated like traffickers, it also gets
moms arrested for letting
their kids play in the park 
(“What if the child was
kidnapped?”) and other parents arrested for letting
their kids wait in the car for ten minutes
 (“What if they
left them there all day?”).

Worst-first thinking, the authorities say, is the kind of
thinking that makes us safe and secure. And I say it makes us
paranoid and cruel.

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Jacob Sullum on Colorado’s Onerous Marijuana Ad Restrictions

High Times, the flagship
publication of a cannabis counterculture that is rapidly going
mainstream, celebrates its 40th anniversary this year. “We have
been steadfast soldiers in this so-called War on Drugs,” writes
Editor in Chief Chris Simunek in a special issue that hits
newsstands this week, “with truth as our sword and the First
Amendment as our shield.”

The First Amendment has protected High Times,
Jacob Sullum writes, and High Times has tried to
return the favor. Last year the magazine was the lead plaintiff in
a lawsuit challenging a Colorado law that required
merchants to keep marijuana-focused publications behind the
counter. The sponsor of that provision, a Republican representative
from Colorado Springs named Bob Gardner, likened such periodicals
to pornography. The law was so clearly unconstitutional that
Colorado Attorney General John Suthers decided not to
enforce it. Now High Times is seeking to
overturn Colorado’s onerous restrictions on marijuana
advertising, which ostensibly are aimed at protecting
impressionable children but probably have more to do with
protecting disapproving adults.

View this article.

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Labor Day Replay – Forced to Unionize: Is this Cesar Chavez’s Legacy?

“Forced to Unionize: Is this Cesar Chavez’s Legacy?” was
originally released on March 13, 2014. The original text is
below. 

“If Cesar were here today, he certainly wouldn’t be supporting
what’s being done now, which is a union trying to impose itself on
employees,” says Dan Gerawan, co-owner of Gerawan Farms, one of the nation’s
largest producers of peaches, plums, and nectarines and a major
employer of California farm workers. 

Gerawan Farms and some of its employees are in the midst of a
fight with the United Farm
Workers (UFW) union
, which claims to represent Gerawan’s
workers, despite not having collected dues or bargained on behalf
of them for more than two decades.

After years of failed efforts to unionize California’s migrant
farm workers, a massive
grape strike
 started in the small farming town of Delano
sparked a movement leading to the eventual rise of the UFW in 1966.
The face of this movement was a man named Cesar Chavez, a man
revered by labor historians as the bringer of “peace in the
fields,” who has roads, schools, and even
holidays
 named after him. He’s also the subject of
an upcoming
biopic
 starring Michael Peña.

But since then, much has changed in the agriculture industry and
in labor politics. The UFW, which once boasted more than 50,000
dues-paying members, now
claims fewer than 5,000.
 Yet with unionization in the
industry on the decline, real wages have steadily
increased.
 This might explain why many workers at Gerawan
Farms have begun to protest—not against their employer, but against
the union. 

Gerawan Farms employs more than 10,000 workers a year—more than
double the entire membership of UFW—and points to county employment
statistics to back up
claims
 that it’s an industry leader in employee
compensation. UFW won an election to represent Gerawan Farms’
workers in 1990. The company and the union had a single bargaining
session, and then UFW disappeared from the scene, according to Dan
Gerawan.

UFW refused to participate in the story and has not answered
questions about why they disappeared for more than two decades. The
truth is, they don’t have to answer such questions. Despite its
24-year absence, UFW is still the representative union of the
workers under California law. Two years ago, UFW initiated a
process called “mandatory
mediation and conciliation,
” which would force Gerawan Farms to
impose a union contract and terminate any employees not willing to
divert three percent of wages towards union dues. This did not sit
well with the workers.

Silvia Lopez has worked in Gerawan Farms’ fields for 14 years
and raised her two daughters on her salary from the job. She once
worked in a union shop and didn’t enjoy the experience, saying it
was like “having two bosses.”

“I never liked a company where they have [a] union,” says Lopez.
“I don’t see that I have to pay somebody to explain me my rights. I
know my rights.”

Silvia started a petition to hold an election to officially
decertify UFW. She collected more than 2,000 employee signatures
and submitted them to California’s Agricultural Labor Relations
Board (ALRB)
. Silas Shawver, ALRB General Counsel, rejected the
petition.

“There were some serious problems with signatures submitted that
appeared to be fraudulent,” says Shawver.

Lopez denies that there were a significant number of fake
signatures on the petition, but she nonetheless tried again,
collecting thousands of signatures for a second time. Shawver
rejected the petition again, citing allegations made by UFW that
Gerawan management was putting pressure on the employees to oppose
the union. ALRB, which acts as investigator, prosecutor, and judge
in these cases, is pursuing unfair labor practice charges against
Gerawan Farms in court in conjunction with UFW.

The appearance of collusion between the ALRB and the UFW
disturbed Gerawan management and infuriated many of the workers,
who staged a protest in front of the ALRB offices in Visalia. In a
move reminiscent of the famous Delano grape strike, some even
travelled to Sacramento hoping to have their voices heard by
Governor Jerry Brown, the very same governor who created the ALRB
while in office 38 years ago to create “peace in the fields” and
act as a neutral arbiter between companies, workers, and
unions. 

“Often what our employees tell us is, they don’t trust the
ALRB,” says Gerawan. “They’ve cited Silas Shawver himself as
someone they don’t trust.”

Following the protests, the ALRB finally granted the workers
their election, to be overseen by ALRB and administered by Shawver.
Prior to the elections, Gerawan Farms granted ALRB access to their
facilities to conduct interviews and run private sessions to inform
workers of their voting and unionization rights.

What were the election results? We don’t know. Shawver has
impounded the votes in an office safe, pending further
investigation of the unfair labor practice allegations. He failed
to provide a timeline for this investigation.

“What does that mean, to have an election and not count the
votes?” asks Lopez. “Where is the right of the farm worker? Where
is it?”

Lopez and her co-workers have filed a class-action lawsuit
against the ALRB for failing to count their ballots. Gerawan Farms
is also suing, alleging that mandatory mediation is
unconstitutional. UFW continues to call for a contract to be
imposed and, alongside ALRB, alleges that Gerawan has engaged in
unfair labor practices.

“The main problem is in the ALRB office,” says Lopez. “They are
supposed to be neutral with us. But they are not. We can see that
they are favoring the UFW organization.”

