Month: December 2018

Theresa May Caught In Massive Lie

Authored by Mike Shedlock via MishTalk,

Theresa May refused to publish the complete legal analysis of the agreement she signed. Leaked analysis proves she lied.

Great Deal for the EU, Not the UK

On November 26, Trump proclaimed the Brexit Agreement ‘Sounds Like a Great Deal for the EU’.

“I think we have to take a look at seriously whether or not the U.K. is allowed to trade. Because, you know, right now if you look at the deal, they may not be able to trade with us and that wouldn’t be a good thing.”

May Refuses to Publish Brexit Deal Legal Advice

Theresa May has refused for over a week to post the legal review of the Brexit agreement she signed. Instead she posted allegedly “sufficient” excerpts on which Parliament could make a decision.

According to the Guardian, the excerpts “will be sufficient information for any MP to make up their mind on the legal aspects of the deal before the upcoming five-day debate, and that it keeps to the protocol that full advice is seen as confidential between lawyer and client.”

Thus, Trump made an educated guess. And he guessed correctly. Because the leaked document proves May is a bald-faced liar.

Leaked Document

Here is the Complete Withdrawal Agreement leaked document.

I salute the person responsible for the leak.

Damning Assessment of May’s Lies

BrexitCentral offers this assessment: Leaked Commons legal analysis of Brexit deal vindicates Trump, contradicts May and adds to Brexiteers’ concerns.

The Government is already on the rack over its refusal to publish the legal advice provided on the Brexit deal by Attorney General, Geoffrey Cox, despite a parliamentary motion ordering it to be done. But ministers now face further questions as it emerges that a confidential analysis of the Withdrawal Agreement by the House of Commons’ own expert legal team comes to the same conclusion as President Trump – that Theresa May’s Brexit deal would prevent the UK from entering trade deals with countries such as the US.

The bombshell is contained in a 27-page legal note prepared by the House of Commons EU Legislation Team, which is headed by Arnold Ridout, its Counsel for European Legislation. A highly respected specialist in EU Law, he has previously worked for the EC Commission’s Legal Service and advised the European Secretariat of the Cabinet Office and prior to taking up his current role in 2014, he was Deputy Legal Adviser to the House of Lords EU Select Committee.

The note – marked ‘not for general distribution’ and obtained by BrexitCentral – is dated 26th November and states that the UK-EU customs union which would come into effect if the backstop is triggered “would be a practical barrier to the UK entering separate trade agreements on goods with third countries”.

This is in direct contradiction to the Prime Minister who has insisted that her deal will allow the UK to have an entirely independent trade policy.

The legal note also appears to suggest that the Prime Minister’s claim (also repeated last Monday) that her deal “takes back control of our laws” by ending “the jurisdiction of the European Court of Justice in the UK” with “our laws being made in our Parliament, enforced by our courts” does not entirely stand up to scrutiny.

Another section in the document which caught my eye concerns what happens when the proposed Joint Committee (of representatives of both the EU and UK) which supervises the Withdrawal Agreement and the backstop cannot reach a consensus on certain issues:

“Both UK and EU are represented on the Joint Committee, so no decision may be made without the UK’s agreement. This may not be the same thing as the two parties having equal power, as the aims of the parties will matter. If the Joint Committee is unable to reach a decision, in some circumstances, that will block next steps. The party that wants those next steps to occur, will then be at a practical disadvantage. By way of example, i) the Joint Committee sets the limits of state aid that can be authorised by the UK for agriculture. If limits are not agreed, state aid may not be authorised.”

In other words, in those circumstances the UK would not be free to set levels of subsidy for UK agriculture, but the EU would remain free to adjust its Common Agricultural Policy however it liked. EU products would therefore have open access to the UK market via the customs union, while Brussels could stop us subsidising agriculture at all unless it was agreed in the Joint Committee.

Lies Exposed

With that, May’s lies are exposed to all in full view. Was she that stupid to think this was a good deal? Was she that stupid to think this would not be exposed?

Apparently so. Never underestimate the arrogance or stupidity of politicians.

Hypocrite Theresa May in Bed With the EU While Chastising the UK Parliament

This was crystal clear long ago. On November 30, I wrote Hypocrite Theresa May in Bed With the EU While Chastising the UK Parliament.

“Rotten Kettle of Fish”

May tells the House of Commons they have a “duty to listen to their constituents before taking a decision in the national interest”.

This deal is such a rotten kettle of fish that even the public sees clearly sees it. What an amazing hypocrite.

Demands Will Never End

On November 18, I noted Opposition Mounts to Brexit Deal but France Has Still More Demands Already.

Flashback November 16

Those seeking a musical tribute to this mess can find it here: Brexit Musical Tribute: Smiling Faces Show No Traces of Evil That Lurks Within

Macron Threatens to Keep EU in Perpetual “Temporary” Customs Union Backstop

On November 26, I noted Macron Threatens to Keep EU in Perpetual “Temporary” Customs Union Backstop

Macron added to his climate change demand, upping the ante to include fishing rights.

“We as 27 have a clear position on fair competition, on fish, and on the subject of the EU’s regulatory autonomy, and that forms part of our position for the future relationship talks,” said Macron.

Clearly, Macron understood what was in the agreement that May signed.

May Purposely Lied

May not only knew what she signed, she lied about it.

And this was all easily predictable. The moment she refused to release the legal document, anyone with an ounce of common sense knew she was hiding something.

It was even worse than I speculated.

End of Theresa May

This is the political end of Theresa May. She deserves to have this agreement crammed down her throat in 100% dissent.

That won’t happen, but the margin should be so huge, that she resigns.

Even if she does not resign, her days are numbered.

