Month: August 2018

It has been a while since we checked in with our friend, momentum chaser extraordinaire Dennis Gartman, so with the S&P at 2,900, the Nasdaq at all time highs, and US traders blissfully ignoring the tempest that rages across the Emerging Markets, here is the punchline from the latest Gartman Letter:

STOCK PRICES HAVE DONE ONE OF THE RAREST OF THINGS: THEY HAVE FALLEN… UNIVERSALLY; that is, from the levels marked here yesterday, all ten of the markets incumbent in our International Index have fallen. This is a rarity and when it happens it often markets turning points in the markets generally; that is, after sustained bear markets when a day happens that all ten markets turn higher that has very often markets the very day or the week of the low, and when it has happened after long, sustained bull runs it has marked the day or the week of the high.

We are not prepared to say that of a sudden the bull market has ended, but we find it at least worthy of note that this rare circumstance is taking place at precisely the same time as the CNN Fear & Greed Index had made its way to 78… extreme “greed” territory… earlier this week and has turned lower. This, in the past, has also marked market peaks. Finally, an anecdote: the public is “in” the markets in manners not seen in years. We know this after listening to a local  restrauteur tell us of his young son’s decision to “trade” stocks “to make a little extra money.” We were reminded of  Joseph Kennedy’s admonition that the top was in the market in ’29 when the gentleman who shined his shoes began offering him stock tips!

It is far too early to suggest being short of equities, for we’ve tried that before and it proved unwise, but it is time for us to reiterate our admonition that one must absolutely refrain from adding to long positions. Even more certainly one must refrain from buying new positions!

Well, at least it’s not another “watershed” call for a multi-year top. So yes, more good news for the equity bulls. As for gold bulls, our condolences.

As for the precious metals, again we suggest that with each passing day we are more and more convinced that the panic lows of two weeks ago when spot gold traded down to $1160 were THE lows and are likely not to be revisited.

This just a few weeks ago after Gartman gave up on gold.

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Despite outwardly optimistic appearances from Canada’s Freeland, talks between Canadian and U.S. trade negotiators reportedly turned sour last night and Trudeau government officials are now expressing concern that a final NAFTA deal will not be concluded on Friday.

“That was a long, intensive conversation with Ambassador Lighthizer and his team. The atmosphere remains constructive. …We are making progress,” Ms. Freeland said after a session that ended at 8:30 p.m.

She returned at 10:15 p.m. for another meeting that lasted just five minutes. Ms. Freeland told reporters that she had “a couple things to say” to Mr. Lighthizer and she would meet him again Friday.

According to The Globe reports, USTR Lighthizer has refused to budge on eliminating Chapter 19 – which allows Ottawa to challenge punitive American tariffs on imports before binational panels – and refusing to keep current cultural protection provisions in a redrafted North America free-trade agreement.

Ms. Freeland, who said on Thursday a deal is possible, had offered the Americans concessions on increased U.S. dairy exports to Canada U.S. and on intellectual property, but Mr. Lighthizer was unwilling to offer any concessions of his own on the two key Canadian demands.

As The Globe reports so ominously:

There is now deep concern within the Canadian negotiating team that the talks which continue this morning will end in failure. 

However, on the back of The Globe’s ‘sources’, the loonie is slipping lower – erasing all the early week hope-filled gains…

1.3050 seems like a line in the sand for the Loonie for now, any further negative headlines and a break of that level will push the canadian dollar notably lower.

Finally, we note that Citi points out that sources have been saying all sorts of things, with some suggesting there’s been enough progress.

 

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On Friday, the Bank of Japan tweaked its monthly government bond buying plan, sparking bond market fears that it may further reduce its massive bond buying, with the news pushing down the price of 10-year Japanese government bond futures as much as 10 ticks.

The BOJ announced it would reduce the frequency of its buying in one to three, three to five, and five to 10-year bonds to five times in September from six times in August.

At the same time, it increased the maximum amount of its buying in each operation in these maturities: it raised the upper buying limit for one- to three-year bonds and three- to five-year bonds to 400 billion and 450 billion yen from 300 and 350 billion yen, respectively according to Reuters.

While the change seems technical on the surface – and may be calendar-driven as there are fewer business days in September when the BOJ can conduct its buying operations – traders have grown highly sensitive to any changes in the BOJ’s massive QE program amid growing uncertainty over how much longer it can sustain its current ultra-easy policy.

