Month: November 2018

Politics will be the primary focus for markets during this “big week” full of potentially major developments, with the US midterm elections at the forefront. President Trump is also due to meet with France’s Macron and Russia’s Putin, while in Germany the CDU party retreat may provide an update on future leadership. We’ve also got a Fed meeting, global PMI data, US PPI, China trade and inflation data, and more corporate earnings scheduled.

As DB’s Craig Nicol writes, “there’s little doubt that the big event next week for markets is the US midterm elections on Tuesday.” As Deutsche Bank previews, polls and betting markets indicate that the Democrats are likely to take control of the House, while the Republicans are likely to retain Senate control. The major issues for voters are healthcare, immigration, and trade policy. For markets, the key issues are whether to expect further fiscal stimulus, and what the implications are for trade policy. On the former, unified Republican control is likely more bullish, while on the latter, a divided government could de-escalate the current trade conflict. 

A busy week for the President will also see him travel to Paris on Friday along with Secretary of State Michael Pompeo, where they will meet French President Macron and Russian President Putin. Away from that it’s worth noting that the German CDU party begins a retreat this weekend ahead of a convention in December to elect Merkel’s successor. A news conference is scheduled following the completion of the retreat on Monday. Other potentially interesting political events next week include Chinese President Xi Jinping addressing China’s first International Import Expo on Monday, Euro Area Finance Ministers meeting on Monday in Brussels with Michel Barnier also due to deliver a Brexit speech on the same day, Russian PM Medvedev meeting with Chinese Premier Li Keqiang on Wednesday and EU Foreign Affairs Ministers meeting on Friday to discuss the WTO and trade in Brussels.

For the Fed on Thursday, no change in policy is expected and with this also being a meeting which doesn’t include a press conference from Fed Chair Powell, it’s hard to envisage there being much in the way of new information for the market, especially with recent data still supportive. That being said the recent market selloff and subsequent impact on financial conditions is something which could perhaps be addressed. As a reminder, DB expects a 25bp hike at the December meeting.

As far as data releases are concerned, with it being a FOMC meeting week it’s fairly quiet in the US however we will get the October PPI report on Friday which should be a focus. Prior to that we’ll also get the final October services and composite PMIs on Monday along with the October ISM non-manufacturing print, JOLTS job openings for September on Tuesday, September consumer credit on Wednesday and the preliminary November University of Michigan consumer sentiment reading on Friday.

In Europe the final October services and composite PMIs on Tuesday will be closely watched as will September industrial production prints for Germany and France on Wednesday and Friday respectively. In the UK the preliminary Q3 and September GDP prints on Friday should be the main focus.

Finally in Asia we’ve got the PMIs on Monday for Japan and China along with China trade data for October on Thursday and then the October CPI and PPI prints on Friday. In EM land it’ll be worth keeping an eye on Turkey’s latest CPI report on Monday which is expected to stay elevated at just below 25%.

Meanwhile it’s a fairly quiet week for Fedspeak next week. The only scheduled speakers at present are those on Friday when Quarles, Williams and Harker are due to speak. Over at the ECB we’re due to hear from Guindos on Monday, and Praet, Coeure and Lautenschlaeger on Tuesday. The BoJ’s Kuroda is also due to speak on Monday.

Last but by no means least, next week we’ve got 76 S&P 500 companies due to report as we edge closer to the end of earnings season. Some of the highlights include Walt Disney, Qualcomm and CVS Health. Some of the global earnings releases next week include SoftBank, Credit Agricole, Unicredit, BMW, Toyota and Petrobras.

Courtesy of DB, here is a summary of key events in the week ahead:

• Monday: The final services and composite PMIs for October in Japan, China, UK and the US should be the main focus datawise on Monday. Away from that we’ll also get the November Sentix investor confidence reading for the Euro Area and October ISM non-manufacturing print in the US. The BoJ’s Kuroda, and ECB’s Guindos are also due to speak while Euro Area finance ministers are due to meet in Brussels. EU Chief Brexit negotiator Michel Barnier is also due to deliver a Brexit speech in Brussels, while China President Xi Jingping is due to address the country’s first International Import Expo. Monday also marks the day that US sanctions on Iranian oil flows go back into effect.
• Tuesday: The big focus on Tuesday will be the US midterm elections. Away from that, data releases include the final PMIs in Europe (services and composite readings), German factory orders for September, Euro Area PPI for September and JOLTS job openings in the US for September. The ECB’s Praet, Coeure and Lautenschlaeger are all due to speak.
• Wednesday: It’s a quieter day for data Wednesday. In Japan we’ll get September cash earnings, in China we’ll get October foreign reserves, in Europe we’ll get September industrial production in Germany and September retail sales for the Euro Area, while in the US we’ll get September consumer credit. Away from that the BoJ’s Funo is due to speak, while Russian PM Medvedev is due to meet Chinese Premier Li Keqiang.
• Thursday: The main focus on Thursday will be the Fed with the FOMC meeting. Away from that we’re due to get October trade data in China, September trade data in Germany and France and the latest weekly initial jobless claims print in the US. The European Commission will also update its economic forecasts, while the ECB’s Coeure is due to speak.
• Friday: It’s a busy end to the week for data on Friday. In China we get October CPI and PPI. In Europe we’ll get September industrial production in France and the September and Q3 GDP prints in the UK. In the US the highlight is the October PPI reading, while the preliminary November University of Michigan consumer sentiment reading and September wholesale inventories are also due. The Fed’s Quarles is also due to speak along with the Fed’s Williams and Harker, while President Trump travels to France to meet French President Macron and Russian President Putin. European Foreign Affairs Ministers will also meet to discuss the WTO and trade.

Finally focusing only on the US, Goldman writes that the key economic releases this week are the ISM non-manufacturing report on Monday and the PPI report on Friday. In addition, the November FOMC statement will be released on Thursday at 2:00 PM ET. New York Fed President Williams and Vice Chairman for Supervision Quarles will speak on Friday

Monday, November 5

• 09:45 AM Markit Flash US manufacturing PMI, October final (last 54.8)
• 09:45 AM Markit Flash US services PMI, October final (consensus 54.6, last 54.7)
• 10:00 AM ISM non-manufacturing, October (GS 58.6, consensus 59.1, last 61.6): Given softer service-sector surveys and stock market weakness, we expect the ISM non-manufacturing index to decline by 3.0pt to 58.6 in the October report, after reaching a cycle-high in September. On net, our nonmanufacturing survey tracker – which is scaled to the ISM non-manufacturing index – fell by 2.7pt to 56.6.

Tuesday, November 6

• 10:00 AM JOLTS Job Openings, September (consensus 7,125k, last 7,136k); The August JOLTS report showed that both job openings and the quits rate are at cycle highs.

Wednesday, November 7

• There are no major data releases.