Watch the above video for an inside look at this fight, and
scroll down for downloadable versions. Produced by Zach
Weissmueller. Camera by Sharif Matar and Weissmueller.
Approximately 8 minutes.

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More Sanctions: Europe Will Ban Purchase Of Russian Bonds; However Russian Gas Exports Remain Untouched

Over the weekend, insolvent, debt-dependent Europe thought long and hard how to best punish Russia and moments ago reached yet another milestone in deep projective thought: as Reuters reports, Europeans could be barred from buying new Russian government bonds “under a package of extra sanctions over Moscow’s military role in Ukraine that European Union ambassadors were to start discussing on Monday, three EU sources said.” This will be in addition to the ban on the debt funding of most Russian corporations. So as Europe’s 7-day ultimatum for the Kremlin to “de-escalate” counts down, Putin has a choice: continue operating under a budget surplus and ignore Europe’s latest and most amusing hollow threat which is merely a projection of Europe’s biggest fears, or spend himself into oblivion as Europe has done over the past decade and become a vassal state of the Frankfurt central bank.. Somehow we doubt Putin will lose too much sleep over this latest “escalation”…

Some more details on today’s latest threat by Europe, which if nothing else has sent the ruble to a fresh record low against the dollar, leaving Europe green with envy at such currency debasement, and boosting Russian exports even more:

German Chancellor Angela Merkel, who led the drive for a tougher EU response, said on Monday that Moscow’s behaviour in Ukraine must not go unanswered, even if sanctions hurt the German economy, heavily dependent on imported Russian gas.

 

“I have said that (sanctions) can have an impact, also for German companies,” Merkel told a news conference in Berlin. “But I have to say there is also an impact when you are allowed to move borders in Europe and attack other countries with your troops,” she said. “Accepting Russia’s behaviour is not an option. And therefore it was necessary to prepare further sanctions.”

It remains to be seen just how much more loss-generating populism German companies are willing to take. After all, every now and then even Europe requires a reminder that it is corporations who pull the political strings. And if German corporations want Merkel gone, that just may be what they will get. For now however, all Europe gets is more “draconian” populism.

The leaders asked the executive European Commission to prepare further measures within a week, building on steps taken at the end of July, which targeted the energy, banking and defense sectors.

 

“I’m hearing that a ban on buying Russian government bonds could be in the next package,” an EU official familiar with the preparations said.

 

Tighter restrictions on dual use technologies with military as well as civilian applications could also figure, along with some more curbs on advance energy exploration equipment, the official said.

To be sure, nothing was decided: it is, after all, Europe, and decisions is what well-catered parties in the future are for.

An EU diplomat said ambassadors of the 28 member states would hold an emergency meeting on Monday at 1300 GMT to start work on a “significant” package of further measures although no immediate decisions were expected. A further meeting is set for Wednesday.

 

The leaders said the Commission should include in the sanctions “every person and institution dealing with the separatist groups in the Donbass”, potentially leaving a very broad area that could be targeted.

And just to add to the European flavor, and humor, the key countries in central Europe have already opined against further Russian sanctions, thus further jamming the wedge discussed previously whereby Russia now succeeded in converting that all-important safehaven, Austria, to its side.

However several EU countries heavily dependent on Russian gas, including the Czech Republic, Slovakia and Austria, are opposed to new sanctions, which require unanimous agreement.

 

“I consider sanctions meaningless and counterproductive,” Slovak Prime Minister Robert Fico said on Sunday.

 

“Until we know what is the impact of the already imposed sanctions, it makes no sense to impose new ones,” Fico said. “I reserve a right to veto sanctions harming national interests of Slovakia.”

But back to the stupidity of Eurocrats, who instead of focusing on fixing their own imploding economies, are hell bent on making Russian life a living hell, in the process accelerating Europe’s mere “triple-dip” into an outright depression:

EU diplomats said the main thrust of new steps could be financial because that would hit the Russian government rather than citizens. It could be coordinated with the United States, whose measures were also focusing on the financial sector.

 

Two diplomats said they did not rule out a ban on the purchases of Russian sovereign bonds to make it more difficult for the Russian government to finance itself on markets. In July, the EU banned Russian state-owned banks from raising capital or from borrowing in EU markets.

And of course, since Putin knows he hold all the trump, or rather Gazprom, cards from day one, all Europe will achieve with further sanctions is even more retaliation:

Moscow has retaliated against sanctions by banning most agricultural imports from Europe and the United States. The risk of a ban on buying Russian sovereign bonds is that the Kremlin could hit back by dumping European government bonds, of which Russian state institutions have significant holdings.

Which bring us to the dumbest idea from last week: the UK’s push to exclude Russia from SWIFT… and in the process accelerate the demise of the dollar as the world’s reserve currency.

Asked about the idea that Russia could be cut off from the international money transfer system known as SWIFT, one diplomat said the idea had been floated several months ago, but that there was opposition to it among several EU countries.

 

The problem is that while it would probably work well in the short-term, as in the case of Iran, in the long-term it would trigger the creation of an alternative system to SWIFT and the setting up of two alternative world transaciotn systems and nobody wants that,” the diplomat said.

It appears not everyone in Europe is an idiot.

But the punchline, and why once again anyone with half a brain knows it is all for show, is that as usual, Russia’s gas sector, which powers European industry and lights its cities, has been spared so far and will continue to be spared.

By now even 5 year olds realize that if Europe really wanted to hurt Russia, it would cut off the gas imports.

Only one problem: it can’t, as that would be economic and political suicide for Europe, and for the “infinite” political capital behind its unraveling monetary union. Everything else is noise.




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Mixed Emotions for the Gold Market

By EconMatters

 

Gold Crosscurrents

 

The Gold market has a lot of crosscurrents at the moment with the main negative as we write that it doesn`t pay a yield, and given the abundance of cheap money chasing every utility, bond and stock that pays a yield it has lost favor in that regard the last several years.

 

Bearish Factors

 

The interest rate cycle is also a negative for gold, and as the Fed starts hiking rates Gold usually needs other strong factors to overcome this headwind. The other headwind is that there currently isn`t a momentum trade, and since Wall Street often trades with a herd mentality, in the absence of a strong trend money just doesn`t get sucked into this trade.