The BOJ said it would conduct its first buying in the five to ten year zone on Thursday.

As a reference, in August the BOJ bought 400 billion yen, the mid-point of its target buying amount, of 5 to 10-year maturities in each of its six scheduled operations, for a total of 2.4 trillion yen. Doing the math, assuming the BOJ sets its buying in September at 450 billion yen, also the midpoint of the new range, it would amount to monthly buying of 2.25 trillion yen, another indication the BOJ is engaged in not so stealth tapering.

By the same logic, the BOJ’s buying in 3-5 year bonds will be reduced to 1.75 trillion yen from 1.8 trillion yen if the BOJ sets its buying at the middle of the range at 350 billion yen.

Commenting on the shift, Mizuho’s Toru Suehiro told Bloomberg that the decrease in the frequency of the Bank of Japan’s bond-buying operations in September suggests the central bank is willing to reduce purchases.

He also said that “the higher upper limit of bond-buying ranges suggests BOJ would be wiling to buy more if necessary, given it’s unclear how the market will respond to the reduced frequency” but added that “some market participants may be thinking the reduced frequency is due to holidays in September.”

In other words, unless the BOJ increases purchases at the first operation next month, the lower frequency will be taken as a plan to cut overall purchases.

Which will hardly be a surprise: the BOJ has been gradually slowing the pace of its bond buying as its bond holdings reached more than 40 percent of the entire market, leading to shortage of bonds available for investors and fall in the market liquidity.

Last month the BOJ said it would allow the 10-year JGB yield to move in a wider range than before but the market’s volatility has quickly dwindled since then.

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Despite four rate hikes by the Bank of Indonesia since May, the Indonesia’s rupiah slid to a two-decade low, falling to 14,750 per dollar, a level last hit during the Asian Financial Crisis of 1998, and just shy of an all time low, spurring yet another intervention from the central bank as the contagion from the collapse in Argentina and Turkey has turned the market’s attention on emerging markets with current account deficits.

Indonesia’s benchmark bond yields rose 10 basis points to the highest level since 2016, while the Jakarta Composite Index slipped as much as 1.3%.

The plunge took place despite a notice from the central bank that it was intervening in the foreign exchange and bond markets, according to Nanang Hendarsah, executive director for monetary management.

As a reminder, after Argentina and Turkey, Indonesia is next to be hit on this chart from JPM we first showed at the start of June, which plotted countries with a current account deficit and rising external debt.

The rupiah is down 7.8% this year, and first came under pressure from a resurgent greenback and climbing U.S. Treasury yields. The escalating trade war between the U.S. and China, followed by the Turkey turmoil then added to its woes. It’s the second-worst performing major Asian currency this year, after the Indian rupee.

Meanwhile, over in India, the rupee also fell to a new record low, trading 71.035 against the dollar, set for the biggest monthly decline in three years, although so far India’s capital markets excluding FX have barely been affected, with the Nifty trading just shy of all time highs.

As Bloomberg notes, as investors liquidated Turkish and Argentinian assets, countries with large current-account deficits such as Indonesia and India have also seen their currencies and bonds come under selling pressure. The rout in the Argentinian peso and Turkish lira end the recent stability bought by Bank Indonesia’s four rate hikes since mid-May, which has led to a return of foreign funds into its debt market.

The collapse in the currency prompted various comments from FX strategists:

• “The rupiah’s underperformance relative to the rest of emerging markets stems from Indonesia’s weak external payments position, especially the current account deficit,” said ING economist Prakash Sakpal. Still, “things now are far different than 20 years ago when the crisis originated in Asia and rupiah’s external creditworthiness was much weaker.”
• “The spillover from the resurfacing emerging-market turmoil in the Argentina peso and Turkish lira is weighing on EM Asia currencies,” said Ken Cheung, senior FX strategist at Mizuho Bank Ltd. in Singapore. “There was no solid relief sign for the China-U.S. trade tensions, and the upcoming U.S. tariff plan on $200 billion of Chinese goods, after the public-comment period due next week, could jeopardize sentiment.”
• The recent sell-off will put more pressure on the central bank to raise rates again, according to Bank of America: “Just goes to show the external environment remains tough for Indonesia as we had anticipated,” said Mohamed Faiz Nagutha, an economist at Bank of America Merrill Lynch in Singapore. “We continue to expect more hikes for sure, with the exact magnitude to be determined by external rather than domestic fundamentals.”