Thursday, November 8

• 08:30 AM Initial jobless claims, week ended November 3 (GS 205k, consensus 214k, last 214k); Continuing jobless claims, week ended October 27 (consensus 1,635k, last 1,631k); We estimate jobless claims declined by 9k to 205k in the week ended November 3, following a 2k decrease in the prior week. Claims still appear somewhat elevated in states affected by Hurricane Michael, and claims typically increase in the weeks following the week of the hurricane but subsequently decline.
• 02:00 PM FOMC statement, November 7-8 meeting: As we discuss in our FOMC preview, we do not expect any change in the funds rate. In the post-meeting statement, we think the committee is likely to retain the upbeat tone of recent meetings, with small changes to the overall language. Despite recent financial conditions tightening due to recent stock price declines, we do not expect any changes to the language on financial developments, which the statement already lists as one of the factors the committee assesses in the policy outlook. The recent tightening of financial conditions has increased the risk that growth slows to a trend pace earlier than the end of 2019. We now therefore see the risks around our Fed call of five more hikes through the end of 2019 as symmetric. There is still a significant risk of a longer or steeper hiking cycle, but this is now balanced by a risk of a shorter cycle or an extended pause.

Friday, November 9

• 08:30 AM PPI final demand, October (GS +0.2%, consensus +0.2%, last +0.2%); PPI ex-food and energy, October (GS +0.2%, consensus +0.2%, last +0.2%); PPI ex-food, energy, and trade, October (GS +0.2%, last +0.4%): We estimate a 0.2% increase in headline PPI in October, reflecting relatively firmer core prices and higher energy prices as well. We expect a 0.2% increase in both core measures of PPI, reflecting a continuation of the average recent trend in producer prices.
• 08:30 AM New York Fed President Williams (FOMC voter) speaks: New York Fed President John Williams will deliver welcome remarks at the Investing in America’s Workforce Book Launch Event.
• 09:00 AM Vice Chairman for Supervision Quarles (FOMC voter) speaks: Fed Vice Chairman for Supervision Randal Quarles will speak on stress testing at an event at the Brookings Institution in Washington. Moderated Q&A is expected.
• 10:00 AM Wholesale inventories, September final (consensus +0.3%, last +0.3%); 10:00 AM University of Michigan consumer sentiment, November preliminary (GS 99.0, consensus 97.9, last 98.6):  We expect the University of Michigan consumer sentiment index to edge up 0.4pt to 99.0, potentially reflecting a pre-election boost. Other indicators of consumer confidence, such as the Conference Board measure, also suggest an increase for the index from its October level. The report’s measure of 5- to 10-year inflation expectations stood at 2.4% in October.

Source: GS, ING, Deutsche Bank

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In what some have characterized as a capitulation by the Trump Administration, Secretary of State Mike Pompeo is expected to announce the 8 countries that have received ‘waivers’ from US sanctions on Iranian oil exports during a Monday morning press conference.

He is expected to begin speaking at 8:30 am ET. Watch his remarks live below:

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Blain’s Morning Porridge, submitted by Bill Blain

“It is very queer that the unhappiness of the world is so often brought on by small men..”

Tonight the UK celebrates not blowing up the Houses of Parliament. Guy Fawkes is celebrated as some kind of national hero. How easily we’ve forgot he was a failed terrorist and mercenary.  

If there is one thing to describe the mood this morning.. its “speculative”. We can speculate on this week’s US elections, Brexit, Trade, Germany, Italy, Markets, Sentiment and whatever. As my wife snapped at me this morning.. “stop wasting energy worrying about it… get on and solve it.. or go back to sleep.”

It’s not easy being a strategist. Its much easier to be obscurely pretentious: “History looks back from the perspective of the present to the flow of events broken into fractal tributaries by the consequences of actions….” I read too much history.
I am clearly caught up in that “flow of history” without the proverbial paddle. I don’t have a clue where the present confused swirling current is going or how the slew of pressure points above will play out. But, no-one else does either.

I guess my job is to make educated guesses. (If anyone really knows what’s going on.. please share.) I shall predict/pontificate… Its going to be less bad than we think it might be, but less good than we hope. (Warned you I was going to be pretentious..)

One way to approach this might be to try slicing and dicing all the component pieces. It might make it simpler. What’s the picture this morning?

• Warren Buffet buying back Berkshire Hathaway stock could presage many things – not just he can’t see opportunities or think of anything smart to do with the money. With the earnings season now behind us (meaning US companies can resume their buy-buy-back programmes), the worst month for markets (always October) past, and valuations looking less looney-tune, perhaps we’re in for a smoother ride to year end?
• Forget US recession. Strong wage inflation in Friday’s US payroll data confirms the Fed remains set on hiking rates.
• Trade tensions between US and China remain high. The market fears Trump was electioneering when he twitter-stormed about rapprochement with XI and the prospects for any early trade agreement signing in Singapore. Some form of settlement remains on the cards.
• Xi is on the defensive, talking up China as the champion of Free Trade – which seems a tad desperate. Its likely he’s looking for a solution. Another tick for settlement.  
• According to the “briefed” press, the UK seems to be edging towards some kind of Brexit fudge – if we can just persuade everyone fudge is equals “statesmanlike” agreement… sorted. The market will likely remain volatile, but a final settlement that is “less good and less bad” remains the likely outcome.
• In Europe I’m worried about banks and the ECB, but the focus in on increasingly fraxious politics. I’m trying to follow the internal politics of the ruling German CDU – but can’t perceive any way it plays positively. Watching BTP yields, I think I understand the train wreck of Italian politics: the new govt knows it has to keep borrowing costs low so its experimenting with smiling sweetly, telling us they love Europe and the Euro, while  remaining utterly determined to fight Brussels and end austerity. That’s unsustainable, but, hey-ho, as long as they remain within the Euro fold … why worry?

The outlier is tomorrow’s Mid-Term US elections. Why are they so important? Because they will set the Trump agenda and mood till the next election (2-yrs). Its looking like he’s managed to draw back much on the Democrats perceived lead to take Congress. Depends what you read, but it looks in the balance.

The last few years have proved that pollsters aren’t as good as they should be when it comes to guessing results, and now the trends are peppered with false-news and voters who hide or just don’t know their preferences. So where are US voters taking us? We shall find out soon enough.

While markets are bound to love a few more years of Trump tax cuts and government spending, it’s also discounting the destabilising effects of a potential fracture with the Fed, Trump picking fights he can’t win, and all the other stuff the liberal wing of the market predicted he’d get wrong 2 years ago… Bear in mind; the worst case Trump scenarios didn’t happen then… and probably won’t happen in the next 2 years either.. but markets do like to anticipate the worst and scare themselves..
A couple of anxious days and then we shall find something else to worry about..

Sometimes the World just doesn’t make sense, yet works perfectly. I received yet another lesson in not overanalysing stuff and underestimating opinion over the weekend.

She-who-is-now-Mrs-Blain and I went to see the Freddie Mercury biopic Bohemian Rhapsody. To call the film poor, cliched, and steeped in rank compromise is overpraising it. It’s formulaic, written by committee (I suppose to avoid upsetting the surviving band members), predictable, and signposted in florid letters throughout.

Yet, its possibly the most enjoyable film I’ve seen in years!

On Saturday Night at the Movies we were was tapping along to every song. We laughed, we anticipated every set-up gag and line and we loved it. It was more than “Perfectly Adequate” as one review of “Night at the Opera” opined back in ‘76.  

