Month: October 2018

With lower-cost Chinese handset makers nipping at Samsung’s heels, and Apple maintaining its unassailable dominance of the premium market, the South Korean consumer-tech giant reported a stunning 33% drop in operating profits for its mobile business, which fell to 2.2 trillion won last quarter, even as growth in its memory chip business helped the company post a record 17.6 trillion won operating profit, up 21% from 14.5 trillion won from the same time last year, surpassing the expectations of Wall Street analysts.

While the underlying softness in the smartphone segment was widely cited as a cause for concern among analysts, it didn’t stop the world’s largest manufacturer of smartphones and semiconductors from reporting a 13.15 trillion South Korean won ($11.5 billion) net operating profit, the company’s highest ever, representing an 18% increase from 11.19 trillion won ($9.8 billion) a year earlier.

“Looking further ahead to 2019, earnings are forecast to be weak for the first quarter due to seasonality, but then strengthen as business conditions, particularly in the memory market, improve,” Samsung said in a statement.

Per Reuters and WSJ, analysts had expected Samsung to post a Q3 profit of 12.9 trillion won, and revenue of 64.9 trillion won. But despite its strong overall bottom line, the softness in Samsung’s smartphone sector was difficult for analysts to ignore.

As the company, which ships one of every five smartphones sold globally, said mobile revenues declined 10% to 24.91 trillion won, down from 27.69 trillion won a year earlier. Samsung attributed this to the fact that shipments were flat during the quarter, while “increased promotional costs” and “a negative currency impact” – which, along with trade war fears, has been a perennial favorite excuse for underperformance offered by corporate managers this cycle. In Samsung’s case, these excuses were merely window-dressing, as the weakness in the mobile business could be attributed almost exclusively to the fact that the company’s Samsung Galaxy S9, which is priced in the premium range, has sold poorly. In fact, the device’s lackluster sales forced Samsung to move forward the release of its Galaxy Note 9 to Aug. 24, weeks ahead of the previous year. Apparently, the company’s widely touted introduction of animated human emojis wasn’t enough to offset the steep price of the S9. 

While consumers have been holding on to their smartphones longer than ever before, leading to purchases of smartphones to plateau for all manufacturers, many are also waiting for next year’s release, as Samsung is expected to introduce a foldable-screen phone.

All of this did little to ease investor fears that the memory-chip boom that had lifted Samsung’s share price in recent years (though shares have retreated this year as growth concerns have festered) could be coming to an end, as many fear the semiconductor shortage that helped drive the company’s series of record profits may have peaked.

According to WSJ, the prices for DRAM chips, one of Samsung’s core products, are expected to slide in the coming months, which would be the first drop in two years. And this softness isn’t limited to DRAM chips: Prices of NAND chips are already dropping and could shed another 25% to 30% next year, DRAMeXchange told WSJ.

“NAND (flash memory) chip prices will further decline through the first half of next year…(as) Toshiba’s new production line will start and Hynix starts mass production of one of its NAND lines,” said Song Myung-sup, an analyst at HI Investment & Securities.

“Oversupply is expected to continue.”

Still, analysts noted that, as Samsung continues to cut costs, it will likely soften the blow somewhat from the shifting dynamics in the semiconductor market. 

“Since Samsung continues to reduce the costs of (semiconductors), it is not very likely to witness a so-called hard-landing situation,” said Avril Wu, senior research director at DRAMeXchange.

Samsung, the world’s largest maker of DRAM and NAND chips, isn’t the only chip maker to warn about a slowdown in demand. Executives at SK Hynix said the company is planning to cut investment in 2019 to reflect “global economic uncertainties.” Meanwhile, Texas Instruments,, a U.S. maker of communications chips, said last week in an earnings statement it saw a slowdown in demand across most markets. Samsung shares were flat toward the close of the Asia trading session.

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The nightmare on Wall Street may finally be over with markets getting a treat this Halloween…  but will the trick emerge during the usual last hour of trading?

It is a sea of green as stocks hope to end a turbulent month – which saw the biggest losses for global equity markets since 2012 – in an upbeat mood, with European stocks sharply higher following a rebound in Asia as US equity futures extended on their Thursday gains which saw the Dow soar by more than 400 points, while the dollar remained near one year highs as Treasury yields posted another day of modest increases.

A confluence of factors ranging from China-U.S. trade tensions to worries about global economic growth, corporate profits and higher U.S. interest rates have spurred volatility in financial markets in the past few weeks. But shares in Europe were expected to follow Asia’s lead higher on the last day of the month, while U.S. S&P mini-futures edged up 0.3 percent.

Every sector in Europe’s Stoxx 600 Index rose, with miners and energy companies leading the way. France’s CAC 40 (+1.9%) outperformed peers with the index pushed higher by gains in heavyweights L’Oreal (+5.4%) and Sanofi (+5.0%) post-earnings. Energy names lead the gains as the complex retraced yesterday’s losses, while utility names underperformed. Tech stocks thanks to Dialog Semiconductor (+10.0%) which rose to the top of the Stoxx 600 amid optimistic earnings, while Nokian Tyres (-14.7%) plumbed the depths after cutting guidance due to currency impacts.

Earlier in Asia, the MSCI Asia-Pacific index rose 1%, with Japanese stocks the stand-out performers thanks to a 2.2% advance in the Nikkei, reassured by the Bank of Japan’s signal that it will keep its ultra-easy policy for some time to come. Even so, Asia was on track to fall around 11% this month, which would be its worst monthly performance since September 2011, dropping to its lowest level since February 2017 this week.

Hong Kong’s Hang Seng rose 1 percent on Wednesday and the Shanghai Composite Index climbed 1.4% as weaker-than-expected factory activity data reinforced views that Beijing will roll out more support measures for the economy.

In the latest economic disappointment out of Beijing, the latest official NBS manufacturing PMI fell to 50.2 in October, the lowest level since July 2016 as almost all sub-indexes showed weaker growth momentum. The non-manufacturing PMI missed expectations as well, printing at 53.9, below the 54.9 in September, due to the weaker services PMI.

In Beijing’s ongoing attempt to stabilize the yuan, China’s overnight repo rate surged by 84bps – the most in more than four years – to 2.39%, as authorities take aggressive steps to combat bets against the yuan, which held near the weakest level in a decade against the greenback.

