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Is Ron Paul about to be proven right once again?

TheEconomiCollapse.com’s Michael Snyder thinks so. For a very long time, Ron Paul has been one of my political heroes.  His willingness to stand up for true constitutional values and to keep saying “no” to the Washington establishment over and over again won the hearts of millions of American voters, and I wish that there had been enough of us to send him to the White House either in 2008 or in 2012.  To this day, I still wish that we could make his classic work entitled “End The Fed” required reading in every high school classroom in America.  He was one of the few members of Congress that actually understood economics, and it is very sad that he has now retired from politics.  With the enormous mess that Washington D.C. has become, we sure could use a lot more statesmen like him right now.

But even though he has retired from politics, Ron Paul is still speaking out about the most important issues of the day.  And what he recently told CNBC is extremely ominous.

The following comes from a CNBC article entitled “Ron Paul: US is barreling towards a stock market drop of 50% or more, and there’s no way to prevent it”… According to the former Republican Congressman from Texas, the recent jump in Treasury bond yields suggest the U.S. is barreling towards a potential recession and market meltdown at a faster and faster pace. And, he sees no way to prevent it.

“We’re getting awfully close. I’d be surprised if you don’t have everybody agreeing with what I’m saying next year some time,”

“It can be pretty well validated by looking at monetary history that when you inflate the currency, distort interest rates and live beyond your means and spend too much, there has to be an adjustment,” he said.

“We have the biggest bubble in the history of mankind.”

“I know it’s going to happen,” Paul said. “It will come, and the bubble is bigger than ever before.”

Of course lots of such predictions are flying around these days.

In fact, at this point even the IMF is warning of a “second Great Depression”.

So when it actually takes place it won’t be much of a surprise.  However, I do believe that many will be surprised by the ferocity of the coming crash.  According to Ron Paul, stock prices could end up falling by up to 50 percent…

Paul is a vocal Libertarian known for an ardent grassroots fanbase that propelled him to multiple presidential runs, as well as his grim warnings about the economy. Yet he has been warning investors for years that an epic drop of 50 percent or more will eventually hit the stock market. He predicted the February correction, but not in size and scope.

Actually, stock prices need to fall by at least 50 percent in order for stock valuations to get close to their long-term averages.

In the end, if stocks only fall by 50 percent we will be extremely fortunate.  Stock valuations always, always, always return to their long-term averages eventually, and usually they fall below those averages during a period of adjustment.

And the mood on Wall Street has definitely changed.  The euphoria that we once witnessed is now gone, and instead it has been replaced by a gnawing sense that a really big downturn is coming.  In his most recent piece, John Hussman compared it to the fading out of a pop song…

In recent days, the combination of extreme valuations and unfavorable market internals has been joined by acute dispersion in daily trading data that often occurs within a few days of pre-collapse peaks in the market. My opinion is that the music has already quietly faded out like the end of a pop song, in a wholly uneventful way, and that even a surprise push to further highs would be marginal.

And he concluded his most recent piece with this very chilling statement…

For now, and until market conditions shift, there’s an open trap door under the equity market, and it’s a very long way down.

The end of last week was very bad for the markets, and so Monday and Tuesday will be key.

If stock prices continue to fall, this could be the beginning of a race for the exits.

But if stock prices rebound a bit, it means that we could have some more time.

And keep an eye on junk bonds.  They crashed really hard just before the financial crisis of 2008, and they are starting to slip here in October 2018.

A full-blown junk bond panic would definitely be a very clear sign that a major market crash is imminent.

As I write this, all of the markets in Asia are down.  Chinese stocks have fallen almost 3 percent, and that is very troubling news.

But whether a massive crisis erupts right now or not, the truth is that there is no way that we are going to avoid the consequences of our actions.

At this moment we are in the terminal phase of the biggest debt bubble in human history.  In fact, total indebtedness in the United States has increased by more than 2 trillion dollars over the past 12 months…

In total, indebtedness of consumers, corporations, and all governments has grown by $2.04 trillion over the past four quarters. And they’re going to be paying higher interest rates on this ballooning debt. In other words, debt service costs are going to rise substantially.

All of this debt has fueled a short-term bubble of relative “prosperity”, but meanwhile all of our long-term problems just continue to get worse.

There is no possible way that our debt bubble can continue to grow much faster than the overall economy indefinitely.  In fact, we have already been defying the laws of economics for way too long.

Eventually all debt bubbles burst, and when this one bursts we are going to experience economic pain on a scale that America has never seen before.

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In addition to the start of Q3 earnings season, markets will have to contend with a number of notable events this week. Inflation releases in the US and Europe, the result of Brazil’s first round presidential election, the IMF and World Bank annual meetings, a meeting between US Secretary of State Pence and North Korea’s Kim Jong Un should provide plenty of food for thought.

Europe’s two most pressing policy flashpoints, Italian budgetary policy and Brexit, will be firmly in focus as the Italian Parliament debates the budget plan and a European Commission meeting lays out the future EU-UK relationship. Foreign trade data from China, Taiwan and Germany are expected to point to only a slight loss of momentum, but the damage from escalating tariffs is likely to show up in time. In the US, an uptick in core inflation will weigh more heavily than a slump in the headline rate and keep the Fed on the tightening path.

As DB notes, with it being a post-payrolls week next week there’s the usual lull we get after that report for the first few days however once we hit midweek we’ve got a couple of inflation reports to look forward to in the US. On Wednesday we’ll get the September PPI report and then on Thursday we’ll get September CPI. Given the move in rates last week there should be plenty of focus on these data points. For CPI, as always the consensus is for a +0.2% mom core reading (the 36th month in a row) which should be enough to push the annual reading up a tenth to +2.3% yoy and therefore keeping the reasonable headroom over the Fed’s target.

Those releases are the highlights in the US. The only other prints due are the September NFIB small business optimism reading on Tuesday, August wholesale inventories on Wednesday, September monthly budget statement on Thursday and September import price index and October University of Michigan consumer sentiment readings on Friday. Here in Europe we’ll also get some inflation data with the final September revisions due in France and Spain on Thursday and then Germany on Friday. We’ll also get some important hard data releases with August industrial production due in France and the UK on Wednesday and the euro area on Friday. In Asia we’ll get the remaining Caixin PMIs in China on Monday and then September trade data on Friday.

Meanwhile, it’s set to be another busy week for Fed speakers next week. St Louis Fed President Bullard is due to speak in Singapore on Monday. New York Fed President Williams and Philadelphia Fed President Harker are due to speak at separate events on Tuesday. Williams, along with Chicago Fed President Evans and Atlanta Fed President Bostic are due to speak on Wednesday with the latter two on the subject of the economic outlook. Finally Evans and Bostic will then speak again on Friday. Over at the ECB the scheduled speakers include Villeroy de Galhau on Tuesday and Lautenschlaeger on Friday. The ECB minutes from the September meeting are also due to be out on Thursday.

Elsewhere, some of the focus will turn back to earnings with Q3 reports due from JP Morgan, Citi and Wells Fargo on Friday. Prior to that we’ll also get earnings reports from Walgreens Boots and Delta Airlines on Thursday.

The big test for EM next week may well come over this weekend when we get the first round presidential elections on Sunday in Brazil. According to Bloomberg, recent polls have showed that support for right-wing lawmaker Bolsonaro is on the rise versus the left-wing Workers’ Party candidate Haddad, however it remains extremely tight and that’s especially the case for the second round where support is closer to a coin flip. Brazilian assets have gained over the last week as support for Bolsonaro has gained.

Other potentially interesting events to be aware of next week include US Secretary of State Pompeo meeting with North Korea’s Kim Jong Un this Sunday in Pyongyang as preparation for a possible second Trump-Kim summit. On Monday Italy’s Deputy Premier Salvini will speak at a conference with France’s Le Pen while German Chancellor Merkel is also due to hold a town hall in Germany on the future of Europe. On Tuesday the annual meetings of the IMF and World Bank kick off (through to October 14th) with the World Economic Outlook due to be released that day. On Wednesday the focus should turn back to Brexit with permanent representatives to the EU discussing Article 50 and the UK exit plan, and EU Chief Negotiator Barnier due to present the draft political declaration. Finally on Friday it’s worth keeping an eye on events in Turkey with American pastor Brunson due to appear for a court hearing, which could possibly lead to his release in the near future.