 

Bullish Factors

 

Some of the bullish factors for gold are geo-political concerns, but this has mainly just provided short covering rallies so far this year, no strong bullish trend emerges after the short covering. Another will be if inflation starts ramping up, and inflation expectations start spiking ahead of the Fed`s ability to get in front of the inflation curve by being too deliberate on rate hikes. 

 

If we start getting some insolvency issues in Europe once again Gold could start ramping based in Euros as investors try to hedge their European currency risk. There are physical buying bullish pressures as consumers generally like to own gold, and they especially feel like they are getting a bargain when prices sell off. Both for the gold bugs that envision an ultimate end to global fiat monetary systems where currency debasement runs its course in an extreme momentous collapse scenario, more moderate hedgers, and countries like India and China who traditionally favor gold on a cultural basis. 

 

Shark Attacks

 

Consequently there are a lot of cross currents in the gold market, and so far in 2014 we haven`t really had the severity of ‘shark attacks’ in the market from the big banks like we saw in 2013. You know the kind where 3 banks all downgrade gold overnight, gold drops like a rock for 200 to 300 dollars, causing forced liquidations, and then once the short covering occurs gold goes right back to where it was originally trading before the shark attacks. This is a ‘shark attack’ and many markets experience them from time to time where a bunch of players gang up on a market to make money in the short term. 


Federal Reserve

 

I do think for the near term gold investors should be worried about the downside, and I am talking about the futures market, (however, this still effects the physical market in the short term) as you saw some nervous exiting before the Jackson Hole speech, they just didn`t want the exposure before the event given the chance that Janet Yellen really signaled to financial markets in a strong manner to start exiting positions that were based upon 25 basis point borrowing.


Rate Hike Cycle

 

Along these lines, as the biggest driver is probably going to be the upcoming rate hike cycle by the Federal Reserve in the US, and the Bank of England early next year with expected rate hikes, there are bound to be some hawkish interpretations made, and gold is going to get smacked around real hard sometime in the next three to six months. 

 

Hot Inflation Readings 

 

Unless there is some counterbalancing force like inflation spiking well ahead of current market expectations around the 2% level, some of these hawkish market undercurrents with regard to monetary policy are going to play out in the gold market putting downward pressure on the commodity. Just how far it goes, and to what degree does bearish sentiment bring in players who don`t normally play in the gold market will determine how much of a sale price buyers get before they feel it is safe to come in and take advantage of lower prices for their beloved commodity. 

 

Forced Liquidations of 2013

 

What happened last year is that some buyers stepped in initially at a level they thought would hold, and the gold market took another leg down, and those forced liquidations provided a real buying opportunity for gold last year. But remember the Fed didn`t actually raise rates last year, what happens when there are actual rate hikes after seven years of easy money? We will probably follow up with an article on the technical levels to watch, but the bigger point right now is just to be aware of what is coming down the gold turnpike, there will definitely be some substantial ‘shark attacks’ over the next six months, and expect some downside pressure for the commodity. 

 

Gold Bears Have Wind at their Backs as Technicals likely to fail to downside over Near-Term

 

 

The feeling here is that the last six months will seem comatose to the volatility and strength of some of the moves in the gold market that are about to occur as key technical levels of support fail to hold. We not only expect these technical levels to get tested, we expect that the momentum during this period will be sufficient enough to break many key technical levels that have held so far this past year. Be selective and careful in playing the long side of the gold market in the near term as the primary catalysts and ultimate drivers are probably bearish in the near term, and gold bulls will be running against a severe headwind in the market!

 

 

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And The Best Performing Asset In August Was…

August is the month in which the third try for a global economic recovery officially snapped, with first China, then Europe and finally Latin America succumbing to pre-recession forces and/or outright contraction. Which, in the New Normal, is great news as it means more hopes for even greater imminent central bank easing and “stimulus” if only for the wealthiest (and also please ignore the fact that 6 years of more of the same has not worked, this time will be different). Which explains why August, otherwise the sleepiest month of the year, proved to be fairly strong with both equities and bonds moving higher in tandem.

In fact, the situation in Europe is so dire, that European government bonds yields reached/retested their record multi-century all time lows. As Deutsche Bank summarizes, the 10yr government bond yields for Germany, France, Italy, Spain, and Switzerland declined by 27bp, 28bp, 26bp, 28bp and 11bp in August to 0.89%, 1.25%, 2.44%, 2.23% and 0.44% respectively. From a total returns perspective, a 2% gain in August was the best monthly performance for Bunds and OATs since January which brings their YTD gains to around 8-9%. Not bad in the context of a 7% and 4% YTD gains in Stoxx 600 and the FTSE 100. Italian and Spanish government bonds are still ahead though on a YTD basis with total returns to date at around 12-13%. Staying in rates, US Treasuries were somewhat of a laggard relative to its European peers in August with a monthly return of around 1.2%. Nonetheless, it was still the biggest gain for Treasuries since January and the outperformance in long bonds has also driven the 10s/30s curve to its flattest since June 2009. The search for yield has also benefited Credit on both sides of the Atlantic. Total returns were positive across the main European, US and Sterling credit benchmarks although the highlight was a rebound in US HY. The asset class gained +1.8% in August after having lost 1.7% in July as outflows steadied and reversed as the month progressed.

DM equities were generally higher but the highlight goes to the S&P 500 (+4%) after having made its first crossing of the 2,000 mark in August. Performance was more mixed in Europe but generally still moderately positive. EM equities had another decent month with the MSCI EM index enjoying a 2% plus return for the fourth consecutive month. Commodities were the key losers in August. The CRB index (-0.6%) finished lower for its second consecutive month. Copper, WTI, Brent, Sugar, Silver were all between 2%-6% lower. The fact that Oil prices have now gone officially negative for the first time in 2014 despite the ongoing geopolitical tension is perhaps telling us something?

