Month: July 2019

Submitted by RanSquawk

The ECB will announce its monetary policy decision at 745am ET (1345 CET), with a press conference 45 minutes later.

• Consensus looks for the ECB to leave its three key rates unchanged
• Market pricing places the chances of a 10bps cut as a much tighter call
• July seen as a staging meeting for a broader stimulus package to be unveiled in September

62 of 67 analysts surveyed by Reuters look for the Deposit Rate to be held at – 0.4%, with four looking for a 10bps cut, and one looking for a 20bps cut; Main Refi and Marginal Lending rates are unanimously expected to remain unchanged at 0% and 0.25% respectively. Note, markets currently price in 53.4% chance of a cut this week. With the ECB expected to stand pat on rates this week, participants will be eyeing any tweaks to the Bank’s forward guidance that would pave the way for a potential move in September, possibly as part of a broader easing package.

BACKGROUND

PREVIOUS MEETING: The latest policy announcement from the ECB saw policymakers stand pat on rates as expected, whilst unexpectedly (according to consensus) pushing back guidance on rates. Furthermore, the Bank unveiled details of the lending terms for TLTRO3 with the interest rate set at the MRO + 10bps, but eligible entities able to seek financing at the deposit rate +10bps. President Draghi noted that incoming data points to weaker growth in Q2 and Q3, whilst Euro Area risks remain tilted to the downside. During the Q&A, Draghi noted that there was a discussion on the ECB’s readiness to act in the event of an emergency with policymakers raising the possibility of lowering rates (deposit), restarting APP and a further extension of forward guidance. On the subject of forward guidance for rates, Draghi later stated that it is not correct to suggest that guidance is tilted towards rate hikes. Discussions on other measures included the prospect of a tiered rate system, however, the ECB President pushed back against such action.

ECB MINUTES: The account from the June meeting provided little in the way of surprises with the minutes largely  reflecting the tone of the press conference. Policymakers stated that there should be no room for complacency over the fall of market expectations and as such, there was a broad agreement (interestingly, not unanimous) for the need to shift the Bank’s stance and demonstrate a determination to act. Elsewhere, the argument was made for TLTRO3 pricing to be in line with the prior round. From a guidance perspective, one interesting takeaway was that the “point was made that the value of calendar-element of guidance could seen to be diminished”, which appears to provide some concern over the Bank having pushed back their guidance multiple times. The account also showed policymakers continuing to push back on the need for a tiered deposit rate system by suggesting that the “costs of negative rates are outweighed by benefits,” however, there was an acknowledgement that “this might not hold for lower rates or longer horizons”.

ECB RHETORIC: The most noteworthy interjection of any policymaker since the last meeting came from President Draghi at the Sintra conference in June with Draghi noting that “In the absence of improvement, such that the sustained return of inflation to the Bank’s aim is threatened, additional stimulus will be required”. Adding that, “in the coming weeks, the Governing Council will deliberate how their instruments can be adapted commensurate to the severity of the risk to price stability”. Since his appearance at Sintra, other policymakers have followed suit with VP de Guindos noting that the ECB could opt for a combination of actions to restore inflation and QE is among the wide range of tools available. Whilst jostling for the top job at the Bank, Finland’s Rehn stated that the ECB is ready to adjust all of its instruments as appropriate, and with a symmetric approach, inflation in the short run may vary around the 2% mark. What is also telling, is that hawks Weidmann and Knot have also hinted a more dovish leaning to their policy view. Finally, the influential Coeure noted that the protracted period of low inflation has caused concerns among financial market participants that current subdued underlying price pressures will persist in the medium term, adding that the Governing Council is taking these concerns seriously.

SOURCE REPORTS: After Draghi’s appearance at Sintra, source reports suggested differing accounts surrounding the balance of views at the Bank, with an initial article suggesting that officials at the ECB view rate cuts as the primary tool for further stimulus, whereas a follow-up article a few hours later suggested policymakers were more divided between rate cuts and QE. Elsewhere, sources at the end of last month stated that a loophole may allow a way for the ECB to purchase more state debt via a bond clause, although it is yet to be discussed by policymakers. Another report in early July, suggested that policymakers see no rush for a rate cut this month, whilst more recently journalists revealed that policymakers are considering a potential revamp to their inflation goal in favour of a more symmetrical approach.

DATA: On the inflation front, CPI continues to reside well below the 2% mark even with headline inflation for June revised higher to 1.3% from the prelim 1.2% print. Core readings also remain subdued with the ‘super-core’ metric running at 1.1%. From a growth perspective, markets still await the release of Q2 growth metrics, next month, however, UBS suggest the bloc remains on track for growth of 0.2% Q/Q, 1.0% Y/Y. Survey data this week saw the July Eurozone Composite PMI slip to 51.5 from 52.2 (Manufacturing 46.4 vs. Prev. 47.6, Services 53.3 vs. Prev. 53.6) with IHS noting “the Eurozone economy relapsed in July, with the PMI giving up the gains seen in May and June to signal one of the weakest expansions seen over the past six years”. Subsequently, IHS concluded “the pace of GDP growth looks set to weaken from the 0.2% rate indicated for the second quarter closer to 0.1% in the third quarter”. Elsewhere, Eurozone Consumer Confidence rose to -6.6 from -7.2, whilst the latest Bank Lending Survey added to the evidence that the Eurozone economy will remain sluggish as concluded by Capital Economics.

CURRENT ECB FORWARD GUIDANCE (INTRODUCTORY STATEMENT)

• RATES: We now expect them to remain at their present levels at least through the first half of 2020, and in any case for as long as necessary to ensure the continued sustained convergence of inflation to levels that are below, but close to, 2% over the medium term. (Jun 6th)
• ASSET PURCHASES: We intend to continue reinvesting, in full, the principal payments from maturing securities purchased under the asset purchase programme for an extended period of time past the date when we start raising the key ECB interest rates, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation. (Jun 6th)
• GROWTH/TRADE: The risks surrounding the euro area growth outlook remain tilted to the downside, on account of the prolonged presence of uncertainties, related to geopolitical factors, the rising threat of protectionism and vulnerabilities in emerging markets. (Jun 6th)
• INFLATION: Measures of underlying inflation remain generally muted, but labour cost pressures continue to strengthen and broaden amid high levels of capacity utilisation and tightening labour markets. Looking ahead, underlying inflation is expected to increase over the medium term, supported by our monetary policy measures, the ongoing economic expansion and stronger wage growth. (Jun 6th)

POTENTIAL ADJUSTMENTS TO ECB FORWARD GUIDANCE (INTRODUCTORY STATEMENT)

RATES: This part of the statement will likely garner the greatest source of market focus, particularly in the absence of a rate cut this week. With consensus looking for the ECB to stand pat on rates, analysts (66% of those surveyed by Reuters) suggest that instead, policymakers will likely tweak guidance on rates to include the option of “or lower rates”; a move that Danske Bank suggest would allow for the unveiling of a comprehensive easing package in September. Furthermore, the statement might also see the removal of the timeframe provided by forward guidance on rates with the minutes from the June meeting noting that the “point was made that the value of calendar-element of guidance could seen to be diminished”.