A recap of key G-10 events courtesy of ING Economics:

A recap of key daily events, courtesy of Deutsche Bank:

• Monday: It’s a relatively quiet start for data releases on Monday. In China we’ll get the September Caixin services and composite PMIs, while in Europe August industrial production in Germany, the September Bank of France business sentiment survey and October Sentix investor confidence reading for the euro area are all due. There’s no data due in the US however the Fed’s Bullard is scheduled to make comments. Meanwhile Italy’s Deputy PM Salvini and France’s Le Pen are due to take part in a conference, while Italy’s Parliamentary Budget Office Head Pisuaro is due to speak. German Chancellor Merkel is also due to make comments on the future of Europe at a town hall. It’s worth also noting that markets in Japan are closed on Monday while Columbus Day in the US may mean slightly thinner trading volumes than usual in the afternoon.
• Tuesday: Overnight on Tuesday we’ll get the August trade balance in Japan before we get August trade data released in Germany. The only print due in the US is the September NFIB small business optimism reading. Away from that we’re due to hear from the ECB’s de Galhau and Fed’s Williams and Harker. The annual meetings of the IMF and World Bank will also kick off, continuing to October 14th .
• Wednesday: There’s no overnight data scheduled to be released on Wednesday however we are due to hear from the Fed’s Williams early in the morning. In Europe the highlights should be August industrial production prints in France and the UK along with the August monthly GDP reading in the latter and latest trade balance reading. In the US the main focus should be the September PPI report, while August wholesale inventories data is also due. Outside of that we’ll also hear from the Fed’s Evans and Bostic. Brexit should also remain a focus with permanent representatives to the EU discussing Article 50 and the UK exit plan and EU Chief Negotiator Barnier due to present the draft political declaration.
• Thursday: The big data highlight on Thursday comes in the afternoon when we’ll get the September CPI report in the US. Prior to that we’ll also get final September CPI revisions in France and Spain, while also out in the US is the latest weekly initial jobless claims print and September monthly budget statement. The BoE’s latest credit conditions and bank liabilities survey will also be out, along with the ECB minutes of the September 12-13 meeting.
• Friday: Closing out the week on Friday will be the final September CPI revisions in Germany along with August industrial production data for the euro area. In the US the September import price index reading and the preliminary October University of Michigan consumer sentiment survey will be out. September trade data in China should also be out at some stage, while the Fed’s Evans and Bostic are due to speak. JP Morgan, Wells Fargo and Citi will release Q3 earnings.

* * *

Finally, looking at just the US, Goldman notes that the key economic release this week is the CPI report on Thursday. There are several scheduled speaking engagements by Fed officials this week, including speeches by New York Fed President Williams and Vice Chairman for Supervision Quarles.

Monday, October 8

• 05:30 AM St. Louis Fed President Bullard (FOMC non-voter) speaks: St. Louis Fed President James Bullard will speak at the Lee Kuan Yew School of Public Policy in Singapore. Media Q&A is expected.

Tuesday, October 9

• 06:00 AM NFIB small business optimism, September (consensus 108.0, last 108.8)
• 08:00 AM Dallas Fed President Kaplan (FOMC non-voter) speaks: Dallas Fed President Robert Kaplan will speak at the Economic Club of New York. Audience and media Q&A is expected.
• 01:00 PM Philadelphia Fed President Harker (FOMC non-voter) speaks: Philadelphia Fed President Patrick Harker will give a speech on “The Importance of Higher Education to the U.S. Economy” at a conference in Philadelphia. Audience Q&A is expected.
• 09:10 PM New York Fed President Williams (FOMC voter) speaks: New York Fed President John Williams will discuss recent developments in U.S. monetary policy at a New York Fed-Bank Indonesia Central Banking Forum in Bali, Indonesia. Audience Q&A is expected.
• 10:30 PM New York Fed President Williams (FOMC voter) speaks: New York Fed President John Williams and Bank Indonesia Governor Perry Warjiyo will hold a joint press conference at a New York Fed-Bank Indonesia Central Banking Forum in Bali.

Wednesday, October 10

• 08:30 AM PPI final demand, September (GS +0.2%, consensus +0.2%, last -0.1%); PPI ex-food and energy, September (GS +0.2%, consensus +0.2%, last -0.1%); PPI ex-food, energy, and trade, September (GS +0.2%, consensus 0.2%, last +0.1%): We estimate a 0.2% increase in headline PPI in September, reflecting relatively firmer core prices, weaker food prices, but higher energy prices. We expect a 0.2% increase in both core measures of PPI, reflecting a continuation of the average recent trend in producer prices.
• 12:15 PM Chicago Fed President Evans (FOMC non-voter) speaks: Chicago Fed President Charles Evans will speak on the economy and monetary policy at an event in Flint, Michigan. Media and audience Q&A is expected.
• 06:00 PM Atlanta Fed President Bostic (FOMC voter) speaks: Atlanta Fed President Raphael Bostic will discuss the economic outlook at a National Association of Corporate Directors event in Atlanta. Audience Q&A is expected.

Thursday, October 11

• 08:30 AM CPI (mom), September (GS +0.19%, consensus +0.2%, last +0.22%); Core CPI (mom), September (GS +0.25%, consensus +0.2%, last +0.08%); CPI (yoy), September (GS +2.42%, consensus +2.4%, last +2.68%); Core CPI (yoy), September (GS +2.32%, consensus +2.3%, last +2.19%): We estimate a 0.25% increase in September core CPI (mom sa), which would round up to three tenths and move the year-over-year rate up to +2.3%. Our forecast reflects a rebound in apparel prices, which have declined for three consecutive months despite lean inventories and now look depressed relative to import prices. Though imposed late in the month, we believe tariffs on $200bn of Chinese goods could add around 1 basis point to month-over-month core inflation in September (and may manifest in the household furnishings category). We estimate a three tenths monthly rise in the shelter measures; while alternative rent growth measures have slowed, vacancy rates remain low and imputed utility costs should support the owners’ equivalent rent category. We also expect a boost from higher airfares and used car prices. On the negative side, we expect another decline in medical care commodities prices, reflecting continued prescription-drug price freezes. We look for a 0.19% increase in headline CPI (mom sa), reflecting a slight drag from energy prices.
• 08:30 AM Initial jobless claims, week ended October 6 (GS 205k, consensus 210k, last 207k); Continuing jobless claims, week ended September 29 (last 1,650k): We estimate initial jobless claims declined by 2k to 205k in the week ended October 6, following a 7k decline the previous week. Jobless claims fell last week by 6k in North Carolina, following a 10k rise the prior week after Hurricane Florence, and we expect the effects to continue to moderate.

Friday, October 12

• 08:30 AM Import price index, September (consensus 0.2%, last -0.6%); 09:30 AM Chicago Fed President Evans (FOMC non-voter) speaks: Chicago Fed President Charles Evans will take part in a moderated discussion at the ENGAGE Undergraduate Investment Conference in Ann Arbor, Michigan. Media and audience Q&A is expected.
• 10:00 AM University of Michigan consumer sentiment, October preliminary (GS 100.9, consensus 100.6, last 100.1): We estimate the University of Michigan consumer sentiment index edged up 0.8pt in the preliminary estimate for October, reflecting continued strength in recent high-frequency consumer surveys. The report’s measure of 5- to 10-year inflation expectations stood at 2.5% in September.
• 12:30 PM Atlanta Fed President Bostic (FOMC voter) speaks: Atlanta Fed President Raphael Bostic will discuss recruitment, economics and the public policy profession at a conference in Atlanta. Audience Q&A is expected.
• 10:00 AM Vice Chairman for Supervision Quarles (FOMC voter) speaks: Fed Vice Chairman for Supervision Randal Quarles will speak at an Institute of International Finance event at the annual IMF meeting in Bali, Indonesia. Audience Q&A is expected.