Back then, my school-boy pretentious tastes were for Prog Rock, West Coast Cool and Ironic Jazz (Steely Dan) – Queen was populist preening. Punk was still around the corner. (There is nothing not to like about the Ramones, The Stranglers and The Clash!) But these other bands weren’t even there or stole the show at Live Aid! (Can’t believe that was 33 years ago!)
Just goes to show… give the crowd what they like and they’ll love it..

I think Donald Trump gets that… and that’s why tomorrow’s US Midterms might still be a surprise.

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As voters prepare to head to the polls and the number of Americans casting early ballots surges, election analysts will likely focus on one question: Will the Democratic “blue wave” be powerful enough to reverse the early leads wracked up by Republicans in seven out of eight key battleground states? So far, enthusiasm levels among both Democrats and Republicans have climbed to historic levels, complicating the efforts of forecasters and throwing the forecasting orthodoxy – the notion that Republicans will pick up Senate seats while Democrats wrest back control of the House – into doubt with the polls set to open across the US in 24 hours.

According to Bloomberg, some 34 million people have already voted in the 2018 midterms, and, in at least 28 states and the District of Columbia, early voter tallies have already surpassed their totals from the 2014 midterms.

In Texas alone, where Ted Cruz is defending his seat from Democratic challenger Beto O’Rourke, more than 4.5 million people have already voted. That momentum has apparently carried over from the record turnout during primaries and special elections this year. “People are engaged and voting in this election,” said University of Florida professor Michael McDonald.

But in what may be an ominous sign for the left, while Democrats are boasting a narrow lead over Republicans nationally, Republicans are leading in the key swing states, including Arizona and Florida. Still, this comes with an important caveat: Early voting data can only show who voted, not for whom they voted.

There are other notable orthodoxies that may or may not hold:

Midterm elections tend to have two notable trends: the incumbent president’s party almost always loses seats, and Republicans tend to turn out more than Democrats. This year, those two forces collide. “It’s a real open question as to what ultimately that enthusiasm gap turns out to be,” said Kathryn Pearson, a professor at the University of Minnesota.

At the center of this issue is an important question: Are these new voters who haven’t turned out in past elections? Or simply people shifting the timing of their vote? There are some signs that the former scenario might be closer to reality.

According to Bloomberg, analysts will be looking at places like suburban Minnesota as bellwethers for Republican prospects:

Two good signs for Democrats: Women are voting at a much higher level than men in early voting, according to The Hill’s Reid Wilson, and turnout among voters aged 18-29 (who historically don’t vote at nearly the level of older voters) is way up in swing states – more than 400% in Georgia and Texas and more than 700% in Tennessee.

In Nevada, political sage Jon Ralston says he thinks Democrats have banked enough of an early vote edge (23,000 votes statewide) that Senate challenger Jacky Rosen has an edge on Republican incumbent Dean Heller. In the Texas Senate race, both candidates – Republican incumbent Ted Cruz and Democratic Representative Beto O’Rourke – say the high turnout will benefit their campaigns.

“We’re getting general confirmation where we can get data that the polls are correct that we have some very close Senate and gubernatorial races out there. The early vote looks very close,” McDonald said. “Maybe in Florida things are a bit closer than what the polls suggest,” including in the governor’s race where Democrat Andrew Gillum has had a slim but persistent lead in the polls over Republican Ron DeSantis.

How then to read the tea leaves? “I would go with the high turnout model at this point, I think that’s a safe assumption,” McDonald said. “We are not seeing a 2014 election, we’re seeing a cross between a midterm and a presidential election.”

The uncertainty among the professional forecasting class, which is still stinging from their embarrassingly wrong predictions in the 2016 presidential vote and the Brexit vote, 538’s Nate Silver said that, while his models project Democrats have a 80% chance of retaking the House, in reality, the odds may be closer to 50-50.

“The range of outcomes in the House is really wide,” he explained. “Our range, which covers 80 percent of outcomes goes from, on the low end, about 15 Democratic pickups, all the way to low to mid 50s, 52 or 53.”

“Most of those are under 23, which is how many seats they would need to win to take the House,” he said.”

“But no one should be surprised if they only win 19 seats and no one should be surprised if they win 51 seats,” Silver added. “Those are both extremely possible, based on how accurate polls are in the real world.”

For what it’s worth, Wall Street and the business community, which typically lean Republican, is hedging its bets and contributing more dollars to Democrats this year, giving $85 million to Dems, compared with $76 million to the GOP this year, as of Oct. 17, in what is projected to be the most expensive midterm election in US history, with some $5 billion expected to be spent in total.

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Just days after Apple unexpectedly announced it would no longer disclose quarterly unit sales data for its iPhones – a move which spooked markets over fears of declining demand and sent Apple’s market cap back under $1 trillion – on Monday we got another indication of why Tim Cook decided to do away with the long-running practice: according to the Japan’s Nikkei, Apple signaled “disappointing demand” for the new iPhone XR, telling its top smartphone assemblers Foxconn and Pegatron to halt plans for additional production lines dedicated to the relatively cost-effective model that hit shelves in late October.

“For the Foxconn side, it first prepared nearly 60 assembly lines for Apple’s XR model, but recently uses only around 45 production lines as its top customer said it does not need to manufacture that many by now,” a source familiar with the situation told the Nikkei.

That means Foxconn, the Taiwanese company traded as Hon Hai Precision Industry, would produce around 100,000 fewer units daily to reflect the new demand outlook – down 20% to 25% from the original optimistic outlook.

Another Taiwanese manufacturer, Pegatron, faces a similar situation, suspending plans to ramp up production and awaiting further instructions from Apple, the report said: “The utilization for the XR production is not reaching its maximum capacity now.”

Apple also asked smaller iPhone assembler Wistron to stand by for rush orders, but in yet another confirmation of a sharp drop in demand for iPhones – at least on the lower end – supply chain sources say the company will receive no orders for the iPhone XR this holiday season.

For Apple and its investors, the change in strategy is a disappointment: Tim Cook had great expectations that the iPhone XR would jump-start shipments this year. This lower-cost model debuted alongside the iPhone XS and top-of-the-line XS Max. Instead, the Apple is requesting more of the older iPhone 8 and iPhone 8 Plus models, which are up to 20% cheaper than the XR’s starting price of $749.

“Suppliers of iPhone 8 and iPhone 8 Plus are getting a combined order of around 5 million more units,” one source said. Apple previously planned 20 million units for the older iPhone models this quarter, but raised the figure to 25 million units, the individual said.

Worse, the shift to add orders for year-old iPhone models while suspending extra production for the latest product illustrates Apple’s lack of innovation and inability to energize consumers with such a pricing strategy. Last year, Apple gave rush orders for the iPhone 7 series following the launches of the iPhone 8 series and premium iPhone X.

Another reason why Apple will no longer want investors to have transparency into its selling woes is that it faces a quickly maturing smartphone market. Worldwide shipments, which slipped 0.1% in 2017 for the first year-over-year decline, are expected to contract again in 2018, according to IDC.

