Month: December 2018

In politics, “when it gets serious, you have to lie.”

In the increasingly intermingled worlds of geopolitics and financials markets, when it get serious, you have to rescue your nation’s stocks…

America’s Plunge Protection Team has been a long-standing feature behind the scenes since Greenspan (some even think it has been around since 1944), ready as equity market buyer of last resort (and even getting subsidies for doing so from the exchanges).

See any number of magical and sudden reversals from 2008/9 and 2014…USA Today finally realizes, fundamentals don’t matter anymore…

2015… The rescue bid arrives…

in dramatic size!!

But America’s lessons have spread.

China’s National Team is more erratic, sporadic, and definitely less successful.

But is nevertheless conspicuous in its sudden panic-buying sprees when Shanghai Composite nears critical levels (or economic strength needs to be projected domestically or otherwise).

For instance, this week…as China begins to fold on its strong-man trade war tactics…

And now, amid the current crisis of confidence in The Kingdom, The Wall Street Journal has exposed Saudi Arabia’s stock market rescue squad…

The Journal pulls no punches in turning the conspiracy theory into conspiracy fact, noting that the government of Crown Prince Mohammed bin Salman has spent billions to counter selloffs in recent months.

According to a Wall Street Journal analysis of trading data and interviews with multiple people with direct knowledge of government intervention efforts, the Saudi government has placed huge buy orders, often in the closing minutes of negative trading days, to boost the market.

Most notably, while the Saudi stock exchange normally discloses how much stock the government buys, the recent purchases after political crises have been concealed from public view. That is because the government, rather than buying stock directly, has routed its money through asset managers at Saudi financial institutions who run funds that don’t need to reveal their clients, those people say.

Through the upheaval, MbS’ government has been keen to show the world that Saudi Arabia remains safe for foreign investors.

“We need to highlight to the world that Saudi investment is good,” said a Saudi government official.

To prop up the market, the government has bought stocks via its sovereign Public Investment Fund, or PIF, say people familiar with the matter.

While the PIF’s recent stock purchases aren’t publicly disclosed, they’re openly discussed by Saudi traders.

“In the bad days of Saudi Arabia, when there are troubles related to government, you see these flows coming in,” said Abdullah al Marshad, a trader at Saudi Arabia’s Samba Financial Group.

“It tells people: Don’t worry.”

But, as Antoine van Agtmael, who coined the term “emerging market” almost 40 years ago, warns:

…government intervention makes the Saudi stock exchange “more of a fake market, and that kind of undermines the trust of investors in the long run.”

But in the short-term, all that matters is a bull market and the financial projection of economic strength, and as details of Jamal Khashoggi’s murder in a Saudi consulate building emerged, the Tadawul All Shares Index (TASI) experienced 10 volatile days of trading. The Tadawul entered its steepest decline of 2018: Share prices sank 5% between Oct. 10 and 11. People familiar with the matter say most of the buying came from the PIF.

Zoomed in the moves are all the more impressive and sudden. A selloff sent the market down about 2% on Oct. 22. In the 40 or so minutes before the market closed that day, heavy buying boosted it by more than 3%.

How is it done? Very simple – When local share prices falter, one of these people says, PIF chief Yasir al Rumayyan tells deputies to start buying. They use the messaging program WhatsApp to contact managers at institutions including state-controlled NCB Capital Co. who manage PIF funds, this person says.

The Journal concludes that data and interviews show the government bolstered the market by buying about $2 billion in stock that week, but of course, local (and state-sponsored) media credited the crown prince’s remarks for saving the world.

And so, just as OfTwoMinds‘ Charles Hugh-Smith wrote so prophetically in 2015, the herd must be turned away from selling by any means available, and at this point, that means coordinated buying by all the world’s Plunge Protection Teams.

Central bankers are watching Marx’s dictum all that is solid melts into air play out in global stock markets with a terror informed by the scalding memories of 2008’s global financial meltdown.

Once the trap-door opens, there is no bottom without prompt action by the world’s Plunge Protection Teams–the plausible-deniability action heroes of the hyper-speculative status quo who leap into action when global stock markets threaten to melt down.

After half a decade of ceaseless saves, we all know the mechanics of Plunge Protection.

Since the majority of trading is now done by software programs (trading bots, algorithms, etc.), the first step is to create positive momentum so the bots will detect an “up day” and buy, buy, buy.

The easiest way to generate positive momo is to buy a truck load of S&P 500 futures in a time of low volume, where the impact will be the greatest. usually this is pre-market open.

If this fails, the next step is to send a central bank Talking Head out to discuss more quantitative easing. Announcing the central banks’ readiness to do more of what has goosed markets higher for six years will generally spark a buying frenzy, as those who have bet against central banks over the past six years have had their heads handed to them on a platter.