ASSET PURCHASES: Adjustments on this front are unlikely to be made at the June meeting with 60% of surveyed economists by Reuters not looking for the Bank to unveil a relaunch on QE this year. That said, the figure of 60% is down from around 85% seen in June and thus shows that an increasingly dovish ECB could tip the balance in favour of a resumption of bond purchases in 2019.

However, such a move is not expected to be made this month with some analysts suggesting that such a programme would likely follow any potential rate cuts, rather than precede them. Nonetheless, ABN AMRO suggest that if a tweak was to be made the statement could include a line stating that the Bank would “…re-start net asset purchases if necessary to ensure sustained convergence of inflation to levels that are below, but close to, 2% over the medium term”, with the Dutch bank noting that the current guidance only refers to re-investments.

GROWTH/TRADE: Risks surrounding the euro area growth outlook will likely remain classified as tilted to the downside with Citi highlighting that there are no signs of uncertainty dissipating.

INFLATION: This aspect of the statement will likely garner more attention than it has done in recent months given a recent source report suggesting that staff at the Bank are looking at a potential revamp of the ECB’s inflation goal in favour of a more ‘symmetrical’ approach. Such a move, could see policy set in a manner that would tolerate an above-target inflation rate in order to compensate for a prolonged period of persistently low inflation. Despite the current debate surrounding such a decision, the July meeting feels too premature for a move on this front; a view backed by Danske Bank who also make the point that it would need to be implemented on the basis that markets believe the ECB would be capable of such an over-shoot. Instead, this will like ly be afocus for the prospective Lagarde-era at the Bank.

PRESS CONFERENCE

In terms of the press conference (1330BST), the focus for Draghi’s opening remarks and line of questioning from journalists will likely centre around what measures (if any)/tweaks are unveiled at the policy announcement (1245BST). Note, this press conference will not be accompanied with ECB staff macroeconomic projections.

Rates – Should the ECB refrain from cutting rates (as forecast by economists) and as expected, tweak guidance to imply  the possibility of lower rates, markets will be looking for any hints as to when such action could come with journalists likely to try and pin Draghi into naming a specific date (something which historically he has been keen to avoid) for an adjustment. In terms of a market outlook, 12bps worth of tightening is priced in by the September meeting and appears to very much be consensus amongst analysts. The September meeting, will allow policymakers to see what course of action the Fed takes, see how EZ data unfolds and the subsequent next round of ECB staff macroeconomic projections. Despite September being widely flagged as an opportune time
for the Bank to lower rates, Draghi will unlikely want to tie the hands of policymakers by being too suggestive of a reduction at the
end of Q3. Instead, the President could opt to hint that a discussion on the matter will take place at the September meeting (if it
hasn’t already), whilst overall conveying the message that policymakers stand ready to act as necessary to provide stimulus for the
Eurozone economy.

QE – Aside from potential easing via rate reductions, a resumption of the Bank’s QE programme will likely be used as another weapon in Draghi’s arsenal to reassure markets that the ECB has the tools to revive the Eurozone. As discussed above, this week’s meeting will likely be seen as too premature for the unveiling of such a programme. However, Draghi could hint that policymakers will not hesitate to act if needs be. In terms of an outlook, ABN AMRO expects policymakers to unveil a EUR 630bln QE package by December, to be implemented in January 2020 for a 9-month stretch (at a pace of EUR 70bln/month). Elsewhere, Citi suggest that QE of EUR 360bln over a 12-month period as part of a broader easing package, could have the support of a sizeable majority of Governing Council members. Any QE relaunch would likely draw scrutiny over purchase limitations, however, Citi suggest “…the self-imposed 33% issue/issuers share of government bonds that the ECB can hold is a matter of past preference, not a hard constraint for the future”. Finally, UBS suggest that such a programme could be unveiled at some stage but it is less of a done-deal than further rate reductions, with a decision on QE to likely be made on a more data-dependent approach which would require a deterioration in the Eurozone’s growth and inflation outlook.

Tiered rate system – With the Bank’s policy bias likely turning towards an easing one, the prospect of prolonged and deeper negative rates has seen increased focus on a potential tiered rate system. Over the past several months, policymakers have rebuffed the idea of implementing a tiered deposit rate system with the monetary policy case having seemingly not been made yet. Furthermore, a recent research piece by the ECB also concluded that the current system of negative rates has not  impeded bank profitability. However, ahead of a potential impending rate cut at the Bank, this viewpoint will likely need to be revisited, as highlighted by the account of the June meeting which revealed “costs of negative rates outweighed by benefits, but this might not hold for lower rates or longer horizons”. With this in mind, some suggest that a tiered rate system is more a question of “when” rather than “if”. At this stage, there is very little evidence to suggest that the technical work on what such a system should look like or how it will be implemented has been carried out. However, looking ahead, Danske Bank look for a tiered system to be unveiled in September as part of a broader policy package which will aim to “ensure the average deposit rate paid by banks to the ECB remains close to the current level of just shy of -40bps”. Elsewhere, Rabobank believe “designing a tiered deposit rate is quite complex, and we are doubtful that the ECB would go through this trouble just for one or two rate cuts”. As such, once mitigating measures are in place, Rabo “see little obstacles in the way of further rate cuts”.

Overall, this week’s meeting is likely to be a staging exercise for Draghi et al with greater measures to come in September in the form of a broader easing package. Nonetheless, in the interim, the main message will likely be that policymakers will use all flexibility within their toolkit to fulfil their mandate. However, market participants must be cautioned that Draghi has had a tendency to try and over-deliver on market expectations and therefore investors should not discount the possibility of a more detailed announcement this week.