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Powell’s Wednesday Hearing Before Joint Economic Committee Canceled

In our weekly preview published earlier, we noted that one of the week’s main events – Chair Powell scheduled testimony on Wednesday to the congressional Joint Economic Committee – was expected to be postponed to Thursday because major exchanges will be closed on Wednesday in honor of former U.S. President George H.W. Bush, who died on Friday at the age of 94.

The reason for the heightened interest in what Powell would say is that last week, Powell backed the Fed’s gradual tightening but said its policy rate was “just below” a range of estimates of the so-called neutral level that neither stimulates nor cools growth. In response, stocks shot up and largely recovered November’s earlier losses.

Well, it now appears that while the Wednesday hearing will be canceled, it has yet to be rescheduled, as per the following Bloomberg headlines:

  • POWELL HEARING BEFORE CONGRESS ON WEDNESDAY CANCELLED: JEC
  • JEC SAYS NO NEW HEARING DATE YET FOR POWELL

Which means that as of this moment, the key events for this week are Friday’s payrolls report, which now that the Fed is suddenly ultra data dependent is once again important, and the OPEC+ summit, where things may be problematic because as Bloomberg noted earlier, Russia is suddenly a major hurdle to material output cuts:

  • RUSSIA AND SAUDIS ARE SAID TO DIFFER ON HOW TO SHARE OIL CUTS
  • RUSSIA SAID IT WOULD CUT OUPUT BY A MAXIMUM OF 150,000 B/D

Which means that if Saudi Arabia wants higher prices, it will have to shoulder the bulk of production cuts, a move which may infuriate Trump who has been instrumental in shielding MbS from global anger in the aftermath of the Jamal Khashoggi murder.

Meanwhile, Iran – which suddenly feels emboldened after Qatar announced it was going to quit OPEC – warned thatr absent a serious output cut, oil could tumble to $40.

  • IRAN OFFICIAL: OIL PRICE WILL DROP TO $40 UNLESS OPEC CUTS
  • IRAN OFFICIAL DOUBTS OPEC+ SERIOUS ABOUT CUTTING OUTPUT

And so all eyes are now on the Saudi Crown Prince, who is facing a dilemma: suffer even lower oil prices (by cutting a token amount), or anger the US president and suffer renewed international retribution.

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Trump’s G20 Deal With Xi Jinping Promises De-escalation of Trade War but Lacks Many Specifics

When you’re in a hole, the first thing to do is stop digging.

That’s probably the best takeaway from the trade agreement between the United States and China that was announced Saturday at the G20 conference in Buenos Aires. The main outcome of the deal between presidents Donald Trump and Xi Jinping is that the United States won’t escalate the trade war on January 1, the date when tariffs on billions of dollars of Chinese imports were set to increase to 25 percent from 10 percent. Instead, those tariffs will remain in place but at the current, lower rate.

That’s surely good news, and it’s the first indication since the U.S.–China trade war began in July that the two countries both want to reach a truce.

Still, describing this as an agreement—or even, indeed, as a truce—is probably giving it too much credit. Trump and Xi have agreed to avoid further escalation, but there is nothing in the read-outs provided by each nation that indicates a move towards reducing the current tariffs that have caused significant economic pain by raising prices for American manufacturers and by reducing American markets for Chinese exporters.

Take, for example, what the White House is holding up as a major part of the deal: that China “will agree to purchase a not yet agreed upon, but very substantial, amount of agricultural, energy, industrial, and other product[s] from the United States to reduce the trade imbalance between our two countries.”

That’s vague and rather unenforceable language. It also shows that Trump continues to be fixed on the so-called “trade deficit”—which has increased since his Chinese tariffs were imposed in July and sits at a record $300 billion over the first nine months of the year. It’s unlikely that a one-time boost in purchasing American exports will change that, and it’s not at all clear that China will be able to pressure domestic businesses into making those purchases while the tariffs it erected against American farm products are still in place.

For a look at what else the two sides have agreed to, check out this handy side-by-side from Bloomberg reporter Peter Martin.

The lack of specificity is not limited to the promise that China will purchase more agricultural goods. Throughout the entire “agreement,” about the only quantifiable detail is the promise that America will go ahead and increase tariffs from 10 percent to 25 percent in 90 days if a better deal is not reached. But as trade lawyer and Cato Institute scholar Scott Lincicome points out, “with no joint statement and list of actual/concrete deliverables, how will both sides (and the public) measure success or failure in 90 days?”

The White House wants this agreement to be seen as a first step towards a real trade deal—and as evidence that its tariffs are bringing China to the negotiating table. But the details here suggest that Saturday’s deal is a strategic retreat by the Trump administration. Trump gets a small political win and China gets to delay further escalation of the trade war by making vague promises about trying to buy more American farm goods. That’s exactly what China wants, because time is on its side. As the costs of the trade war continue to pile up for American businesses—and if the recent stock market wobbles turn into something worse—Xi will be in a stronger bargaining position relative to Trump, who will face mounting political pressure to abandon the tariffs if there aren’t solid results to show for them.

Delaying those 25 percent tariffs on Chinese imports will help American businesses and consumers, but it’s too soon to determine if that delay brings us closer to the end of the trade war or if we’re merely entering a temporary lull in hostilities.

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SEC Goes After Cryptocurrency ‘Influencers,’ Starting With DJ Khaled and Floyd Mayweather: Reason Roundup

The feds are now targeting “social media influencers” who promote cryptocurrencies. Last week, the Securities and Exchange Commission (SEC) announced charges in its very first cases involving crypto initial coin offerings (ICOs), fining music producer DJ Khaled and boxer Floyd Mayweather for social-media posts that “may have appeared to be unbiased, rather than paid endorsements” of new coins.

“Mayweather failed to disclose promotional payments from three ICO issuers, including $100,000 from Centra Tech Inc.,” said an SEC press release.