Even so, hopes of boosting the Yuan have proven futile so far, with the USDCNH rising to the highest since January 2017, just shy of 6.800 and knocking on the door of the critical 7.00 level, with today’s move largely a function of renewed dollar strength. The Chinese currency was on track for a loss of 1.4% in October, its seventh straight monthly loss — the longest such losing streak on record

Australian stocks ended 0.4 percent higher, South Korea’s KOSPI added 0.7 percent.

Today’s gains will be a welcome respite in a month that has seen a near historic selloff: the broader MSCI All Country World index was down 8.6% this month, its biggest monthly drop since 2012, losing $4 trillion in market value.

The narrower MSCI World Index was down 8.43% and has wiped out $4.5 trillion in October. The month-end gains followed a sharp bounce for Wall Street’s main indexes, which jumped more than 1% on Tuesday, helped by strong gains for chip and transport stocks as investors took advantage of cheaper prices following the steep recent pullback for equities.

Equity bulls will be hoping this rebound can last following a series of bounces in the past few weeks that quickly gave way to declines as late day algo selling put a dent on carbon-based BTFDing.

Corporate results will be key to sustaining the share gains: attention will next turn to earnings from Apple on Thursday. But trade risks continue to simmer in the background, with the U.S. jobs report is due Friday and US midterm elections are creeping closer, all of which have the potential to further roil markets.

“The recent slide in equities had gone to such an extent that it was bound to invite buyers, such as in the Japanese stock market,” said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management in Tokyo. Ichikawa said the U.S.-China trade row will likely remain a factor of concern beyond the U.S. midterm elections on Nov. 6.

In FX, the Bloomberg Dollar Spot index headed for its best month in two years amid supportive month-end flows that offset profit taking by short-term investors. Price action in the euro was quiet while the pound rebounded, tracking trading in the options market. The yen was steady as the Bank of Japan left its monetary stimulus unchanged and kept its 10-year bond yield target at about zero percent as it updated price forecasts that confirm it won’t meet its inflation target for years to come. Australia’s dollar declined following a weaker-than-expected inflation reading and the abovementioned miss in China’s PMIs. The Indian rupee fell as much as 0.6% on reports that the central bank governor may consider resigning amid growing tensions with the government.

In rates, the 10Y TSY yield climbed 2bps to 3.14%, the highest in more than a week. Germany’s 10-year yield advanced two basis points to 0.39%. Britain’s 10-year yield advanced 3 bps to 1.434%, the largest gain in more than a week. The spread of Italy’s 10-year bonds over Germany’s declined 9 bps to 3.0205%.

Oil prices recovered slightly after dropping to multi-month lows the previous day on signs of rising supply and concern that global demand for fuel will fall victim to the U.S.-China trade war. WTI futures were up 0.38% at $66.43 per barrel after dropping to $65.33 on Tuesday, the lowest since mid-August. Brent crude gained 0.62% to $76.38 after a decline of 1.8% on Tuesday. Gold declined and oil recovered from a two-month low.

Expected data include mortgage applications and Chicago Business Barometer. Air Canada, ADP, General Motors, Kellogg, Sprint, and AIG are among companies reporting earnings

Market Snapshot

• S&P 500 futures up 0.6% to 2,701.25
• STOXX Europe 600 up 1.4% to 360.66
• MXAP up 1.6% to 148.97
• MXAPJ up 1.4% to 469.62
• Nikkei up 2.2% to 21,920.46
• Topix up 2.2% to 1,646.12
• Hang Seng Index up 1.6% to 24,979.69
• Shanghai Composite up 1.4% to 2,602.78
• Sensex up 1% to 34,231.36
• Australia S&P/ASX 200 up 0.4% to 5,830.31
• Kospi up 0.7% to 2,029.69
• German 10Y yield rose 2.6 bps to 0.395%
• Euro up 0.09% to $1.1355
• Italian 10Y yield rose 13.6 bps to 3.103%
• Spanish 10Y yield unchanged at 1.567%
• Brent futures up 1.1% to $76.75/bbl
• Gold spot down 0.5% to $1,216.90
• U.S. Dollar Index down 0.1% to 96.91

Top Overnight News

• BBDXY rose for the third day to a fresh 2018 high even as the greenback traded mixed against Group-of-10 peers; Treasury yields crept steadily higher and the curve steepened
• An official gauge of activity in China’s manufacturing sector worsened in October as the effects of an ongoing trade war with the U.S. hit home. The non-manufacturing PMI also worsened. China’s manufacturing PMI fell to 50.2 this month, lower than projected in a Bloomberg survey of forecasters. A gauge of new orders for export fell to the lowest reading since early 2016
• Optimism in Britain’s economy slumped in October to the lowest level this year, with confidence falling in almost all parts of the country, Lloyds Bank said in a survey published on Wednesday
• Italy’s populists are insisting their plans to ramp up government spending will shield the nation from recession, brushing off warnings that their confrontational approach may already be hurting the economy
• Australia’s annual core inflation was weaker than forecast in the three months through September, suggesting the central bank’s prolonged interest-rate pause has further to run
• The Aussie dollar lead G-10 declines, weighed down by slowing inflation and deteriorating Chinese PMI data, though an options expiry helped limit the drop
• The Bank of Japan left its monetary stimulus unchanged as it updated price forecasts that confirm it won’t meet its inflation target for years to come
• Official figures released over the past few weeks suggest money is increasingly leaving China’s borders
• The euro held losses after inflation data matched estimates while the pound edged higher once London entered the market; Italian bonds extended bull steepening after a report that the government may see a deficit nearer to 2% than the 2.4% in the current budget draft for 2019
• The yen held losses after the BOJ left its monetary policy unchanged, and forecasts inflation to remain below its 2% target through until at least early 2021
• The rupee pared losses as India’s government sought to defuse growing tensions with its central bank, saying it respects the institution’s autonomy

Asian equity markets traded positive as the region sustained the momentum from Wall St where all majors finished with
firms gains and in which both S&P 500 and DJIA moved back into profit for the year. ASX 200 (+0.4%) and Nikkei 225 (+2.2%)
were higher from the open with financials the early outperformer in Australia after ANZ Bank earnings and with CBA to offload its
funds unit for over AUD 4.1bln, while Japanese stocks were underpinned by a weaker currency and with focus on a slew of
earnings releases. Hang Seng (+1.6%) and Shanghai Comp. (+1.4%) conformed to the overall risk appetite as investors digested
earnings including big 4 lenders ICBC and Agricultural Bank of China, but with early indecision seen following uninspiring Chinese
PMI data in which both Official Manufacturing PMI and Non-Manufacturing PMI fell short of estimates. Finally, 10yr JGBs were
lower with demand subdued by the strong performance in Japanese stocks and following an unsurprising BoJ policy
announcement in which the central bank maintained all policy settings.
PBoC skipped open market operations for a net daily drain of CNY 150bln, while it announced to sell CNY 10bln in 3-month and
CNY 10bln in 1yr CNY-denominated bills in Hong Kong on November 7th.