Meanwhile, the pressure on the rupiah continued to rise as Indonesia’s current-account deficit rose. The shortfall increased to $8 billion in the second quarter, or 3% of GDP, from $5.7 billion in the previous three months, according to the latest central bank data.

“For Indonesia, it’s the current-account deficit that we need to manage,” said Suahasil Nazara, head of fiscal policy office at the Finance Ministry. “The ultimate fix is through our structural reforms, allowing better and more conducive business environment especially for manufacturing and upstream industries.”

Of course, it is those structural reforms that are so unpopular, which is why every EM chooses to use monetary policy first – or in the case of Turkey, nothing at all.

Still, it was not all bad news: despite the rupiah’s selloff, investors can take heart in “some underlying improvement in the Indonesian economy” since the 1998 Asian crisis, said Michael Every, head of financial markets research for Rabobank Group in Hong Kong. “I don’t think there’s as much downside risk to the rupiah until we see China devalues its currency significantly.” That in turn depends entirely on Trump.

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During his latest campaign-style rally in Indiana, President Donald Trump warned on Thursday that the Justice Department and the FBI must “start doing their job and doing it right” or “I will get involved.” Trump, who has repeatedly criticized the department over its handling of a probe into alleged Russian interference in the 2016 election campaign, suggested its leadership was biased against Republicans and that “people are angry.”

“Our Justice Department and our FBI – at the top of each, because inside they have incredible people – but our Justice Department and our FBI have to start doing their job and doing it right and doing it now,” Trump said. “I wanted to stay out, but at some point if it doesn’t straighten out properly … I will get involved and I’ll get in there if I have to.”

The president’s comments echoed his tweet from this past Saturday, and also comments he made in May, when he threatened to “get involved” in a rolling dispute between conservative House Republicans and the top DOJ official overseeing the Russia probe.

Trump has frequently attacked the DOJ and Attorney General Jeff Sessions over the federal investigation into Russian interference in the 2016 presidential election. The president’s feud with the DOJ has escalated since last week, when he said during an interview on “Fox & Friends” that Sessions “never took control of the Justice Department.”

“The Dems are very strong in the Justice Department,” Trump said. “And I put in an attorney general that never took control of the Justice Department, Jeff Sessions. Never took control of the Justice Department. It’s sort of an incredible thing.”  Sessions fired back, saying in a statement that the DOJ “will not be improperly influenced by political considerations.”

As The Hill notes, the president’s attacks against Sessions have continued to fuel speculation that he could move to fire the attorney general at some point. Senators Bob Corker and Lindsey Graham both predicted last week that Trump will eventually fire Sessions.

Earlier in the day, Trump told Bloomberg News that Sessions would remain in his job until at least the November midterm elections, but declined to say whether he would keep Sessions after the elections.

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It is a sea of red on trader screens this morning with U.S. equity futures modestly lower on the last trading day of the month, after European and Asian shares fell following Trump’s latest comments on trade. Emerging Markets were hit again while Treasury yields drifted lower and the dollar rebounded from an early dip.

The deepening rout in the Turkish lira and Argentinian peso spread to other emerging markets, with the Indonesian rupiah dropping to the weakest level since the 1998 Asian financial crisis…

… and the Indian rupee sliding to a record low.

Caution has returned to markets as global stocks end a month that saw a solid rally from mid-August. While the Fed remains on its tightening path and Chinese authorities stepped in to stem declines in the country’s currency, the threat of global growth taking a hit from souring U.S.-China relations remains front and center, and continues to slam emerging markets the hardest.

After emerging markets initially ignored the slide in the Argentine Peso (and Turkish Lira), the correlation between the currency and the broader EM FX index has jumped, as the Argentine contagion has spread to the rest of the world following the latest shock plunge sent the currency to a record low.