Khaled failed to disclose a $50,000 payment from Centra Tech, which he touted on his social media accounts as a “Game changer.” Mayweather’s promotions included a message to his Twitter followers that Centra’s ICO “starts in a few hours. Get yours before they sell out, I got mine…”

Mayweather agreed to pay $614,775 in fees as part his penalty and Khaled agreed to pay $152,725. Steven Peikin, co-director of the SEC’s enforcement division, commented that “social media influencers are often paid promoters, not investment professionals, and the securities they’re touting, regardless of whether they are issued using traditional certificates or on the blockchain, could be frauds.”

Beginning last year, the SEC advised that “any celebrity or other individual who promotes a virtual token or coin that is a security must disclose the nature, scope, and amount of compensation received in exchange for the promotion.” But what crypto counts as a security isn’t quite clear.

SEC Chair Jay Clayton said last week:

We don’t believe Bitcoin is a security. Many of the ICOs that you see and you talk about, they are securities. And if you’re going to offer or sell securities, you have to do so in compliance with our laws. We’ve been clear about that.

Hacked.com reports that “several SEC officials have also said that Ethereum is considered a non-security.”

Since the 2017 announcement, the SEC has been cracking down on ICOs; “a top official said earlier this year that dozens of cases are pending,” points out the cryptocurrency news site CCN. One result of the SEC’s new interest is that it’s become harder for platforms such as Coinbase to offer new coins:

In May, Coinbase announced its interest in listing Stellar (XLM), Cardano (ADA), 0x (ZRX), Zcash (ZEC), and Basic Attention Token (BAT). Fast forward nearly seven months, the exchange has only been able to add three out of the five cryptocurrencies it set out to integrate.

Coinbase has been cautious in ensuring that a digital asset is not recognized as a security by the SEC because in a hypothetical case that an asset listed by an exchange is declared a security by the U.S. government, the exchange could be prosecuted for illicitly distributing unregistered securities.

The “next wave” of the SEC’s crypto crackdown will hit “social media influencers who have promoted ICOs to the general public,” CCN predicts.

FREE MINDS

FOLLOW-UP

Trump’s transgender troops ban has been dealt another blow. The Defense Department had requested “a stay of the Court’s October 30, 2017 preliminary injunction which prevents Defendants from enforcing a ban on transgender individuals serving in the military,” or, at a minimum, “a stay of the nationwide scope of the injunction pending the outcome of their appeal to the United States Court of Appeals for the District of Columbia Circuit,” where oral arguments are scheduled for December 10.

“The Court finds that Defendants do not have a likelihood of success of the merits of their appeal, that Defendants do not face irreparable harm, that Plaintiffs would be harmed by staying the Court’s preliminary injunction, and that public interest does not favor a stay,” the court ruled on Friday. “Accordingly, Defendants’ motion for a stay of this Court’s preliminary injunction is DENIED.”

QUICK HITS

• “I will be formally terminating Nafta shortly,” President Trump announced to reporters over the weekend. “Congress will have a choice of the [newly agreed-upon trade deal with Mexico and Canada] USMCA or pre-Nafta, which worked very well.”

• Yikes—a bipartisan “privacy bill” (i.e., tech and web regulation) is being drafted for early next year.

• This week in Congress, former FBI director James Comey will testify—in private, alas—before the House Judiciary Committee.

• “Virginia may be for lovers, but it’s not for lovers of free speech.”

• An interesting case is coming before the U.S. Supreme Court week and could upend the country’s more than 150-year-old policy of allowing people to be prosecuted by the feds and by state sources for the same crimes.

• Sigh. Predictably but still disappointingly, Trump turns out to be a fair-weather sentencing reformer:

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“Difficult To Trust” – The Trade-Truce-Triggered “Sugar Rush” Will End In A Hangover

While the media is celebrating markets notably higher, market-watchers are paying attention to the total lack of follow-through since the initial surge at last night’s futures open. The S&P futures is still glued around the Maginot Line of 2800…

…exactly what one “base case” (which correctly predicted that a Truce – in which existing tariffs stay in place – is the most likely outcome with a 70% chance, while also accurately predicting a 3 month ceasefire), the agreement will be enough to get the S&P to 2,800…

But, as Bloomberg’s Garfield Reynolds notes, the rally in risk assets triggered by a ceasefire in the U.S.-China trade war looks overblown. An enormous amount of work remains before a lasting peace can be reached, making Monday’s moves difficult to trust.

Those tempted to believe a Santa Claus rally will wipe out a lot of 2018’s pain should note that little of substance has changed. The U.S. and China weren’t even able even to agree on a joint statement, and China has censored the American embassy’s web post on the leaders’ talks.

The main thing both sides agree on, it seems, is a desire for the bleeding in equities to stop. The problem then becomes that every rally breeds the seeds of its own doom, by reducing the impetus for a deal.

Monday’s feverish market reaction obscured a slew of dreadful data that underscored just how much damage the trade war has already done.

  • PMIs out Monday for South Korea, Taiwan and Malaysia all came in notably weak, following the lead from China’s official PMI on Friday.

  • South Korean trade data over the weekend missed estimates and included the first drop in exports to China for more than two years.

  • Japan’s capital spending also missed badly.

Global growth is slowing, with Asia bearing much of the brunt, amid disruptions to supply chains that may even worsen should companies try to reverse moves made earlier in the year aimed at coping with tariff hikes.

A 90-day truce won’t provide the clarity businesses need as they put the finishing touches on planning for next year.

The size of Monday’s rebound itself demonstrates just how dangerous the confrontation between the U.S. and China is for the global economy.

Even if the truce does lead to a long-term resolution, the damage already done looks too deep to be overcome as rapidly as the current rebound seems to be pricing in.