If this fails, grandiose but purposely vague claims of “doing whatever it takes” are issued. there is no need to actually have a plan, or to lay out a plan in public; the open-ended announcement is generally enough to reverse a trap-door decline.

If this fails, it’s now serious. The Plunge Protection Team must start buying equities. This is usually done by private proxies via dark pools or offshore accounts or by state agencies–investment funds, retirement funds, etc.

When things get very serious, the central bank can buy assets directly, and in such massive quantities that the markets are forced to respond appropriately.

If this fails, the last resort is a coordinated buying campaign by all the central banks, acting in concert. This last stand has a rallying cry: Plunge Protection Teams of the World, Unite!

Of course the PPTs of the world monitor key technical support levels, but what the PPTs are really monitoring is the dangerous sentiments of fear and panic. When the trap-door opens and the herd turns to selling, the entire sten-year prop-job will crumble.

*  *  *

It seems the Saudis learned well on the real meaning of ‘capitalism’ and ‘free’ markets.

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This headline seems suitable for “The Onion”, Boeing to Open Its First 737 Plant in China Under Shadow of a Trade War.

The Chicago-based planemaker will inaugurate its completion and delivery center in Zhoushan, 90 miles southeast of Shanghai, on Saturday, after more than a year of construction. The facility marks a rare industrial foray outside of the U.S. for Boeing and a joint venture with state-owned planemaker Commercial Aircraft Corp. of China Ltd.

While the plant was sent in motion before U.S. President Donald Trump was elected, the ribbon-cutting risks being overshadowed by his tit-for-tat on duties with China on products ranging from cars, machinery to pork and soybeans.

About one of every four jets that Boeing builds is bound for China, while the country’s airlines are the biggest buyers of the 737, the manufacturer’s largest source of profit. China is expected to need about 7,700 commercial planes over the next two decades to connect an increasingly mobile middle class. That represents a $1 trillion market opportunity for Boeing, Airbus SE and homegrown rivals like Comac.

Boeing, the largest U.S. exporter, has urged both governments to resolve their trade differences and protect aerospace, which generates about an $80 billion annual trade surplus for the U.S.

Love Affair Ending?

On October 19, Bloomberg asked Is This Chinese Love-In With Boeing About to End?

A Chinese airline that’s been an exclusive operator of Boeing Co. jets for more than 30 years is in talks with Airbus SE on a potential plane purchase, amid growing trade tensions between Beijing and the U.S., according to people familiar with the matter.

Should it come off, an Airbus purchase would be a blow to Boeing, which secured Xiamen last year as a launch customer for the latest variant of its best-selling 737 Max plane, a direct competitor to the longest range A320. It also highlights the risks of U.S. President Donald Trump’s high-stakes effort to curtail China’s rise as a global economic rival.

Clearly the love affair did not end, but Boeing held a threat card on the US that I have mentioned on numerous occasions. And that’s on top of soybeans. Playing that card would have hurt China too, but China would have done it.

Harley Davidson Should Never Be Built in Another Country

A Harley-Davidson should never be built in another country-never! Their employees and customers are already very angry at them. If they move, watch, it will be the beginning of the end – they surrendered, they quit! The Aura will be gone and they will be taxed like never before!

— Donald J. Trump (@realDonaldTrump) June 26, 2018

Many @harleydavidson owners plan to boycott the company if manufacturing moves overseas. Great! Most other companies are coming in our direction, including Harley competitors. A really bad move! U.S. will soon have a level playing field, or better.

— Donald J. Trump (@realDonaldTrump) August 12, 2018

So here we are. Trump cheers the demise of Harley Davidson for opening a plant in Europe but is strangely silent on a multi-billion dollar Boeing move to China.

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Setting up shares of the battered gizmo giant for a post-open ramp on a day when the broader market is still reeling from a batch of disappointing Chinese and European economic data, Apple said it’s planning to push a software update to Chinese iPhone users next week that will modify functions that a local Chinese court ruled violated patents held by Qualcomm, according to Bloomberg.

Despite filing an appeal against a ruling that represented the latest victory for Qualcomm in the US chipmaker’s global battle over licensing fees, Apple said that, in the meantime, it would take steps to fully comply with the ruling. The modifications would involve adjusting photographs and managing apps via the smartphone’s touchscreen – two of the features challenged by the patent.

In the lawsuit, Apple argued that the San Diego-based company had abused its position as the biggest supplier of smartphone chips, while Qualcomm has countered that Apple is using its intellectual property without paying for it. Apple hasn’t withdrawn its appeal, and its phones remain on store shelves – for now, at least.

“Based on the iPhone models we offer today in China, we believe we are in compliance,” Apple said in a messaged statement. “To address any possible concern about our compliance with the order, early next week we will deliver a software update for iPhone users in China addressing the minor functionality of the two patents at issue in the case.”