More trade uncertainty was in the air as President Donald Trump was said to move ahead with a plan to impose $200 billion in new tariffs on China, pushing the MSCI Asia Pacific down 0.3%. One bright spot, China’s official manufacturing PMI unexpectedly strengthened, signaling some resilience to escalating trade wars and that China’s stimulus may be trickling into the economy:

• Chinese Manufacturing PMI (Jul) 51.3 vs. Exp. 51.0 (Prev. 51.2)
• Chinese Non-Manufacturing PMI (Jul) 54.2 vs. Exp. 53.7 (Prev. 54.0)
• Chinese Composite PMI (Aug) 53.8 (Prev. 53.6)

It has been a busy session so far, with several product-specific moves: the Yuan rallied in Asian trading after stronger-than-expected PBOC fix coupled with domestic PMI beats, however that did not help the Shanghai Composite which closed lower for a 4th day.

The EUR was bid early in European session on hawkish Nowotny comments, however it reversed its gain and slid to session lows below 1.1660 as US traders starting coming in; At the same time, USDJPY made a firm break below 111.00, while the Turkish Lira for once lead EMFX higher after latest de facto tightening measures.

Turkey hiked a tax on up to 6-month FX deposit accounts to 20% from 18%, and raised the tax on FX accounts with maturities of up to 1 year to 16% from 15%, according to decree published in official gazette. At the same time, Turkey cut tax on lira deposit accounts to 5% from 15% for up to 6-month accounts. The result was another squeeze, but also confirmation that the central bank refuses to intervene conventionally by hiking rates.

U.S. equity futures trade close to bottom of yesterday’s range. JGB futures spike lower as BOJ purchase schedule for September shows a reduction on a net basis.

European shares fell for a second day on Friday on reports that U.S. President Donald Trump is planning more tariffs on China, while Whitbread surged after clinching a $5.1 billion deal with Coca-Cola. The STOXX 600 dropped 0.5%, on track for its biggest decline in two weeks, led by Germany’s DAX which was dragged lower by trade-sensitive industrial stocks, and fell 1%. Sparring over trade between Trump and the EU hit European car stocks, which were down 1% and the worst-performing sector after Trump told Bloomberg he rejected an EU offer to eliminate car tariffs, saying its trade policies are “almost as bad as China”. In response, European Commission President Jean-Claude Juncker said the EU would respond in kind. Daimler, Volkswagen, BMW, and Continental were the biggest weights on the DAX, falling 1 to 1.3 percent after rebounding in the previous session.

Earlier, Asian markets also traded lower across the board, with sentiment hit by reports Trump will back tariffs on an additional $200BN of Chinese goods as early as next week, although losses in the Asia-Pac region were stemmed as participants also digested a trifecta of encouraging China PMI data. Nonetheless, ASX 200 (-0.5%) was lower as weakness in miners and profit taking in telecoms led the downside in Australia, while the Nikkei 225 (-0.1%) was initially pressured by a firmer currency but then showed resilience and gradually rebounded throughout the session. Shanghai Comp. (-0.5%) was also weighed by the fresh tariff fears although data helped plug losses including Chinese Official Manufacturing and Non-Manufacturing PMI which topped estimates and with Composite PMI higher than previous, while Hang Seng (-1.0%) was the worst performer as its largest weighted stock Tencent slumped over 5% at the open on government plans to control the amount of new online game releases.

“It’s very hard to see a decisive resuscitation of risk appetite until these tensions are resolved,” said Janus Henderson strategist Paul O’Connor. “We have learned to under-react to some of the individual headlines because if you try to extrapolate from any of them you could find yourself in big trouble.”

While trade disputes have caused uncertainty and volatility, investors drew comfort from strong earnings strong earnings.

“Concerns around trade are not significantly affecting macro and market fundamentals at this stage. There’s still a fairly strong global recovery, earnings forecasts remain resilient across the board,” said Janus Henderson’s O’Connor.  “It limits the upside but isn’t something that is changing our perception of broader market fundamentals.”