Top Asian News

• BOJ Cuts Frequency, Tweaks Ranges for Short Bonds for November
• MUFG Buys Commonwealth Bank Asset Arm for $2.9 Billion
• Incredible Shrinking Australian Banks Shed $13 Billion of Assets
• HNA Is Said to Try Offloading Airbus Planes to Leasing Firms

European equities are higher across the board (Eurostoxx 50 +1.3%) as the region took impetus from the gains experienced in Asia and on Wall Street. France’s CAC 40 (+1.9%) outperforms its peers with the index fuelled by gains in heavyweights L’Oreal (+5.4%) and Sanofi (+5.0%) post-earnings. In terms of sectors, energy names lead the gains as the complex retraces yesterday’s losses, while utility names underperform. Elsewhere, Dialog Semiconductor (+10.0%) rose to the top of the Stoxx 600 amid optimistic earnings, while Nokian Tyres (-14.7%) plumbed the depths after cutting guidance due to currency impacts.

Top European News

• Telefonica Signals End to Decade of Weakness With Soccer Push
• Sanofi Lifts Forecast as Vaccines, Eczema Drug Provide Fuel
• Spanish Economy Proves Euro-Area Brightspot as Recovery Holds
• Casino Short Sellers Ask Board to Block Interim Dividend Payment
• L’Oreal Jumps as Luxury Cosmetics Get Another Boost From China

In FX, after breaching 97.00 to the upside overnight to hit its highest level since June 2017, the DXY initially paused for breath to sit on a 96.00 handle before extending gains back above 97.00 thereafter. USD will likely garner a bulk of the focus in the FX space today with month-end flows (as according to Barclays, Citi, Nordea and Credit Ag) said to be positive for the greenback. Furthermore, Nordea highlight that today is SOMA redemption day for the USD which will have a net USD -22.9bln impact on liquidity; Nordea explains that “On the ten SOMA days since the end of February, EUR/USD has always been lower at CET17:15 vs CET08:00, by an average of 0.25%”. In terms of where the majors stand vs. the USD, EUR/USD was unable to hold onto initial gains after Friday’s low at 1.1336 eventually gave way. As such, a test of 1.1300 to the downside could now well be on the cards. Option expiry activity for the pair could be a guiding force later on with 871mln due 1.1275-85, 2.2bln between 1.1300-25 and a further 1.47bln between 1.1340-50. EUR relatively unreactive to EZ inflation prints with headline Y/Y CPI in-line with Exp. at 2.2%, core and super-core metrics both slightly firmer than forecast. The AUD remains softer vs. the USD in the wake of domestic inflation metrics whereby all figures either missed or printed in-line with estimates and which was below the RBA’s 2%-3% target range. The data sent AUD/USD back below 0.7100 with Chinese PMI readings thereafter guiding the pair to session lows of 0.7073 before staging a mild recovery back towards the 0.71 handle. Elsewhere for the region, USD/JPY trades relatively unchanged as the risk environment outweighs mild USD softness; prices trade in close proximity to the 113.00 handle and just below 1.3bln in expiries at 113.10-20.0 Finally, focus during the Asia-Pac session also fell on the INR which faced some selling pressure amid a widening rift between the RBI and government with reports noting that Governor Patel may consider resigning; reports briefly pushed USD/INR above the 74.00 level. Turkish Central Bank Governor reiterates that the central bank will maintain a tight monetary policy decisively and further tightening will be delivered if needed with the use of all available instruments.

In commodities, WTI (+0.4%) and Brent (+0.8%) are both in the green amid a positive risk tone. This comes alongside markets preparing for Iranian sanctions coming into effect next week. Last night’s APIs showed a larger-than-expected crude stock build, although this was almost half of last week’s figure. Trader’s will be keeping an on US oil production numbers released later today with the weekly DoEs. Gold is trading in the red, albeit off lows amid safe haven outflows as equity markets continue to trade positively following the momentum from Asia. In related news, the London Bullion Market Association predicts that gold is to reach USD 1532/oz by October of next year. Separately, disappointing Chinese manufacturing PMI has resulted in a fall in the price of both zinc and copper, as well as affecting the outlook for China metals demand.

Looking at the day ahead, there should be some focus on the Q3 employment cost index (+0.7% qoq expected) along with the October ADP employment change report and October Chicago PMI. Worth flagging today also is scheduled comments from Italian Finance Minister Tria this morning, along with comments from the ECB’s Nowotny, Hansson and Nouy. Earnings wise today we’ve got Sanofi, GlaxoSmithKline, General Motors, Anthem, ADP, Estee Lauder, AIG, and Yum Brands.

US Event Calendar

• 7am: MBA Mortgage Applications, prior 4.9%
• 8:15am: ADP Employment Change, est. 187,000, prior 230,000
• 8:30am: Employment Cost Index, est. 0.7%, prior 0.6%
• 9:45am: Chicago Purchasing Manager, est. 60, prior 60.4

DB’s Jim Reid concludes the overnight wrap

The tech sector had another wild ride yesterday, first tricking and then treating investors – especially into the US close. The NY FANG index reversed an early decline of as much as -2.33% to close up +1.88% – snapping a two day run which saw the index lose nearly $250bn in market cap. After the close Facebook posted EPS of $1.76 versus expectations for $1.47, but revenues were softer at $13.73bn versus $13.80bn. Facebook shares initially fell but recovered to be up +3.37% after hours. After Facebook, fellow tech company eBay reported mixed earnings, beating profit forecasts and upgrading its fourth quarter guidance, but posting weaker free cash flow and sales growth.

Before all this the S&P 500, DOW, NASDAQ and Russell 2000 closed +1.57%, +1.77%, +1.58% and +1.99% respectively last night – only the fifth time this month that all four bourses have closed higher. Markets had earlier pared their gains around US lunchtime and flirted with turning red, but ultimately rallied into the close, with the VIX ending the session -1.34pts at 23.36.