Source: DB, ING, Goldman

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Fearful investors who bought up Ibovespa puts on Friday to protect themselves in the event of a weaker-than-expected showing from right-wing pro-market candidate Jair Bolsonaro can breath a sigh of relief. In a showing that suggests he will almost certainly lock up the presidency in the second-round vote on Oct. 28, Bolsonaro won more than 46% in Sunday’s first-round vote, pummeling his closest rival, Workers’ Party candidate and Lula proxy Fernando Haddad, who walked away with barely 30%.

Just as they did during Bolsonaro’s advance in the polls, Brazilian assets cheered his stronger than expected first place finish as stocks and the real soared.

An ETF tracking Brazilian stocks surged 7.5% to its highest level since May:

Analysts at BAML and JP Morgan scrambled to upgrade their price targets on state-run energy company Petrobras (BAML upgraded Petrobras to a ‘Buy’ with a target of $20 a share and JPM upgraded it to ‘overweight’ at $17 a share). Other analysts opined that, assuming Bolsonaro can win over the support from at least a few center-right candidates, he should have no trouble winning the presidency and seizing control of an economy that’s mired in its worst-ever economic collapse.

Here’s a roundup of the biggest stock moves, courtesy of Bloomberg:

• iShares MSCI Brazil UCITS ETF in London, Xtrackers MSCI Brazil UCITS ETF in Germany and Lyxor ETF Brazil (IBOVESPA) in France advanced at least 6 percent
• Petrobras ADRs in Germany climbed 12 percent. The yield on 2025 euro-denominated bonds dropped 30 basis points, the most in about two years
• Itau Unibanco Holding SA ADRs reserved declines to gain 3.5 percent. Ambev SA ADRs lost 1 percent
• Banco do Brasil SA and Banco Bradesco SA ADRs added more than 1 percent
• Mexican peso followed emerging-market peers lower. With trading in Brazil’s currency restricted to local hours, the more liquid peso is often used as a hedge for the real

* * *

As one analyst told Bloomberg, markets now see Bolsonaro’s victory in the second round as “a done deal” – that is, barring some unforeseen gaffe or slip.

“It’s a done deal that he’s going to be the next president of Brazil unless something very unforeseen happens,” said Bernd Berg, a strategist at Woodman Asset Management AG in Zug, Switzerland who sees the main stock gauge rising above 100,000 and the real stronger than 3.6 per U.S. dollar in the next few weeks. “The larger than expected gain of conservative mandates in Congress is highly positive for Brazilian assets in the short-run as it will improve the outlook for much needed reforms in a potential center-right government.”

But given these heightened expectations, Brazilian assets, which rallied as Bolsonaro rose in the polls, could be vulnerable to a “sell the fact” slide once Bolsonaro wins and investors’ turn their attention to the herculean nature of the task ahead.

“Bolsonaro’s momentum is really strong and it seems that he will have it relatively easy to win the second round,” said Tania Escobedo, a strategist at RBC Capital Markets in New York and the most accurate forecaster for the Brazilian real in the first and second quarters of 2018 this year, according to Bloomberg rankings. “That being said, the market was pretty optimistic on his prospects already and market participants positioned for this scenario.”

Still, one thing’s for sure: Bolsonaro’s victory had not been fully priced in, as Alejo Czerwonko, a strategist at UBS Wealth Management in New York, told Bloomberg.

“Bolsonaro’s showing was stronger than expected, and although the market has been moving in recent days to price in momentum in his favor, today’s results should provide additional support to Brazilian assets.”

“I don’t think the strength of his showing today was fully priced in.”

Alberto Ramos said analysts will now turn their attention to the composition of the federal legislature as they bet that the election of conservatives could “help strengthen governability and the capacity to move forward with key reforms.”

Gustavo Rangel, chief Latin America economist at ING in New York, said conservatives victories over a handful of left-wing candidates in the southeast could solidify Bolsonaro’s presidential mandate (again, assuming he wins in the second round).

“Loss of important traditional names of the Workers’ Party for the Senate in the Southeast is also a particular blow for the left, and presages a larger-than-expected center-right base in Congress. This bodes well for the eventual construction of a right-leaning base in Congress, should Bolsonaro get elected, increasing the chances of passage of the fiscal-austerity measures the candidate has proposed.”

Still, his victory is looking likely enough that markets will probably price it in before he wins, which lead to a slight reversal in a “sell the fact” selloff once Bolsonaro actually wins.

“Looking pretty good for Bolsonaro in the second round and assuming no major slip-ups from him over the next few weeks, the markets will price his victory in the second round even before he actually wins.”

James Gulbrandsen, a Rio de Janeiro-based money manager who helps oversee $3.5 billion at NCH Capital, told Bloomberg that “the odds of a Congress that will pass reforms has skyrocketed” thanks to a hostile anti-PT wave that swept the Congress.

“Perhaps more surprising than Bolsonaro’s performance is the anti-PT (Workers’ Party) wave that could really create a very different senate and congress. One that would facilitate passage of much-needed reforms. That’s enormously positive.”

“The odds of a Congress that will pass reforms just skyrocketed. This is the principal concern of the market. I expect a large rally in Brazilian assets on Monday.“

While markets will likely celebrate Bolsonaro’s victory over the coming days, at some point, investors will need to see Bolsonaro make good on his promises if he wants to keep the recovery in Brazilian assets going. But questions about his ability to execute could lead to “significant concerns” down the road.

“That said, and beyond initial reactions and some potential honeymoon, there are significant concerns on a Bolsonaro presidency down the road, including the stability of his platform, overall polarization or his capacity to build consensus supporting the needed reforms.”

But looking beyond the immediate future to notable tail risk, it’s worth considering that Bolsonaro was nearly assassinated at a campaign rally last month. With the country’s once-ascendant left frothing at the prospect of a right-wing former military officer taking power, a wave of political violence wouldn’t be out of the question.

via RSS https://ift.tt/2zXz0un Tyler Durden

The bitter battle over Brett Kavanaugh’s nomination to the Supreme Court has exacerbated the nation’s political divide and left many Americans emotionally raw. It’s also given new definition to the high stakes of November’s election.

After a nailbiter of a Supreme Court nomination until the very last minute, angry Democrats have come out in force, vowing to extract revenge on Republicans with the nation’s top Democrat urging supporters to make Republicans “pay a price” for putting Brett Kavanaugh on to the Supreme Court.

As the Washington Examiner reported, in a fundraising email that follows threats from other public officials over President Trump’s second court victory, DNC Chairman Tom Perez wrote, “Make Republicans pay a price for Brett Kavanaugh.”

From DNC’s Perez:

Here is one thing we’ve learned from the Brett Kavanaugh fight: We can never, ever, trust congressional Republicans to stand up to Donald Trump.

In just 30 days, we have a chance to elect Democratic majorities in Congress — and for the sake of our democracy, we must.

If you’re able, make a $3 donation right now to make Republicans pay a price for Brett Kavanaugh:

It’s not enough to get mad, Clinton — we have to beat the Republicans who rammed this nomination through. Time and time again, Republicans have shown that they can’t be trusted to stand up to the Trump administration on a single thing.

So it really is this simple: If we don’t want people like Brett Kavanaugh to be appointed to lifetime positions in our federal judiciary, we need to elect Democratic majorities this November.

Democrats only need to flip two Senate seats this November to win control of the Senate and make sure Trump can’t ram through any more judges like Brett Kavanaugh to the Supreme Court.

Donate $3 right now to throw out the GOP this November.

Thank you,

Tom

Tom Perez
Chair
Democratic National Committee

Meanwhile, the liberal group American Bridge 21st Century vowed that “a day of reckoning is coming for Republicans.”

Team,

Two years ago the Access Hollywood tape revealed Trump bragging about sexually assaulting women.

Since the Access Hollywood tape came out, Trump has made it his mission to gaslight women and defend sexual predators like Rob Porter, Roy Moore, and Brett Kavanaugh.

That’s why we were outside of Trump’s hotel in Washington D.C. blaring the audio from the Access Hollywood tape and Trump’s degrading comments about women who have experienced sexual assault.