MARKET REACTION

Please see below for ING’s ECB Scenario Analysis

via ZeroHedge News https://ift.tt/2SD1jpw Tyler Durden

Once again, the federal district courts of Northern California are stymieing President Trump’s immigration agenda. This time, a San Francisco judge who was nominated to the bench by Obama has blocked President Trump from enforcing a new rule that would dramatically limit the number of migrants allowed to apply for asylum at the southern border.

Judge Jon Tigar issued a preliminary injunction blocking the rule, which would require asylum seekers to first pursue an asylum claim in a third country (and presumably be denied) before they can pursue asylum in the US. The rule would effectively force migrants from Central America to seek protection in Mexico before they can apply for asylum in the US. Earlier in the day, Washington DC district judge Timothy Kelly issued a different ruling where he declined to block the rule in a separate lawsuit brought by pro-immigration groups. But Tigar’s decision supersedes Kelly’s, Reuters reports.

Immigrants waiting to apply for asylum in Mexico

Tigar’s ruling doesn’t kill the Trump Administration’s rule outright – it’s simply suspended pending future rulings by succeeding federal judges. Much of the administration’s immigration agenda is still tied up in the courts.

While Trump and his administration were quick to celebrate Kelly’s decision, immigration groups and other groups like the SPLC that are challenging the ban praised Tigar’s ruling.

“Today’s ruling is an important victory for incredibly vulnerable individuals and families,” said Melissa Crow, an attorney from the Southern Poverty Law Center – one of the groups challenging the ban – in a statement.

The Trump Administration believes most of the asylum claims being made at the southern border are illegitimate, and that families use asylum as a way to gain entry to the country – then they disappear after they’re released to await their first immigration hearing. The vast majority – some 90% – never show up.

During a hour-long hearing on Wednesday, Tigar said he was struck by the dangers faced by people passing through Mexico – repudiating the Trump Administration’s argument that Mexico should be considered a ‘safe haven’

“The administrative record about the dangers faced by persons transiting through Mexico and the inadequacy of the asylum system there … is stunning,” Tigar said from bench.

This isn’t the first Trump immigration rule that Tigar has blocked. In November, he struck down a different asylum ban that attempted to stop all migrants crossing illegally into the US. But Trump has been ramping up his immigration policy efforts as the crisis at the border rages and immigration looks like it will be a critical factor in the 2020 race. Last week, the administration introduced another rule that would expedite deportations for immigrants who have crossed illegally into the US over the last two years.

While Trump’s efforts in the courts haven’t always succeeded, so far at least, they’ve done better than ICE’s attempts to round up immigrants targeted for deportation.

via ZeroHedge News https://ift.tt/2ZdmsZQ Tyler Durden

Warren Buffett has dodged a bullet: the winner of this year’s “Lunch with Warren” charity auction has delayed the event – possibly indefinitely – after he and several of his employees were reportedly not allowed to leave mainland China. Justin Sun, the 29-yearr-old founder of the Tron Foundation, said he had come down with a ‘very painful’ case of kidney stones. But in a Weibo post published on Thursday that sounded like a forced apology, Sun apologized for  “excessively” promoting the lunch, and for setting a “bad example” for the public.

In a lengthy post on Weibo, Sun, who turns 29 this month, said he acted immaturely and set a bad example for the public while “excessively” promoting the event. “It has produced a lot of consequences that I completely did not expect,” he said, without elaborating on what they were.

Hours earlier, Sun sent out public invitations to other crypto evangelists over social media. Perhaps Sun struck a nerve in a country which, only 30 years ago, might have condemned Buffett as a Western capitalist devil. But in modern China, where “to be rich is glorious” this seems unlikely, according to Bloomberg.

 

Instead, it’s more likely that Chinese authorities have uncovered some kind of fraud or other wrongdoing at Tron. Or, since Beijing has become increasingly hostile to the crypto industry over the pat year, the efforts to isolate Sun are part of a broader crackdown.

Rumors on Chinese social media suggest Sun and his team were denied permission to leave the country when they tried to travel to San Francisco, where this year’s lunch was slated to be held (in the past, the lunch has been held in New York). The Tron employees were reportedly only released when they promised not to attend the lunch with Buffett.

None of the parties involved – not Sun, Buffett or Beijing – responded to Bloomberg’s requests for comment.

The delay/possible cancellation is the first time in the history of ‘Lunch with Warren’ that the winning bidder has put off the lunch. Sun paid a record $4.57 million for his winning bid, and said he would use the opportunity to try and “educate” Buffett about crypto. Of course, Buffett has famously denounced cryptos as an asset class, calling bitcoin “rat poison squared”, a “delusion” and “a gambling device.” We joked at the time that Buffett was probably dreading this day – even though the Oracle of Omaha has softened his stance on the crypto space recently; he said at a conference not long ago that ‘blockchain’ was “ingenious” and would likely one day pay off for investors.

Sun, for his part, tried to calm the market’s nerves by posting video supposedly showing him in San Francisco. But few were convinced, and the price of a single Tron token weakened by 18% this week in response.

via ZeroHedge News https://ift.tt/2M7n8wi Tyler Durden

Authored by Mike Shedlock via MishTalk,

Boris Johnson makes sweeping cabinet changes. Half are gone, more coming. He reiterates his promise to deliver Brexit.

Cleaning House

This is officially the biggest clear out of Cabinet without a change of party in power – more than half of them gone – not a reshuffle it’s a new govt

— Laura Kuenssberg (@bbclaurak) July 24, 2019

What we know so far: half the Cabinet – 16 – have gone in the most brutal reshuffle in decades.

Sacked (10, so far):
Hunt
Mordaunt
Fox
Clark
Hinds
Bradley
Wright
Mundell
Brokenshire
Nokes

Resigned (4):
Hammond
Gauke
Stewart
Perry

Retired (2):
Grayling
Lidington

— Tom Newton Dunn (@tnewtondunn) July 24, 2019

Excellent First Speech

In contrast to his victory speech, Johnson made an Excellent First Speech as Prime Minister today.