This morning in Asia positive sentiment from Wall Street has carried over with the Nikkei (+1.67%), Hang Seng (+0.60%), Shanghai Comp (+1.13%) and Kospi (+0.33%) all up along with most Asian markets. In terms of data, the official China October PMIs were released with the composite reading at 53.1 (vs. 54.1 in previous month) as both the manufacturing PMI (at 50.2 vs. 50.6 expected) and services PMI (at 53.9 vs. 54.6 expected) decelerated. The accompanying statement with the PMI release attributed the weakness to the long holiday in October but also admitted that the external environment is starting to drag manufacturing lower. In the details for the manufacturing PMI, the new export orders decelerated to 46.9 from 48.0 in September, marking the 5th consecutive month with a sub 50 reading. In the meantime, China’s onshore yuan continues to attract attention and remains under pressure with it reaching the level of 6.9714 yesterday, the lowest since May 2008. It is currently trading
flattish in the Asian session at 6.9668, as we type.

Overnight, the BoJ left key interest rates and asset purchase targets unchanged while the BoJ’s quarterly outlook report indicated  that inflation will remain below its 2% target at least until early 2021 and lowered the 2018 GDP growth forecast to 1.4% from 1.5%. The BoJ also added a statement in its outlook report about the need to “pay close attention to future developments” regarding risks to the financial system, while saying that the risks are not currently significant thanks to sufficient capital bases. The BoJ is also seeing the current core-CPI rising to around 1% yoy from earlier range of 0.5%-1%, which was lowered at June meeting. The BoJ will release its schedule for JGB purchases next month at 5pm Tokyo time today (8am BST) which is likely to be closely watched given the recent news from Asahi that the BoJ might tweak the schedule and also BoJ Governor Kuroda’s presser will likely be started by the time this reaches your inbox.

Outside of Facebook and eBay, other major earnings were a bit disappointing when you include guidance. GE stock fell 8.88% to a new 9-year low, and the company’s benchmark 2035 bonds dropped to a record low price, after the company cut its dividend to $0.01 per share from $0.12 and announced that the SEC is expanding an investigation into the company’s accounting practices. Mastercard and Pfizer also traded lower, despite beating earnings estimates, as the market continues to punish companies for moderating guidance of missing on revenues. Coca-Cola was a bright spot, gaining +2.54% after beating on most major metrics and maintaining strong guidance.

In contrast to the US yesterday Europe largely struggled for traction from the moment the Italy and Euro Area GDP figures hit early in the session. More on that shortly but by the close the STOXX 600 had finished +0.01% and the DAX -0.42%. Italy’s FTSE MIB also ended -0.22% after being up as much as +0.73% while 10y BTP yields rose +13.8bps. Bunds and Treasuries on the other hand were -0.9bps and +3.8bps respectively.

Oil prices fell -1.72% to a two-month low amid reports that China and India, the top two buyers of Iranian oil, will defy American sanctions and continue to buy imports from Iran. Europe and South Korea have also indicated some degree of unwillingness to accommodate US sanctions, and there could therefore be minimal downside for Iranian oil exports moving forward – though they are already down -500,000bpd to 1.6mmbpd as of September. With less pressure on the supply side of the global oil balance, there could be scope for oil prices to remain pressured.

The British pound was pressured in yesterday’s trading, dropping -0.64% versus the dollar as S&P indicated that the potential for a no-deal Brexit outcome is a factor in its ratings decision for the UK. They argued that such a scenario would result in a “moderate recession” and cautioned that the odds have risen, given the apparent impasse within the governing coalition over how to address the Irish border issue in the withdrawal treaty. Separately, however, the DUP agreed to support the autumn budget removing the tail risk of a nearterm potential government crisis.

Back to the data. As noted earlier in Europe the big focus was on the Italian GDP preliminary print which disappointed at 0.0% qoq for Q3 compared to expectations for a +0.2% reading. That’s the first time the Italian economy has stalled since Q4 2014 with the last negative reading coming in Q2 2014. Our Italian economist Clemente De Lucia made the point yesterday that the focus will now turn to growth over the coming quarters as the fiscal expansionary plan put out by the government is largely based on the assumption that growth will surprise to the upside and converge to broader euro area levels. However with tighter financial conditions, elevated uncertainty, and softer Q4 data so far, the risks certainly appear to be to the downside for now. Post the data, Deputy PM Salvini stated that the government will push ahead with the budget regardless, while also blaming the weak quarter growth on the previous government.

That data – combined with a slightly softer than expected France reading (+0.4% qoq vs. +0.5% expected) – played a role in the broader Euro Area miss (+0.2% qoq vs. +0.4% expected) although there is likely to also be softness elsewhere in the region. Either the German economy must have contracted in the third quarter, Spain must have had a notable miss to our expectations for +0.6% qoq growth, or smaller countries like Ireland and the Netherlands must have had a marked slowdown. While the annual rate slipped to +1.7% yoy the previous quarter reading was revised up one-tenth to +2.2%. Also out yesterday was the preliminary October CPI reading in Germany which came in as expected at +0.1% mom and +2.4% yoy. That annual reading is actually the highest in over a decade now. German unemployment stayed steady at 5.1% as expected.

In the US the data was a bit more contrasting. The consumer confidence data for October was actually stronger than September, following downward revisions. The headline reading rose +2.6pts to 137.9 (vs. 135.9 expected) and marked a new post crisis high – in fact a new 18 year high. The present conditions index also rose 3.4pts to 172.8 and the expectations component 2.1pts to 114.6. The associated statement highlighted that employment growth continues to fuel sentiment, however next month’s data should be more interesting in light of capturing the full market crash in October and also the midterm elections. Meanwhile, the latest housing market data was a tad softer in the US yesterday. The August S&P CoreLogic house price index fell to +5.5% yoy from +5.9% and is now at the  lowest since December 2016.

To the day ahead now where the early focus in Europe this morning should be with the October CPI figures for the broader Eurozone. The consensus is for a lift in the YoY core rate to +1.1% yoy from +0.9% in September. Prior to this we’ll get France’s CPI report while a little later on we also get the same data in Italy. The release of the Central Bank of Turkey’s inflation report could also be worth a watch in EM land while Brazil’s latest policy meeting is also due today. This afternoon in the US there should be some focus on the Q3 employment cost index (+0.7% qoq expected) along with the October ADP employment change report and October Chicago PMI. Worth flagging today also is scheduled comments from Italian Finance Minister Tria this morning, along with comments from the ECB’s Nowotny, Hansson and Nouy. Earnings wise today we’ve got Sanofi, GlaxoSmithKline, General Motors, Anthem, ADP, Estee Lauder, AIG, and Yum Brands.