So Monday’s action has the potential to turn into a head-fake rally that ends up leaving equities worse off than they were before the G-20.

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There Is Suddenly A Far Bigger European Problem Than Brexit Or Italy

Authord by Bloomberg’s Michael Msika

Forget Brexit and Italian populists for a second. It’s worth paying attention to what’s going on in France.

For more than two weeks, the country has been disrupted by an unusual protest: the so-called “Gilets Jaunes” or “Yellow Vests.” France is used to labor unrest and chaos affecting transport of course, with strikes something of a national pastime.

But this time it’s different.

Some 100,000 people blocking toll roads, petrol stations and crossroads is creating major disruption to transport and retail. It’s also proving to be extremely tricky to defuse, as there’s no single protest leader to negotiate with.

For investors, the question is whether it could derail the outperformance of French equities in 2018. One thing is clear. These protests are a real threat to the country’s retailers, including Carrefour and Casino, which are already busy battling a price war and trying to fend off Amazon.com’s efforts to penetrate their home market. Big-box retailers have been hurt by the demos and blockages throughout the country, with customers denied access to some hypermarkets and supermarkets for entire days at a time. They recorded an average fall in consumer-good sales of 35 percent on Nov. 17 and of 18 percent the following Saturday, according to Nielsen data.

All this is adding to the perception of shrinking purchasing power in France, in particular among people on lower incomes. And that “doesn’t bode well” for the year-end holiday retail season, which needs a boost after the unseasonably hot weather of the previous months, according to Invest Securities. In fact, consumer confidence has been depressed since the summer, and this might be the final straw.

The impact on toll roads is harder to quantify, as demonstrators have been regularly opening them to let cars pass freely. Vinci is the largest operator in France and although motorway concessions only account for about 13% of its 2017 revenue, they generated more than 59 percent of its Ebitda. So brace yourself for an impact on earnings if the unrest gains traction.

The protests started on Nov. 10 with thousands of demonstrators demanding lower gasoline prices and taxes. Demonstrators marched on Paris’s Avenue des Champs-Elysees two weeks later, triggering social unrest. Surprisingly, the protest is benefiting from a significant backing, with 84 percent of the French public calling it “justified,” according to Odoxa-Dentsu poll for Le Figaro.

Further rioting over the weekend shows the movement is spinning out of control.

If this movement snowballs like we’ve seen in Italy with the Five Star Movement, Macron will have his hands full handling a crisis at home and have less time for the matters of the euro zone. After Greece, Brexit and Italy, this is another front that Europe didn’t need.

This is something to keep in mind, although today, the market will be focused on positive developments coming out from the G-20 meeting. Commodities, Asian equities and U.S. futures are rallying. Euro Stoxx futures are trading up 2% ahead of the European open

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It’s An Extremely Busy Week Ahead: Here Are The Highlights

While markets are still digesting the outcome from the Trump-Xi meeting, attention will quickly turn to a number of potentially interesting  events  for  markets  including  the  OPEC/OPEC+  meeting, the November jobs report in the US, the global November PMIs and Fed Chair Powell’s speech before Congress (which some claim has been pushed back from Wednesday to Thursday as the market will be closed on Wednesday to commemorate the death of George H.W. Bush).

With stocks soaring this morning on the favorable “truce” outcome from this weekend’s Trump-Xi dinner and to a lesser extent, the consensus G-20 communique signed in Buenos Aires, the next big event for markets next week is likely to be the OPEC/OPEC+ meeting on Thursday and Friday in Vienna. It’s possible that we get some early hints as to what to expect out of the G20 over the next couple days, however the big question facing the market is whether a consensus can be formed between Saudi Arabia, Russia and the US, especially with US President Trump recently raising the pressure level on Saudi Arabia to keep prices low through raising production- a strategy which has seemingly worked with WTI over 30% lower in the last two months.

As for the big data highlight, in light of what appears to be a noticeable shift in tone at the Fed to a more dovish leaning, particularly after Powell’s speech this week, and also coming off the back of a slight hiccup in the latest PCE data, expect there to be plenty of focus on the November employment report on Friday. Consensus is for a 205k reading following a stronger-than-expected 250k reading in October. For earnings, the consensus is currently pegged at a +0.3% mom average hourly earnings reading, which would be enough to nudge up the annual rate to +3.2% yoy. The unemployment rate is expected to hold steady at 3.7% with hours also expected to be unchanged at 34.5 hours.

Powell was scheduled to testify on Wednesday to a congressional Joint Economic Committee. But the hearing is expected to be postponed to Thursday because major exchanges will be closed on Wednesday in honor of former U.S. President George H.W. Bush, who died on Friday at the age of 94. Last week, Powell backed the Fed’s gradual tightening but said its policy rate was “just below” a range of estimates of the so-called neutral level that neither stimulates nor cools growth. In response, stocks shot up and largely recovered November’s earlier losses.

Deutsche Bank would highlight Powell’s speech as a focal point for the week however in light of his dovish comments on November 28th, it would probably be a surprise to see the Fed Chair diverge from his recent views. With that in mind, the market will likely look for reaffirmation that there is a rising risk of a Fed pause as early as the first half of 2019.

As for the other important data points next week, the final global November PMIs should also be closely watched. We’ll get the manufacturing numbers on Monday and services and composite data on Wednesday. For the Euro Area, no change in the flash readings of either the manufacturing (51.5) or services (53.1) is expected. The Italy data is likely to be a focal point however in light of the composite falling to 49.3 in October. Meanwhile, other data worth flagging in the US next week includes the November ISM manufacturing report on Monday along with November vehicle sales, November ADP, Q3 nonfarm productivity and unit labour costs, and November ISM non-manufacturing all on Tuesday, October trade balance, claims and final October durable and capital goods orders data on Thursday, and the preliminary December University of Michigan consumer sentiment report, and October wholesale inventories data on Friday. In Europe the other significant data releases fall on Friday with October industrial productions reports due in Germany and France , along with the final Q3 Euro Area GDP print.