For those who missed it, there was a barrage of Trump-related news overnight following an extensive Bloomberg interview, with the highlights below:

• Trump rejected the EU’s proposal to remove car tariffs, stating that the offer is not good enough, while he added
• the EU is almost as bad as China, just smaller.
• Trump said he has no regrets appointing Powell as Fed chair and stated he is not being accommodated by the Fed in trade disputes but he is not sure the currency should be controlled by a politician. In addition, Trump stated that AG Sessions job is safe until at least the November elections and declared there will be no pay rises for public sector workers in 2019, while Trump also threatened to withdraw from WTO if it does not “shape up”.
• Trump has once again threatened to withdraw from the WTO unless the organisation treats the US better.
• Trump stated that a trade agreement with Canada may come by Friday or within a period of time but it will occur, while Canada’s Foreign Minister Freeland was said to be optimistic about NAFTA talks and commented that the both sides are showing constructive attitudes and have a lot of work to do in a short time. However, reports later noted that US &  Canada have not made progress yet on Chapter 9 issue in trade discussions and that Canadian Foreign Minister Freeland left talks with USTR after only minutes which will reconvene on Friday morning.

In overnight central bank news, the BoK kept the 7-day repo rate unchanged at 1.50% as expected, with the decision not unanimous as board member Lee dissented. BoK stated the economy is to maintain growth momentum and rebound in consumption will continue but also commented that pace of investment will slow. Elsewhere, the RBA said high debt levels could make future policy decisions difficult and could also make the economy less resilient to shocks.

In rates, USTs remain supported through Asia and Europe with curve unchanged; bunds traded in a tight range while BTPs rallied after reports of a more pragmatic deficit ratio within the new Italian budget.

Expected data include University of Michigan Consumer Sentiment. Big Lots and Rubius Therapeutics are among companies reporting earnings.

Market Snapshot

• S&P 500 futures little changed at 2,901.75
• STOXX Europe 600 down 0.5% to 383.51
• German 10Y yield rose 0.5 bps to 0.351%
• Euro up 0.06% to $1.1678
• Italian 10Y yield rose 8.8 bps to 2.941%
• Spanish 10Y yield fell 0.5 bps to 1.465%
• MXAP down 0.3% to 165.61
• MXAPJ down 0.6% to 534.51
• Nikkei down 0.02% to 22,865.15
• Topix down 0.2% to 1,735.35
• Hang Seng Index down 1% to 27,888.55
• Shanghai Composite down 0.5% to 2,725.25
• Sensex down 0.2% to 38,599.94
• Australia S&P/ASX 200 down 0.5% to 6,319.50
• Kospi up 0.7% to 2,322.88
• Brent futures down 0.5% to $77.39/bbl
• Gold spot up 0.6% to $1,207.04
• U.S. Dollar Index little changed at 94.68

Top Overnight News from Bloomberg

• President Donald Trump wants to move ahead with a plan to impose tariffs on $200 billion in Chinese imports as soon as a public- comment period concludes next week, according to six people familiar with the matter
• President Donald Trump said in a Bloomberg interview that he would pull the U.S. out of the WTO if it doesn’t “shape up.” He also rejected the EU’s offer to eliminate trans-Atlantic car tariffs, and said a report that he wants to move ahead with a plan to impose tariffs on $200 billion in Chinese imports as soon as next week was “not totally wrong”
• Trump declared Thursday that China won’t outlast the U.S. in their trade dispute, and said his administration is re-examining how to determine whether countries are manipulating their currencies
• President Donald Trump said he doesn’t regret appointing Jerome Powell as Federal Reserve chairman, even after criticizing interest rate increases by the central bank
• The U.S. president said his country is making progress with Canada to revamp Nafta as negotiators stepped up the pace of discussions to meet a Friday deadline to reach an agreement
• ECB policy maker Olli Rehn hit back against Trump’s accusation that Europe is manipulating its currency and is “almost as bad as China” on trade, saying it was “very regrettable that from the U.S. side there is a tendency to escalate the trade war”
• The Bank of Korea left its key interest rate unchanged on Friday as it weighed escalating trade battles and signs that Asia’s fourth-largest economy may be losing steam
• ECB policy maker Ewald Nowotny suggested that Italy’s laggard economy shouldn’t slow plans to end euro-area monetary stimulus and start raising interest rates
• Emerging-market assets are headed for a monthly loss as declines in Argentina and Turkey sparked fears of global contagion and amid a renewed intensification of U.S.-China trade tensions
• U.K. house prices fell by the most in six years in August as the Bank of England lifted interest rates, according to Nationwide Building Society
• Trump rejected a European Union offer to scrap tariffs on cars, likening the bloc’s trade policies to those of China. He also said he would pull out of the World Trade Organization if it doesn’t treat the U.S. better, targeting a cornerstone of the international trading system