Trump and the GOP’s message is clear:

They don’t care about sexual assault against women.

They don’t believe women.

A day of reckoning is coming for Republicans on November 6, and American Bridge is doing everything we can to put the GOP on defense.

With 30 days until the election, we need the resources to keep the fight on the GOP’s doorstep. Will you donate $10 now and help us hold Republicans accountable?

Until now, the fight for control of Congress has largely been viewed as a referendum on President Donald Trump’s first two years in office. But the turmoil surrounding Kavanaugh transformed the midterms into something bigger than Trump, with implications that could endure long after his presidency.

The election is suddenly layered with charged cultural questions about the scarcity of women in political power, the handling of sexual assault allegations, and shifting power dynamics that have left some white men uneasy about their place in American life according to AP.

Both parties contend the new contours of the race will energize their supporters in the election’s final stretch. Both may be right.

Republicans, however, may benefit most in the short term. Until now, party leaders, Trump included, have struggled to rev up GOP voters, even with a strong economy to campaign on. The president’s middling job approval rating and independent voters’ disdain for his constant personal attacks have been a drag on GOP candidates, particularly in the more moderate suburban districts that will determine control of the House.

But Republican operatives say internal polling now shows Kavanaugh’s acrimonious confirmation has given the party a much-needed boost, with GOP voters viewing Democrats as overzealous partisans following the public testimony by Kavanaugh and Christine Blasey Ford, who accused the judge of trying to rape her while they were both in high school. Ford said she was “100 percent” certain that Kavanaugh was her attacker; Kavanaugh steadfastly denied her allegations.

The Democrats’ “strategy to capitalize on the ‘Me Too’ movement for the political purposes backfired on them,” Republican strategist Alice Stewart said. “The fact that they were willing to use Dr. Ford’s story that was uncorroborated to launch character assassinations on Judge Kavanaugh did not sit well with voters. A lot of people looked at this as a bridge too far.”

The surge in GOP enthusiasm could recalibrate a political landscape that was tilting toward Democrats throughout the summer. Though Democrats still maintain an advantage in competitive House races, the past two weeks appear to have shifted momentum in the fight for the Senate majority back to the GOP.

* * *

In a note over the weekend, Goldman economists wrote that the consensus view in financial markets appears to be a Democratic majority in the House and a Republican majority in the Senate. And while that is also Goldman’s expectation for the most likely outcome in our view, with one month to go much could still change.

Generic ballot polling continues to suggest a fairly narrow Democratic majority in the House, as does district-level polling. In the Senate, state-level polling implies that neither party will gain any net seats. In both cases, polling of the individual contests suggests that the marginal seat that will determine the majority is nearly tied. This is particularly true in the Senate, where the likely marginal seats have alternated between a slight Republican and slight Democratic advantage in the polls over the last few weeks.

And while conventional wisdom is that Republicans will lose the House, here too sentiment is rapidly shifting. In North Dakota, Republican Rep. Kevin Cramer has pulled comfortably ahead of Democratic Sen. Heidi Heitkamp, who voted “no” on Kavanaugh. GOP operatives say they’re also seeing renewed Republican interest in states such as Wisconsin, where Democratic candidates for both Senate and governor have been polling strong.

“It’s turned our base on fire,” Senate Majority Leader Mitch McConnell, R-Ky., said Saturday, moments after the Senate confirmed Kavanaugh.

To be sure, some tightening in the race was likely inevitable this fall. Wavering voters often move back toward their party’s candidates as Election Day nears, and most of the competitive Senate races are in states that voted for Trump by a significant margin.

With just over four weeks until Election Day, there is still time for the dynamics to shift again. And the political headwinds from the Kavanaugh confirmation are unlikely to blow in just one direction.

Meanwhile, to Democrats, Kavanaugh’s ascent to the Supreme Court in spite of decades-old sexual misconduct allegations will only deepen the party’s pull with female voters, including independents and moderates who may have previously voted for Republicans. Democrats point to the flood of women who have spoken out about their own assaults following Ford’s testimony before the Senate Judiciary Committee. Party operatives also believe the optics of the all-male GOP panel that presided over the hearing struck a chord with female voters.

“Kavanaugh’s confirmation will leave a lot of outraged and energized women in its wake,” said Geoff Garin, a Democratic pollster.

That said, Trump remains the fall campaign’s biggest wild card. White House advisers and Republican senators are encouraging him to keep Kavanaugh in the spotlight in the campaign’s final weeks. But they’re well aware that the president often struggles to stay on message and can quickly overshadow his political victories with new controversies.

Given that, Stewart said Republicans can’t assume that this burst of momentum will sustain itself through Election Day.

“The question is whether this is the October surprise or the calm before the storm,” Stewart said.

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It’s been a painful start to the week for global markets as a wave of selling started in Asia and spread rapidly across the globe on what analysts have dubbed a “terrible trio” of crashing Chinese stocks, surging yields and fears about Italy’s standoff with the EU.

Beijing’s 1% reserve cut announced on Sunday, which was meant to offset last week’s global rate rout-driven weakness and push Chinese stocks higher, failed to avert a selloff in China after a weeklong holiday, as mainland stocks fell sharply with the Shanghai Composite plunging 3.7%, record its biggest one-day drop since February, while the CSI300 index plunged more than 4% for only the second time in more than two and a half years.

“China just cut reserve requirement ratios and expanded monetary policy, which is a response to the fact that China’s economy is slowing down but the market doesn’t believe there is enough stimulus to cut the slowdown,” said Guillermo Felices, a senior strategist at BNP Paribas Asset Management, calling the current concerns markets face a powerful cocktail. “They’ve injected more liquidity into the market to contain the slowdown, which has already translated into weaker equity prices.”

The Chinese slide comes after U.S. Treasury yields hit seven-year highs on Friday following strong data that signaled a continued tightening of the labor market and increased inflationary pressures – adding to the reasons for the U.S. Federal Reserve to continue with its hiking cycle.

China’s RRR cut was also seen as dovish, which pushed the offshore 0.5% lower, tumbling just shy of 6.94 against the dollar, and approaching cycle lows hit in August when Beijing unleashed its latest crackdown on speculators.

The dark mood in China sent shivers across Asian markets – the MSCI benchmark emerging markets index dropped 0.7% to its lowest level since May 2017, and is now down 22% from January’s peaks.

“The return of Chinese financial markets after the Golden Week holiday is setting the tone for the rest of the world in a week that begins with the U.S., Canada and Japan all out on holiday,” ING Group’s Viraj Patel wrote in an email to clients. To a large degree, both Chinese equity markets and the yuan “are playing catch-up to last week’s turmoil in global markets” and the results are ugly.

Delayed or not, Asian concerns quickly spilled over to European markets where the pan-European index dropped 0.7 percent and Germany’s DAX 0.8 percent lower as investor confidence took a knock from the “powerful cocktail” of last week’s spike in Treasury yields, the Chinese market slump brought on by concerns that an escalating trade war with the United States, and fears about Italy’s defiance of EU officials added to an already gloomy mood across equities, sent Italian yields soaring and the euro to 2 month lows, while further weakness in German industrial data added to pressure on the euro.

Oil and bank shares led the Stoxx Europe 600 Index lower after equities earlier sank from Sydney to Shanghai, where traders returned from a week-long break. U.S. stocks Japan was also shut.

And with US futures also retreating and appearing poised to extend losses following the worst week in a month for American equities amid a rout in Treasuries, which won’t trade on Monday because of a holiday, it quickly became a sea of red, as the MSCI world equity index, which tracks shares in 47 countries, falling 0.34%.

The fall in global equities boosted demand for the dollar as investors rushed for safety. Against a basket of its rivals the greenback rose 0.3%, edging toward a 14-month high hit in mid-August, and speculation that DXY 100 may soon be broken.
Meanwhile, as reported earlier, Italy’s 10-year bond yield rose to a four-year high and banking stocks sold off as the populist-led government refused to bow to EU criticism over its planned budget.