With regards to the remaining Fedspeak next week, on Monday we’re due to hear from Kaplan, Williams, Brainard and Quarles, while on Thursday we’ll hear from Bostic before Brainard speaks again on Friday. Over at the ECB Guindos is due to speak on Thursday, while BoE speakers next week include Haldane on Monday, and Carney and Vlieghe on Tuesday.

Other things worth noting next week include Euro Area Finance Ministers meeting on Monday in Brussels to discuss Eurozone reforms, the deadline for funding to end for some US federal agencies on Friday and Germany’s ruling CDU party electing a new Chair to succeed Merkel on Friday.

Courtesy of Deutsche Bank’s Craig Nicol, here is a summary of key events in the week ahead:

  1. Monday: The main data highlight on Monday are the final November manufacturing PMIs in China, Japan, Europe and the US. Away from that we’ll also get October construction spending, the November ISM manufacturing report and November vehicle sales data in the US. Meanwhile, BoE Chief Economist Haldane and the Fed’s Brainard, Quarles, Kaplan and Williams are also due to speak. Euro Area Finance Minsters are also set to discuss Eurozone reforms in Brussels, while NATO foreign ministers meet for a three-day summit.
  2. Tuesday: It’s a quiet day for data on Tuesday with the UK’s November BRC like-for-like sales, France’s October YTD budget balance and Euro Area’s October PPI data the only releases scheduled. Away from that, the BoE’s Carney attends a hearing of the Treasury Committee on the UK’s Brexit Withdrawal Agreements, while fellow BoE official Vlieghe is also due to speak.
  3. Wednesday: The focus turns back to the remaining PMIs on Wednesday with final November services and composite prints due in China, Japan, Europe and the US. Away from that, we’ll also get Euro Area October retail sales along with final Q3 nonfarm productivity and unit labour costs and the November ISM nonmanufacturing report in the US. The Fed’s Beige Book is also due to be released while Fed Chair Powell testifies before the Joint Economic Committee.
  4. Thursday: With no releases of note in Asia on Thursday, the focus in Europe will be on Germany’s October factory orders data. In the US we’re due to get the latest weekly initial jobless and continuing claims readings, November challenger job cuts, October factory orders and the final October durable and capital goods orders data. The ECB’s Guindos will also speak in the morning before the Fed’s Bostic speaks in the early evening. Oil ministers from OPEC/OPEC+ are set to meet in Vienna for a two-day summit to discuss the group’s 2019 output strategy.
  5. Friday: It’s a busy end to the week for data on Friday with the November employment report in the US the big highlight. Prior to that we’ll get Japan’s October labour cash earnings data. In Europe the main highlight is the final Q3 GDP revisions for the Euro Area, along with October industrial production prints in Germany and France. Germany’s Q3 labour costs, France’s October trade balance and November house price data in the UK will also be a focus. Finally, in the US, we’ll also get October consumer credit data, the preliminary December University of Michigan survey and final October wholesale inventories and wholesale trade sales data. China’s November foreign reserves data will also be released sometime during the day. Elsewhere, the Fed’s Brainard is due to speak in the evening. Germany’s ruling CDU party will also elect a new chair to succeed Angela Merkel. Friday also marks the deadline for funding to cease for some US federal agencies.

Finally, Goldman highlights the key US events, together with consensus estimates, noting that he key economic releases this week are the ISM manufacturing report on Monday, the ISM non-manufacturing report on Wednesday, and the employment report on Friday. There are several scheduled speaking engagements by Fed officials this week, including Chairman Powell’s testimony before the congressional Joint Economic Committee on Wednesday, an interview with Vice Chairman Clarida on Monday, a speech by Vice Chairman for Supervision Quarles on Monday and Wednesday, and a press briefing by New York Fed President Williams on Tuesday.

Monday, December 3

  • 06:30 AM Fed Vice Chairman Clarida (FOMC voter) speaks; Fed Vice Chairman Richard Clarida will be interviewed on Bloomberg TV and Radio.
  • 08:00 AM Vice Chairman for Supervision Quarles (FOMC voter) speaks; Fed Vice Chairman for Supervision Randal Quarles will discuss the outlook for the US economy, inflation, and monetary policy, at the Council on Foreign Relations in New York.
  • 09:15 AM New York Fed President Williams (FOMC voter) speaks; New York Fed President John Williams will give welcome remarks at the Evolving Structure of the U.S. Treasury Market conference at the Federal Reserve Bank of New York.
  • 09:45 AM Markit Flash US manufacturing PMI, November final (consensus 55.4, last 55.4)
  • 10:00 AM Construction spending, October (GS +0.4%, consensus +0.4%, last +0.0%); We estimate construction spending rose by 0.4% in October from a flat reading in September, primarily due to a rebound in housing starts in October.
  • 10:00 AM ISM manufacturing index, November (GS 57.3, consensus 57.5, last 57.7); Regional manufacturing surveys were mixed on net in November, and our manufacturing survey tracker correspondingly rose by 0.4pt to 58.2 in November. We expect the ISM manufacturing index to decline 0.4pt to 57.3.
  • 10:30 AM Fed Governor Brainard (FOMC voter) speaks; Fed Governor Lael Brainard will give the keynote address at the Evolving Structure of the U.S. Treasury Market conference at the Federal Reserve Bank of New York.
  • 01:00 PM Dallas Fed President Kaplan (FOMC non-voter) speaks; Dallas Fed President Kaplan will speak at a community forum hosted by the Dallas Fed. Media and audience Q&A is expected.