War on Pessimists: At speech beginning “And so I am standing before you today to tell you, the British people, that those critics are wrong – the doubters, the doomsters, the gloomsters – they are going to get it wrong again. The people who bet against Britain are going to lose their shirts because we are going to restore trust in our democracy.” …. At end of speech: “No one in the last few centuries has succeeded in betting against the pluck and nerve and ambition of this country. They will not succeed today.”

Pledge to Unite the Country: “And I will tell you something else about my job. It is to be prime minister of the whole United Kingdom. And that means uniting our country, answering at last the plea of the forgotten people and the left behind towns by physically and literally renewing the ties that bind us together, so that with safer streets and better education and fantastic new road and rail infrastructure and full fibre broadband we level up across Britain.”

Delivering Brexit: “We will come out of the EU on October 31. And it is of course vital at the same time that we prepare for the remote possibility that Brussels refuses any further to negotiate and we are forced to come out with no deal – not because we want that outcome – of course not – but because it is only common sense to prepare.”

Delivering Growth, allowing GMOs: He called for tax cuts to promote investment in capital and research. He reaffirmed his commitment to free ports. “Let’s start now to liberate the UK’s extraordinary bioscience sector from anti genetic modification rules and let’s develop the blight-resistant crops that will feed the world. “

Early Elections: Guardian Analysis – He implied that an early election was likely. At one point Johnson seemed to by toying with his audience, as if he was about to announce an election. He didn’t, but everything he said about his domestic agenda suggested he will soon want to get a decent majority, because without one his ambitions cannot be achieved.

Speech Lifted from Bill Clinton?

Bill Clinton said almost the same thing in his speech to the 2012 Democratic convention (one of the best political speeches of modern times). In his peroration Clinton said:

Look, I love our country so much. And I know we’re coming back. For more than 200 years, through every crisis, we’ve always come back. (Cheers.) People have predicted our demise ever since George Washington was criticised for being a mediocre surveyor with a bad set of wooden false teeth. (Laughter.) And so far, every single person that’s bet against America has lost money because we always come back. (Cheers, applause.) We come through ever fire a little stronger and a little better.

New Chancellor

Deeply honoured to be appointed Chancellor by PM @BorisJohnson. Looking forward to working with @hmtreasury to prepare for leaving the EU, unifying our country and priming our economy for the incredible opportunities that lie ahead.

— Sajid Javid (@sajidjavid) July 24, 2019

Lis Truss who wanted a cabinet spot.

Excellent appointments for the Great Offices of State. @sajidjavid, @patel4witham and @DominicRaab all modern, positive, free-enterprise Conservatives.

— Liz Truss (@trussliz) July 24, 2019

Cabinet from Hell Donald Trump Would Be Proud Of

Scottish MP Pete Wishart offered this assessment:

Boris Johnson’s nightmare Tory government is shaping up to be the worst since Thatcher – packed full of extreme Brexiteers and rabid rightwingers who want to drag us back to a bygone era.

Senior Tory cabinet ministers have threatened to cut Scotland’s budget, roll back devolution, and impose a devastating Brexit – that would inflict serious harm on Scottish jobs, living standards, public services and the economy.

This is a Tory cabinet from hell, which Donald Trump or Nigel Farage would be proud of – with members who want to scrap the Barnett formula, privatise the NHS, roll back workers’ rights, undo the welfare state, cut taxes for the rich, and even bring back the death penalty.

Hunt Decides to Become a Good Dad

1/4 I would have been honoured to carry on my work at the FCO but understand the need for a new PM to choose his team. BJ kindly offered me another role but after 9 yrs in Cabinet & over 300 cab mtgs now is the time to return 2 backbenches from where PM will have my full support

— Jeremy Hunt (@Jeremy_Hunt) July 24, 2019

2/4 I’ve been a cabinet minister for every hour my 3 gorgeous children have been alive. So whilst it may seem strange for someone who just tried to become PM (& is a terrible cliche) I have decided now is the time for the biggest challenge of all – to be a GOOD DAD!

— Jeremy Hunt (@Jeremy_Hunt) July 24, 2019

Hunt Supporters Sacked

• Greg Clark, the business secretary, has also been sacked. Clark voted remain in 2016 and is strongly opposed to a no-deal Brexit, and as a result was never expected to be offered a post in a Boris Johnson cabinet. But unlike his fellow cabinet no-deal opponents Philip Hammond, David Gauke and David Lidington, Clark chose not to resign pre-emptively. He wanted to force Johnson to sack him.

• It is starting to look like a cull of Jeremy Hunt supporters. Liam Fox, the international trade secretary, and another Brexiter, has been sacked. He had made it clear that he wanted to stay in his post. But he probably did not help his chances in recent weeks by publicly contradicting some of the claims Boris Johnson was making about a no-deal Brexit.

• Penny Mordaunt, the defence secretary, has left the government. Although Mordaunt backed Jeremy Hunt for the leadership, she voted leave in 2016 and is well-regarded as a cabinet minister. With Boris Johnson keen to increase the number of women in his cabinet, many people assumed her job was secure.

Nigel Farage Comments on Dominic Raab, the New Foreign Secretary

I heard Jeremy Hunt talking just two days ago about shipping in the Gulf, and the need to build a European protection force, a European navy. I would much rather see someone like Dominic Raab [as foreign secretary], who believes in Brexit and doesn’t want us being part of a European army.

Congratulations Boris Johnson

What an excellent first day as Prime Minister.

via ZeroHedge News https://ift.tt/2y8gJIY Tyler Durden

Aston Martin is the latest automaker confirming what we have been pointing out for 18 months – that the global automobile market has entered a significant recession.

Shares of the automaker plunged after it forecast wholesale units of 6,300 to 6,500, down from 7,100 to 7,300 units that the company guided for in February, before confirming this guidance as recently as May.

Shares are now about 58% lower than their October IPO price.

The company said that it is taking actions to improve efficiency and reduce its fixed costs, but the outlook going forward for the company didn’t sound optimistic. The company said on Tuesday:

“[The] challenging external environment highlighted in May has worsened, as have macro-economic uncertainties.”

The company continued: 

“We anticipate that this softness will continue for the remainder of the year and are planning prudently for 2020.”

And this news comes just one day after we reported that Nissan was slashing about 7% of its total workforce by cutting 10,000 jobs.

We’ve already seen massive planned layoffs from US auto makers like Ford, and Nissan was the latest to join the mass layoffs bandwagon, with Kyodo reporting yesterday that Nissan will cut over 10,000 jobs globally, or over 7% of its entire global workforce.