“Apple’s move will hamper the predictability of earnings,” Jeff Pu, a Hong Kong-based analyst for GF Securities, told the Nikkei. The American company’s reluctance to disclose shipment volumes also suggests that Apple faces the possibility of its first annual decline next year and wants the public to focus elsewhere, the analyst said.

China’s Huawei Technologies snatched Apple’s global No. 2 smartphone share for two straight quarters this year. IDC statistics show Apple’s shipments trailed Huawei’s during the quarter ended in September. Apple’s combined iPhone shipments grew only 1.37% on the year over the first nine months, IDC’s data showed. Worse, according to some caluculations, Apple’s holiday quarter forecast suggest a decline in iPhone unit sales in what is normally the strongest quarter for the Cupertino-based company.

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Roughly six months after President Trump declared his intentions to reimpose sanctions on Iran over vague allegations that the Iranians hadn’t fulfilled their obligations under the JCPOA (the Joint Comprehensive Plan of Action, otherwise known as the Iran deal), the US formally reimposed sanctions on Iran at midnight.

The sanctions will impact more than 700 “individuals, entities, vessels and aircraft”, according to the White House. These include Iranian banks, oil companies and shipping firms. Treasury Secretary Steven Mnuchin has said the US is “intent on ensuring that global funds stop flowing to the coffers of the Iranian regime,” while the White House has said it’s “open” to renegotiating a deal. Meanwhile, the administration has opted to allow Iran to remain connected to US-dominated international payments network SWIFT – for now, at least.

Secretary of State Michael Pompeo is scheduled to announce the list of eight countries that will get temporary waivers to keep importing Iranian oil at 8:30 a.m. Washington time on Monday. Japan, India and South Korea are among the countries expected to receive a waiver.

The waivers prompted conservative U.S. critics of the administration’s approach – including Republican Senators Marco Rubio and Ted Cruz – to say the White House was caving in on its tough line and to vow legislation to close what they consider loopholes.

Here’s a roundup of which countries are expected to receive waivers (text courtesy of Reuters):

• South Korea said on Monday it had been granted a waiver to continue at least temporarily importing condensate from Iran and running financial transactions with the Middle Eastern country. Condensate – a super-light crude oil – is a critical feedstock for South Korea’s petrochemical industry. South Korea, a U.S. ally and one of Asia’s biggest buyers of Iranian oil, asked Washington for “maximum flexibility” last week, after some of its construction firms canceled energy-related contracts in the Islamic Republic due to financing difficulties.
• Japan said on Monday it was in close communication with the United States on the measures, although Chief Cabinet Secretary Yoshihide Suga declined to provide details.
• India’s oil minister Dharmendra Pradhan confirmed on Saturday that the country, Iran’s top oil client after China, had won a waiver from the U.S. sanctions after a ‘forceful campaign’ by prime minister Narendra Modi. India hopes to continue to buy about 1.25 million tonnes of oil a month until the end of the fiscal year to March 31, unchanged from November’s level, a government official said.
• China is also seeking waivers, although it remained unclear on Monday what volumes, if any, it would be allowed to purchase. The Chinese Foreign Ministry reiterated its objections to sanctions, but would not directly say whether China had been granted an exemption.

• Turkish Trade Minister Ruhsar Pekcan said on Saturday that Turkey had received indications that it would be among the countries granted a waiver, but was still awaiting clarification on Monday.

Though while some have characterized the Trump administration’s decision to grant these waivers as a capitulation, for now at least, Trump is having his cake while eating it, too. Oil prices have reversed their ‘panic’ rally, with Brent crude falling 15% off the highs, while Iran’s economy remains stuck in a devastating rut (the country’s currency, the Iranian rial, has shed more than 70% of its value against the dollar this year).

Though Iran has pledged to ignore the sanctions, their impact is already apparent: Iranian crude exports peaked at 2.8 million barrels per day in April, including 300,000 barrels per day of condensate, but have fallen to 1.8 million barrels per day since then.

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“Worry about your own damn self (Mr. Trump).”

That was the overriding message delivered by Chinese President Xi Jingping during his address at the International Import Expo Opening Ceremony in Shanghai on Monday, which featured more than 3,600 companies from 172 countries, regions and organizations, and where Xi urged critics of China’s policies to worry about their own problems before opining on China’s, according to the FT.

“Each country should work hard to improve its own business environment. One cannot always beautify oneself while criticising others, and one can’t shine a flashlight on other people without looking at oneself,” said Mr Xi.

That said, Xi stopped short of naming Trump or the U.S. in the speech, his most high-profile economic address since April. Instead, and without a trace of irony, he stepped up warnings that protectionism would harm global growth while pledging to boost domestic consumption, strengthen intellectual property protection and advance trade talks with Europe, Japan and South Korea.

If there was a dominant theme from the expo – which is being held as China’s trade surplus with the US has continued to expand in spite of US tariffs on roughly half of Chinese goods crossing its borders – it was China’s attempts to position itself as the leader of a bloc of emerging-market nations, as the US and many of its allies declined to send government delegations (though, to be sure, representatives of many of the largest US corporations did attend). All told, 18 heads of state were expected to attend the summit. The Chinese government declared Monday and Tuesday holidays in Shanghai to ameliorate traffic for the event, which Xi has said will be held annually from here on out.

But rather than breaking new ground, Xi’s speech was essentially a re-tread of his Davos 2017 address, touting China’s plans for liberalizing its market while castigating its critics. Meanwhile, the upshot from his remarks on trade, if there was one, was that China will stand its ground in still-simmering trade dispute. Many of the Western executives in the audience, who traveled a long way to attend, privately told the FT that they are growing tired of hearing the same vague reform promises from China. Representative of 3,600 companies from 172 countries are attending the expo. Of these, about 180 US companies sent representatives including Alphabet, Boeing, Caterpillar, Facebook, General Motors and Honeywell.

Mr Xi pledged further opening measures in telecoms, medical care, education and culture without elaborating. He forecast that China would import $30tn in goods and $10tn in services over the next 15 years — a figure that does not imply significant acceleration from China’s current import trajectory. Foreign business executives and diplomats privately say that they are wary of vague commitments and are awaiting specific reforms on market access and intellectual property.

“Meaningful progress can only be claimed when major structural challenges are positively dealt with and international companies can compete on an equal footing with domestic ones,” said Carlo D’Andrea, vice-president of the European Union Chamber of Commerce in China.

“The (expo) may well help many countries to reduce their trade deficits with China, but it will not help Shanghai to become a global centre or China to reduce its internal reform deficit.”

He added that China would support “necessary” reforms to the World Trade Organization to protect the multilateral trading system.

As official data reflected weaker activity in China’s services sector and China’s A-shares remained stuck in a bearish rut, Xi tried to assure his audience that China would do a better job of protecting intellectual property (even as the US DOJ is cracking down on its intelligence services’ corporate espionage).

Without naming his US counterpart, President Xi criticized US President Trump’s “America First” policies, blasting them as “law of the jungle” and “beggar-thy-neighbor” trade practices. While he insisted that protectionism would harm global growth, Xi insisted that China was serious about accelerating the opening of its economy. However, even though they heard it before in September, investors were apparently excited about a headline about Xi’s pledge to cut China’s import tariffs. They also liked a headline about Xi’s pledge to boost imports to $30 trillion over the next 15 years, up from $24 trillion.