 
Tuesday, December 4

  • 10:00 AM New York Fed President Williams (FOMC voter) speaks; New York Fed President John Williams will hold a press briefing at the New York Fed. Media Q&A is expected.

Wednesday, December 5

  • National Day of mourning to honor former President George H.W. Bush. NYSE closed. SIFMA recommends bond markets close. The federal government will also be closed, and it is possible that a number of the following events will be rescheduled.
  • 08:15 AM Fed Chairman Powell Testimony to Joint Economic Committee of Congress Released; Fed Chairman Jerome Powell’s testimony to the Joint Economic Committee of Congress will be released at 8:15 AM, for a hearing that begins at 10:15 AM.
  • 08:15 AM ADP employment report, November (GS +180k, consensus +195k, last +227k); We expect a 180k gain in ADP payroll employment, reflecting a likely drag from inputs such as claims and lower oil prices used in the ADP model. While we believe the ADP employment report holds limited value for forecasting the BLS nonfarm payrolls report, we find that large ADP surprises vs. consensus forecasts are directionally correlated with nonfarm payroll surprises.
  • 08:30 AM Nonfarm productivity (qoq saar), Q3 final (GS +2.2%, consensus +2.3%, last +2.2%); Unit labor costs, Q3 final (GS +1.1%, consensus +1.0%, last +1.2%); We estimate non-farm productivity rose 2.2% (qoq ar) in Q3, in line with the prior print, and above the +0.75% trend achieved on average during this expansion. We expect unit labor costs to be revised down 0.1pp to +1.1%.
  • 09:45 AM Markit Flash US services PMI, November final (consensus 54.4, last 54.4);
  • 10:00 AM ISM non-manufacturing index, November (GS 58.5, consensus 59.1, last 60.3); Our non-manufacturing survey tracker decreased by 0.2pt to 56.5 in November, following mixed regional service sector surveys. The tracker remains 3.8pt below the October reading of the ISM non-manufacturing index, and indicates that there may be some “catch-down,” though likely to levels still consistent with a firm pace of expansion in business activity. Weak stock market performance and lower oil prices are also likely to weigh on the index. We expect the ISM non-manufacturing index to move down by 1.8pt to 58.5 in the November report.
  • 02:00 PM Beige Book, November FOMC meeting period; The Fed’s Beige Book is a summary of regional economic anecdotes from the 12 Federal Reserve districts. The October Beige Book reported growth at a modest to moderate pace across the country and noted a positive outlook for near-term growth. Contacts continued to report uncertainty over the trade environment. Labor markets were again described as tight throughout the country. Wage growth was overall modest to moderate, and price increases were also modest to moderate across regions, though most Districts reported increased price pressures. In the November Beige book, we look for additional anecdotes related to growth, labor markets, wage growth, price inflation, and trade policy uncertainty.
  • 05:15 PM Vice Chairman for Supervision Quarles (FOMC voter) speaks; Fed Vice Chairman for Supervision Randal Quarles will speak at Stanford. Text and audience Q&A are expected.

Thursday, December 6

  • 08:30 AM Initial jobless claims, week ended December 1 (GS 230k, consensus 225k, last 234k); Continuing jobless claims, week ended November 24 (consensus 1,695k, last 1,710k); We estimate jobless claims edged down by 4k to 230k in the week ended December 1, following a 10k increase in the prior week. We expect energy-sector layoffs to boost jobless claims in upcoming reports, and the underlying trend may be picking up at the margin in other sectors as well.
  • 10:00 AM Factory Orders, October (GS -1.5%, consensus -2.0%, last +0.7%); Durable goods orders, October final (consensus -2.4%, last -4.4%); Durable goods orders ex-transportation, October final (consensus +0.1%, last +0.1%); Core capital goods orders, October final (last flat); Core capital goods shipments, October final (last +0.3%): We estimate factory orders decreased 1.5% in October following a 0.7% increase in September. Durable goods orders decreased in the October advance report, driven primarily by a decrease in aircraft orders. Core measures were also somewhat soft, with core capital goods shipments increasing 0.3% and core capital goods orders flat.
  • 12:15 PM Atlanta Fed President Bostic (FOMC voter) speaks; Atlanta Fed President Raphael Bostic will discuss the national outlook at a conference in Atlanta.
  • 06:30 PM New York Fed President Williams (FOMC voter) speaks; New York Fed President John Williams will hold a discussion with former Bank of England Governor Mervyn King at the New York Fed. Media Q&A is expected.
  • 06:45 PM Fed Chairman Powell (FOMC voter) speaks; Fed Chairman Jerome Powell will give brief welcome remarks at a housing conference in Washington DC. Prepared text is expected.