“We are a bit surprised by the strength of the reaction in bond markets, but it appears the market is jumping to the conclusion that the European Commission will take a hardline stance when Italy submits its budget,” said Mizuho rates strategist Antoine Bouvet.

Germany’s 10-year government bond, the benchmark for the region, remains close to four-month highs at 0.559%.

In FX, the dollar advanced versus most of its Group-of-10 peers as Treasury 10-year futures slipped in Asia, before rebounding in Europe, with cash trading shut due to a U.S. holiday; the euro slipped below the 1.15 handle against the greenback and Italian 10-year bond yields rose to the highest level since 2014 as Italy’s government sticks to its position on next year’s controversial budget. The pound fell, with time running out to get a Brexit deal in what looks set to be a milestone week for both the talks and the U.K. currency. Canada’s loonie was weighed down by the continued drop in oil prices, while the yen reversed an earlier drop as the risk-off tone extended into European trading. The New Zealand dollar reversed earlier losses, supported by option-related bids.

Looking ahead, traders are focusing on the world’s biggest economies for signals to the direction of markets for the rest of this week, with US Q3 earnings season on deck, while U.S., investors are gearing up for $230 billion of Treasury auctions following a selloff last week that took 10-year yields to the highest level since 2011.

In EMs, South Africa’s rand slipped on reports the finance minister sought to resign, while Brazilian assets trading in Europe advanced after investor favorite Jair Bolsonaro led the first round of the presidential election with more votes than polls forecast.

U.S. trading is likely to be muted on Monday, with markets closed for Columbus Day.

In this weekend’s Brazilian election, far-right candidate Bolsonaro won the first round of elections but failed to get an outright victory, as he managed to bag 46.1% of valid votes (short of the 50% needed for an outright victory) while left-wing Workers’ Party candidate Haddad came second with 29.2%. The runoff election is to take place on 28th October 2018 where opinion polls conducted before the election predicted that the candidates would be tied, according to the BBC.

In overnight geopolitical news, US Secretary of State Pompeo said US and North Korea are close to an agreement on logistics for a second summit and added that the North Korean leader said he is ready to allow international inspectors to a nuclear site and a missile engine test site. There were also reports that North Korean leader Kim Jung Un is to visit Russia soon. Furthermore, Chinese President Xi is to visit North Korea.

Elsewhere, oil dropped back to $83.27 per barrel after Washington said it may grant waivers to sanctions against Iran’s oil exports next month, and as Saudi Arabia was said to be replacing any potential shortfall from Iran.

Market Snapshot

• S&P 500 futures down 0.3% to 2,885.00
• STOXX Europe 600 down 0.7% to 373.91
• MXAP down 0.7% to 158.50
• MXAPJ down 1.3% to 494.31
• Nikkei down 0.8% to 23,783.72
• Topix down 0.5% to 1,792.65
• Hang Seng Index down 1.4% to 26,202.57
• Shanghai Composite down 3.7% to 2,716.51
• Sensex down 0.6% to 34,188.49
• Australia S&P/ASX 200 down 1.4% to 6,100.31
• Kospi down 0.6% to 2,253.83
• German 10Y yield fell 2.1 bps to 0.552%
• Euro down 0.4% to $1.1483
• Brent Futures down 1.6% to $82.85/bbl
• Italian 10Y yield rose 9.4 bps to 3.053%
• Spanish 10Y yield rose 0.5 bps to 1.582%
• Brent Futures down 1.5% to $82.86/bbl
• Gold spot down 0.8% to $1,193.91
• U.S. Dollar Index up 0.3% to 95.92

Top Overnight News

• China’s central bank cut the amount of cash lenders must hold as reserves for the fourth time this year, as policy makers seek to shore up the faltering domestic economy amid a worsening trade war
• Japanese Prime Minister Shinzo Abe would welcome Britain to the Trans-Pacific Partnership trade deal “with open arms,” a move that would be possible only if the U.K. left the EU’s customs union and gained the power to set its own tariffs, the Financial Times reported, citing an interview
• The pound benefited in recent days from optimism that Britain and the European Union are getting closer to a Brexit deal, but this week could test that view. An October EU summit is fast approaching and the U.K. must submit a proposal on the contentious Irish border issue by Wednesday
• Jair Bolsonaro, the divisive, far-right former Army captain, stormed to a huge lead in the first round of Brazil’s presidential elections Sunday. The result puts him on track for victory in the decisive, second-round vote on Oct. 28
• Italy’s Luigi Di Maio shrugged off European Commission attacks on his government’s fiscal plan and said his anti-austerity view will grow stronger across the continent
• President Donald Trump says he hopes to see North Korean leader Kim Jong Un “in the near future”
• Saudi Arabia’s ambitious attempt to overhaul its oil-dependent economy is on track and indicators that suggest otherwise — like a surge in unemployment and a slump in foreign investment – – will soon change direction, the kingdom’s crown prince said
• Germany’s industrial output unexpectedly contracted 0.3 percent in August, missing the median estimate for a 0.3 percent increase. The decline, the third in a row, was led by capital goods and construction
• Norway presented a neutral budget as the rise in oil prices stoke the economy of western Europe’s biggest petroleum producer. The government proposed spending 231 billion kroner ($28 billion) of its oil income, which would be a neutral budget impulse. The spending amounts to 2.7 percent of the wealth fund, below the 3 percent fiscal spending rule
• The better- than-expected growth rates in the U.S. economy are set to dissipate unless productivity picks up, Federal Reserve Bank of St. Louis President James Bullard said in Singapore

Asian stocks traded on the backfoot as the region mimicked the lead from Wall St. where the S&P 500 posted its worst week in  nearly a month as the tech sector underperformed, while Nasdaq Comp. pulled back over a percent as tech giants lagged and the Dow notched its second straight weekly declines as the index was pressured by heavyweights Intel and Caterpillar. ASX 200 (-1.3%) was weighed on by material and financial names following ANZ’s profit warning which dragged the likes of CBA, WBC and NAB lower in sympathy, while KOSPI (-0.6%) initially outperformed amid positive developments in the Korean peninsula before dipping in the red and Nikkei 225 is closed due to a public holiday in Japan. Elsewhere, Shanghai Comp. (-3.7%) plummeted as mainland China played catch-up, with participants re-entering the market and reacting to last week’s trade developments, rising yields, China downgrades and weak Caixin manufacturing data. Hang Seng (-1.3%) eroded initial gains as sentiment turned sour along with the mainland. 

Top Asia News

• Chinese Stocks Slump as Markets Reopen After Break; Yuan Falls
• China Foreign-Currency Reserves Drop on Trade Tensions, Yuan
• Offshore Yuan Funding Cost Surges Ahead of Dim Sum Bond Auction
• Everyone’s Fleeing China Stocks as Foreigners Dump $1.4 Billion
• Welcome to Rupiah’s New Normal, Indonesia Policy Makers Signal

Key European indices are down, with DAX Dec-18 futures testing 12,000 to the downside and the FTSE MIB significantly  lagging its peers, down over 1.5%. This follows an EU commission letter stating that Italy’s budget targets are a source of  serious concern in particular impacting Italian banks. Weakness in Italian banking stocks has pressured the financial sector, with  this segment down by almost 1% Major sectors are all down, with energy down by over 1% following comments that the White House may alleviate some Iranian sanctions, and IT names lagging their peers in continuation of price action seen in the US on Friday In terms of individual equities Norsk Hydro are leading equities being up 4.6% following reports that aluminium refining is to restart at half capacity. Additionally, Schroders are up over 1% following speculation around a GBP 13bln joint venture with  Lloyds. Deutsche Bank is down over 1.5% amidst reports that MIFID II is affecting revenues.