But nowhere is the humor of central planning better exhibited than in Brazil was a clear outperformer with the BOVESPA (+10%) posting its best monthly performance since January 2012. Why? Because Brazil just entered a recession. Perhaps the reason why the joke that global thermonuclear war will send futures limit up is funny, is because it’s true…

August return by asset class:

 

And YTD:

Source: Deutsche Bank




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Key Events In The Coming Week

The US may be closed on Monday, but after a summer lull that has seen trading volumes plunge to CYNKian lows, activity is set to come back with a bang (if only for the sake of banks’ flow desk revenue) with both a key ECB decision due later this week, as well as the August Nonfarm Payrolls print set for Friday. Among the other events, in the US we have the ISM manufacturing on Tuesday, with markets expecting a broadly unchanged reading of 57.0 for August although prices paid are expecting to decline modestly. Then it is ADP on Thursday (a day later than usual) ahead of Payrolls Friday. The Payrolls print is again one of those “most important ever” number since it comes ahead of the the September 16-17 FOMC meeting and on the heels of the moderation of several key data series (retail sales, personal consumption, inflation). Consensus expects a +225K number and this time it is unclear if a big miss will be great news for stocks or finally bad, as 5 years into ZIRP the US economy should be roaring on all cylinders and not sputtering every other month invoking “hopes” of even more central bank intervention.

Goldman lays out full preview of this week’s events:

Monday, September 1

Events: US Labor Day holiday (US markets closed).

  • Germany | GDP SA QoQ (2Q F): Consensus -0.20%, previous -0.20% (0.80% yoy, NSA)
  • DMs | PMI Manufacturing: Euro area (consensus 50.8, previous 50.8), Denmark (previous 50.7), France (previous 46.5), Germany (previous 52), Italy (previous 51.9), Norway (previous 50.6), Spain (previous 53.9), Sweden (previous 55.2), Switzerland (previous 54.3), United Kingdom (consensus 55.2, previous 55.4), Japan (previous 52.4)
  • EMs | PMI Manufacturing: China (GS 51.7, consensus 51.2, previous 51.7), China HSBC (consensus 50.3, previous 50.3), Hungary (previous 56.7), India (previous 53), Indonesia (previous 52.7), South Korea (previous 49.3), Taiwan (previous 55.8), Czech Republic (previous 56.5), Hungary (previous 56.7), Poland (consensus 48.9, previous 49.4), Russia (previous 51), South Africa (previous 45.9), Turkey (previous 48.5), Brazil (previous 49.1), Mexico (previous 51.5)
  • Indonesia | CPI YoY (Aug): GS 4.00%, consensus 4.15% (0.30% mom), previous 4.53% (0.93% yoy)
  • Thailand | CPI NSA MoM (Aug): Consensus 0.05% (2.25% yoy), previous -0.08% (2.16% yoy)
  • Chile | Minutes from MP Decision
  • Peru | CPI MoM (Aug): GS 0.20% (3.00% yoy), consensus 0.30% (3.10% yoy), previous 0.43% (3.33%)
  • Also interesting: [DM] United Kingdom Mortgage Approvals and Money Supply; Japan Capital Spending and Vehicle Sales; Australia TD Securities Inflation, Business Indicators, RPData House Prices, Commodity Index, TD Securities Inflation and AiG Perf of Mfg Index; New Zealand Overseas Trade Indexes [EM] China Property Prices; Indonesia Consumer Confidence; Trade Balance in Indonesia, South Korea and Brazil; Argentina Tax Collection; Mexico Remittances and IMEF Manufacturing Index.

Tuesday, September 2

Events: Speech by ECB’s Knot and Mexico’s President Nieto (State of the Nation).

  • United States | [MAP 5] ISM Manufacturing (Aug): GS 57.0, consensus 57.0, previous 57.1
  • Switzerland | GDP QoQ (2Q): Consensus 0.50% (1.80% yoy), previous 0.50% (2.00% yoy)
  • Australia | MP Decision: We expect rates on hold (cash rate 2.50%, in line with consensus). Markets will be focused on how the RBA has interpreted key developments since the lengthy parliamentary testimony on 20 August. In particular, we will be looking for any weakening in the RBA’s resolve given further material falls in the iron ore price, resilience in the AUD, and the weak read-through of recent partial data for 2Q2014 GDP.
  • DMs | PMI: Canada (previous 54.3), UK (61.4, previous 62.4); Singapore (previous 51.5)
  • Hong Kong | HSBC Hong Kong PMI (Aug): Previous 50.4
  • South Korea | CPI YoY (Aug): GS 1.50%, consensus 1.60% (0.30% mom), previous 1.60% (0.10% mom)
  • Brazil | [MAP 4] Industrial Production YoY (Jul): GS (0.50% mom sa), previous -6.90% (-1.40% mom)
  • Also interesting: [DM] US Construction Spending; Euro area PPI; Spain Unemployment; Sweden CA; Japan Total Cash Wages, ISM Manufacturing, Construction Spending and Monetary Base; Australia CA and Building Approvals; New Zealand Commodity Price Index [EM] Hungary Trade Balance; Romania PPI and Retail Sales; Colombia Exports.

Wednesday, September 3

Events: Speeches by ECB’s Lautenschlaeger and RBA’s Stevens, US Federal Reserve Beige Book.

  • United States | Factory Orders (Jul): GS 12.6%, consensus 11.00%, previous 1.10%
  • Canada | MP Decision
  • Euro area | [MAP 5] GDP SA QoQ (2Q P): Consensus 0.00%, previous 0.00% (0.70% yoy)
  • Australia | [MAP 5] GDP SA QoQ (2Q): GS 0.00%, consensus 0.30% (3.00% yoy), previous 1.10% (3.50% yoy)
  • DMs | PMI (Services): Euro area (previous 53.5), France (previous 51.1), Germany (previous 56.4), Italy (previous 52.8), Spain (previous 56.2), Sweden (previous 60.1), United Kingdom (consensus 58.2, previous 59.1), Japan (previous 50.4)
  • DMs | PMI (Composite): Euro area (previous 52.8), France (previous 50), Germany (previous 54.9), Italy (previous 53.1), Spain (previous 55.7), United Kingdom (previous 58.8), Japan (previous 50.2)
  • EMs | PMI (Services): China (previous 50), India (previous 52.2), Russia (previous 49.7), Brazil (previous 50.2)
  • EMs | PMI (Composite): China (previous 51.6), India (previous 53), Russia (previous 51.3), South Africa (previous 46.4), Brazil (previous 49.3)
  • Hungary | [MAP 5] GDP NSA YoY (2Q F): Previous 3.90% (0.80% qoq)
  • Poland | MP Decision: We expect rates on hold (base rate at 2.50%, in line with consensus) and unchanged since the easing cycle ended in July 2013. Though in line with consensus, this is more hawkish than the forwards, which are pricing in a cut of roughly 25bp next week. Although macro conditions could justify cuts, we think the MPC is not yet convinced that the Polish economy would benefit from easing.
  • Romania | GDP QoQ (2Q P): Previous -1.00% (1.20% yoy)
  • Turkey | CPI YoY (Aug): GS 9.00%, consensus 9.40% (0.00% mom), previous 9.32% (0.45% mom)
  • Brazil | MP Decision: We expect rates on hold (Selic rate at 11.00%, in line with consensus) and for the Copom to reiterate a broadly neutral bias going forward given the still challenging inflation dynamics despite a weak growth environment.
  • Also interesting: [DM] US MBA Mortgage Applications, ISM New York and Vehicle Sales; Euro area Retail Sales; Japan Factory Orders and Vehicle Sales; Singapore Automobile COE Open Bid Cat A; New Zealand Global Dairy Trade Auction and Value of Building Work [EM] Hungary Retail Sales; Turkey PPI; Argentina Vehicle Sales.