Asian equity markets traded mostly lower with sentiment weighed as trade war fears were reignited by reports US President Trump is said to back tariffs on an additional USD 200bln of Chinese goods as early as next week. This subsequently saw all US majors close in the red and both the S&P 500 and Nasdaq Comp. snap their streak of record highs, although losses in most the Asia-Pac region have been stemmed as participants also digested a trifecta of encouraging China PMI data. Nonetheless, ASX 200 (-0.5%) was lower as weakness in miners and profit taking in telecoms led the downside in Australia, while the Nikkei 225 (-0.1%) was initially pressured by a firmer currency but then showed resilience and gradually rebounded throughout the session. Shanghai Comp. (-0.5%) was also weighed by the fresh tariff fears although data helped plug losses including Chinese Official Manufacturing and Non-Manufacturing PMI which topped estimates and with Composite PMI higher than previous, while Hang Seng (-1.0%) was the worst performer as its largest weighted stock Tencent slumped over 5% at the open on government plans to control the amount of new online game releases. Finally, 10yr JGBs were marginally higher with demand supported by early safe-haven flows and with the BoJ also present in the market for nearly JPY 1tln of JGBs ranging from 1yr-10yr maturities.

• Chinese Manufacturing PMI (Jul) 51.3 vs. Exp. 51.0 (Prev. 51.2). (Newswires)
• Chinese Non-Manufacturing PMI (Jul) 54.2 vs. Exp. 53.7 (Prev. 54.0)
• Chinese Composite PMI (Aug) 53.8 (Prev. 53.6)

PBoC skipped open market operations for a net weekly drain of CNY 170bln vs. last week’s CNY 40bln net injection.

Top Asian News

• BOJ Tweaks Bond-Purchase Ranges, Buying Frequency for September
• China’s Factories Show Resilience Amid Trump Tariff Danger
• Transurban Group Buys Sydney Tollroad Stake for $6.7 Billion
• Lira Gets a Helping Hand as Turkey Raises Tax on Dollar Deposits

European equities are largely on the backfoot (Eurostoxx 50 -1.1%) after extending opening losses. In terms of sectors, IT, materials and consumer discretionary names underperform. Material names are lower on base metal price action while consumer discretionary names are weighed on by autos following comments from EU’s Juncker stating the EU will increase auto tariffs if the US does, hence denting sentiment in the sector. In terms of individual movers, Whitbread (+15.1%) opened higher by over 18% on reports the company proposed the sale of Costa to Coca Cola for GBP 3.9bln, while Whitbread’s CEO added the deal offers a significant premium to anything that could be achieved from spinning off Costa alone.

Top European News

• ECB’s Nowotny Signals Italian Woes Shouldn’t Delay Rate Hikes
• Euro-Area Inflation Unexpectedly Slows as Trade Risks Escalate
• BP, Shell Upgraded by Santander While It Remains Cautious
• No One Loves Irrelevant, Tiring, Dull European Stocks These Days

In FX, JPY benefited from month end-related demand and risk aversion amidst heightened US-EU/China import tariff tensions, with Usd/Jpy reversing further from near 112.00 highs to circa 110.70 and Jpy crosses strong bar Chf/Jpy for the aforementioned reasons. EUR/GBP – Both slightly firmer vs the Greenback and on a par with each other as the single currency meanders between 1.1690- 60 and Cable circles 1.3000 ahead of more Brexit talks and less positive EU vibes about the 2 sides still being a long way from resolving the NI backstop. The cross has been volatile, albeit rangy around the 21 DMA at 0.8972, with stops and/or RHS orders for month end from 0.8975-80 pushing the pair up towards 0.8990 at one stage. Back to Eur/Usd, option expiries abound from 1.1675 (1.1 bn), through 1.1700-05 (1.7 bn) to 1.1720-25 (1.85 bn). AUD/NZD – No real sign of any lasting comfort from better than expected Chinese PMIs overnight, as the Aussie and Kiwi remain on track to end a torrid week with extended losses vs their US counterpart due to increased US-China and global trade threats. Aud/Usd has tumbled through 0.7250 and Nzd/Usd is struggling to hold 0.6650 as the cross rotates around 1.0900, but hefty option expiry interest may exert influence in Aud/Usd into the NY cut (almost 1.2 bn at 0.7250). EM – Interestingly, Turkey got a bit more purchase from latest measures to halt Lira losses via prolonging tax exemptions on wealth repatriation by 6 months, increasing withholding tax on up to 1 year foreign currency deposits and setting taxes on Try deposits of up to 1 year at 0% than Argentina with its eye-catching (watering) 1500 bp rate hike on Thursday. Indeed, Usd/Try reversed sharply from just over 6.7900 to sub-6.3800 before settling around 6.5000 amidst more verbal intervention.