In another lawsuit filed in California, Qualcomm alleged that Apple was violating an agreement it signed with Qualcomm when it began work to use Qualcomm’s chips in the iPhone.

Earlier this week, the Fuzhou Intermediate People’s Court ruled that Apple is infringing on two Qualcomm patents and issued injunctions against the sale of the iPhone 6S, iPhone 6S Plus, iPhone 7, iPhone 7 Plus, iPhone 8, iPhone 8 Plus and iPhone X, in a decision that curiously followed the arrest of Huawei CFO Meng Wanzhou in Vancouver, sparking concerns that China could seek to retaliate against the US.

“We deeply value our relationships with customers, rarely resorting to the courts for assistance, but we also have an abiding belief in the need to protect intellectual property rights,” said Don Rosenberg, executive vice president and general counsel, Qualcomm Incorporated.

“Apple continues to benefit from our intellectual property while refusing to compensate us. These Court orders are further confirmation of the strength of Qualcomm’s vast patent portfolio.”

Given that Apple generates one-fifth of its revenue in China, and sees the world’s second-largest economy as a crucial growth market at a time when smartphone sales growth appears to have peaked, the company warned that a legal defeat in China would essentially force it to concede in its battle against Qualcomm at a time when their relationship has already been strained by Apple’s decision to explore bringing the manufacturing of more of its chips in-house.

It’s unclear what specific features these updates will modify – or if they will even satisfy the Chinese court’s ruling. IPhones will remain on store shelves as Apple’s appeal is adjudicated. But a decision against Apple could add to concerns about how the company will combat “saturated” iPhone interest.

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It’s a sea of red to end the week as world stocks and US futures tumbled on Friday after weak economic data from China to Europe raised global recession fears and left investors nervous over the impact of a still-unresolved Sino-U.S. trade dispute even as China announced it would roll back retaliatory auto tariffs by 3 months; Treasuries and the dollar jumped amid a renewed flight to safety.

Growth concerns came back into focus after European Central Bank President Mario Draghi said economic risks were moving to the downside, while in China retail sales and industrial production figures for November fell significantly short of estimates. The lackluster readings from Europe on car sales and manufacturing simply added to the gloom.

The MSCI All-Country World Index was down half a percent, with all major markets deep in the red. Europe’s Stoxx 600 Index headed for a weekly loss, dragged lower by automakers after regional sales slumped in November for the third month in a row.

Euro zone business ended the year on a weak note, expanding at the slowest pace in over four years as new order growth all but dried up, hurt by trade tensions and the Yellow Vests” movement. The France PMI survey showed French business activity plunged unexpectedly into contraction this month, retreating at the fastest pace in over four years with the slowdown largely blamed on the recent violent anti-government protests.

Elsewhere, Germany’s private sector expansion slowed to a four-year low, suggesting growth in Europe’s largest economy may be weak in the final quarter as Mfg PMI declined from 51.8 to 51.5 (exp. 52.0) while the Services PMI dropped from 53.3 to 52.2, also missing expectations for a rebound to 53.4.

Adding to the ECB’s gloomy outlook, the Bundesbank lowered German growth projections, warning of downside risks: the German central bank today revelaed its updated growth projections, which cut back the GDP forecast to just 1.5% this year from 2.0% expected previously, hardly a surprise after the -0.2% q/q contraction in Q3. The forecast for 2019 was cut to 1.6% from 1.9% and for 2020 and 2021 the Bundesbank expects rowth of 1.6% and 1.5% respectively.

Stock markets in Europe opened sharply lower, with Germany’s DAX index falling 1.5% while the pan-European STOXX 600 index was down 0.9%, paring some losses as European automakers saw their losses cut in half on the China tariff news.

The data out of Europe added to weak readings from China, where November retail sales grew at the weakest pace since 2003 and industrial output rose the least in nearly three years, underlining risks to the world’s second-largest economy as Beijing works to defuse a trade dispute with the United States.

A Chinese statistics bureau spokesman said the November data showed downward pressure on the economy is increasing.

The data “means that the worst is yet to come and policymakers will be very worried, particularly with consumption growth falling off a cliff,” said Sue Trinh, head of Asia FX strategy at RBC Capital Markets in Hong Kong. “So I expect further support measures including rate cuts will come in coming weeks, although these data would indicate measures to date aren’t really working.”

The Chinese yuan weakened 0.4% to 6.9063 per dollar in offshore trade following the data.

As a result, equities slumped across Asia, with shares in Hong Kong and Japan leading the retreat. MSCI’s index of Asia-Pacific shares ex Japan fell 1.5%. Japan’s Nikkei, also dragged down by the country’s weak tankan sentiment index, dropped 2.0%. China’s benchmark Shanghai Composite and the blue-chip CSI 300 closed down 1.5 percent and 1.7 percent, respectively, and Hong Kong’s Hang Seng was off 1.5 percent.