Thursday, September 4

Events: Speech by ECB’s Draghi, ECB’s Paret, ECB’s Nuoy, BOJ’s Kuroda, Fed’s Powell, Fed’s Mester, and Fed’s Kocherlakota, NATO Summit.

  • United States | [MAP 3] ADP Employment Change (Aug): GS 220K, consensus 225K, previous 218K
  • United States | [MAP 2] Trade Balance (Jul): GS -$42.9B, consensus -$42.4B, previous -$41.5B
  • United States | [MAP 1] Construction Spending MoM (Jul): GS 0.50%, consensus 0.80%, previous -1.80%
  • United States | Unit Labor Costs (2Q F): Consensus 0.60%, previous 0.60%
  • United States | Markit US Composite PMI (Aug F): Previous 58.8
  • United States | Markit US Services PMI (Aug F): Previous 58.5
  • Euro area | MP Decision
  • Germany | Markit Germany Construction PMI (Aug): Previous 48.2
  • Sweden | MP Decision
  • United Kingdom | Bank of England Bank Rate: Consensus 0.50%, previous 0.50%
  • United Kingdom | BOE Asset Purchase Target (Sep): Consensus 375B, previous 375B
  • Japan | MP Decision: We expect the BOJ to maintain the current quantitative easing scheme at the BOJ policy meeting on September 3-4. We will be focusing on the BOJ’s economic assessment in the wake of July activity data, which were a major disappointment contrary to the BOJ’s expectation for recovery.
  • South Korea | [MAP 5] GDP YoY (2Q F): Previous 3.60% (0.60% qoq)
  • Also interesting: [DM] US Initial Jobless and Continuing Claims; Canada International Merchandise Trade; France Unemployment; Germany Factory Orders; Australia Trade Balance and Retail Sales; New Zealand House Prices [EM] Czech Retail Sales; Brazil Vehicle Production and Commodity Price Index; Colombia PPI.

Friday, September 5

  • United States | [MAP 5] Change in Nonfarm Payrolls (Aug): GS 240K, consensus 225K, previous 209K
  • United States | [MAP 5] Unemployment Rate (Aug): GS 6.10%, consensus 6.10%, previous 6.20%
  • United States | Average Hourly Earnings MoM (Aug): GS 0.20%, consensus 0.20%, previous 0.00% (2.00% yoy)
  • Germany | Industrial Production SA MoM (Jul): Consensus 0.50%, previous 0.30% (-0.50% yoy)
  • Sweden | Industrial Production MoM (Jul): Previous 1.00% (-1.10% yoy)
  • Philippines | CPI NSA MoM (Aug): Previous 0.60% (4.90% yoy)
  • Taiwan | CPI YoY (Aug): Consensus 1.80%, previous 1.75%
  • Thailand | Mfg Production Index ISIC NSA YoY (Jul): Consensus -3.70%, previous -6.60%
  • Hungary | [MAP 4] Industrial Production WDA YoY (Jul P): Previous 11.30% (5.70% mom)
  • Ukraine | CPI MoM (Aug): Previous 0.40% (12.60% yoy)
  • Brazil | IBGE Inflation IPCA MoM (Aug): GS 0.25% (6.51% yoy), consensus 0.23%, previous 0.01% (6.50% yoy)
  • Chile | [MAP 5] Economic Activity YoY (Jul): GS 0.50%, previous (r) 1.10% (-0.80% mom)
  • Colombia | CPI MoM (Aug): GS 0.10% (2.90% yoy), consensus 0.12% (2.93% yoy), previous 0.15% (2.89% yoy)
  • Mexico | MP Decision: We expect rates on hold (overnight rate at 3.00%, in line with consensus) and the MPC to reiterate the broadly neutral bias going forward.
  • Also interesting: [DM] Canada Unemployment; France Consumer Confidence; Japan Leading Indicator and Coincident Index [EM] Hong Kong Money Supply; Malaysia Trade Balance; Philippines Bank Lending; Thailand Capacity Utilization; Foreign Reserves in Hong Kong, Philippines and Taiwan; Hungary Real Wages; Nigeria Trade Balance; Romania Wage Statistics; Mexico Consumer Confidence.

 




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Frontrunning: September 1

  • Putin Suggests Statehood for Southeast Ukraine as Sanctions Loom (BBG)
  • Ukraine accuses Russia of ‘open aggression’ as rebels advance (Reuters)
  • Ruble Hits New Record Low Against Dollar (WSJ)
  • Further Russia Sanctions Seen `Almost Inevitable’ (BBG)
  • Europe holds nerve as Russia-Ukraine warnings ratchet up (Reuters)
  • China manufacturing slowdown ripples through region (Reuters)
  • Brazil enters recession in election blow to Rousseff (Reuters)
  • Disruptive Hong Kong protests loom after China rules out democracy (Reuters)
  • Coal Miners See Signs of Recovery as Prices Stabilize (WSJ)
  • Tusk Mixes Charm, Pragmatism as EU’s First Eastern Leader (BBG)
  • Iliad in Talks with Third Parties About Possible Fresh Bid for T-Mobile US (WSJ)
  • Russia Said to Plan Sovereign Fund Move Over Sanctions (BBG)
  • Hedge Funds Cut Gold Bull Bets to Lowest Since June (BBG)
  • China Gives Microsoft 20 Days to Explain Problems (WSJ)
  • Apple Said to Team With Visa, MasterCard on IPhone Wallet (BBG)
  • European Manufacturing Weakens on Heightened Global Risks (BBG)
  • Yves Carcelle, Who Built Luxury Brand Louis Vuitton, Dies at 66 (BBG)
  • Europe Set for Warm September After Coolest August Since ’06 (BBG)

 

FT

Citigroup Inc has told senior staff that they would receive fixed monthly pay in addition to their salaries in an attempt to compensate for rules that limit bonuses to up to twice the level of base salaries.