In an ironic twist, Xi also touted China as a paragon of openness as he voiced his “sincere commitment” to open the Chinese market to international investors (see our response here).

“He repeated a lot of the planned policies we have already heard in the past few months,” said Sue Trinh, head of Asia FX Strategy at RBC Capital Markets in Hong Kong. “Markets seemed to like the headline ‘to cut import tariffs,’ but this plan was already announced in September and can only be milked so many times.”

Xi affirmed last week that he and Trump would meet at the G-20 to continue trade talks, but since then, reports about a possible detente in the trade war have repeatedly emerged, only to be swatted down by the administration. The upshot: It will be months before we know more, which means many more market bursts higher on speculation.

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Last week’s four-day rally, which was driven by hopes of easing in trade tensions between the US and China, fizzled with US equity futures mixed, stocks in Europe struggling for direction and Asian shares declining on Monday as concerns over another poor Caixin Service PMI report out of China and rising US interest rates dampened risk appetite while optimism over a potential America-China trade deal receded as investors shifted focus on the US midterm elections Tuesday and the Fed’s rate decision later this week.

Asian stocks dropped as skepticism over the outcome of the trade dispute between the U.S. and China persists. While Chinese President Xi Jinping hit back against President Donald Trump’s “America First” policies, he didn’t outline any new proposals that would suggest he was prepared to meet Trump’s demands in his much-anticipated speech today. Meanwhile Berkshire Hathaway rose in pre-market trading after operating profit doubled in the third-quarter and the company bought back almost $1 billion in stock in a rare repurchase.

European telecom and utilities companies were among the biggest advancers as the Stoxx Europe 600 Index eventually edged up, though futures on the Dow and S&P 500 were slightly weaker.  Major European indices are mixed, with Spain’s IBEX 35 (+0.5%) leading the gains, and Italy’s FTSE MIB (-0.4%) lagging as the index is weighed on by local banking names such as Banco BPM (-2.5%) and Intesa Sanpaolo (-2.0%) following the release of stress test results, which showed the former as the worst performing Italian lender following a slump in the nation’s bonds amid political turmoil, while Goldman Sachs analysts predicted more cuts to earnings forecasts for Italian lenders, cutting BPER Banca and Intesa Sanpaolo to “sell”. Furthermore, Barclays (-0.1%) and Lloyds Banking Group (-0.8%) were amongst the worst performers due to weak growth, credit losses and Brexit uncertainty.

Earlier shares in Asia slid following Friday’s rally and after White House economic adviser Larry Kudlow downplayed the potential for a quick deal with China and denied Washington has drafted a trade agreement with Beijing. MSCI’s index of Asia-Pacific shares ex-Japan lost 1.2% percent, slipping back toward last week’s 18-month trough. Also overnight, President Xi Jinping acknowledged conditions abroad had created some challenges for the Chinese economy, but promised to lower import tariffs and continue to broaden market access. The Shanghai Composite dropped as much as 2% before recouping most losses by the close.

U.S. stock futures were down as much as 0.3% in early trading amid concerns a trade deal between the United States and China may not be struck soon, before recovering much of their losses. “After a four-day rally people tend to become a bit exhausted – and just generally I feel like everyone’s on hold until the (end-November) G20 and also the Fed coming up,” said Gregory Perdon, chief investment officer at Arbuthnot Latham. At the same time, the S&P’s critical 200DMA support level has now become resistance.

Politics and central banks loom large in a busy week for global markets. U.S. congressional elections, seen as a referendum on the policies of President Donald Trump, take place Tuesday. On the Brexit front, Prime Minister Theresa May is due to discuss the latest proposals with her cabinet the same day. Investors then turn their eyes to the Fed’s policy meeting. Though officials are expected to keep the benchmark rate unchanged at their penultimate 2018 meeting Thursday, clues will be sought for moves into 2019.

With the Federal Reserve meeting on Wednesday and Thursday, the prospect of even tighter U.S. monetary policy after strong economic data is also on investors’ minds, pushing emerging market lower by 0.9%. Markets are now pricing in a higher probability of a December rate hike with further tightening to 2.75-3.00% seen through 2019. Tighter monetary policy, a stronger dollar, and trade tariffs have created what Citi strategists call “Trump’s triple tightening” this year. “This …has slowed growth and raised risks around the world,” they wrote.

Investors were also cautious ahead of the U.S. midterm elections. Opinion polls show a strong chance the Democratic Party could win control of the House of Representatives after two years of wielding no practical political power in Washington, with Trump’s Republican Party likely to hold the Senate. “What’s spooking the market is not Congress or Senate – what’s spooking the market is the volatility of Trump,” said Perdon. “I’m not convinced if there’s a change of control that would be able to temper that.”

The British pound briefly jumped to a two-week high on hopes of a Brexit deal, before paring gains to trade up 0.2% at $1.2990. Over the weekend, A Sunday Times report that an all-UK customs deal will be written into the agreement governing Britain’s withdrawal from the European Union drove the pound its highest since Oct. 22. Enthusiasm fizzled, however, after May’s office said the report was speculative, even as it noted that 95% of the withdrawal agreement was settled and negotiations were ongoing.

Elsewhere, the yen barely moved after BOJ Governor Kuroda hinted Monday that he wants to normalize monetary policy once the central bank gets closer to its price goal.

The dollar consolidated at the start of an event-packed week in the U.S. that features midterm elections, a Federal Reserve meeting and $83BN auctions on 3- to 30-year maturities.

Treasury yields eased back ever so slightly after rising on Friday. Italian bond yields rose, driving bank stocks down 1.8%.

Crude was on track for a sixth day of declines even as sanctions on Iran oil snapped back into place Monday although softened by waivers that will allow some countries to still import Iranian crude, at least temporarily.

Markit Services PMI and ISM Non-Manufacturing Index are expected on the macro side. Earnings include Marriott International, Avis Budget and Ferrari among others.

Market Snapshot

• S&P 500 futures unch 0.3% to 2,724
• STOXX Europe 600 down 0.03% to 363.96
• MXAP down 1.2% to 151.73
• MXAPJ down 1.2% to 485.92
• Nikkei down 1.6% to 21,898.99
• Topix down 1.1% to 1,640.39
• Hang Seng Index down 2.1% to 25,934.39
• Shanghai Composite down 0.4% to 2,665.43
• Sensex down 0.3% to 34,912.15
• Australia S&P/ASX 200 down 0.5% to 5,818.14
• Kospi down 0.9% to 2,076.92
• German 10Y yield unchanged at 0.427%
• Euro down 0.08% to $1.1379
• Italian 10Y yield fell 5.9 bps to 2.951%
• Spanish 10Y yield rose 0.4 bps to 1.577%
• Brent Futures down 0.1% to $72.73/bbl
• Gold spot down 0.09% to $1,231.77
• U.S. Dollar Index unchanged at 96.54