Friday, December 7

  • 08:30 AM Nonfarm payroll employment, November (GS +185k, consensus +200k, last +250k); Private payroll employment, November (GS +180k, consensus +200k, last +246k); Average hourly earnings (mom), November (GS +0.3%, consensus +0.3%, last +0.2%); Average hourly earnings (yoy), November (GS +3.2%, consensus +3.1%, last +3.1%); Unemployment rate, November (GS 3.7%, consensus 3.7%, last 3.7%): We estimate nonfarm payrolls increased 185k in November (mom sa), compared to its 6-month average pace of +216k. Underlying job growth may have slowed somewhat, given rising jobless claims, mixed employment surveys, and tighter financial conditions. Additionally, we expect unseasonably high snowfall in the Northeast and Midwest to weigh on payrolls in this week’s report. On the positive side, we expect strong retail hiring ahead of the holiday season (despite a continued drag from store closings), and we note some additional scope for rebounding employment levels in states affected by Hurricanes Florence and Michael.
  • We expect the unemployment rate to remain at 3.7% in this week’s report, as we believe the pace of job growth remains above the demographic trend, and the participation rate (62.9%) appears somewhat elevated and may retrench. That being said, we believe the risks are skewed towards a higher jobless rate this month, given the 72k increase in continuing claims from survey week to survey week. Finally, we estimate average hourly earnings increased 0.3% month over month and 3.2% year-over-year. This forecast reflects somewhat positive calendar effects, scope for a rebound in supervisory earnings (after sequential weakness in October), and a modest boost from hourly wage hikes at Amazon.
  • 10:00 AM Wholesale inventories, October final (consensus +0.7%, last +0.7%)
  • 10:00 AM University of Michigan consumer sentiment, December preliminary (GS 97.4, consensus 97.0, last 97.5); We expect the University of Michigan consumer sentiment index to edge down 0.1pt to 97.4. Other indicators of consumer confidence, such as the Conference Board measure, also suggest a small decrease for the index from its November level. The report’s measure of 5- to 10-year inflation expectations stood at 2.6% in November.
  • 12:00 PM Fed Governor Brainard (FOMC voter) speaks; Fed Governor Lael Brainard will discuss current financial stability issues at the Peterson Institute in Washington DC.

Source: MS, GS, DB

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Trump Or Seasonality: Which Will Prevail For The Dollar Into Year-End?

Authored by Dmitry Speck via Acting-Man.com,

A Plethora of Headaches

We hope the recent market turmoil is not giving our readers too much of a headache. As you are no doubt aware, the events of the last few weeks have made maneuvering around global markets rather difficult.

A less than happy NYSE floor trader [PT]

The US faces uncertain economic times, as Trump and Xi Jinping remain locked in a bitter trade dispute that is likely to go on for some time, creating uncertainty for the future of economic relations between the world’s two biggest economic powerhouses [ed note: over the weekend news emerged that Trump and Xi agreed on a truce and no further escalation in the dispute should be expected for the time being, but it remains to be seen whether the hatchet will remain buried for good].

On the other side of the Atlantic, Brexit is still not off table – on the contrary, it has proved to be an endless saga which has been in the media spotlight for almost two and a half years now. On top of that, Italy’s budget drama is giving the markets the jitters, as is the latest confrontation between Russia and the Ukraine.

The USD is rallying strongly against this backdrop, which is contrary to its typical behavior at this time of the year. What should one make of this development? Will the US dollar continue to appreciate, or will its usual pattern of a seasonal decline at the end of the year prevail?

The Euro Typically Rallies at the End of the Year and Falls Again Immediately Thereafter

The chart below illustrates the seasonal trend of the euro relative to the US dollar. It is not the type of price chart one usually encounters. Rather, the seasonal chart depicts the average trend in the euro in the course of a calendar year.

The horizontal axis shows the time of the year, the vertical axis the average percentage move in in the exchange rate over the past 43 years. In this way the seasonal trends of the euro can be discerned at a glance.

Euro vs. US dollar, seasonal trend over the past 43 years. A strong seasonal uptrend in the euro is in evidence at the end of the year.

The period of seasonal strength in the euro at year-end is highlighted in blue. This phase begins on November 27 and ends on December 31.

Thereafter the euro typically declines again. If you look closely at the chart, you will notice that the change in trend occurs precisely at the turn of the year. This is quite conspicuous and there has to be a reason for it – more on this further below.

Strength in the Euro at the End of the Year is no Coincidence

The average gain in the seasonally strong period between November 27 and December 31 amounts to 1.24 percentage points – quite a sizable amount, as currencies tend to be far less volatile than e.g. stocks.

The following bar chart shows the percentage moves in the exchange rate in the period November 27 – December 31 for every year since 1975.

Euro vs US dollar: percentage return between 11/27 and 12/31 for every year since 1975. The euro typically rallies at year-end.

The green bars indicate gains. They predominate both in terms of size and frequency. This makes clear that the euro’s seasonal rally at the end of the year  is not generated by a handful of statistical outliers. What is the reason for the euro’s strength at this time of the year though?

What Drives the Euro’s Seasonal Rally at the End of the Year

The fact that the euro turns down vs. the US dollar again, right at the turn of the year already hints at the likely cause of this seasonal pattern. It has to be directly linked to the calendar. And what happens at year-end? It is the balance sheet date!

The euro’s year-end rally inter alia has to do with US tax legislation. Many US companies are able to reduce their tax liability by understating certain financial figures as much as possible at the reporting date. In this context it can be worthwhile to transfer funds to the accounts of foreign subsidiaries.

The associated increase in demand for the euro naturally has an effect on its exchange rate. Therefore,  the euro typically strengthens against the dollar late in the year.

After the turn of the year, the tide immediately turns again as companies reverse these transfers of funds. The typical move in the euro’s exchange rate against the US dollar is therefore primarily a result of tax avoidance strategies practiced by US companies.

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Goldman Pours Cold Water On Trade War Truce: “The Odds Of A Comprehensive Deal In 3 Months Are 20%”

Heading into this weekend’s historic Trump-Xi dinner date, Goldman was skeptical, stating that it was “too soon for a deal” and while it said the odds of a truce were just under 40%, it gave better than even odds of further escalation stating that “it is slightly more likely that the talks end with an optimistic tone but that there is no immediate commitment to delay the step-up in the tariff rate to 25%.” Goldman did hedge, however, saying that “we view this as a reasonably close call.”

And with one look at futures this morning following a summit conclusion that kicked the can on new tariffs and rate hikes by 90 days, it’s a good thing it did (unlike JPM which correctly predicted truce odds were 70%, forecasting that the market’s most likely reaction would be to send the S&P to 2,800 which is precisely where the ES is stuck now).