In some respects, it was deja vu of The Great Recession for Nissan. In 2009, the company slashed 20,000 jobs before forecasting a $2.6 billion loss. This represented about 8% of the company’s 235,000+ employee count at the time.

Yesterday’s announced cuts were no doubt in response to the deteriorating automotive market in China: recall in early July we reported that Nissan’s sales in China from January to June totaled 718,268 units, a 0.3% y/y decline.

In May, we reported that countries like China, the United Kingdom, Germany, Canada and the United States had all seen at least 38,000 job cuts over the last six months in the automotive sector. Daimler CEO Dieter Zetsche said in May that “sweeping cost reductions” are ahead to prepare for what he is calling “unprecedented” industry disruption.

Based on Aston Martin’s commentary and Nissan’s layoffs, it looks as though he was right. 

A few weeks ago we also reported that over 25% of all June job cuts came from the automotive sector, according to Managing Economist for Refinitiv Jeoff Hall. Hall commented on Twitter that the industry’s 10,904 redundancies were the most in seven months and the second most in seven years. Hall also noted that excluding autos, there were only 31,073 job cuts in June, the fewest in 11 months, in low-normal range.

via ZeroHedge News https://ift.tt/30S2BQo Tyler Durden

Authored by Richard Mills via SafeHaven.com,

A lot of resource investors stop listening to corporate presentations when they learn the company’s project is in Africa. 

More often than not the country risk of exploring for minerals is just too big a gamble for retail investors’ hard-earned capital.

Development projects are hi-jacked by rebels, or over-run by artisanal miners. Operating mines get expropriated by governments that can’t resist the temptation to raid a foreign company’s coffers. And African miners frequently see their profits reduced by corrupt officials intent on re-negotiating royalty contracts. 

All of these things are true, yet in the long run, Africa cannot be ignored. The hammer-shaped continent is expected to drive global growth over the next several decades, as populations there climb, but dwindle elsewhere.

“About half of the world’s fastest-growing economies will be located on the continent, with 20 economies expanding at an average rate of 5% or higher over the next five years, faster than the 3.6% rate for the global economy,” Brahima Coulibaly, director of Brookings’ Africa Growth Initiative, wrote in its 2019 Foresight Africa report.

The growth as always will be driven by population expansion. 

(Click to enlarge)

According to the Center for International Policy, in 2035 the number of working-age people in Africa will exceed the rest of the world combined, and by 2050 one in four humans will be African. At 2100, 40% of the world’s population will hold a passport from an African country. 

In this article we’re tackling Africa – its importance to future trade flows, for commodities its middle class will be demanding, and most importantly, the role of China in helping to develop, and purchase influence, in fast-growing African economies.

The good

The Center for International Policy points out that Africa’s impending “demographic dividend” will no doubt increase its economic clout:

Since 2000, at least half of the countries in the world with the highest annual growth rate have been in Africa. By 2030, 43 percent of all Africans are projected to join the ranks of the global middle and upper classes. By that same year, household consumption in Africa is expected to reach $2.5 trillion, more than double the $1.1 trillion of 2015, and combined consumer and business spending will total $6.7 trillion.

Sub-Saharan Africa has done exceptionally well, buoyed by higher commodity prices, an improved global economy and better access to capital markets, reports Quartz. 

The region is expected to grow by 3.8% this year, edging out the global growth forecast of 3.7%. Among the top 10 economies are Ethiopia, Rwanda, Ghana, Côte d’Ivoire, Senegal, Benin, Kenya, Uganda and Burkina Faso. Between 2003 and 2013, Nigeria, population 170 million, averaged about 7% annual growth. 

The IMF expects Ghana, which 30 years ago was a dead loss, to be 2019’s fastest-growing economy, at 8.8%. The country well known for its coffee exports is seeing its GDP given a major kick from oil sales, as crude prices rise and production expands. 

Africa is also something of an economic incubator. For example Kenya has pioneered a system of “mobile money” the Financial Times reports, which allows users to send and receive cash via their mobile phones. 

(Click to enlarge)

The bad 

But it’s not all puppies and rainbows. Africa’s dark side frequently pops up in the headlines, giving most North Americans an image of the continent as dangerous, disease-ridden, lawless, and dirt poor. 

A quick check of the headlines Monday yielded a video, circulating on social media, of two women and two young children who were blindfolded and shot last summer by Cameroon soldiers; kids in Nigeria used as suicide bombers in an attack on UNICEF; and white South African farmers who say they are living in fear of being attacked by blacks and losing their farms. The farmers patrol their farms at night wearing bullet-proof vests. 

As noted at the top, mines are frequently targeted for treasure, and sometimes blood. In January of this year, Kirk Woodman, a geologist at Progress Minerals, was kidnapped and killed while working at a gold mine in Burkina Faso.

Africa’s economic success has been uneven, and comes with a price – debt. Despite being the fastest growing continent, Africa is home to three-quarters of the world’s poorest nations. One in three living in sub-Saharan Africa are under-nourished. 589 million live without electricity and rely on biomass for cooking. The World Bank says more Africans are poor today than in 1990, proving that economic growth is not finding its way down to the lowest rungs of society. 

We can appreciate their desperation in the thousands of north African migrants who pay snake heads their family fortune to get them across the Mediterranean Sea to Europe.  

A fifth of African countries are basket cases, dragged down by political instability and conflicts, which as we know, can get downright ugly. Among the countries that have seen brutal, and sometimes painfully prolonged civil wars, are Rwanda, Liberia, Mozambique, Nigeria, Uganda and South Sudan. 

Growth for these countries is difficult when they don’t have a lot of money. As their populations continue to soar, the demand for infrastructure and social services rises as well. African governments need to figure out a way to address poverty, education and diseases, and to manage social divisions.

Take this stat for example: By 2050 over half of Africa’s 2.2 billion people will be living in cities – the same as the anticipated population of China. Imagine the need for new roads & bridges, electricity, schools, health clinics, etc. According to the UN, three-quarters of 71 African cities over 750,000 lack the infrastructure to support large populations. Usually the answer is to borrow. 

Countries that piled on debt in the last half of the past decade are now seeing interest rates rise, putting their ability to manage debt payments into question – especially if commodity prices drop. 