Top Overnight News

• Chinese President Xi Jinping hit back against protectionist trade practices advocated by U.S. President Donald Trump in a speech in which he also pledged to further open his country’s markets
• May has secured concessions from Brussels that will let her keep all of Britain in a customs union with the European Union to avoid a hard border in Northern Ireland, the Sunday Times reported
• While the Bank of Japan still needs to stick persistently with its stimulus program to achieve its 2 percent inflation target, the country is no longer in a situation where it’s best to be “decisively implementing a large-scale policy to overcome deflation,” Governor Kuroda said in a speech. Minutes of BOJ September policy meeting showed that most members thought it appropriate to continue monetary stimulus persistently
• Denmark is concerned that the EU still doesn’t have a tenable plan to ensure banks maintain access to vital financial infrastructure in the form of London-based clearing services, according to Prime Minister Lars Lokke Rasmussen
• Euro-zone companies are increasingly running into capacity constraints that will boost inflation, the European Central Bank said in a report
• Chinese President Xi Jinping said the nation will cut import taxes further, and buy more than $30 trillion of goods in the next 15 years
• Contenders to succeed German Chancellor Angela Merkel as party chief will criss-cross the country to campaign ahead of a convention in December, with Friedrich Merz, head of BlackRock Inc’s German asset management unit and a one-time party antagonist of Merkel, seen as the front-runner
• The speaker of Sweden’s parliament said he will nominate opposition leader Ulf Kristersson as the prime minister candidate next week to break the gridlock in place since an inconclusive election

Asian equity markets began the week with a negative tone after last Friday’s losses on Wall St where the Nasdaq underperformed after tech giant Apple dropped nearly 7%, while sentiment was also dampened by soft Chinese Caixin PMI data and after US-China trade hopes were tempered by pessimism from NEC’s Kudlow. ASX 200 (-0.5%) and Nikkei 225 (-1.5%) were both pressured from the open although stocks in Australia briefly recovered in tandem with the price swings in its largest weighted financial sector as participants mulled over Westpac’s flat FY profits, while focus in Japan remained on corporate updates including index heavyweight Fast Retailing which slumped following a 10% decline in same-store sales. Elsewhere, Hang Seng (-2.4%) and Shanghai Comp. (-1.0%) were negative after US administration officials downplayed prospects of an imminent resolution to the US-China trade dispute and with Chinese Caixin Services and Composite PMI at the weakest since September 2017 and June 2016 respectively, while the PBoC Medium-term Lending Facility announcement and President Xi’s pledge to further open up China’s economy only helped plug losses momentarily. Finally, 10yr JGBs were marginally higher as the risk averse tone spurred demand for safety. This helped prices recover from Friday’s declines which coincided with a sell-off in T-notes and a surge in US yields by the most in the month following the NFP-beat.

Top Asian News

• Kuroda Hints at Normalization as Economy Improves
• Xi Says China to Cut Import Taxes Further, Import $30 Trillion
• Indonesia’s Economy Shrugs Off Rate Hikes as Growth Exceeds 5%
• Runaway BHP Iron Ore Train Deliberately Derailed, ATSB Says
• Thai Union Surges After Earnings Beat Estimates on Tuna Prices

Major European indices are mixed, with Spain’s IBEX 35 (+0.5%) leading the gains, and Italy’s FTSE MIB (-0.4%) lagging as the index is weighed on by local banking names such as Banco BPM (-2.5%) and Intesa Sanpaolo (-2.0%) following the release of stress test results, which showed the former as the worst performing Italian lender following a slump in the nation’s bonds amid political turmoil. Furthermore, Barclays (-0.1%) and Lloyds Banking Group (-0.8%) were amongst the worst performers due to weak growth, credit losses and Brexit uncertainty. Moving on, major sectors are mixed with utilities (+0.6%) and consumer staples (+0.6%) outperforming, while industrials are lag (-0.5%). In terms of individual equities, GAM (+2%) shares are in the green after being approached by Schroders (-1.6%) regarding a potential acquisition; which sources say GAM rejected. On the flip side, Hiscox (-7.3%) are lagging in the Stoxx 600, after their earnings showed a substantial increase in written premiums.

Top European News

• Big Short’s Eisman Is Shorting Two U.K. Banks on Brexit
• EU Faces a Risk in 2019 That Has Nothing to Do With Populists
• U.K. Services Growth Slumps as Brexit Hurts Business Optimism
• Merkel’s Party Turns Inward With All-Out Leadership Contest
• With Italy Deadline Looming, Dombrovskis Says EU Talking to Rome

In FX, the broad Dollar has lost some of Friday’s post-NFP recovery momentum ahead of the US mid-term elections and FOMC, but the index is holding relatively firm around 96.500 as major pairings trade somewhat mixed. GBP/NZD – Vying for top spot amongst G10 rivals, and perhaps surprisingly or unexpectedly as the Pound recovers from another UK PMI miss, and from the major services sector. However, Cable is back above 1.3000 from a knee-jerk dip to circa 1.2970 and still benefiting from latest press reports suggesting the EU has made concessions on the Irish border and customs front, albeit someway off high just over 1.3060 at one stage. Similarly, the Kiwi has rebounded firmly from overnight lows on the back of a pretty downbeat NZ Treasury business survey revealing a further deterioration in sentiment over Q3 and risks to the growth outlook for 2018 and next year due to global trade spats. Nzd/Usd back up around 0.6665 vs 0.6635 at worst, with cross-winds also helping as AUD/Nzd remains anchored near 1.0800 and Aud/Usd struggles to climb through 0.7200. EUR/CAD/JPY/CHF – All underperforming vs the Greenback, with the single currency capped around 1.1400 and still wary about another Italy vs EU face-off on the budget, while the Loonie straddles 1.3100 after last Friday’s NA jobs data (Canadian not as upbeat as US, largely on soft wages) and ahead of a speech by BoC Governor Poloz. Usd/Jpy has nudged further beyond 113.00 and soaked up offers/hedges vs a modest 113.25 option expiry and the Franc is back under parity within a 1.0020-55 range. EM – Regional currencies are broadly weaker vs the Usd with the Yuans undermined by less encouraging US-China trade vibes and weak Chinese PMIs, while the Try is pivoting 5.4500 in wake of Turkish inflation data showing a further rise in CPI.

In commodities, WTI (-0.3%) and Brent (-0.1%) are just off session lows with choppy trade experienced in the complex following the implementation of oil-related sanctions on Iran by the US. Iranian President emerged stating that Iran will sell oil and break sanctions, while he added that Iran is open to talks with the US once President Trump respects commitments. Temporary exemptions are being granted to eight countries making the sanctions less severe than anticipated, additionally removing the risk of a supply shortage according to FXTM strategist Hussein Sayed. Furthermore, Iranian press noted that the terms of the Special Purpose Vehicle (SPV) with the EU will be announced soon. The SPV is the European effort to process Iran’s import and export payments. Diplomates said the details are being discussed by finance ministers, with EU Finance Ministers due to meet in Brussels on Tuesday, although the SPV was not on the agenda as of Sunday. Gold (+0.1%) is flat and off of session highs as the yellow metal mirrors USD moves. Elsewhere, copper prices pulled back on profit taking and amid the averse risk tone.