Barclays is selling its Spanish retail and corporate banking operations to Caixabank, the two companies said on Sunday, as the British bank starts shrinking its struggling European divisions as part of a major overhaul.

One of Tesco Plc’s largest shareholders, Harris Associates, has cut its stake in the retailer from 3 percent to 1 percent in the past month. The chief investment officer of the U.S. firm’s international equity division said it wants to see a clear and coherent strategy emerge quickly.

Carlyle Group LP, owner of roadside rescue and insurance group Royal Automobile Club, has enlisted Sir Michael Rake to lead the planned IPO of RAC in a bid to attract investors after a patchy first half for UK public offerings.

About 83 percent members of the loss making Co-Operative Group voted on Saturday to replace the existing board with independent directors. Ursula Lidbetter, chairwoman of the food, funeral.

 

 

China

CHINA SECURITIES JOURNAL

– The Shanghai Stock Exchange organised a computer system test over the weekend to prepare for the future launch of the Shanghai-Hong Kong connector, which will allow investors in the two places to trade in each other’s markets.

– China will find it very difficult to keep the momentum of a rapid growth in its foreign trade in the future after many years of quick rises, said Fan Jianping, chief economist at the State Information Centre, a top government think-tank.

SHANGHAI SECURITIES NEWS

– Six new initial public offerings launched late last week attracted more than 660 billion yuan ($107 billion) in subscription funds, reflecting continued strong investor interest in new listings.

CHINA DAILY

– China’s top legislature revised the country’s budget law, allowing certain bond sales by provincial-level governments but placing them under strict restrictions.

PEOPLE’S DAILY

– An editorial by the mouthpiece of the ruling Communist Party of China said a framework on the 2017 leadership vote in Hong Kong, endorsed by the China’s parliament over the weekend, lays good foundations for development of the political system of the former British colony.

 

 

Britain

The Times

BARCLAYS SELLS SPANISH RETAIL DIVISION TO CAIXABANK

Barclays Plc is selling its Spanish retail and corporate banking operations to Caixabank, the two companies said on Sunday. (http://thetim.es/1B8tSvP)

RAC STEPS ON THE GAS FOR AUTUMN FLOTATION

Roadside Rescue and Insurance Group is set to be one of the first share market debutants to test the appetite of disgruntled investors this autumn after a radical beefing-up of its board, including the appointment of the City grandee Sir Mike Rake as chairman. (http://thetim.es/1wXZe9R)

The Guardian

CO-OP GROUP NEEDS NEW TOP-CLASS CHAIRMAN AND CEO, WARNS LORD MYNERS

The troubled Co-op Group Ltd must now bring in a top-class chairman and chief executive from outside, Lord Myners has warned, after members backed the bulk of his proposals to reform the mutual business. (http://bit.ly/1nhtbYN)

LEADING OIL INDUSTRIALIST ACCUSES BP OF SPURNING ITS LEAD ROLE IN THE NORTH SEA

Alexander Temerko, a leading oil industrialist in Britain, has launched a stinging attack on BP, accusing it of abandoning its lead role in the North Sea in favour of championing the interests of Russia. (http://bit.ly/1zZi6kP)

The Telegraph

KEY TESCO INVESTOR CUTS STAKE

One of Tesco Plc’s largest and most loyal shareholders, Harris Associates LP, has sold nearly two thirds of its stake amid mounting concerns that Britain’s biggest retailer has become “too risky”. (http://bit.ly/Y4iPFO)

LIBERTY GLOBAL POSITIONS FOR ITV TAKEOVER

Liberty Global Plc, the owner of Virgin Media, controlled by the American billionaire John Malone, is canvassing support from major ITV Plc shareholders following its acquisition this summer of a 6.4 percent stake, raising speculation of a full takeover bid. (http://bit.ly/1nLglSE)

Sky News

BRANSON BANKS ON 2 BLN STG VIRGIN MONEY FLOAT

Sir Richard Branson is poised to pull the trigger on a stock market listing of Virgin’s banking arm that City insiders predict could value it at up to 2 billion pounds. (http://bit.ly/1sRtuN0)

PPI SCANDAL: LENDERS TO RE-OPEN 2.5 MLN CLAIMS

The City regulator says banks and other lenders are to reassess more than 2.5 million payment protection insurance complaints. The Financial Conduct Authority says the claims, which were made in 2012 and 2013, may have either been unfairly rejected or paid too little. (http://bit.ly/1vWtP3h)

The Independent

THE BANK OF ENGLAND’S FUNDING FOR DELEVERAGING

The Bank of England and the Treasury released data on the usage of their Funding for Lending Scheme in the second quarter of 2014 this morning. (http://ind.pn/1qT1UwJ)

EUROPE CLOSER TO DEFLATION AS INVESTORS WAIT FOR ECB MOVE

Europe edged closer towards the deflation abyss on Friday as the inflation rate across the single-currency bloc fell to a five-year low of just 0.3 percent.




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Markets Set To Surge On Global Manufacturing PMI Bloodbath

If last week’s disappointing global economic data, that saw Brazil added to the list of countries returning to outright recession as Europe Hamletically debates whether to be or not to be in a triple-dip, was enough to push the S&P solidly above 2000, even if on a few hundreds ES contracts (traded almost exclusively between central banks), then the overnight massacre of global manufacturing PMIs – when not one but both Chinese PMIs missed spurring calls for “more easing” and pushing the SHCOMP up 0.83% to 2,235.5 – should see the S&P cross Goldman’s revised year end target of 2050 (up from 1900) sometime by Thursday (on another few hundreds ES contracts).