According to Brookings, a Washington, DC-based think tank, at least 14 African countries are at high risk of being unable to pay their debts, compared to five years ago. These heavily-leveraged nations have a total debt burden of $160 billion, $90 billion of which is owed to foreign countries. 

Africa is the prize 

In the 1990s, Africa was languishing in debt, disease, droughts and civil wars. Who can forget the failure of the United Nations to stop the massacre in Rwanda? 

One country that didn’t turn its back, that saw opportunity in Africa, was China. The Huffington Post argues it was the help of China that led several African countries, where the Chinese invested, down a better economic road: 

It also helps that Africa has a patient new friend with deep pockets and a long view. When the rest of the world was dismissing Africa as a troubled backwater, China was busily embracing it, maybe recalling its own rise from famine and chaos. As Moyo puts it, China has been striking deals with struggling developing countries — the “axis of the unloved,” in her words — in return for investment, employment and infrastructure.

Why did China choose Africa? The answer is simple. China needed to secure raw materials for the country’s economic boom that started around 2000, and Africa had those materials. 

The sheer size of the African continent – the world’s second largest – implies a bounty of natural resources. South Africa and Botswana are rich in diamonds, the DRC supplies 60% of the world’s cobalt, a mineral that is critical for the manufacture of electric vehicle batteries. Africa ranks highly as a source of aluminum, chromite, copper, gold, iron ore, manganese, zinc, graphite, coal, oil, uranium, platinum group elements, and phosphate rock. 

Armed with hundreds of billions of US dollars from the country’s foreign reserves, in the early 00’s China’s state-owned enterprises (SOE) and sovereign wealth funds (SWF) were sent out to scour the globe for resources – to fuel China’s exploding economy.

China wanted to diversify out of the massive US-dollar component of its foreign exchange reserves, so the SOE/SWFs had no problem dealing in straight cash and operating in what some might consider high-risk areas. Chinese investors shifted their focus from Australia and Canada to higher-risk destinations which included Brazil, Ecuador and Africa.

According to a Pricewaterhouse Cooper (PwC) report on M&A activity in the mining sector for the decade ending in 2010, PwC counted a total of 400 Chinese deals worth US$48 billion. At the start of that decade, China was a negligible player in M&A.

The Chinese are making massive loans, building huge infrastructure projects such as high speed rail, dams, bridges, roads, schools and hospitals. While SOEs and SWFs are making deals for the country’s resources, other Chinese companies are building the necessary infrastructure that every country needs to build a future for its citizens. This is the key to China’s overseas investments – adding infrastructure capacity makes their massive, most often early-stage resource investments viable and creates a long-lasting economic legacy for the host country.

Thanks to the trillions of foreign exchange reserves it holds, China offers loans at highly competitive interest rates. For example, the Export-Import Bank of China (Exim Bank) gave the Angolan government three loans at interest rates ranging from LIBOR (London Interbank Offered Rate – the rate banks charge each other on loans) +1.25 %, up to LIBOR +1.75%.

The Chinese have a longer-term horizon for repayment, because they are mostly after off-take mineral supply agreements from early-stage development projects.

Reconstruction in war-battered Angola was helped by three oil-backed loans, then Chinese companies came in and built roads, railways, hospitals, schools, and water systems. Nigeria took two loans from China to finance electricity-generating projects. The Chinese built a hydropower project in the Republic of the Congo that was repaid in oil and built another hydropower project in Ghana that was repaid in cocoa beans.

“While the West supports microfinance for the poor in Africa, China is setting up a $5 billion equity fund to foster investment there. The West advocates trade liberalization to open African markets; China constructs special economic zones to draw Chinese firms to the continent. Westerners support government and democracy; the Chinese build roads and dams.” Isaac Twumasi Quantus

The overall Chinese package is very attractive and there are a lot of resource-rich countries taking the Chinese up on their offers.

MINING.com reported in under 10 years, the number of China-headquartered mining companies with assets in Africa went from just a handful in 2006, to 120 in 2015. Two high-profile examples are the acquisition, by China General Nuclear Power Corporation, of the Husab uranium project in Namibia, and Zijin Mining’s involvement (39.6%) in the massive Kamoa-Kakula copper deposit in the DRC.

While iron ore and copper have been the hot targets of overseas acquisitions by Chinese firms, the Chinese have also gone after gold, nickel, tin and coking coal.

More recently the most desired metals are those that feed into the tectonic global shift from fossil fuels to the electrification of vehicles.

China Molybdenum bought the Tenke copper and cobalt mine in the Democratic Republic of Congo for $2.65 billion in an effort to secure a supply of cobalt for EV batteries.

Africa and the New Silk Road 

The “New Silk Road” is the term for an ambitious trade corridor first proposed by China’s current president, Xi Jinping, in 2013. The grand design also known, confusingly, as the Belt and Road Initiative (BRI), is a “belt” of overland corridors and a “road” of shipping lanes.

 It consists of a vast network of railways, pipelines, highways and ports that would extend west through the mountainous former Soviet republics and south to Pakistan, India and southeast Asia.

So far over 60 countries, containing two-thirds of the world’s population, have either signed onto BRI or say they intend to do so. According to the Center for Foreign Relations, the Chinese government has already spent about $200 billion on the growing list of mega-projects projects including the $68 billion China-Pakistan Economic Corridor. Morgan Stanley predicts China’s expenditures on BRI could climb as high as $1.3 trillion by 2027.

The Belt and Road Initiative is seen by proponents as an economic driver of proportions never seen before in human history. It would not only allow Asia to relieve its “infrastructure bottleneck” ie. an $800 billion annual shortfall on infrastructure spending, but bring less-developed neighboring nations into the modern world by providing a growing market of 1.38 billion Chinese consumers.

Opponents argue that is naive and the real intent of BRI is to carve new Chinese spheres of influence in Asia that will replace the United States, in-debt poor nations to China for decades, and restore China to its former imperial glory.

Whatever the motivations for it, the power of the New Silk Road was shown earlier this year during a summit in Beijing. China reportedly used the conference – which included the participation of Kenya, Ethiopia, Tunisia and Egypt, among 50 countries – to increase the Silk Fund for BRI projects, from $40 billion to $100 billion. The presidents of Russia, Argentina, Chile, Indonesia, Switzerland, Turkey, Vietnam and Uzbekistan were there, along with representatives from the UN, IMF and the World Bank. 