US Event Calendar

• 9:45am: Markit US Services PMI, est. 54.6, prior 54.7; Composite PMI, prior 54.8
• 10am: ISM Non-Manufacturing Index, est. 59.1, prior 61.6
• Nov. 5-Nov. 9: Mortgage Delinquencies, prior 4.36%; MBA Mortgage Foreclosures, prior 1.05%

DB’s Jim Reid concludes the overnight wrap

Tomorrow’s US mid-term elections are the focal point for the week. My EMR colleague Quinn Brody wrote a preview note last week highlighting that polls and betting markets indicate that the Democrats are likely to take control of the House, while the Republicans are likely to retain Senate control. The major issues for voters are healthcare, immigration, and trade policy. For markets, the key issues are whether to expect further fiscal stimulus, and what the implications are for trade policy. On the former, unified Republican control is likely more bullish, while on the latter, a divided government could de-escalate the current  trade conflict.

Either way, our US strategists are unlikely to be swayed from their bullish equities and bearish rates view. Our US equity strategists have written extensively on how markets have historically rallied around midterm elections, though this is equally due to historic coincidence (growth has tended to be strong around elections) as the actual elections. That said they expect this scenario to repeat.

Staying with politics Mr Trump is meeting Presidents Macron and Putin on Friday which could generate headlines while in Germany the CDU party retreat at the weekend could provide headlines today and an update from the party on future leadership directions. Away from that we’ve also got a Fed meeting with no press conference (Thursday), more global PMI data (today and tomorrow), US PPI (Friday), China trade (Thursday) and inflation data (Friday), and more corporate earnings scheduled.

The weekend news of most note was the UK Sunday Times claiming that PM May has secured concessions from Brussels to allow all of Britain to stay in a customs union with the EU and thus avoid a hard border in Northern Ireland. There have been a lot of Brexit stories in the press of late that have had limited substance but to be fair this potential breakthrough was starting to appear on the wires at the back end of last week. Indeed DB’s Oliver Harvey published a note on Friday looking at the scenarios around a deal that kept a UK wide customs union before a permanent trade deal could be agreed. He has dubbed this ‘Brexiternity’. See his note here for more details. We could hear of progress this week as the UK formally responds to the latest EU proposals on the UK-wise backstop. Indeed there is a UK cabinet meeting tomorrow to discuss the latest developments. Before we relax and think Brexit is running more smoothly we should add that overnight the UK Telegraph has slightly confused the message from the Times article suggesting that the UK Brexit Secretary Dominic Raab has privately demanded in a letter to Mrs May that Britain reserve the right to pull out of the future EU’s Irish backstop after just three months. So uncertainty over where we are will linger. Sterling is up +0.12% in early trade this morning but was up around 0.7% before the Telegraph story filter through.

The week has kicked off with a risk off note in Asia with the Nikkei (-1.32%), Hang Seng (-2.65%), Shanghai Comp (-1.00%) and Kospi (-1.40%) all down along with most Asian markets. This is likely as a result of comments from US President Trump’s economic aide Larry Kudlow who cautioned against thinking there was the prospect of an immediate trade deal with China and that the  White House wasn’t asked to draft a deal with China. Elsewhere, futures on S&P 500 (-0.39%) are pointing towards a softer open.

Overnight, China’s October Caixin composite PMI came in at 50.5 (vs. 52.1 in last month) as the services PMI decelerated to 50.8 (vs. 52.8 expected) while Japan’s final October composite PMI came at 52.5 (vs. 50.7 in last month) and services PMI stood at 52.4 (vs. 50.2 last month). Elsewhere, the BoJ Governor Kuroda said that Japan is no longer in a situation where it’s best to be “decisively implementing a large-scale policy to overcome deflation,” even as he added that the BoJ still needs to stick persistently with its stimulus program to achieve its 2% inflation target. He reiterated that the BOJ is aware of the downward pressure on commercial banks profitability and the risks to financial stability in the event of a large negative shock, owing to the BoJ’s stimulus program.

Risk assets staged an impressive rally last week, with many of the recent underperformers reversing their trend to finish the week strongly. After a slow October, the S&P 500’s worst month since 2011, the US benchmark rallied +2.42% (-0.63% on Friday though with Apple -6.6%). Other US benchmarks also snapped their recent losing streaks with the NYFANG index up +2.79% (-1.87% Friday), the DOW up +2.36% (-0.43% Friday), and the NASDAQ up +2.65%, (-1.04% Friday). The Russell 2000 of small-cap US firms rose +4.32% (+0.19% Friday), for its best week since February. Equities outside the US also had a strong week, with the STOXX 600 up +3.33% (+0.28% Friday) for its best week since December 2016. The MSCI EM index gained 5.56% (+0.64% Friday), with the Hong Kong Hang Seng leading the way up +7.16% (+4.21% Friday), as news reports suggested that the US and China are approaching a trade détente. In fixed income, 10-year Treasury yields rose +13.7bps (+8.2bps Friday), as the strong nonfarm payrolls report (250k vs 200k expected) boosted sentiment on the US economy. Notably, 10-year real yields are now at their highest levels since February 2011 at 1.15% (+14.4bps last week and +5.0bps Friday), while breakevens were steadier at 2.06% (-0.7bps last week and +3.2bps on Friday).

The dollar touched a fresh year-to-date high during the week, but retraced a bit to close only +0.19% stronger (+0.28% Friday), with its weakness in the latter half of the week partly driven by Chinese yuan strength amid the news of the potential trade reconciliation. The yuan gained +0.79% (+0.28% Friday) for its best week since March. Brent crude oil prices retreated -6.17% (-0.08% Friday) for their worst week since February, as the US granted sanctions waivers for eight countries, signaling that the administration will tolerate some degree of Iranian oil exports, consistent with the prior sanctions episode.

Corporate earnings remain in focus, with 75% of S&P 500 having reported their results so far. Eighty-two percent of companies have beaten consensus expectations on profits, while 61.0% have beaten on revenue. Earnings growth is running at a +26.5% yoy pace in aggregate, quite a robust pace, while sales are growing at a +8.79% yoy pace. Some of the outlooks have been more negative than from recent quarters which has taken the shine of the good headline numbers. In Europe, 57% of STOXX 600 companies have reported, and 50.9% have beaten on earnings expectations, while 53.4% have exceeded revenue forecasts. In aggregate, STOXX 600 profits are up 13.1% yoy, on track for the best reporting season of the year but still a bit off the S&P 500’s blistering pace.

We start the European session with the November Sentix investor confidence reading for the Euro Area and October ISM non-manufacturing print in the US. The ECB’s Guindos is due to speak while Euro Area finance ministers are due to meet in Brussels with Italy high on the agenda. EU Chief Brexit negotiator Michel Barnier is also due to deliver a Brexit speech in Brussels, while  China President Xi Jingping is due to address the country’s first International Import Expo. Monday also marks the day that US sanctions on Iranian oil flows go back into effect.