Top European News

• Ramsay Raises Capio Bid to $900 Million to Woo Swedish Target
• Italian Bonds, Stocks Slide as Budget Standoff With EU Continues
• RPC Confirms Trading Update is Today; PUSU Later This Afternoon
• Slovenia Plans Bourse Entry for Biggest Bank to Honor EU Pledge

In FX, The DXY index and broad Usd have rebounded further from last Friday’s post-NFP lows, albeit not uniformly as the safer-havens are bucking the trend, but enough to nudge the DXY back up towards 96.000. Market holidays in Japan and the US ahead (latter only partial) may have exacerbated price action/moves, but it’s certainly been a risk-off return from Golden Week in China and the Italian budget issue continues weigh on investor sentiment. Back to the Dollar, or rather the index, and beyond the big figure last week’s peak was 96.124. CAD – The biggest G10 loser as oil prices retreat to compound the overall downturn in risk sentiment, and the Loonie retreats to 1.3000 vs its US counterpart, eyeing a couple of tech levels just above (1.3013 and 1.3018) having failed to derive any lasting support from Canadian jobs data. EUR/GBP – The next major outperformers, and both losing grip of round numbers/psychological handles in relatively quick order amidst stops and the aforementioned bearish factors. The single currency is under 1.1500 and Cable sub-1.3100, but the former is holding above decent option expiry interest at 1.1450 (1.5 bn) and the latter has regained some poise having tested 1.3050 stops, with Brexit impulses still supportive on balance. JPY – A clean break of stops at 113.50, and chart supports at 113.56/113.42 (Tenkan and Fib respectively) has propelled the Jpy up to almost 113.25 vs the Greenback as the more attractive currency of the pairing during periods of pronounced risk aversion. EM – A bit of a mixed bag in terms of performance across the region, with the Rand hit hard after rumours/reports that SA Finance Minister may quit, but the Lira holding up better vs a strong Dollar ahead of the Government’s inflation combating measures due to be announced on Tuesday. Similarly, the Peso is benefiting from pre-positioning before the Real re-opens after Sunday’s Brazilian election and a bigger than anticipated 1st round victory by Bolsonaro. However, the Rouble has been undermined by a retreat in Brent and unable to reap the reward of speculation that US sanctions may be less harsh after mid-term elections. Usd/Zar around 14.8500, Usd/Try near 6.1600, Usd/Mxn close to 18.8300 and Usd/Rub hovering just under 67.0000.

In commodities, the crude complex is in negative territory with Brent breaking the USD 83.00/BBL level to the downside amid suggestions from the US Government that exemptions may be granted to countries who have made efforts to cut Iranian oil imports. This also comes amid the possibility of a Saudi-Kuwaiti oil field restart and further confirmation by Saudi Energy Minister Al Falih that 1.3mln BPD of spare capacity can be used “if needed”. This has increased the possibility of rising supply to the oil market, and pushed both Brent and WTI down by over 1%. In metals markets, gold has broken through the USD 1200/OZ level to the downside as the yellow metal is being hit by a stronger dollar. Aluminium prices are also in the red, with prices falling by over 4%, after a Brazilian court ruled that Norsk hydro’s aluminium plant may be reopened, albeit at a lower production level. Zinc and copper have also slipped due to the effects from a stronger USD.

US Event Calendar: Nothing major scheduled

DB’s Jim Reid concludes the overnight wrap

Will this week’s US CPI (Thursday) be the line in the sand for the current rates sell-off or will it add fuel to the fire? There’s nothing in the forecasts that suggests anything untoward this month but to be fair there seldom is as the consensus is for a +0.2% mom core reading – the same forecast now for the 36th month in a row. So all eyes on this as the week progresses.

We’ll highlight the rest of the week ahead at the end as usual (note it’s a US holiday today – bond market closed) but for now it’s all about rates. As regular readers know, here at DB we’ve been one of the most bearish on the street on rates for some time and often it’s been frustrating. As we ourselves discussed in our 2016 Long-term study and our “ Why rates and yields are rising, and  why they should continue to… ” this year, we think the bear market started in the second half of 2016 due to: 1) ‘peak labour’ after a 35yr surge in the work force and the maximum depression of wages ended in the middle of this decade, 2) Brexit being misinterpreted as a reason for a further rates rally whereas it actually kick-started populism winning national votes and a subtle move to more fiscal spending/less austerity, 3) in a similar vein, the vote for Mr Trump was always more likely to increase fiscal spending in the US, 4) peak globalisation, 5) the BoJ moving from QQE to YCC in this period, and 6) the ECB announcing in December 2016 that they would soon taper after warming the market up to this in the months beforehand.

The lows in 10yr Treasuries and Bunds were 1.35% and -0.19% in July 2016. So at 3.23% and 0.57% currently, this bear market has been in place for a couple of years now but without a major breakout, especially in Europe. Indeed, this year has been frustrating for bond bears as every time yields have threatened to break out something has emerged to cap the rise and send yields back down. So is this sell-off the real deal? Well, our views haven’t changed much but it’s fair to say that we probably  need more hints of inflation to keep momentum in the move. Perhaps last week’s Amazon wage hike was a catalyst in shaking markets out of their complacency that wage inflation in this cycle is going to remain perennially subdued. We continue to think the risks to yields and inflation are asymmetric to the upside. The biggest risk to this view is that yield rises start to trigger a financial market crisis somewhere around the world. With global debt to GDP still at record highs, this is a genuine risk. Overall, the house view continues to be 3.50% and 0.90% for 10yr Treasuries and Bunds by year-end.

Just as the rest of the world is tightening policy, China loosened policy again over the weekend. The PBoC have announced a lowering of the RRR (the fourth time this year) for some lenders as of October 15th. The statement released alongside confirmed that the PBoC will continue with prudent and neutral monetary policy. Having been closed for all of last week mainland Chinese equity markets resumed trading overnight with heavy losses, which have intensified as the session progressed. As we go to print, the Shanghai Comp and CSI 300 are -2.95% and -3.60% with the tech sector of the Shanghai Comp down -3.59%. For some context, the Hang Seng declined -4.38% last week; so these moves aren’t completely out of line given moves last week. The CNY has also depreciated 0.43% and is back to the weakest since mid-August at 6.898. Our economists in China continue to expect 7.4 by the end of 2019. Meanwhile, other markets in Asia are also down including the Hang Seng (-0.87%) and Kospi (-0.40%). It’s worth adding that the moves in China this morning may have been worse had it not been for a stronger-than-expected Caixin services PMI (53.1 vs. 51.4) reading for September.

Elsewhere, Brazil’s first round presidential election took place over the weekend with far-right candidate Jair Bolsonaro emerging as the victor by some margin. Mr Bolsonaro won with 46.2% of the votes while his closest challenger, Fernando Haddad, got 29.1%. The margin of victory is even bigger than what polls had suggested with the second round vote due on October 28th with those two candidates facing off. Brazilian assets gained as support climbed for Mr Bolsonaro in recent weeks so it should be a decent open for them later today.

Reviewing last week and Friday now, 10-year Treasury yields rose 17.0bps (+4.5bps Friday) to their highest levels since April  2011. Two-year and 30-year yields (+6.6bps and +19.9bps on the week) reached their highest levels since 2008 and 2014, respectively. The 2s10s curve steepened 10.5bps to 34.4bps, its steepest level since June and the biggest move since February. The MOVE index also rose (off near all-time lows) by the most since February, albeit to a low-by-historical-standards level of 55.2. Other developed market bonds sold off in tandem, with 10-year Bunds (+4bps on Friday) and JGBs rising 10.3bps and 2.5bps on the week, to fresh multi-month highs.

Risk assets retreated on the back of higher yields, with emerging markets hit especially hard. The S&P 500 closed -0.96% lower on the week (-0.55% on Friday) and the DOW shed -0.04% (-0.68% Friday). The VIX rose 2.70pts but closed below 15pts, so still remains relatively low by historical standards.

Tech stocks underperformed sharply, with the NASDAQ and NYFANG indexes down -3.21% and -4.18% (-1.16% and -2.06% Friday), respectively, as investors worried about the sector’s outlook. Bloomberg reported on an alleged major security breach affecting a major producer of tech hardware, which weighed on Chinese tech stocks in particular and fed through to the US. Chinese markets were closed all week for a holiday, but a US-traded ETF tracking major Chinese tech companies like Baidu, Alibaba, and Tencent, traded down -7.87% (-2.01% on Friday). The NASDAQ is now down -3.96% from its peak, outperforming the FANG index (-12.5% from peak), the Chinese tech sector (-33.96% from peak), and the broader EM complex (down -29.68% from peak and -4.85% last week).