Some of the highlights, or rather lowlights: Dutch PMI 51.7, down from 53.5, Hungarian PMI 51.0, last 56.7; Spain PMI 52.8, Exp. 53.3, Last 53.9; Czech PMI 54.3, Exp. 55.5, Last 56.5; Swiss PMI: 52.9, Exp. 53.7, Last 56.5; Sweden PMI 51.0, Exp. 54.8, Last 55.1; Italy PMI 49.8, Exp. 51.0, Last 51.9 (back into contraction mode to go along the GDP decline and the record low inflation), French PMI 46.9, Last 46.5, Germany 51.4, Exp. 52.0, and Last 52.0 and finally the UK at 52.5, exp. 55.1, and last 54.8, was the lowest reading since June 2013.

Some more observations from Goldman: on Europe’s absolute manufacturing disaster:

The Euro area final manufacturing PMI printed at 50.7 in August, 0.1pt below the Flash and the consensus estimate (Flash, Cons: 50.8). This implies a 1.1pt contraction from the July print. The French component was revised up relative to the flash (+0.4pt), while the German component was revised down (-0.6pt). The August figure in both Italy and Spain showed continued loss of momentum, with the manufacturing PMI easing 2.0pt in Italy and 1.0pt in Spain relative to the July print (against a consensus expectation of a smaller decline).

  1. The Euro area aggregate Final manufacturing PMI printed at 50.7, 0.1pt below the August Flash owing to a considerable 0.6pt downward revision in Germany, outweighing a 0.4pt upward revision in France.
  2. The breakdown of the manufacturing PMI reflected the weaker headline print: New orders fell 1.4pt to 50.7 while stocks remained stable, thus implying a 1.3pt contraction in the forward-looking order-to-stocks ratio. Employment edged 0.6pt lower and remains relatively weak at 49.3. Output also declined by 1.7pt, now standing at 51.0.
  3. The Euro area manufacturing PMI now stands 5.7pt below the peak it reached in January. The manufacturing PMI for the Euro area is now roughly back to the levels seen around a year ago. That said, the PMI remains around 7pt above its low observed around mid-2012.
  4. Relative to the July print, the Final August manufacturing PMI shows a 1.0pt fall in both Germany (to 51.4) and France (to 46.9). The Italian manufacturing PMI fell by 2.0pt (to 49.8) against expectations of a smaller contraction (Cons: 51.0). The Italian PMI has eased 4.2pt since its recent peak in April, pointing to further weaknesses in Italian manufacturing activity. Its Spanish counterpart also declined by 1.0pt but remains a higher level of 52.8 (Cons: 53.3).
  5. Developments outside the major Euro area economies were mixed: the Dutch PMI declined 1.8pt (to 51.7). But the Greek PMI rebounded robustly by 1.4pt to 50.1 and the Irish PMI showed a strong gain of 1.9pt (to a very robust 57.3).

So in the aftermath of so much bad news which “guarantees” (at least according to the sellside penguinry) that Draghi will have no choice but to ease further this week, we are stunned to find Europe not hitting new record highs: according to RanSquawk, European equity markets trade in minor negative territory, as tentative sanctions risk and continued conflict in Eastern Europe sends stocks lower.

Furthermore, poor Eurozone data in the form of German, Italian and Spanish Manufacturing PMIs highlighted the continued challenges faced by Eurozone policy makers and central bankers. The FTSE-100 underpeforms after Goldman Sachs downgraded Royal Dutch Shell to neutral from buy at Goldman Sachs. Nonetheless, the Swiss Market Index has shrugged off the concerns as blue-chip Novartis trades at record highs after their experimental heart failure drug reported very strong results on Saturday. 11 of 19 sectors rise, led by healthcare. 46% of Stoxx 600 members gain, 52% decline. Eurostoxx 50 +0.2%, FTSE 100 -0.1%, CAC 40 -0.4%, DAX -0.3%, IBEX -0%, FTSEMIB -0.5%, SMI +0.7%.

Asian markets have been edging on the front foot overnight despite these headlines. The Nikkei is up by about 0.2% whilst China is up by about four-tenths of a percent as we type despite an overall softer Chinese PMI manufacturing report for August. The headline came in at 51.1 versus expectations of 51.2 but we saw broad based weakness in the details. Output (53.2 v 54.2) and new orders (52.5 v 53.6) were both lower on the month. Backlog order (45.9, down 0.5ppt), raw material inventory (48.6, down 0.4ppt), and employment (48.2, down 0.1ppt) sub indices also fell deeper into contractionary territory. Away from the official reading, the HSBC variant’s final print for August came in at 50.2 also slightly below the flash reading of 50.3. In core rates markets, Treasuries are steady with the 10yr yield holding at around 2.34%.Asian stocks rise with the Nikkei outperforming and the Kospi underperforming. MSCI Asia Pacific up 0.1% to 148.1. Nikkei 225 up 0.3%, Hang Seng up 0%, Kospi down 0%, Shanghai Composite up 0.8%, ASX up 0.1%, Sensex up 0.9%. 7 of 10 sectors rise, led by utilities and tech.

There is, of course, nothing on the US calendar today due to the labor day holiday which means all that Central Bank money on the sidelines will have to wait until 6 pm to buy ES.

Market Wrap:

  • Stoxx 600 little changed at 342.1
  • German 10Yr yield down 1bps to 0.88%
  • MSCI Asia Pacific up 0.1% to 148.1
  • Gold spot up 0.1% to $1289.6/oz
  • U.S. mkts closed for Labor Day holiday

Bulletin Headline Summary

  • European equities retreat as German, Italian and Spanish PMIs are revised lower, dashing hopes of a rebound in this week’s Eurozone GDP figures
  • Lower-than-expected Chinese manufacturing PMI spurs renewed talk of policy easing from Beijing in order to stimulate the domestic economy towards accepted growth levels
  • US markets to remain closed today for Labor Day, with early electronic closes listed below:

FIXED INCOME

Bund futures opened flat on little overnight cues, however began to gain momentum as the German, Italian and Spanish Manufacturing PMIs all missed expectations. Nonetheless, Friday’s PM highs are still yet to be tested at 151.66 as very light volumes keep Bunds from gaining too much momentum. Peripheral yield spreads trade marginally tighter, as early bets are placed on easier ECB policy at Thursday’s rate decision.

EQUITIES

European equity markets trade in minor negative territory, as tentative sanctions risk and continued conflict in Eastern Europe sends stocks lower. Furthermore, poor Eurozone data in the form of German, Italian and Spanish Manufacturing PMIs highlighted the continued challenges faced by Eurozone policy makers and central bankers. The FTSE-100 underpeforms after Goldman Sachs downgraded Royal Dutch Shell to neutral from buy at Goldman Sachs. Nonetheless, the Swiss Market Index has shrugged off the concerns as blue-chip Novartis trades at record highs after their experimental heart failure drug reported very strong results on Saturday.