As for who stands to benefit most from Belt and Road, Africans or Chinese, it’s probably too early to say, but the Africa Center for Strategic Studies reels off a number of benefits. They include: 

• Addressing Africa’s inadequate infrastructure, which is a bottleneck to Africa’s development. The World Bank estimates that Africa will need up to $170 billion in investment a year for 10 years to meet its infrastructure requirements. 

• East Africa’s projects, where most of the funds are being directed, could increase by up to $192 billion, if the projects are used profitably. Examples are the railway connecting Mombasa to Nairobi, and the electric railway from Addis Ababa to Djibouti, China’s first overseas naval base. 

However there are a number of negatives and potential red flags that China’s Belt and Road partners need to watch out for. 

The first is the Blue Economic Passage that connects Africa to new maritime corridors in Asia. The expanding commercial presence matches Xi Jinping’s goal of making China’s military stronger – which may lead to regional conflicts. In the words of the Africa Center for Strategic Studies: 

This is particularly evident in the Indian Ocean, where China’s planned sea lanes are heavily concentrated and its rivalry with India is growing. Africa’s importance to China in this regard stems from its location in a maritime area in which Beijing hopes to expand its presence and power projection. Indeed, a decade ago China’s reach in Africa’s adjacent waters was nonexistent. Today, it is estimated that the PLA Navy maintains five battleships and several submarines on continuous rotation in the Indian Ocean. This is set to increase in the coming decades as India ramps up its own presence in the area.

Another is local markets getting swamped Chinese products. That happened to Kenya’s cement exports in 2017, which dropped by 40% due to a flood of Chinese cement. This can easily happen because China is using Africa as an end user of sectors that are seeing industrial overcapacity ie. producing too many goods. 

Or when local workers are displaced by Chinese employees. According to the Africa Center for Strategic Studies, there are over 200,000 Chinese nationals working on Belt and Road projects across Africa. This has resulted in the need for a globally focused strategy to protect China’s overseas interests. Similarly the Communist Party of China has adopted the concept of “protecting overseas nationals” as a core Chinese interest,” states the center. Seems to me this is an open-ended dictum that could easily justify a military intervention in one of China’s BRI partner countries. 

There is also the risk of widening trade deficits in African countries that are being shipped China’s excess production. In 2016 Kenya’s imports of Chinese cement, used to build the Nairobi-Mombasa railway, increased 10-fold. Chinese steel exports to Nigeria popped 15% in 2018, and Algeria imported three times as much steel. In 2019, China’s aluminum exports have risen 20%, with $46 billion worth of aluminum bought by Egypt, Ghana, Kenya, Nigeria and South Africa. 

If these countries aren’t careful, they will end up with a whopping-great balance of trade deficit with China, (just like the US) that when added to large loans for infrastructure, could be economically limiting or even crippling. 

Conclusion

The rise of Africa is interesting on its own, but when paired with the rise of China, the prospect for the West is actually quite scary. On the one hand we have a continent that is teeming with humanity and getting more and populated every year. Its citizens want what we as North Americans have. We have written about the scarcity of resources and the potential for conflict. Combine that with existing tribal tensions in Africa that have at times exploded into civil wars, and you have a powder keg just waiting for someone to light the match. 

Then factor in China, which is playing Africa’s new economic dragons with the skill of a Chinese violinist. It’s a beautiful plan, really. Make loans to poor developing nations that want to become part of BRI, using US dollars, while the USD is still the reserve currency. The loans are paid back using offtake agreements for raw materials from these countries, which become part of the largest trading block in the world, thereby further distancing China from the West. 

Remember, Russia is part of BRI. The Kremlin and Beijing have already signed billions worth of energy deals, and are talking about a new payments system that allows for trade in rubles and yuan, excluding the US dollar.

Devalue the yuan, so that China’s new south Asian trading partners can buy competitively priced Chinese goods, further enslaving them with crippling trade deficits.

China was already building the New Silk Road when Trump got elected and started poking the Chinese dragon with the stick of escalating tariffs. The trade war just hastened what China was planning on doing anyway: cut the US out of its trading loop. 

It has the resources, the technology and the population to lay siege to the United States for a long time. China’s in no rush to settle the dispute. 

Meanwhile, hit back at US companies as retribution against the United States which dared to stand in the way of companies like Huawei and ZTE. Build the biggest manufacturing base the world has ever seen, embargo their critical metals, effectively starving their supply chains, and watch them slowly wither and die, as the US continues down its path to self-destruction.

via ZeroHedge News https://ift.tt/32MONsc Tyler Durden

There are 99 days left between now and Oct. 31 – the day the UK is set to leave the European Union. And newly elected Tory leader Boris Johnson (soon to be prime minister, barring some unforeseeable circumstance) will need every one of them to try and negotiate his way out of the mess that Theresa May is leaving behind.

Unlike May, Johnson is a leading voice in the “Brexiteer” faction of the Conservative Party. He has insisted that the UK will leave the EU on Oct. 31 with or without a deal. Of course, he would prefer to succeed where his predecessor failed and strong-arm the EU into a deal that excludes the troublesome Irish Backstop – the contingency in the prior agreement which would have allowed for the border between Ireland and Northern Ireland to remain open. But EU officials have insisted in recent days that they have no plans to change the withdrawal agreement negotiated with May; they are only open to making changes to the political declaration that accompanied it.

Moving forward, only one thing is clear right now: May’s deal is dead. Johnson, who will officially take over as prime minister this afternoon, and who is currently scrambling to fill the top jobs in his government, is giving off the impression that he would have no problem with taking the UK over the no-deal cliff, and President Trump is dangling a US-UK trade deal in front of Johnson that would make such an outcome slightly more palatable, politically.

Among the personnel rumors circulating early on Wednesday were that Sajid Javid might be tapped to serve as Chancellor, while Dominic Raab might be tapped to serve as foreign secretary.

So, what are the options available to Johnson? These are four of the most likely scenarios, according to Bloomberg:

Renegotiate Withdrawal Deal

Johnson wants to scrap the deal Theresa May struck and restructure the whole negotiation that was agreed at the start of the process.