So what does Goldman think happens next? Perhaps not surprisingly, while the central banker incubating hedge fund tacitly admits its gloomy forecast was misplaced and praises the near-term can-kicking, the bank retains its overall pessimism and in its post-mortem writes that “this outcome is closest to the “pause” scenario we outlined in recent comments although the length of the pause is fairly short” and notes that while “the result shows the willingness of the two sides to reach a deal” Goldman still thinks that “finding a mutually agreeable compromise that leads to a comprehensive rollback of tariffs will be challenging.”

As part of its hot take, Goldman lists the tentative agreements that were reached on a “few less controversial issues” including:

  • Chinese purchases of US products. The US press release stated “China is to purchase a very substantial amount of agricultural,  industrial and energy products” from the US. The White House appears to expect purchases of agricultural products to start  immediately. No quantity or specific commodities were mentioned, but purchases are likely to involve more meat, especially pork,  products, given there has been an ongoing swine flu outbreak in China which led to the slaughtering of large amount of pigs and  higher demand for alternative protein sources. Soybean purchases also seem likely, as they have been among the most politically  important aspects of China’s retaliatory tariffs on US exports. This could also signal a partial unwinding of China’s retaliatory tariffs, which targeted agricultural products in earlier rounds.
  • China will make fentanyl a controlled substance. China’s drug control is concentrated in traditional substances and awareness  of use of such substances as drugs among the general public and officials is low. Traders have been arbitraging this regulatory gap and exporting this substance to the US. This is not viewed as a big issue in China and given the US focus it is easy to understand that President Xi agreed make this move.
  • The US press release quoted President Xi as saying that, should the Qualcomm NXP merger request be presented to him, he is open to approving it. Official Chinese media reports did not mention this issue.
  • Reporting from Xinhua suggests that the US agreed to continue to welcome Chinese students in the US. This comes following recent reporting in the US media that the White House could soon announce new restrictions. The US statement does not mention this. Xinhua also states that the US has pledged to continue to respect the “One China” policy regarding Taiwan as part of this understanding, though the US statement does not mention this.

That said, Goldman echoes our own take from Sunday, specifying that there appears to have been no concrete progress on the other important issues of market access, IPR protection, cyber attacks, and forced technology transfer (the latter two US concerns have always been denied by Chinese policymakers) which are left for working level officials to work out in the next 90 days.

So, as Goldman’s political analyst Alec Phillips summarizes, “the actual amount of concrete progress made at this meeting appears to have been quite limited, as expected.“

Furthermore, Goldman also notes that “while the Xi-Trump dinner has clearly improved the tone of the US-China relationship for the time being, and we would expect an initial positive market reaction” – correctly, with the S&P set for another torrid surge this morning – the “pause” prolongs the period of uncertainty around the eventual structure of trade relations between the two countries. Specifically, Goldman warns that “the specter of higher and broader US tariffs remains, and the underlying issues clouding the trade relationship are deferred to further negotiations. With additional time to pursue negotiations, we think the chance of a comprehensive deal that involves rollback of tariffs is slightly higher than before, but still not our base case—perhaps a 20% probability over the next three months.” And, notably, Goldman points out that while the Chinese statement referred to both sides agreeing to “work toward scrapping all tariffs”; the US did not.

So with a comprehensive deal unlikely to be announced some time in late March, Goldman believes that “the two most likely outcomes in our view continue to be a continuation of the “pause” that was just announced— i.e. a partial agreement that forestalls further escalation but does not eliminate existing tariffs—or incremental escalation, involving the eventual step-up to the 25% tariff rate on $200bn of imports already subject to 10%.”

While it is a close call which of these is more likely, at the margin it seems slightly more likely (just over 50% probability) that the talks will falter when they reach more difficult issues and that the step-up to 25% will still occur in March or beyond.

Even so, the bank concedes that its initial skepticism may have been overdone, and adds that between the possibility of a continued “pause” and the possibility that an agreement is reached after the step-up to 25% occurs (if it occurs), the probability of tariffs on imports from China beyond the $250bn already affected has decreased in our view.

One final point: the outcome of the 90-day negotiations will likely be affected by how the markets and domestic political sentiment react, as the response “may influence the willingness of both sides, particularly President Trump, to reach a deal in the future.”

On the other hand, Goldman hedges one more time, cautioning that “to the extent either country sees the other as particularly keen to make a deal, its policymakers may try to drive a harder bargain, making an eventual compromise more difficult.”

The bank concludes that regardless of the near-term outcome, “the US-China announcements send a constructive signal regarding the eventual outcome of these talks, and strengthen our view that President Trump is likely to want to conclude an agreement—even if it does not include a full rollback of tariffs—well ahead of the 2020 presidential election.”

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Lighthizer To Lead Trade Talks As Trump Praises “Big Leap Forward” In Relationship With China

As President Trump continues to celebrate his weekend “trade truce”, more details about the negotiations with China set to take place over the next 90 days are beginning to take shape. During an interview on NPR’s “Morning Edition,” White House Advisor Peter Navarro said US Trade Rep. Robert Lighthizer will lead the US delegation during the upcoming talks with China.

Navarro also claimed that Chinese President Xi Jinping has offered responses to 142 US trade complaints, and that the two sides must now negotiate more equitable trade terms for both sides, or the US will move ahead with its 25% tariffs. Meanwhile, Trump continued his twitter “victory lap” by tweeting that the US’s relationship with China has taken a “BIG leap forward!”

The president also emphasized that struggling US farmers will see immediate relief as China begins purchasing US agricultural products again.

However, as often happens with the Trump administration, Treasury Secretary Steven Mnuchin sent a conflicting signal on Monday morning during an interview with CNBC when he said that Trump would be leading the trade talks. He added that he hopes there will be a “real agreement” with China in the near future (as opposed to the “fake agreement” we have now?)

 

 

 

 

 

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