In commodities, WTI and Brent futures are softer on the day while the former is still holding onto the USD 70/bbl handle heading into the end of the month. Next month will be interesting as the OPEC and non-OPEC technical committee meet on 11th to potentially discuss a production strategy, while the JMMC are to meet in Algeria on the 23rd. Elsewhere, gold is benefitting from the softer dollar while copper lags on reports the US may impose tariffs on USD 200bln worth of Chinese goods as soon as next week. Separately, the Shanghai Futures Exchange are to launch copper options on September 21st.

US Event Calendar

• 9:45am: Chicago Purchasing Manager, est. 63, prior 65.5
• 10am: U. of Mich. Sentiment, est. 95.5, prior 95.3; Current Conditi9ons, prior 107.8; Expectations, prior 87.3

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Authored by former German foreign minister Joschka Fischer via Project Syndicate,

When the Republic of Turkey emerged from the wreckage of the Ottoman Empire after World War I, its national ambition was to join Europe as a modern, secular state. But after much progress, Turkish President Recep Tayyip Erdoğan has now all but squandered his country’s chance of realizing its founders’ vision.

One of the great geopolitical issues in nineteenth-century Europe was the so-called Eastern Question. The Ottoman Empire, then known as the “sick man of Europe,” was rapidly disintegrating, and it remained to be seen which European power would succeed it. When the self-annihilation of World War I finally arrived, it was no coincidence that it emanated from the Balkans, the geopolitical playground for the Ottoman, Austro-Hungarian, and Russian Empires.

All three great empires met their demise after the war. During the Allied partition of the Ottoman Empire, General Mustafa Kemal Atatürk and the defeated Turkish army withdrew to Anatolia, where they successfully repelled a Greek intervention, and then rejected the Treaty of Sèvres. In its place came the Treaty of Lausanne, which paved the way for the establishment of the Republic of Turkey.

Atatürk’s ambition was to turn Turkey into a modern, secular country that would belong to Europe and the West, not to the Middle East. To achieve this goal, he ruled as an authoritarian, and created a hybrid state based on de facto military rule and multiparty democracy. Over the course of the twentieth century, this arrangement produced recurring crises in which Turkish democracy was repeatedly interrupted by temporary military dictatorships.

After 1947, Turkish politics was heavily influenced by the Cold War.

In 1952, Turkey joined NATO and became one of the West’s indispensable allies. For decades, it used its strategic position between the Eastern Mediterranean and the Black Sea to guard the alliance’s southern flank against Soviet encroachments.

Still, Turkey remained an unstable political entity. The constant vacillation between democracy and military rule arrested most of its progress toward modernization. For Turkish proponents of democracy, the country’s best hope rested with Europe. Formal accession to the European Union would signal the completion of the modernization process. Whereas the Ottomans had maintained hegemony over the Middle East for a century, Turkey would become a card-carrying member of the West.

In 1995, Turkey entered into a customs union with the EU.

By the time the Islamist Justice and Development Party (AKP) came to power in 2002, the country seemed to have oriented itself toward Europe for good. In partnership with the Islamic cleric Fethullah Gülen’s movement, AKP governments led by then-Prime Minister Recep Tayyip Erdoğan pursued far-reaching institutional, economic, and judicial reforms, including the abolition of the death penalty, an essential precondition for EU membership.

Moreover, during the early years of Erdoğan’s premiership, Turkey experienced rapid modernization and strong economic growth, bringing it ever closer to the EU. By 2011, when the Arab Spring arrived, Turkey was rightly heralded as a successful model of “Islamic democracy,” in which free and fair elections were combined with the rule of law and a market economy.