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Authored by Uzay Bulut via The Gatestone Institute,

Turkey, thanks to the United Nations, will now officially be in charge of deciding not only who is a refugee but also where he or she will be placed or transferred. Turkish state authorities have repeatedly threatened to flood Europe with refugees, such as President Recep Tayyip Erdoğan’s message to Europe in 2016:

“You cried out when 50,000 refugees were at the Kapikule border. You started asking what you would do if Turkey would open the gates. Look at me — if you go further, those border gates will be open. You should know that.”

Given the Turkish threats, this new official position for Turkey should be of concern.

The pro-government Turkish newspaper Daily Sabah recently reported:

“The U.N. refugee agency has handed over the management of registration procedures for the refugees in Turkey to the country’s migration authority. Turkey’s Directorate General of Migration Management itself will now oversee the registration of refugees and determine their status. Any foreigner seeking international protection in Turkey will now have to apply to the local offices of the Turkish migration authority.”

The concern exists for three key reasons.

1. Terrorism

In March, Erdoğan slammed French President Emmanuel Macron for his offer to mediate between Ankara and Syrian Kurds. He warned:

“With this attitude, France has no right to complain about any terrorist organization, any terrorist, any terrorist attack. Those who sleep with terrorists, welcome them in their palaces, will understand sooner or later the mistake that they made.”

In April, hours after a man ploughed his van into pedestrians in Münster, Germany, Erdoğan verbally attacked France again, calling it a “stooge”:

“… providing support to terrorism…hosting terrorists at the Elysée Palace… You see what is happening in Germany, right? The same will happen in France. The West will not able to free itself from terror. The West will sink as it feeds these terrorists.”

It is not merely threats from Erdoğan that should cause Europe to re-think its lax immigration policies. In recent years, European cities — such as Manchester, Paris, Brussels, Nice, Copenhagen, London, Amsterdam, Barcelona, Toulouse, Trèbes, Saint-Étienne-du-Rouvray, Berlin and Stockholm — have been shaken by deadly jihadist attacks. Since many of the terrorists involved in these attacks were radicalized and recruited by jihadist groups, both in the Middle East and in Europe, unchecked immigration from Muslim-majority countries seems risky.

This is not just speculation. Opinion polls indicate that a large number of Muslims worldwide support terrorism or violence on behalf of Islam. There are also reportsthat ISIS has been infiltrating operatives into Europe via Greece, by disguising them as migrants among the masses. According to a recent Deutsche Welle documentary, “Terror at the Moria Refugee Camp”:

“A group of IS [ISIS] followers are said to be terrorizing people in the Moria refugee camp on the Greek island of Lesbos. On the pretext of religious propriety, they brutally punish whoever [sic] they deem criminal.

“Recently more and more refugees from Deir ez-Zor, one of the last strongholds of Islamic State in Syria, have been arriving in the camp. Since then, it seems that crime in the camp has taken on a new quality. A group of Syrians is said to be controlling most of the illegal activities. Anyone who doesn’t toe the line or is in the way can expect physical violence or even death threats. The perpetrators often cite Sharia law as their justification. More and more graffiti glorify IS.”

2. Demography

Among the countries most at risk of becoming “demographic time bombs,” according to a Business Insider report in August, are Spain, Italy, Bulgaria, Latvia and the United Kingdom. A low birth rate among Europeans is reportedly one motivation on the part of EU officials for bringing in large numbers of Muslim migrants – to compensate for shrinking European populations. Another motivation has been linked to Europe’s aging population. A 2017 opinion piece in Forbes asserted:

“If Western Europe wants to keep its social benefits, the countries of the E.U. are going to need more workers. No place in the world has an older population that’s not into baby making than Europe. No wonder policy planners are doing what they can to encourage immigration. Eastern Europe is old.”

Such ideas, however, have already been put to the test. Germany, for example, to “fill the demand for cheap labor in a booming post-war economy,” took in Turkish laborers. Although the original plan was for these workers to be temporary “to prevent the Turkish guests from becoming immigrants,” the policy changed, and the workers were allowed to stay for long periods and bring their families.

As of the end of 2011, according to Deutsche Welle, “around 2.5 million people with a Turkish background live in Germany, meaning either they or their parents were born in Turkey, making them the largest migrant group in the country.”

The result became clear in June, when nearly two-thirds of the Turkish community in Germany supported Erdoğan in the presidential election. Ironically, this is far more than the support he received in Turkey itself.

Three months before the election, MP Alparslan Kavaklıoğlu, a member of Turkey’s ruling Justice and Development Party (AKP), and the head of the parliament’s Security and Intelligence Commission, declared that the demography of Europe was changing in favor of Muslims:

“The fortune and wealth of the world is moving from the West to the East. Europe is going through a time that is out of the ordinary. Its population is declining and aging…. But Europe has this problem. All of the newcomers are Muslim. From Morocco, Tunisia, Algeria, Afghanistan, Pakistan, Iraq, Iran, Syria, and Turkey…. It is now at such a level that the most popular name in Brussels, Belgium is Mohammed. The second most popular name is Melih [Malih] and the third one is Ayşe [Aisha].”

If this trend continues, Kavaklıoğlu said:

“The Muslim population will outnumber the Christian population in Europe… there is no remedy for it. Europe will be Muslim. We will be effective there, Allah willing. I am sure of that.”

In 2017, Erdoğan called on Turks residing in Europe to multiply:

“The places where you work and live are your homelands and new countries now… Make five children — not just three. For you are the future of Europe.”

Judging by recent reports, this future does not look so bright for Europeans. According to The Sun,

“Turkish ‘police’ are now openly patrolling ‘Turkish areas’ in Berlin… Cars bearing the logo of an elite Turkish police unit have been spotted on the streets of Berlin – but the German authorities say they are powerless to stop them.

“The vehicles have the words Özel Harekat [Special Operation] written on the side and the unit’s logo and were seen cruising around areas of German capital with large Turkish populations.”

3. Culture

The influx of mass numbers of both refugees and migrants from Islamic dictatorships — especially when global jihad is on the rise — has had a profound effect on European culture. In spite of the fantasy still harbored by some Europeans that the immigrants eventually will integrate into the societies of their host countries, the opposite has been the case. Those Europeans who defend mass, unfettered immigration in the name of “multiculturalism” and “diversity” are ignoring the nature of the Muslim-majority countries from which the immigrants hail. The lack of human rights and free speech, the abuse of women and gays, honor killings, anti-Semitism, and violence against non-Muslims and Muslim “apostates” are characteristic of those countries. Rather than escaping the shackles of those countries, many immigrants are simply transporting them to Europe. In addition, instead of demanding that immigrants comply with European customs and law, much of Europe is simply capitulating to the new reality.

According to a recent report in The Telegraph, for instance:

“Sharia law has been recognized by a British court for the first time after a judge made a landmark divorce ruling… that an estranged couple’s Islamic faith marriage, conducted in a ceremony called a nikah, falls under British matrimonial law despite it not being legally recognized as such.”

In 2006, Libyan dictator Muammar Gaddafi proclaimed that Islam would conquer Europe “without firing a shot.” Today, a mere 12 years later, Erdoğan appears to be acting on the same principle. This makes it all the more shattering that the United Nations has given his government the authority to vet refugees. Europe must beware and elect leaders who grasp the danger of losing the battle for the continent’s heart, soul and democracy.

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