The most controversial element of May’s deal is the so-called Irish backstop, a fallback measure to ensure the border with Ireland remains open whatever future trading terms the two sides eventually agree on. He wants to postpone any talks about the border until after the U.K. has left the bloc, arguing they should be part of future trade negotiations. He also suggests using the 39-billion-pound ($49 billion) divorce settlement as leverage in the talks, making payment contingent on the terms negotiated.

Obstacles: The EU has repeatedly said it’s not prepared to renegotiate the Withdrawal Agreement, and it’s the only deal on the table. It’s also said a backstop must be part of any withdrawal accord, because it wants to lock in a guarantee that no hard border will emerge. The exit bill is also part of the divorce deal, and is due to be paid whatever trade terms are eventually negotiated. EU law dictates that Brexit should happen in two parts: First the exit negotiation, and once the U.K. has left, formal trade talks can begin.

Leave on Oct. 31

Johnson has said that after May twice delayed Brexit, the U.K. must now leave the bloc on Oct. 31, “do or die,” whether a new deal has been negotiated or not. He’s refused to rule out suspending Parliament – known as proroguing – to achieve that.

Obstacles: The timetable is tight to negotiate an entirely new deal. And the U.K. Parliament is opposed to a no-deal Brexit. That was made clear again last week when Conservative rebels joined the opposition to pass an amendment aimed at preventing Johnson suspending Parliament. The EU side has indicated it would prefer another extension to a no-deal split.

Standstill Period After Brexit

Johnson is seeking to negotiate a “standstill” period with the European Union after Oct. 31, during which there would be zero tariffs and zero quotas to “smooth things over for business” – much the same as the transition period negotiated by May. He said it would end “well before the next election,” which is due in 2022.

Obstacle: The EU has said any form of transition period is contingent on there being a withdrawal agreement, which must contain an Irish backstop.

Use WTO rules if EU won’t cooperate

Johnson has said that if the EU won’t offer a new deal, the U.K. will be able to use Article 24 of the World Trade Organization’s General Agreement on Tariffs and Trade to ensure the terms of commerce remain the same after Brexit.

Obstacles: The clause Johnson cites applies to countries negotiating a trade deal rather than a country leaving a trading bloc. It would also require the agreement of the EU, and a clear timetable for the negotiation of a trade agreement — neither of which would be guaranteed in the event of an acrimonious no-deal Brexit. The WTO and EU have said this won’t work, and Johnson revealed a hazy understanding during the campaign as to why it would.

Oddly, Bloomberg’s options don’t include ‘general election’, which is widely seen as possible as the Conservatives’ majority is set to shrink to just one vote (and that’s with Northern Irish DUP’s votes included). Many expect that Johnson will be stuck in a similar impasse to May’s and that he will need to call a general election – much like May once did – to strengthen his mandate. A group of strategists at UBS believe a general election toward the end of the year has the highest probability of all these outcomes, and many suspect that the odds of a vote and, once it’s declared, the polls, will have a similar impact on UK markets that the original pre-referendum Brexit polls had.

If an election is called, the strategists believe the Bank of England is more likely to cut rates to boost sentiment, stocks with international exposure would outperform domestically focused shares and the FTSE 100 would move modestly lower.

Before Johnson takes over, May will preside over her last PMQs. Watch live coverage here.

via ZeroHedge News https://ift.tt/2OjfMZn Tyler Durden

Via Southfront.org,

The recent violation of the South Korean airspace during a joint patrol of Russian and Chinese strategic bombers, resulting in scrambled South Korean jets reportedly firing hundreds of warning shots, may have been a message to US hawks. On Tuesday, a group of Russian and Chinese warplanes, including strategic bombers, conducted a joint patrol mission near South Korea’s territory under the annual cooperation plan, the Chinese Defense Ministry’s official spokesman Col. Wu Qian said on Wednesday:

“As far as the air incident is concerned, I would like to reiterate that China and Russia are engaged in all-encompassing strategic coordination. This patrol mission was among the areas of cooperation and was carried out within the framework of the annual plan of cooperation between the defense agencies of the two states. It was not directed against any other ‘third state,’” the Chinese military official said during the presentation of the white paper headlined ‘China’s National Defense in the New Era.’

The Defense Ministry said further:

“As far as the practice of joint strategic patrols is concerned, both sides will make a decision on the matter on the basis of bilateral consultations. Under the strategic command of the heads of states, the armed forces of the two nations will continue developing their relations. The sides will support each other, respect mutual interests and develop corresponding mechanisms of cooperation,” he added.

Two Russian strategic bombers Tu-95MS and two Chinese strategic bombers Xian H-6 carried a scheduled flight over the neutral waters of the Sea of Japan and the East China Sea.

South Korean said that a Russian plane breached the republic’s airspace near the Dokdo (Takeshima) islands, which are disputed by Seoul and Tokyo. In response, South Korea’s F-15 and F-16 fighter planes were scrambled.

On Wednesday, Yoon Do-han, a spokesman for the South Korean president, told reporters that a Russian military attaché in Seoul had conveyed Moscow’s “deep regret” about the incident and had said that the Russian plane mistakenly deviated from its flight plan.

The news agency Interfax quoted the press officer of the Russian Embassy in South Korea, Dmitry Bannikov, as saying that Russian officials had seen reports on Mr. Yoon’s comments, and that “there are many things in them that aren’t true.”

“The Russian side did not issue an official apology,” Mr. Bannikov noted, according to the agency.

That appeared to leave open the possibility that the Russians were apologetic in private. Such appologies are beyond general attitude of states in similar cases. Taking into account this and the Chinese statement, it appears that Russia and China do not see South Korea as a potential enemy. Rather they see it as an equal partner on the international scene.

China and Russia demonstrated that they are ready to employ jointly their strategic bombardment capability in the event of confrontation.

Crucially, the July 23rd incident happened a day ahead of meeting between US national security adviser John Bolton with South Korean officials. 

Bolton was set to meet  with South Korea’s chief of National Security Office Chung Eui-yong, Defense Minister Jeong Kyung-doo, and Foreign Minister Kang Kyung-wha in Seoul to discuss issues including denuclearisation of the Korean Peninsula and ways to strengthen the South Korea-US cooperation.

Above: Newly published Russian media footage showing clips of Russian bombers encountering South Korean fighter jets during the air patrol

Of course, Bolton is among the most hawkish voices of the Washington establishment that calls for a further confrontation with China and Russia.

via ZeroHedge News https://ift.tt/2Or64UW Tyler Durden