FX

Overnight, the USD-index extended on Friday’s gains to trade at levels not seen since July 2013, which saw EUR/USD test a touted option barrier at 1.3100. Nonetheless, the EUR recovered from the day’s lowest levels after the lowest UK Manufacturing PMI reading since Jun’13, lifting EUR/GBP well away from the YTD lows of 0.7874. Furthermore, EUR/GBP also fell after CaixaBank’s purchase of Barclays’ EUR 800mln Spanish books.

After the poorer-than-expected Chinese manufacturing PMIs, the antipodean currencies (AUD, NZD) recovered after better than expected NZ terms of trade data while AUD holds its ground ahead of tomorrow’s rate decision.

COMMODITIES

WTI and Brent crude futures trade in modest negative territory as the USD hit the highest level since July 2013, weighing on USDdenominated commodities. Spot gold and silver slightly outperform as the belligerent tones from Russian President Putin keep the sanctions play alive, prompting further upside in palladium, which hit the highest price since 2001.

* * *

DB’s Jim Reid concludes the overnight recap:

Where did the summer go? Welcome to September after a fairly buoyant August that we’ll review at the end in our usual monthly (and YTD) performance review. All charts and tables are in the pdf. Today will probably see large amounts of people return from holidays but with the US off for Labor Day then market’s will probably start the week relatively slowly before building to a crescendo with what is likely to be a fascinating ECB meeting on Thursday (DB expect ABS ‘Private QE’) and payrolls in the US on Friday. I’m returning after two weeks away where I’ve had the wonderful rarity of sleeping for around 8 hours a day. Sadly that’s gone back down to 6 hours as of last night. It was a lovely break with lots of cycling, hiking and eating. I also did my first ever paraglide off a mountain which was a 40th birthday present from my team and a little scary. As I was up in the air I was wondering whether they were trying to find a way of getting rid of me. I also did lots of yoga and practised piano most days. Indeed I think I’ve come on enough in both that I can now play the keyboard in the lotus position with my toes!!

Markets will be have to be on their toes as the week progresses as ahead of the ECB and payroll there is a fair bit of front line data to come to terms with. The Chinese PMI has already kick started the day with a largely in-line headline number of 51.1 although details were generally on the soft side (more later). However the main story is likely to come from Mr Draghi this Thursday as the possible announcement of private ‘QE’ could mark one of the most important events for markets into year end. Our European economists’ base case is that we will get it this week although they acknowledge that it is a very close call. There seems to be an inevitability that QE is coming in some form but the ECB may decide to wait a while longer still to see the impact of their previous policy moves. On balance though DB’s Mark Wall and Gilles Moec expect the announcement of an ABS purchase program to complement the TLTRO. While the programme is unlikely to be technically ready they expect the ECB to ‘firmly commit’ to it this week. As always Draghi’s Q&A will be the most interesting section where he will likely come under pressure to be more explicit on government bond purchases (sovereign QE). Mark and Gilles continue to think that the ECB “would rather not” engage down such a route (given the legal and political ramifications as well as the technical uncertainties), but they think Draghi cannot appear too dismissive on the prospect that such a “last resort weapon” could be used for fear of upsetting the market. So expect a dovish sounding ECB President.

But before all that, the main weekend headlines were largely centred on the escalation of the Ukraine crisis as Europe prepares to ramp up sanctions against Russia warning that its invasion of east Ukraine was risking a state of war with Europe. Following a meeting with Poroshenko over the weekend, European Commission President Barroso noted that “we may see a situation where we reach the point of no return if the escalation of the conflict continues”. This also comes after some strong words from Putin last Friday stressing that Russia is a strong nuclear power and Russia’s partners should understand it is “best not to mess with us”. In a weekend TV interview Putin has also provokingly called for talks on the ‘statehood’ of southeast Ukraine.

Separately, the WSJ reported that Ukraine lost more ground to separatists in eastern Ukraine on Sunday although Ukraine managed to swap 10 Russian soldiers captured last week for 63 Ukrainian troops who crossed into Russia. The WSJ also reported that Poroshenko will have new round of talks with rebels and Russian officials in Minsk today which hopefully will yield some progress toward a cease fire. In the US, some Senators are urging the US to provide Ukraine weapons as a defensive measure.

We will continue to monitor these geopolitical headlines but for now Asian markets have been edging on the front foot overnight despite these headlines. The Nikkei is up by about 0.2% whilst China is up by about four-tenths of a percent as we type despite an overall softer Chinese PMI manufacturing report for August. The headline came in at 51.1 versus expectations of 51.2 but we saw broad based weakness in the details. Output (53.2 v 54.2) and new orders (52.5 v 53.6) were both lower on the month. Backlog order (45.9, down 0.5ppt), raw material inventory (48.6, down 0.4ppt), and employment (48.2, down 0.1ppt) sub indices also fell deeper into contractionary territory. Away from the official reading, the HSBC variant’s final print for August came in at 50.2 also slightly below the flash reading of 50.3. In core rates markets, Treasuries are steady with the 10yr yield holding at around 2.34%.

Previewing the rest of the week ahead, in the US we have the ISM manufacturing on Tuesday, with markets expecting a broadly unchanged reading of 57.0 for August although prices paid are expecting to decline modestly. We then have ADP on Thursday (a day later than usual) ahead of Payrolls Friday. On Payrolls specifically, our US economists think it will take on even greater significance than usual ahead of the September 16-17 FOMC meeting especially given the moderation of several key data series (retail sales, personal consumption, inflation). On that note, DB is looking for a NFP headline of +200k and the unemployment rate to decline a tenth to 6.1%. More on this later in the week.

In Europe, we get the final PMI manufacturing reading for the Euroland, Germany and France today but also fresh readings for Spain and Italy. This will create lots of headlines ahead of Thursday. Euroland PPI for July will be the only notable data tomorrow followed by the round of services PMI across Europe on Wednesday. German factory orders (Thurs) and IP (Friday) are data highlights later this week. We also have BOE’s policy decision on Thursday but despite some twitches from the MPC of late the meeting will almost certainly be overshadowed by the ECB.




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