“The data this morning out of France really hasn’t helped the mood. You look at China data, you look at the flash PMIs out of France and Germany and they’ve really sort of reinforced concerns that the global economy is slowing down,” said CMC Markets chief markets analyst Michael Hewson. “Ultimately, I think it rather questions the wisdom of the ECB ending its asset purchase program at the end of this month. You’ve got Mario Draghi basically tightening into a downturn.”

Over in the US, S&P 500 futures also pointed to a drop at the open, though both declines were tempered somewhat on news that China will temporarily remove a retaliatory duty on U.S.-imported automobiles.

“Although hopes of progress in U.S.-China talks and cheap valuations are supporting the market for now, we have lots of potential pitfalls,” said Mizuho’s Nobuhiko Kuramochi. “If U.S. shares fall below their triple bottoms hit recently, that would be a very weak technical sign.”

In the currency market, the euro was down 0.7 percent after the weak PMIs, last changing hands at $1.1288. The Bloomberg Dollar Spot Index headed for its best week in four months, rising to 1,215 and just shy of 2018 highs. Antipodean currencies led losses in the Group-of-10 basket.

Sterling’s rally fizzled as signs that the British parliament was headed towards a deadlock over Brexit prompted traders to take profits from its gains made after Prime Minister Theresa May had survived a no-confidence vote.

The European Union has said the agreed Brexit deal is not open for renegotiation even though its leaders on Thursday gave May assurances that they would seek to agree a new pact with Britain by 2021 so that the contentious Irish “backstop” is never triggered.

In overnight Trump-related news, Federal prosecutors are investigating whether US President Trump’s inaugural committee misspent some of the record amount of funds it raised, while there were later comments from White House Press Secretary Sanders that President Trump had limited engagement with the inauguration committee. President Trump is also said to be considering Kushner for Chief of Staff, while there were separate reports that US President Trump is said to have met with Chris Christie to discuss Chief of Staff position. Axios reported that US President Trump sees Chris Christie as a top contender to replace John Kelly as Chief of Staff

Oil prices gave up some of their Thursday’s gains following inventory declines in the United States and expectations that the global oil market could have a deficit sooner than they had previously thought. U.S. crude futures edged down 0.5% to $52.32 per barrel and Brent crude slipped 0.6 percent to $61.09, after both gained more than 2.5 percent on Thursday. Gold (-0.3%) is set for is biggest weekly fall in five weeks due to a firmer USD as traders focus on next week’s tabled Fed rate hike. Looking at base metals, copper is on track for a third consecutive weekly drop with downside exacerbated by the downbeat Chinese industrial production translating into weaker demand as the red metal faces a 15% yearly decline.

Expected data include retail sales, industrial production, and PMIs. No major companies are reporting earnings

Market Snapshot

• S&P 500 futures down 0.9% to 2,626.25
• STOXX Europe 600 down 1.4% to 344.61
• MXAP down 1.4% to 149.12
• MXAPJ down 1.5% to 481.32
• Nikkei down 2% to 21,374.83
• Topix down 1.5% to 1,592.16
• Hang Seng Index down 1.6% to 26,094.79
• Shanghai Composite down 1.5% to 2,593.74
• Sensex up 0.03% to 35,940.82
• Australia S&P/ASX 200 down 1.1% to 5,602.00
• Kospi down 1.3% to 2,069.38
• German 10Y yield fell 3.4 bps to 0.251%
• Euro down 0.6% to $1.1292
• Italian 10Y yield fell 4.3 bps to 2.594%
• Spanish 10Y yield fell 0.8 bps to 1.416%
• Brent futures little changed at $61.42/bbl
• Gold spot down 0.2% to $1,239.08
• U.S. Dollar Index up 0.5% to 97.53

Top Overnight News

• European leaders rebuffed Theresa May’s pleas to help her sell the Brexit agreement to a skeptical U.K. Parliament, toughening their stance as they stepped up planning for a chaotic no-deal divorce
• The euro-area economy is closing out 2018 on a gloomy note, with a measure of activity unexpectedly dropping to its lowest in just over four years
• China’s economy slowed again in November as retail sales and industrial production weakened, creating a challenging backdrop for policy makers who gather next week to set the tone for the year at their annual Economic Work Conference in Beijing
• As Japanese government bond yields slide, some Bank of Japan officials see no problem with them dropping to zero or even below, according to people familiar with the matter
• In Washington and Beijing, the idea that China is willing to water down its plans for high-tech industrial dominance to appease President Donald Trump is already meeting with skepticism

Asian equity markets were negative across the board as sentiment in the region soured following the lacklustre lead from Wall St and as region digested disappointing data from China. ASX 200 (-1.1%) and Nikkei 225 (-2.0%) both declined from the open with Australia led lower by tech, telecoms and the largest weighted financials sector, while the Japanese benchmark was subdued amid a firmer JPY and mixed Tankan data despite the headline Large Manufacturers Index and Large All Industry Capex topping estimates. Elsewhere, Hang Seng (-1.6%) and Shanghai Comp. (-1.5%) were also pressured after Chinese Industrial Production and Retail Sales data both fell short of estimates, with underperformance seen in Hong Kong as this year’s run of lacklustre stock market debuts continued in the domestic exchange. Finally, 10yr JGBs were higher as they tracked gains in T-notes and with prices underpinned by safe-haven demand which saw 10yr JGBs print the highest since November 2016.