Seven years later, we seem to be in a completely different world. Turkey is quickly reclaiming its title as “the sick man of Europe.” Given its strategic location and economic and human potential, the country should be moving toward a brilliant twenty-first-century future. Instead, it is marching backward toward the nineteenth century, under the banner of nationalism and reorientalization. Rather than embrace Western modernity, it is throwing in its lot with the Middle East and that region’s perpetual crises.

Erdoğan, who assumed the presidency in 2014, has presided over Turkey’s rapid modernization and equally rapid backsliding. He had the chance to follow in Atatürk’s footsteps, and to complete the task of integrating Turkey into the West, but he failed.

What explains this tragedy? One possibility is that Erdoğan grew overconfident during the boom that preceded the 2008 financial crisis. Another is that he came to resent the West, owing to the humiliation of the stalled EU accession process and his own authoritarian ambitions, which he finally pursued in earnest after the failed military coup in the summer of 2016.

In any event, Erdoğan has squandered a unique opportunity for both Turkey and the Muslim world generally. His country is now beset by a currency crisis of his own making, and it could even face the prospect of national bankruptcy. As he increasingly divides his loyalties between East and West, he risks destabilizing the Middle East even further. Turkey’s domestic ethnic conflicts – particularly with the Kurds – have once again erupted with full force, even though past experience shows that they cannot be resolved militarily. Thanks to Erdoğan, Turkey has become part of the problem in the region, rather than the solution.

And yet Turkey’s strategic importance to Europe remains. Millions of EU citizens are of Turkish origin, and the country will continue to bridge the gap between East and West, North and South. Under Erdoğan’s regime, Turkey is no longer a prospective candidate for EU membership. But, rather than break off the accession process, the EU should focus on stabilizing the country and salvaging its democracy.

After all, a destabilized Turkey is the last thing Europe needs. Regardless of one’s sympathy for or antipathy to Erdoğan, Europe’s own security depends heavily on Turkey, which has absorbed millions of migrants and refugees fleeing conflicts in the Middle East in recent years. For the sake of both European stability and Turkish democracy, the EU must confront Turkey’s crisis with patience and pragmatism, based on its own democratic principles.

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Nigel Farage, the former Ukip leader who lives in south-east London, announced on Thursday that he’s considering a run for London mayor in 2020. 

The outspoken Brexit champion said such a move would allow him to “make arguments” on a high profile platform – and he thinks he has enough support to actually pull it off, beating out whichever candidate the Conservatives put forward. 

Farage, who left the UK Independence Party in July 2016 – just weeks after the UK voted to leave the EU, will lose his spot in the European Parliament next month when that occurs next March. 

Despite seven unsuccessful runs for parliament, Farage has been elected an MEP three times.

“I have been encouraged to [stand] by a group of people, but that doesn’t mean I’m going to,” he told the Financial Times. “I haven’t said no to it, I’m thinking about it.“

“The Tory party are very actively aware that if I did stand, they would probably come third, and they are afraid of that,” he added.

One senior Conservative official told the Financial Times that Downing Street was bracing for electoral embarrassment should Farage throw his hat in the ring. 

Kahn – the mayor of London for two years, is seen as the frontrunner in the race. 

Next month, the Tories will pick a challenger from a shortlist of three relatively unknown candidates: London Assembly members Shaun Bailey and Andrew Boff and Ealing councillor Joy Morrissey.

One ally of Mr Farage said more Londoners had voted for Brexit than for Mr Khan, despite the city’s pro-EU reputation.

Mr Khan became mayor in 2016 on 1.3m first and second preference votes, while in the EU referendum — where turnout was significantly higher — 1.5m Londoners voted Leave and 2.3m voted Remain.

“The three Tory candidates are so poor . . . no one expects any of them to win, if you have televised hustings it would just come down to Nigel versus Sadiq,” added Mr Farage’s ally. –FT
 

Farage has levied harsh criticism at Kahn over London’s crime rate, suggesting that the mayor ought to “spend a bit less time slagging off Donald Trump and a bit more time getting to grips with crime.” 

Farage has also questioned the growing Muslim population in the city, saying “There are quite big areas of east London that have become wholly Muslim areas.” 

“I’d never thought I’d see the day where the murder rate in London would overtake that of New York,” said Kahn. 

“Clearly we have a really bad problem.”

Is the tide turning on Kahn?

 

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