 

 

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The crime scene inside the Tree of Life congregation had not yet been cleared when President Trump, First Lady Melania Trump and several administration figures arrived in Pittsburgh late on Tuesday to pay their respects after the deadliest attack on Jews in American history. At the same time, crowds of people both young and old gathered to shout and protest the president, letting him know that he was not welcome in their city.

Even Pittsburgh Mayor Bill Peduto opposed the president’s visit, suggesting that Trump was being insensitive by visiting the city so soon after a massacre that some on the left have insisted is somehow the president’s fault (though the shooter published posts on social media network Gab denouncing Trump and his agenda, insisting that the president was secretly a “globalist” who was “controlled by Jews.”) Ahead of the visit, several Pittsburgh rabbis warned Trump that he was “not welcome” in the city.

Not everyone in Pittsburgh was so opposed to Trump’s presence. After arriving at the building where the Tree of Life congregation is housed, Trump and Melania Trump were greeted by Rabbi Jeffrey Myers. Myers took them inside the building, where they lit ritual yahrzeit candles to honor the memories of the victims. After spending roughly 20 minutes inside, the Trumps emerged and walked to a memorial outside, where the first lady placed a flower and the president placed a small stone on a marker for each of the dead, per Reuters.

The two left in the presidential motorcade about 30 minutes after arriving.

Trump made no public remarks during his three hour stop in Pittsburgh, as “he wanted today to be about showing respect for the families and the friends of the victims as well as for Jewish Americans,” according to White House Press Secretary Sarah Huckabee Sanders.

During his time in Pittsburgh, Trump also visited the hospital where three police officers, wounded in a gunfight with the shooting suspect, were being treated. Trump also visited with the wife of one of Richard Gottfried, one of the victims in Saturday’s attack. “She said she wanted to meet the president to let him know that they wanted him there,” Sanders said.

.@realDonaldTrump and @FLOTUS with Rabbi Jeffrey Myers, lay a stone and flower for each of the 11 victims at the memorial outside the Tree of Life synagogue in Pittsburgh, PA. pic.twitter.com/bIyZO8Zslb

— Sarah Sanders (@PressSec) October 30, 2018

Throughout his visit, the Trumps were joined by Ivanka Trump and Jared Kushner. Trump’s daughter famously converted to judaism before marrying Kushner. They were also joined by Treasury Secretary Steven Mnuchin, who is also Jewish. While CNN said Ivanka Trump and other members of the entourage became emotional at times, Trump reportedly remained stoic.

Meanwhile, thousands of protesters gathered in Squirrel Hill bearing signs with slogans like “we build bridges not walls” as well as “imagery evoking the neighborhood’s most famous resident, the late Fred Rogers”. Other popular slogans included “Hate is not welcome here.”

Funerals for three of the victims were held on Tuesday, and were attended by hundreds of mourners, according to NPR.

A large crowd of Jewish and non-Jewish mourners gathered Tuesday under a vaulted white ceiling, tall chandeliers and stained glass windows inside Pittsburgh’s Rodef Shalom to honor Cecil and David Rosenthal. At 59 and 54, the brothers were two of the youngest victims and are among the first of the 11 victims of the shooting at Tree of Life synagogue to be laid to rest.

The brothers’ wooden coffins sat head-to-head at the front of the temple as family remembered them as social, thoughtful men who were deeply involved in their congregation.

[…]

For many in Pittsburgh’s Jewish community, Tuesday’s funeral services start the formal period of mourning the victims — a process carefully guided by Jewish tradition. A separate service was held Tuesday for Dr. Jerry Rabinowitz, 66, a physician who also was killed on Saturday. Services for the rest of the victims will be held in coming days.

For his part, Trump said he insisted on visiting Pittsburgh because he said on Saturday that he would – and he wanted to keep the promise he made to the victims and their families. Funerals for the other 8 victims will be held on Wednesday and throughout the week.

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Authored by John Rubino via DollarCollapse.com,

After a long, initially-successful run promoting European integration and mass immigration, German Chancellor Angela Merkel saw the bottom fall out of her political fortunes this year. This week she stepped down as leader of the formerly-dominant Christian Democrat party and promised not run again when her term as Chancellor ends in 2021.

What happens next is almost certain to be chaotic, as the following chart (courtesy of this morning’s Wall Street Journal) makes clear:

Note that in August of 2017 the two least popular parties were the far right Alternative for Germany (blue line) and the far left Greens (green line). In the ensuing 14 or so months AfG’s support rose from single digits to around 17% while the Greens rocketed from the bottom of the pack to 20%.

If you didn’t know what these two parties stood for you might think, “Fine, they’re new and interesting, so let them form a coalition and govern for a while.”

Unfortunately they’re more likely to kill each other in street fights than work together, since the former want closed borders and free markets while the latter want increased regulation and unlimited immigration.

The alternative to an AfG/Green coalition then becomes some combination of the remaining, more centrist (by European standards at least) parties. But the biggest of those parties – Merkel’s Christian Democrats and their coalition partner Social Democrats – are in freefall, precisely because of what they’ve done while in power.

So there appears to be no way to put these puzzle pieces together to produce a stable government.

And – here’s where things get truly scary – a stable Germany under Merkel’s bland but firm hand has been the only thing holding the European Union and eurozone together. If Germany descends into internal turmoil without a coherent government to push the Italys and Hungarys around, European populists/nationalists will fill the resulting vacuum. Borders will be re-imposed within and without the EU, national government budgets – already above EU deficit limits in many cases – will explode. Already-debilitating debts will keep rising, and the ECB will be forced to bail out Italy for sure and probably several other member states after that.

Since an ECB bailout of the Italian banking system means, in effect, moving Italy’s debt onto Germany’s balance sheet, the world’s one remaining rock-solid credit will join the ranks of politically unstable, increasingly indebted countries that may or may not be able to avoid financial collapse.

The end-game? A euro devaluation will be imposed by the global currency markets or announced preemptively on some future Sunday night by Merkel’s successor (assuming there is one).

The descent of the world’s second most important currency from reserve asset to modern day Italian lira will raise a lot of questions, including:

• Should we all buy the US dollar because it’s the only sound currency left?

• Should we dump dollars because the US is really not that different from Europe in terms of financial mismanagement and political incoherence?