Top Asian News

• Some at BOJ Are Said to Be Fine With Yields Going to Zero
• Thailand’s Richest Man Said to Tap BofA, UBS for $1.5b AWC IPO
• SoftBank IPO Said to See 2-3 Times Demand From Big Investors
• Not Such a Happy Friday for Asia’s Beleaguered Stock Traders
• Japan Post Is in Talks to Buy Minority Stake in Aflac

European equities are poised to finish the week on the backfoot (Eurostoxx 50 -0.9%) following the weak lead from Asia as sentiment turned sour amid the release of disappointing Chinese industrial production and retail sales, highlighting weakness in the Chinese economy. As such, around 75% of the Stoxx 600 (-0.9%) are in the red, Switzerland’s SMI (-1.4%) marginally lags peers with all 20 stocks in negative territory. In terms of sectors, IT names underperform alongside auto names (seen as trade proxies due to heavy exports) as a result of the aforementioned Chinese retail sales signalling an impact from ongoing trade disputes. However, European auto names spiked higher following reports that China are to lift retaliatory tariffs on US autos for 3-months from January 1st next year (i.e. suspending the 40% tariff plan and sticking to 15%). In terms of individual movers GVC Holdings (+8.8%) shares rose to the top of the UK benchmark with Citi citing next week’s Parliament vote on FOBT stakes being “significantly positive” as shareholders will be paid out GBP 676mln if the legislation is not passed by 28th March 2019.

Top European News

• Sweden Moves Step Closer to New Election as Lofven Loses PM Vote
• How Ireland Outmaneuvered Britain on Brexit
• Italian Bonds Get No Favors From Draghi’s Reinvestment Plans
• European Car Sales Slump in November With No Sign of Rebound

In currencies, The Antipodean Dollars have derived some scant support from reports that China will freeze and backtrack on a proposed increase in US auto tariffs w/e January 1 next year, in line with recent speculation, but the Aussie and Kiwi remain on the backfoot and significantly weaker than their G10 counterparts following sub-forecast Chinese data overnight and RBNZ consultations about lifting high grade bank capital requirements by 100%. Aud/Usd is holding just off a fresh December low around 0.7155 after breaching 0.7200 and tech supports below the figure at 0.7186 (55 DMA) and 0.7163 (Fib), while Nzd/Usd has lost grip of 0.6800 as the Aud/Nzd cross pivots 1.0550.

• EUR/GBP: Also major underperformers, as the single currency extended post-ECB losses on the back of further declines in EZ PMIs (French readings especially dire as manufacturing, services and composite all tumbled into sub-50 contractionary territory) and through recent support just ahead of 1.1300 vs the Greenback to 1.1286 before finding some bids. Note, a decent 1 bn option expiry at the 1.1300 strike may provide some traction. Meanwhile, Brexit remains the big bane for Sterling and given the ongoing impasse between UK PM May and EU leaders on the back-stop, Cable has retreated sharply towards 1.2570 and chart-wise back below the 10 DMA circa 1.2660.
• JPY: As usual, demand for the safe-haven Yen is just keeping Usd/Jpy depressed within a tight 113.70-40 range, along with 1.4 bn expiries at 113.75.
• EM: An unexpected, though far from total surprise ¼ point CBR rate hike has underpinned the Rub against the grain of overall regional currency weakness on risk-off flows, with the Rouble comfortably above 66.5000 vs the Usd.

In commodities, WTI (-0.7%) and Brent (-0.9%) swings between gains and losses following an uneventful overnight session as prices consolidated after yesterday’s rally.  The complex saw some upside in recent trade after Libya’s NOC chairman was pessimistic about reopening its 300k BPD El-Sharara after an armed group halted production at the oilfield. Traders will be eyeing this evening’s Baker Hughes rig count as fresh catalyst. Note, WTI Jan’19 options expire today at 19.30GMT. Elsewhere, gold (-0.3%) is set for is biggest weekly fall in five weeks due to a firmer USD as traders focus on next week’s tabled Fed rate hike. Looking at base metals, copper is on track for a third consecutive weekly drop with downside exacerbated by the downbeat Chinese industrial production translating into weaker demand as the red metal faces a 15% yearly decline. Finally, Shanghai steel extended gains for a third day in a row after two major steelmaking cities (Tangshan and Xuzhou) demanded mills to curtail production amid worries that they will not meet pollution reduction targets this year. For context, Tangshan accounts for 10% of China’s total steel output while Xuzhou is in the number two steelmaking province.