On Friday, the September jobs report was much stronger in the detail than at first glance. The headline number missed at 134,000 versus consensus at 185,000, but the prior two months were revised up a net 87,000, so the three-month average remains strong at 190,000. Unemployment fell to 3.7%, its lowest level since 1969 on an unrounded basis. The report was depressed by transitory factors, especially storm-driven declines in activity, e.g., 299,000 people reported not working due to weather, and the number of workers in the sensitive retail and leisure and hospitality sectors both declined as well. The NY and Atlanta Fed Q3 GDPnowcasts diverged another 0.7pp on the week, with the former at 2.3% and the latter at 4.1%. DB continue to estimate Q3 growth at 3.3% qoq saar.

Over to Italy, which had a mixed week as more budget details trickled out. The FTSEMIB sold off slightly, falling -1.77% on the week, but outperformed versus other regional bourses (DAX and CAC fell -2.60% and -2.44%). Although the spread to Bunds is off the recent highs due to some reining in of the initial most aggressive 3yr budget forecasts, overall 10yr BTP yields closed Friday only 3bps off their post budget 4-and-a-half-year highs. The global bond sell-off is not helping Italy at its time of high uncertainty. As more details emerged through the week, the budget included official forecasts that envisioned a boost to growth that ends up shrinking the debt ratio through 2021. Our economists believe these forecasts are overly optimistic and expect the European Commission to most likely reject the budget.

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Italian stocks tumbled with the FTSE MIB dropping 2.3% – the worst performer among major European markets on Monday – and hitting its lowest level since April 2017, while the country’s bonds plunged to the lowest level since February 2014 amid what now appears to be an inevitable showdown between Italy and the EU, after the European Commission said Italy’s budget plans are in breach of common rules.

Over the weekend, the European Commission told Italy it is concerned about its budget deficit plans for the next three years since they breach what the EU asked the country to do in July, but a defiant Rome insisted on Saturday it would “not retreat” from its spending plans.

In a letter to Italy’s Economy Minister Giovanni Tria, the Commission said that with a planned headline deficit of 2.4 percent of GDP in 2019, Italy’s structural deficit, which excludes one-offs and business cycle effects, would rise by 0.8 percent of GDP. Under EU rules Italy, which has a public debt to GDP ratio of 133 percent and the highest debt servicing costs in Europe, should cut the structural deficit every year until balance.

“Italy’s revised budgetary targets appear prima facie to point to a significant deviation from the fiscal path” commonly agreed by European Union governments, EU Commissioners Valdis Dombrovskis and Pierre Moscovici wrote in a letter to Italian Finance Minister Giovanni Tria. “This is therefore a source of serious concern,” the commission’s finance chiefs said in their letter Friday responding to a note sent by Tria the day before.

“We call on the Italian authorities to ensure that the Draft Budgetary Plan will be in compliance with the common fiscal rules,” the letter added at the same time as the council of EU ministers asked Italy in July to reduce that structural deficit by 0.6% of GDP next year, which means the deficit would be 1.4 points off track, Reuters reported.

The criticism was shrugged off by Italian Deputy Prime Minister Luigi Di Maio, who said his government will stick to its deficit targets before next year’s EU Parliament elections usher in lawmakers fed up with austerity and ready to relax budget rules.

“It needs to be clear that we are not going to go back because as far as I’m concerned, these measures are not meant to challenge Brussels or the markets, but they need to compensate the Italian people for many wrongs,” Deputy Prime Minister and 5-Star leader Luigi Di Maio told journalists at an event in Rome. “There is no plan B because we will not retreat. We will explain the reasons for these measures … but we are not going back,” he said.

“There will be such an earthquake in all countries against the austerity that the rules will change the day after the elections,” Di Maio, who’s also the head of the Five Star Movement, said in an interview with Corriere della Sera published on Sunday. He was referring to the need for the EU countries to reduce deficits under existing regulations.

For now, however, the only earthquake is the one hitting Italian markets with the FTSE MIB sliding as much as 2.3%…

… with Italian banks getting slammed:

• UNICREDIT HALTED, LIMIT DOWN AFTER FALLING 5% IN MILAN
• UBI HALTED, LIMIT DOWN AFTER FALLING 5% IN MILAN
• MEDIOBANCA HALTED, LIMIT DOWN AFTER FALLING 5% IN MILAN

… while Italian 10Y BTP tumbled to new cycle lows, with the yield on the benchmark security rising above the May selloff highs, rising as high as 3.625% from a Friday close of 3.42%, a level not seen since February 2014. Italian bonds bear flattened with 2y yield climbing as much as 30bps to 1.636% as 10y yields broke above 3.6%. At the same time, the December BTP futures touched a new low since becoming the active contract.

Meanwhile, the 10-year BTP/bund spread has blown out to 308bps, the widest level since May 2013.

While the ball is now in Brussels’ court, “lowering the deficit targets for 2020 and 2021 shows willingness by the Italian government to seek a deal,” HSBC Economist Fabio Balboni says in note. “The EC should also be wary of possible rising euro-scepticism in Italy, especially ahead of European parliamentary elections next May. So, we think there is room for negotiation. But, even then, given higher deficits, Italy’s debt trajectory remains precarious” he added.

The war of words continued on Monday, when Italian Deputy Premier Matteo Salvini said that “we are against the enemies of Europe which are Juncker and Moscovici, closed in the Brussels bunker,” and that the “EU Parliament elections in May 2019 are a chance to “save” at a joint press conference in Rome with Marine Le Pen, testing the EU’s resolve.

As a result of this strong anti-EU rhetoric, contagion has re-emerged with the Swiss franc is marching higher after the statements by Salvini and Le Pen. As Bloomberg notes, this type of talk will concern investors, who were of the impression that cooler heads might prevail and Italy would adopt a more conciliatory tone.

At 308bps, the 10-year BTP/bund spread is at the widest level since May 2013. For now the Italian deputy leader’s words are rattling markets. At some point, though, Salvini’s rhetoric will have to face up to the reality of Italy’s borrowing costs being too expensive to deliver on his promises.

At some point yes, but for there are few catalysts to halt the selloff as Wall Street strategists have turned increasingly bearish on BTPs, with Morgan Stanley, Societe Generale and Citigroup all bearish and warning that a ratings downgrades will be the next emerging theme.

And until then, look for fears about Italy’s budget, and rising redenomination concerns to pressure the Euro which broke 1.15 support, dropping to a low ot 1.1471, the lowest level since mid-August…

… as Europe’s artificial stability once again appears to be on the brink.

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American pop sensation Taylor Swift has been criticized by (mostly leftist) fans for appearing to cynically embrace feminism as a marketing tool while remaining unwilling to publicly declare her support for progressive politicians. For a star who started out as a crossover country music sensation – and who famously published an editorial explaining her business strategy in the Wall Street Journal – Swift’s management team undoubtedly believed that publicly bashing then-candidate Donald Trump would be a massive liability when it came time for Swift to tour on her next album.

But earlier this year, cracks in Swift’s apolitical facade began to form when she expressed support for the March for our Lives movement. And on Sunday, Swift officially abandoned her policy of “staying away” from politics when she, in a length Instagram post, expressed her support for LGBTQ and women’s rights and condemned Republican Rep. Marsha Blackburn, who is running for Senate in Tennessee. Swift then publicly endorsed Blackburn’s Democratic opponent Phil Bredesen, as well as Democratic House candidate Rep. Jim Cooper (though she grew up in Pennsylvania, Swift got her start in the music business in Nashville).

Swift claimed that, while she loves supporting women in office, Blackburn’s voting record simply “appalls and terrifies me”.