• Should we dispense with the whole fiat currency thing and go back to sound moneythat requires politicians and central bankers to live within their means?

• Should we dispense with the whole “constitutional democracy” thing and hand over control to a leader who’s strong enough to put things right?

These four options seem about equally plausible at the moment. But the worlds they’ll create couldn’t be more different.

*  *  *

Other posts in the “Why We’re Ungovernable” series are here.

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As 50,000 NATO troops mass in Scandinavia for the military alliance’s annual “Trident Juncture” military exercises, an annual affair that has been expanded to become the largest NATO exercise since the end of the Cold War in reflection of the deepening hostilities with Russia, it appears President Vladimir Putin has decided to flex some military muscle of his own.

As Radio Free Europe reports, the Russian Navy has alerted NATO that it is planning to test missiles in international waters off Norway’s coast this week. And while the missiles Russia will be testing aren’t of the hypersonic variety that Russia is planning to introduce in the coming years, NATO commanders will undoubtedly seize on Russia’s decision to help justify even more aggressive displays of military force in the future.

For what it’s worth, NATO Secretary-General Jens Stoltenberg tried to play down the missile tests as part of routine activity by the Russian military.

“Russia has a sizable presence in the north, also off Norway,” Stoltenberg told the Norwegian news agency NTB.

“Large [Russian] forces take part in maneuvers and they practice regularly.”

Russian officials did not immediately comment on the planned missile tests, which come amid persistent tension between NATO and Russia, which seized Crimea from Ukraine in 2014 and backs separatists in an ongoing conflict in eastern Ukraine but accuses the alliance of provocative behavior near its borders.

A spokesman for Avinor, the organization that operates Norwegian airports and air-navigation services, told RFE that Russia had informed them about the tests in a NOTAM (a type of “routine message” to pilots about potential hazards along a flight route). The tests are set to take place between Nov. 1 and Nov. 3 west of the coastal cities of Kristiansund, Molde, and Alesund.

Norway also tried to play down the significance of the Russian missile tests.

“There is nothing dramatic about this. We have noted it and will follow the Russian maneuvers,” Norwegian Defense Minister Frank Bakke-Jensen said.

The Trident Juncture exercises began Oct. 25, and are expected to run through Nov. 7. They will involve around 50,000 soldiers, 10,000 vehicles, and more than 300 aircraft and ships from all 29 NATO allies, as well as “non-aligned” Finland and Sweden. The exercises will stretch from the North Atlantic to the Baltic Sea to test the alliance’s ability to respond to an attack on the Baltics (as the Baltic states grow increasingly nervous that Russia might attempt an annexation similar to what occurred in the Crimea).

The exercises follow by more than a year the Zapad exercises, a similarly unprecedented display of force by the Russian federation. Those exercises involved more than 100,000 ground troops as well as tanks, aircraft and artillery, while also featuring a test launch of a nuclear ballistic missile. And just last month, Russia and China unnerved members of NATO by holding their joint “Vostok” war games.

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Authored by Tsvetana Paraskova via Oilprice.com,

For the second time in two weeks since Cuadrilla started fracking at an exploration site in northwest England – resuming hydraulic fracturing in the UK for the first time in seven years – the company had to stop operations due to a micro seismic event measuring above the threshold requiring a halt.

Cuadrilla confirmed that a micro seismic event measuring 1.1 on the Richter scale was detected at about 11.30 a.m. local time on Monday, while the team were hydraulically fracturing at the Preston New Road shale gas exploration site in Lancashire, the company said in a statement today.

According to regulations, in case of micro seismic events of 0.50 on the Richter scale or higher, fracking must temporarily be halted and pressure in the well reduced.

“This is the latest micro seismic event to be detected by the organisation’s highly sophisticated monitoring systems and verified by the British Geological Survey (BGS). This will be classed as a ‘red’ event as part of the traffic light system operated by the Oil and Gas Authority but as we have said many times this level is way below anything that can be felt at surface and a very long way from anything that would cause damage or harm,” Cuadrilla said.

“Well integrity has been checked and verified,” the company said, noting that in line with regulations, fracking has paused for 18 hours.

Cuadrilla had paused fracking at the site on Friday morning after a 0.76 on the Richter scale micro seismic event was recorded, the latest of some dozen seismic events since fracking started, but the first that was above the 0.5 threshold.

The seismic event on Monday was the strongest yet to be recorded since Cuadrilla started fracking at the exploration site two weeks ago, on October 15.

Anti-fracking activists say that there have been now 27 seismic events since October 15, Blackpool Gazzette reports.

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We wonder if the Saudis had never been caught in Jamal Khashoggi’s gruesome murder, would such essential stories and leaks now happening such as the below Guardian report ever see the light of day? On Tuesday The Guardian published select contents of a leaked internal United Nations document detailing a “pay to play” scheme orchestrated by Saudi Arabia.

According to the leaked document, the Saudis demanded that aid groups and humanitarian agencies operating in Yemen provide favorable publicity for Saudi Arabia in return for Riyadh providing close to a billion dollars to fund their efforts. The document identifies $930m given to the aid groups, even as the Saudi-led coalition bombed the very people the donations were supposed to help. 

The Guardian report calls the extent of Saudi demands “highly unusual” as part of the requirement for groups to receive aid included floating favorable stories and coverage of “the Saudi humanitarian effort in Yemen” to newspapers like the New York Times and the Guardian — publications specifically named in the internal memo. Thus the nearly $1bn was essentially hush money for the sake of propaganda meant to shield the kingdom from scrutiny over its Yemen actions. 

The Guardian report described the following of the leaked memo: 

The document, entitled Visibility Plan, covers the terms of the 2018 humanitarian budget for Yemen, and shows the extent to which the UN aid agency, Ocha, was put under pressure to accept the PR strings attached to money given both by Saudi Arabia and the United Arab Emirates. The two countries provided nearly one third of the total UN humanitarian budget for Yemen for this year.

The UAE was deeply involved in the plan — especially ironically given that its pilots and warplanes have been reported at the forefront of the bombing campaign which has continued unabated since 2015, resulting in what U.N. officials have designated “the world’s worst humanitarian crisis”. 

Aid agencies were made aware that the extent of Saudi donations made to their efforts were expressly tied to “the amount of beneficial publicity given to Saudi Arabia,” the U.N. document reveals. And further, One demand states: “One would expect from Ocha or [a] recipient agency to publish articles in recognized daily newspapers such as the New York Times or the Guardian, highlighting our contribution.”