US Event Calendar

• 8:30am: Retail Sales Advance MoM, est. 0.1%, prior 0.8%; Retail Sales Ex Auto MoM, est. 0.2%, prior 0.7%
  • Retail Sales Ex Auto and Gas, est. 0.4%, prior 0.3%; Retail Sales Control Group, est. 0.4%, prior 0.3%
• 9:15am: Industrial Production MoM, est. 0.3%, prior 0.1%; Manufacturing (SIC) Production, est. 0.3%, prior 0.3%
• 9:45am: Bloomberg Dec. United States Economic Survey
• Markit US Composite PMI, prior 54.7
  • Markit US Manufacturing PMI, est. 55, prior 55.3;
  • Markit US Services PMI, est. 54.6, prior 54.7
• 10am: Business Inventories, est. 0.6%, prior 0.3%

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Both cable and the FTSE slumped on Friday after Prime Minister Theresa May returned from Brussels emptyhanded following a tour of European capitals where she pleaded for “assurances” that the bloc was not seeking to trick the UK into unwittingly becoming a “vassal state” – as Brexiteers have warned. Objections over the backstop forced May to cancel a Commons vote on the ‘finalized’ draft Brexit withdrawal agreement.

Not only did EU leaders refuse to yield during what was a hastily called EU summit, they insisted that negotiations over the deal could not be reopened, and also berated May for putting the onus on them to change the deal to placate May’s fractious Tory caucus. One senior EU source accused May of trying to force the bloc to “solve her problem for her.”

May had asked for a legally binding assurance that the Irish backstop wouldn’t become an “inescapable trap”. But while EU leaders offered informal “clarifications”, they insisted that the text of the deal would not be reopened.

Cable tumbled below $1.26 again, erasing much of the currency’s Wednesday advance.

May’s critics in the DUP seized the opportunity to bash May for failing to follow through on her promise to secure “legally binding changes” and for signing off on a deal which she knew had no chance of passing in the Commons, according to the Daily Telegraph.

The DUP leader said: “The Prime Minister has promised to get legally binding changes. The reaction by the EU is unsurprising.”

“They are doing what they always do. The key question is whether the Prime Minister will stand up to them or whether she will roll over as has happened previously.”

“This is a difficulty of the Prime Minister’s own making. A deal was signed off which the Prime Minister should have known would not gain the support of Parliament.”

“If the Prime Minister had listened to our warnings and stood by her public commitments, we would not be in this situation.”

Even Irish Prime Minister Leo Varadkar refused to back up his neighbor, saying he was “very satisfied” with the summit conclusions on Brexit which made clear the Withdrawal Agreement was not “up for renegotiation.”

“As Europe we reaffirmed our commitment for the need for a backstop. An open border between Northern Ireland and Ireland can’t be a backdoor to the single market,” he said.

“That’s why European countries also very strongly support backstop. It is not just an Irish issue, it is very much a European issue as well.

“It is very much a case of in the European Union being one-for-all and all-for-one.”

The Prime Minister of Luxembourg urged May to take the deal back to Westminster and make clear to rebellious MPs that they had a choice between this deal or no deal (virtually ensuring that negotiations will come to the wire, as the EU waits until the last possible moment to hand May the concessions she needs):

“Theresa May did the best possible job. She did the best possible deal and now the MPs in London should be responsible and know if they want to have the best possible deal or to go in the direction where they don’t know what will come out.”

May’s de facto deputy David Lidington refused to rule out resigning if the government authorized a “no deal” Brexit.

Asked again if he would be prepared to take the UK out of the bloc without a deal, he said: “That is not the policy of the Government or the Prime Minister who I support and work for.”

“The policy of the entire Cabinet, which includes colleagues who both campaigned to leave and campaigned to Remain, is that we do not want no deal, we want to have a deal, that is what we are continuing to work towards.”

In other news, the bloc clarified that, beginning in 2021, UK vacationers will need to pay a €7 for visa-free travel.

Yes #ETIAS will apply to the #UK as 3rd country post-Brexit – 7 euros for a 3 year pre-travel authorisation. Simple form, like #ESTA to the US, but way cheaper. #Brexit #EUCO

— Natasha Bertaud (@NatashaBertaud) December 13, 2018

In a scene that attracted considerable attention in the British press, May was filmed during what was described as a “contentious” confrontation with European Commission head Jean Claude Juncker after Juncker “personally attacked” May.