“Running for Senate in the state of Tennessee is a woman named Marsha Blackburn. As much as I have in the past and would like to continue voting for women in office, I cannot support Marsha Blackburn,” Swift wrote. “Her voting record in Congress appalls and terrifies me. She voted against equal pay for women. She voted against the Reauthorization of the Violence Against Women Act, which attempts to protect women from domestic violence, stalking, and date rape. She believes businesses have a right to refuse service to gay couples. She also believes they should not have the right to marry. These are not MY Tennessee values. I will be voting for Phil Bredesen for Senate and Rep. Jim Cooper for House of Representatives.”

Read the full post below:

 

 

 

 

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I’m writing this post about the upcoming midterm elections on November 6th, in which I’ll be voting in the state of Tennessee. In the past I’ve been reluctant to publicly voice my political opinions, but due to several events in my life and in the world in the past two years, I feel very differently about that now. I always have and always will cast my vote based on which candidate will protect and fight for the human rights I believe we all deserve in this country. I believe in the fight for LGBTQ rights, and that any form of discrimination based on sexual orientation or gender is WRONG. I believe that the systemic racism we still see in this country towards people of color is terrifying, sickening and prevalent. I cannot vote for someone who will not be willing to fight for dignity for ALL Americans, no matter their skin color, gender or who they love. Running for Senate in the state of Tennessee is a woman named Marsha Blackburn. As much as I have in the past and would like to continue voting for women in office, I cannot support Marsha Blackburn. Her voting record in Congress appalls and terrifies me. She voted against equal pay for women. She voted against the Reauthorization of the Violence Against Women Act, which attempts to protect women from domestic violence, stalking, and date rape. She believes businesses have a right to refuse service to gay couples. She also believes they should not have the right to marry. These are not MY Tennessee values. I will be voting for Phil Bredesen for Senate and Jim Cooper for House of Representatives. Please, please educate yourself on the candidates running in your state and vote based on who most closely represents your values. For a lot of us, we may never find a candidate or party with whom we agree 100% on every issue, but we have to vote anyway. So many intelligent, thoughtful, self-possessed people have turned 18 in the past two years and now have the right and privilege to make their vote count. But first you need to register, which is quick and easy to do. October 9th is the LAST DAY to register to vote in the state of TN. Go to vote.org and you can find all the info. Happy Voting! 🗳😃🌈

A post shared by Taylor Swift (@taylorswift) on Oct 7, 2018 at 4:33pm PDT

Bresden thanked Swift for her endorsement in a tweet, saying he is “honored to have your support”:

Thank you for the kind words @taylorswift13. I’m honored to have your support and that of so many Tennesseans who are ready to put aside the partisan shouting and get things done. We’re ready for it. Last day to register to vote is October 9. https://t.co/6Xd6YyaJCG pic.twitter.com/CatUBkXPKe

— Phil Bredesen (@PhilBredesen) October 8, 2018

With this in mind, we can’t help but wonder: Will Swift choose to embrace her newfound political agency by taking some bold new activist stance? Or maybe start a twitter war with President Trump? Or maybe this will be the last we hear from Swift about politics, given that her managers are probably keeping a close eye on ticket sales and music streaming revenues as they wait to see if this bold new marketing strategy pans out. After all, it seemed to work for Nike…

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Authored by Craih Murray,

The Times claims to have identified the Kremlin’s latest secret weapon in Cyberwars – “Bikini Girl” @Organicerica. Except there is no evidence @Organicerica has any Russian links or promotes any Russian interests.

It does appear likely that @Organicerica is a bot. The Times claims this is proven by the timing and regularity of the postings (interesting as they claim the same kind of activity pattern proves nothing in the case of Philip Cross). I am prepared to accept, for the sake of argument, that @Organicerica is a bot, or at best a young woman running an automated posting programme.

But what is the output? 

• Promotion of organic restaurants in Seattle.

• Environmental campaigning particularly against pesticides and genetically modified food.

• Nothing whatsoever on wider politics, foreign policy, Clinton.

• And nothing whatsoever related to Russia.

What kind of mindset do you need to have, automatically to equate a bikini-wearing opposition to Monsanto and to chlorinated chicken with being an agent of the Kremlin?

Why is The Times publishing this absolute rubbish?

It says something both about the quite hysterical Russophobia gripping the media and political class, and about the desire to delegitimise environmental activism, as witness the jailing of the anti-fracking protestors (against which jailing 1,000 academics have now signed a letter of protest).

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Authored by Eric Margolis,

‘This is La Main Rouge,’ said the gruff voice on our home telephone in Geneva, Switzerland…

‘Stop your activities on behalf of the FLN or we will kill you.’ The mysterious caller hung up.

I was petrified. La Main Rouge was killing supporters of free Algeria across Europe.

This was 1959 where I was studying at the International School of Geneva. The war to liberate Algeria from 130 years of French colonial was at its bloodiest and most intense.

As an idealistic student, I was outraged by the brutality of this struggle in which up to 1.5 million Algerians were killed by the French and by fellow Algerians. I organized demonstrations calling for free Algeria, penned articles and carried messages for the Algerian underground (Front de Liberation National, or FLN)’s branch in Paris.

The death threat was the first of many I would receive over my life, along with much other heavy intimidation and offers of bribes to alter my journalistic positions. But the bloody Algerian War of Independence, that ran from 1954-1962, still holds particular resonance for me even though I’ve covered 14 wars since then. The horrors of Algeria’s massacres and torture have stayed with me all these years.

La Main Rouge (Red Hand), we later learned, was a false flag operation mounted by French intelligence (SDECE) to kill or frighten off supporters of the Algerian cause, notably pro-Algerian leftwing intellectuals, and arms suppliers.

That’s why I was elated to see France’s new president, Emmanuel Macron, officially admit that France had indeed conducted systemic torture in Algeria that he called ‘a crime against humanity.’ Previous French governments had denied the crimes in Algeria and censored reports and books about it.

Torture, ‘disappearing’ and judicial executions would no longer be sanctioned in France, even in extreme cases. Macron called France’s repression in Algeria ‘a crime against humanity.’

The record of the war is ghastly. Tens of thousands of Algerian suspects were rounded up at night, thrown into prisons, and tortured – many to death – using electric generators attached to their genitals or lips with steel clips. Intense beatings and use of masked informers were common. Many FLN suspects were sent to the guillotine.

The superb film ‘Battle of Algiers’ recounts ferocious efforts by French elite paratroopers and security forces to crush the FLN network. `We far outdid the Nazi SS and Gestapo,’ boasted one particularly sadistic French general.

As a result of the Algerian War, torture spread to France’s metropolitan security services and even regular police. But this is always what happens when torture is used. It spreads like a virus.

Back in 1995, then President Jacques Chirac admitted that French police, not Germans, had rounded up 75,000 French Jews and sent them to German concentration camps. France’s right was outraged.

Now, France’s right is denouncing President Macron for finally telling the truth and opening France’s secret archives

Which raises the question of torture by US occupation forces in Afghanistan, Iraq, Somalia, and of similar crimes by its satraps Egypt, Morocco, Saudi Arabia, Jordan and by Israel. Under President Donald Trump, the US is going in precisely the opposite direction as France. Trump and his cohorts have lauded the use and efficacy of torture and called for its wider and more intense use in America’s modern colonial wars. The CIA’s new chief led one part of the torture program in Southeast Asia.

France is now purging itself of the crimes against humanity committed during the Algerian War. Nations, like people, need to occasionally cleanse their spirit of foul deeds and crimes. But not so the United States where the White House and Congress have become cheerleaders for torture.

It will be hard for Washington to keep holding itself up to be the world champion of human rights when its torturers are hard at work inflicting unspeakable punishments on suspects. Let’s recall that the Bush-Cheney administration massively increased the use of torture to try to prove a fake link between Saddam’s Iraq and 9/11. America disgraced itself and never could manufacture the ‘evidence.’

America and France are sister democracies. President Macron has shown Washington how to deal with the crime of torture. We should listen.

*  *  *

Epilogue: Algeria gained independence in 1962 thanks to the wisdom of President Charles De Gaulle. But, as Danton famously stated, ‘the revolution devours its young.’ The FLN’s rival leaders began murdering one another. The once noble struggle for independence turned into a bloodbath. Algeria fell under military rule and suffered worse horrors than even the French inflicted.

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