The Guardian further quotes one section of the leaked document requiring that aid agencies “prove” their level of promoting the Saudis’ supposed “good works”. The document states that aid agencies had to agree to the following: 

We consider it very important to ensure that our dear fellow Yemenis are all aware of our donations. More emphasis should be placed on strengthening the local visibility plan by engaging local media … so that donors get deserved recognition and not to be overshadowed by the recipient’s agencies’ visibility.

The document reveals that five different UN aid-linked agencies agreed to the Saudi list of demands, set out in 48 specific steps, with the most notable groups including: the UN Development Programme, Ocha, the World Health Organization and Unicef.

Bombshell: Leaked document shows the UN is for sale. #KSA and #UAE destroyed #Yemen, then paid the #UN to publicize their ‘good works’ in that broken state. https://t.co/JjFPTEnYjF @antonioguterres

— Sharmine Narwani (@snarwani) October 30, 2018

According to The Guardian, “The leaked documents also show the pressure the two countries have brought to bear on the UN to raise their profile as charitable donors.”

Amazingly, among the demands included the designation of a point person to ensure that Saudi wishes were carried out:

Although the documents show that Ocha resisted some of the Saudi demands, the agency complied with a Saudi request that “a specialised person is recruited by Ocha to be the focal point to ensure the implementation plan by all recipient agencies and to consolidate reports”.

For much of the past three years of war in Yemen most of the Western public have remained largely in the dark as to the true scale of the humanitarian nightmare unfolding in the country.  

Only with crown prince MbS recently in the hot seat and media spotlight surrounding the Jamal Khashoggi murder have publications from the New York Times to Washington Post to networks like CNN belatedly increased their focus on the Saudi and U.S. role in facilitating Yemen’s widespread suffering. 

The New York Times and others only began to expose Saudi war crimes in Yemen in the weeks after Jamal Khashoggi’s murder, despite airstrikes occurring for over three years:

“We’re surprised the Khashoggi case is getting so much attention while millions of Yemeni children are suffering,” a doctor said. “Nobody gives a damn about them.” https://t.co/e3GELJKP65

— The New York Times (@nytimes) October 26, 2018

But now with the release of this bombshell document it’s confirmed that even the U.N. had made itself the propaganda puppet of the Saudis alongside an already willing mainstream media.

It should also be remembered that, absurdly, the U.N. in 2017 elected Saudi Arabia to a 2018-2022 term on its Commission on the Status of Women, despite the kingdom’s well-known reputation as the “most misogynistic regime” on earth. Perhaps the Saudi “aid money” for Yemen had already started to line U.N. pockets? 

As journalist and Middle East expert Sharmine Narwani points out, the leaked document essentially “shows the UN is for sale” as “the KSA and UAE destroyed Yemen, then paid the UN to publicize their ‘good works’ in that broken state.”

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Authored by Finian Cunningham via The Strategic Culture Foundation,

The Trump administration’s declared scrapping of a crucial arms control treaty is putting the world on notice of a nuclear war, sooner or later.

Any such war is not winnable. It is mutually assured destruction. Yet the arrogant American rulers – some of them at least – seem to be deluded in thinking they can win such a war.

What makes the American position even more execrable is that it is being pushed by people who have never fought a war. Indeed, by people like President Donald Trump and his hawkish national security advisor John Bolton who both dodged military service to their country during the Vietnam War. How’s that for macabre mockery? The world is being pushed to war by a bunch of effete cowards who are clueless about war.

Trump announced last this week that the US was finally pulling out of the Intermediate-Range Nuclear Forces (INF) Treaty, a move confirmed by Bolton on a follow-up trip to Moscow. That treaty was signed in 1987 by former President Ronald Reagan and Soviet leader Mikhail Gorbachev. It was a landmark achievement of cooperation and trust between the nuclear superpowers. Both sides removed short and medium-range nuclear missiles from Europe.

With Trump intending to rip up the INF Treaty, as his predecessor GW Bush had done with the Anti-Ballistic Missile (ABM) Treaty in 2002, Europe is now facing the disastrous prospect of American missiles being reinstalled across its territory as they were in the 1980s. However, a big distinction between then and now is that after years of expansion by NATO, European territory is at an even sharper interface with Russia’s heartland.

When the INF Treaty was implemented three decades ago, the US and Russian nuclear arsenals were seriously dialed back to the strategic level of Intercontinental Ballistic Missiles (ICBMs) confined on respective landmasses separated by thousands of kilometers. As Igor Korotchenko, editor-in-chief of Natsionalnaya Oborona, told Russia’s Vesti news channel, the ICBMs typically have a flight time of 30 minutes from launch. That time gap would give Russian defense systems time to respond effectively to an incoming strike from the US, and vice versa.

But, as Korotchenko noted, the impending installation of intermediate-range missiles by the Americans in European states will reduce the flight time of a possible US nuclear strike on Russia to a couple of minutes, even seconds. That would seriously challenge Russian anti-missile defenses, as well as greatly increasing the margin of error in detecting a strike, possibly leading to mistaken escalation. In other words, the strategic balance has been thrown into disarray by the US over the INF, just as it was again thrown into disarray back in 2002 when Bush trashed the ABM.

It also presents the Americans with the temptation to exercise their “first-strike doctrine”. In US military planning, it reserves the “right” to use a pre-emptive attack. By contrast, Russian President Vladimir Putin reiterated again last week that Russia will never use a first-strike option, that it would only use nuclear weapons as a defensive action.

Recall that earlier this month, the US envoy to NATO, Kay Bailey Hutchison, said that American forces would “take out” Russian missiles if they are deemed to be violating the INF. It was an appalling expression of the pre-emptive prerogative that Washington grants itself, even though the information upon which it would base its action is highly questionable.

Putting the American logic together one can say that the US rulers have a death wish on the planet. With criminal recklessness, they are moving to loosen the international controls over deploying nuclear weapons and are creating a situation in Europe that puts nuclear war on a hair-trigger.

Moscow vowed last week that it will respond “militarily” if Washington goes ahead with scrapping the INF Treaty. Russia can be expected to counter by deploying shorter-range missiles that will put NATO-allied Europe in the firing line.

Surely, the European states must be asking themselves what kind of ally they supposedly have in the US. What kind of ally puts its supposed friends in the firing line, under the name of “protecting them”, while it remains at relatively safer distance?