This doesn’t exactly look like an exchange of pleasantries between Theresa May and Jean-Claude Juncker as the Brexit summit gets underway. #EUCO pic.twitter.com/l0r4NwDj8h

— Philip Sime (@PhilipSime) December 14, 2018

With the impasse looking more intractable by the day, the EU said late Thursday that it would call an emergency ‘no deal’ summit for January to beginning contingency planning for the UK to leave the bloc without a trade deal. After surviving an intraparty ‘no confidence’ vote earlier this week by a less-than-enthusiastic margin, May is expected to struggle to whip up the votes for her plan. And in what sounded like No. 10 trying to “put on a happy face”, a spokesman for May accused the EU of playing “hardball” and assured the public that a deal would eventually be struck.

…which means the odds of a “hard” Brexit – or, more likely, “no Brexit at all” – are rising by the day.

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After China dashed hopes that a raft of macroeconomic data released last night would help reassert stability in markets, the Communist Party has, at the very least, finally confirmed post-G-20-summit headlines proclaiming that China’s Ministry of Finance would roll back the retaliatory tariffs on US-made autos imposed over the summer.

The rollback was first teased by President Trump after he returned from Argentina last week, before Treasury Secretary Steven Mnuchin hedged the president’s claim by saying rolling back auto tariffs had merely been “discussed.” But as many analysts have pointed out, most of the cars sold in China are made there already, which means that rolling back the tariff is a largely symbolic gesture. Also, the move is only temporary: tariffs will be suspended for three months, which means they could be reimposed if the US and China fail to strike a lasting trade pact. Tariffs will fall from 40% to 15%, back to their pre-trade levels.

The cuts will take effect on Jan. 1.

• CHINA LIFTS RETALIATORY TARIFF ON U.S. CARS FROM JAN. 1
• CHINA TO LIFT RETALIATORY TARIFF ON U.S. CARS FOR 3 MONTHS
• CHINA HAD IMPOSED 25% RETALIATORY TARIFF ON U.S. CARS

Still, shares of carmakers – particularly European carmakers, which build more of their cars of the Chinese market in the US – rallied on the news. Meanwhile, US stock futures pared their China-inspired losses from earlier in the day. In Europe, the Stoxx 600 Automobiles & Parts index was trading 1.4% lower after the announcement, paring earlier losses of as much as 2.8% that, ironically, were triggered after new car registrations fell for the third straight month.

In a statement accompanying the announcement, the Chinese Finance Minister said it  hopes “China and the US can speed up talks to remove tariffs on all additional US goods.”

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Authored by Jeffrey Snider via Alhambra Investment Partners,

Markets this week celebrated more bad news out of Germany. Misunderstanding especially in stocks is par for the course, not that it’s much better outside of them. German officials are laying the groundwork to change the nation’s banking laws so that it’s two largest banks, really “banks”, can more easily combine. If it should ever come to that.

The major sticking point seems to be legal structure, no surprise. DB would have to convert to a holding company triggering revaluation of assets and then the tax consequences of those. Unless, of course, auditing the bank’s standing book reveals other malformities taking things in a different direction.

It’s not just the rush toward marriage, it’s more so who with. DB is both the target and the presumptive acquirer, an already odd situation. And if there is a healthy counterpart to DB’s sickening status it’s surely not Commerzbank, the institution being whispered up for combination.

The only thing, the only thing, CBK has going for it at the moment is its largest current shareholder – while around 55% of shares are held by institutional investors, including vehicles like hedge funds and mutual funds, the most concentrated in any single owner is the ~15% stake held by the Federal Republic of Germany. It would certainly combine risks, wouldn’t it?

One way to open the door to emergency “capital” would be if the government was already a significant sponsor.

But that’s not what this is about, officials claim. They keep saying this is all the other way around – that a strong German banking giant will therefore be in position to bail out Germany should it ever require it! Belatedly recognizing the dangers of financing an export-led economy during these sorts of troubles, authorities are getting only half the picture (only somewhat on purpose).

A funding problem for global markets isn’t solved by global banking giants of any national flavor, it begins there. More dispassionate analysis even recently begins to make the incestuous connection:

Discussions of a tie up of two banks with large overlapping businesses signal dwindling hope that Deutsche Bank will be able to break out of a vicious circle of declining revenue and sticky expenses. The stock has dropped more than 50 percent this year and broken through multiple record lows on the way down, while funding costs have continued to rise.

All of these things are related, furthermore connected to Germany’s vulnerable external financing requirements (“dollar short”). DB’s, as Commerzbank’s, declining revenues and overall position indeed have led to a great contribution to the global “dollar shortage.” The “dollar short” persists regardless, meaning that rock has met hard place; “funding costs have continued to rise” because these things become self-reinforcing.

The eurodollar system is complicated, of course, but the plight of Germany’s financial elephant really isn’t. We’ve chronicled the sordid tale for going on half a decade now. DB’s big sin was in 2014 they listened to Ben Bernanke and Janet Yellen.

The bank raised significant capital early on in that year ostensibly to complete its comeback from the 2008 break. Having been fixed, and compliant with new regulations in full, what did DB’s management decide was its best course? Unlike most of its other peers who were actively retreating, Deutsche plunged headlong into the riskiest assets – global junk, including US corporates as well as US$ EM junk (Eurobonds).

It’s all right there in their May 2014 Capital Presentation. At almost the very top in both classes that was when the bank decided it was best to proceed:

The Leveraged Debt Capital Markets (LDCM) franchise combines a premier high yield bond market business with diverse debt financing capabilities.

LDCM is a leader in European leveraged finance and is at the forefront of innovation in all aspects of the leveraged debt capital markets and is one of the few franchises that can price, structure, underwrite and distribute senior, mezzanine and high yield transactions on both sides of the Atlantic.

It seems as if the world’s Eurobond binge of 2016 and 2017 was only enough to stabilize the bank’s position, and stock price, until that market turned violently wrong starting last December. By January 2018, it was clear another EM crisis was on deck and the Eurobond market was going to be front and center in it. 

But that’s not what anyone talks about, simply because it can’t be. The global economy is recovering in a virtuous circle started by the genius of technocratic central bankers; banks do better for monetary policy and therefore invest like DB in the various required facets of the global economy, which does better for the resources and so on. Globally synchronized growth would have meant this bet paying off spectacularly. Why?

As I wrote four and a half years ago:

As DB makes plain, there are only “5-6 FIC players left” and there exist exceptional barriers to entry ensuring smaller banks stay smaller. This oligarchical structure is perfect for DB in “attractive products”, such as high yield and leveraged lending (both can fairly be termed the modern incarnation of junk).

FIC, or FICC as its alternately known, is the guts of global money dealing in the eurodollar game. Most of the big banks had shed as much of it as they could over the years of this “recovery” – again, self-reinforcing whereby the less banks participate in money dealing the less likely the economy can grow constrained by lack of (credit-based) monetary growth alongside.

This explains why DB and other banks have struggled despite constant claims of successful recovery.

DB saw opportunity to be one of the few left even more exposed to US and EM junk and the FICC plumbing, if you will, behind it. We’ll likely never know the full details, including potential collateral transformations and the risks of them, but we can easily and reasonably connect how if US and EM junk are having a bad year (or four), “funding costs have continued to rise” makes perfect sense in a way legal troubles, DoJ fines, or this particular bank being in anything like a reasonable position to rescue the largest economy in Europe never could.

Officials can’t say that, though, because things are booming. Aren’t they? Being in a sort of rush to change German law isn’t quite consistent with all that, though. Prudent government planning wouldn’t be limited to just the one scenario. 

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Tesla and its CEO Elon Musk never seemed bothered by the fact that big-name competition from brands like BMW and Porsche is starting to go mainstream. And while Tesla has been hiding behind its belief that it still has a superior product, BMW and Porsche have been working the background, beating the company to the punch on all things charging.

Both auto makers just unveiled a charging station that can give electric vehicles enough power to drive about 62 miles on less than three minutes’ charge, putting them both ahead of Tesla. The prototype charger is said to have a capacity of 450 kW, which is more than triple Tesla’s Superchargers. Vehicles that were tested at this power were brought to 80% capacity in 15 minutes. According to Tesla’s website, it needs about 30 minutes for a similar charge.

Porsche and BMW worked together in order to develop this charger. They were also helped along by Siemens and charging experts Allego GmbH and Phoenix Contact E-Mobility GmbH. The first station in Bavaria was opened to the public this week. BMW told Bloomberg that it is free to use for existing models.

Adding to Tesla’s growing competition concerns, earlier this week we discussed how Porsche Taycan reservation holders apparently couldn’t wait to ditch their Teslas in order to own the new vehicle. At this year’s Los Angeles auto show, the North American president and CEO of Porsche said that the company has had a “pretty amazing” response to pre-orders for the vehicle. He also went on to say if that if all the people who had pre-ordered the car wind up buying it, it has already sold out for the first year.

But even more astonishing is that more than half of the people that are signing up to pre-order the Porsche aren’t already Porsche owners. In fact, the number one brand owned by those who are pre-ordering the Porsche is Tesla.

Porsche North America President and CEO Klaus Zellmer told CNET: “More than half of the people that are signing up for the Taycan have not owned or do not own a Porsche. Typically, if we look at our source of business, people coming from other brands, it’s Audi, BMW, or Mercedes. The no. 1 brand now is Tesla. That’s pretty interesting, to see that people that were curious about the Tesla for very good reasons obviously don’t stop being curious.”

While some EV models won’t be able to take advantage of the new charging station yet – for instance, the BMW i3 limits power intake to 50 kW – future vehicles will have access to the benefits and this new innovation again confirms that Tesla is no longer the leader of the (battery) pack.

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