The European Union has reacted to Trump’s announced withdrawal from the INF Treaty with horror. The EU is calling on the US to adhere to the treaty and to negotiate with Russia over purported complaints. French President Emmanuel Macron telephoned Trump, appealing that the treaty has been a vital element of Europe’s peace for the past 30 years.

Washington has been claiming for the past four years, since the Obama administration, that Russia is violating the INF by allegedly developing medium-range, ground-launched cruise missiles. Moscow has repeatedly denied the claims, pointing out that the Americans have not presented evidence to back up their accusations. Washington says its information is classified, and so can’t be publicly revealed. That’s hardly convincing given past American deceptions over weapons of mass destruction in Iraq, Iran and Syria.

In any case, it is the Americans who are making a big deal about the alleged Russian violations of the INF. If the Europeans were really concerned, why haven’t they kicked up a fuss? The fact that the Europeans are pleading with Washington to adhere to the INF suggests that they are not convinced by allegations of Russia posing a missile threat.

Moreover, if there are disputes and complaints from the American side, then let them iron these problems out through diplomacy and negotiation.

It is telling that the US wants to instead escalate the tensions and the risks of war in such a reckless manner. That betrays its real agenda of seeking to militarize problems, rather than exploring political solutions. The difference it seems comes down to the US not actually having a valid political argument, so it must exercise its power through militarism as a way to conceal its lack of rational validity.

The root problem of INF Treaty tensions and alleged violations stems from the US-led configuration of military forces encroaching ever-closer on Russian territory. If the US were genuinely interested in ensuring security and peace in Europe then it would listen to Russia’s concern over the provocative expansion of US-led NATO forces towards its Western border. When Reagan signed the INF with Gorbachev it was on the understanding and commitment from the US side not to advance its military towards Russia “by one inch”. In 30 years, US forces have pushed all the way from Germany to the Baltic and Black Seas on Russia’s doorstep. Washington is trying to enlist Ukraine and Georgia into the NATO alliance, indeed is carrying out war drills with these two former Soviet Union states which share borders with Russia.

If the US now re-installs medium-range nuclear missiles with flight times to Moscow down to a matter of seconds then we can lament that the abandonment of the INF is a grave watershed move towards nuclear war.

The way out of this heinous dilemma is not only maintaining the INF Treaty. Furthermore, there should a wholesale scaling back of NATO forces in Europe on Russia’s Western, Northern and Southern flanks. Just this month, NATO is holding its biggest-ever war maneuvers since the Cold War in the Arctic region on Russia’s border with 50,000 troops, accompanied by a flurry of surveillance flights over Russia’s coast.

The insanity of America’s death wish for nuclear war has to stop. The American ruling class won’t stop it because their death wish mentality is so suffused with blind arrogance and ignorance and it is so integral with the “normal” functioning of their capitalist military-industrial complex.

Russia is holding the line with its undoubted military capability and its principled diplomatic prudence. But it is time for the Europeans to step up to the plate and to exert some sense on the Americans.

• For a start, the EU states should tell Trump that any plan to re-install medium-range nuclear weapons on their soil is impermissible.

• Secondly, the Europeans need to scale back the NATO expansion towards Russian territory.

• Thirdly, they need to tell Washington that Russia is a partner, not a pariah to be abused for the benefit of American militarism and hegemonic ambitions.

Will the Europeans do that? Their leaders may not have the backbone, but the citizens of Europe will have to, if they want to prevent their American “ally” inciting a nuclear cataclysm. American arrogance is fomenting a European rebellion against its death-wish criminal leaders.

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In the latest fallout over the murder of journalist Jamal Khashoggi, the United States is demanding that Saudi Arabia make nice with Qatar, according to sources quoted in Bloomberg.

Three officials with knowledge of the issue have described to Bloomberg that the US is “raising pressure” on the kingdom to “wind down” its ongoing “political and economic isolation of Qatar” at a moment that Riyadh is potentially facing its own such isolation as international outrage has grown since the October 2nd slaying of Khashoggi inside the Istanbul consulate. 

One U.S. official further says the Saudis are being asked to “take steps” to wind down its over three-year long bombing campaign in Yemen, or at least to greatly mitigate the factors causing a massive humanitarian crisis in famine — an ironic and contradictory request given the Pentagon’s own lead role as part of the Saudi coalition. 

Since June of 2017, when a rift came out in the open and Saudi Arabia led a full economic and diplomatic blockade of its tiny oil and gas rich neighbor along side three other Gulf Cooperation Council states of the UAE, Kuwait, and Bahrain (non-GCC Egypt also initially cut ties), the two sides have essentially been in a state of war; however Qatar has remained defiant throughout the unprecedented crisis, relying on its vast oil wealth to weather the storm.  

The land, air, and sea Saudi-led boycott has included aggressive economic sanctions, even food blockages, as most of Qatar’s basic staples had previously been supplied by land via Saudi Arabia. But it’s been hugely awkward for Western allies of both countries like the United States and Britain, as Qatar hosts the largest US/UK military base in the Middle East, Al Udeid Air Base, located 20 miles southwest of the Qatari capital of Doha and home to some 11,000 US military personnel, plus Royal Air Force units. 

Given Washington’s close economic and military ties to both countries, healing the inter-GCC schism has been a priority for the White House, and it now appears to be using the international outcry to pressure Riyadh in an amenable direction regarding Qatar. 

Could the pressure already be working? Last week at the Saudi Future Investment Initiative (FII) hosted in Riyadh, which a number of Western companies and media outlets boycotted, Crown Prince MbS took the the previously unheard of step (since the 16-month crisis with Doha began) of acknowledging the resilience of Qatar’s “strong economy” and forecast progress over the next half decade. 

“Even Qatar, despite our differences with them, has a very strong economy and will be very different” in the next five years, the prince said at an investment summit in the Saudi capital as he explained his vision for the Middle East’s place in the world. — Bloomberg

These words alone signal an opening between the two countries that could lead to detente under Washington oversight. 

Though Trump had previously seemed to endorse the Saudi position that Qatar is a state sponsor of terror in the region and had helped facilitate Iranian influence and expansion, former Secretary of State Rex Tillerson had previously attempted to negotiate an agreeable closure to the crisis and softening of tensions, without success. 

But it appears that in the end the Saudis will only perhaps respond to what they know best — blackmail. So ultimately should MbS survive the heat of the Khashoggi investigation, it will likely come at the expense of having to make nice with Qatar and play by other Washington rules as well.  

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