Pornhub, known as “the premiere online destination for adult entertainment”, has just erected its first ever retail store in New York City for the holidays. The store will sell limited edition Pornhub clothing, gear and premium sex toys.

The porn shop, located in SoHo, Manhattan’s shopping district, is classified as a ‘pop-up store’ — this new trend in retailing is taking the industry by storm as the traditional brick-and-mortar stores fade into darkness. Pornhub’s most popular stars, including Asa Akira and Dani Daniels will open the store on Black Friday (today) and close down on December 20.

According to High Snobiety ,

Pornhub? Vice President Corey Price said in a statement emailed to Retail Dive,

Price’s latest vertical stunt through brick-and-mortar retailing appears to come at a time when the website’s growth is in free-fall. Retail Dive said “the space in New York is designed to simulate the look and feel of the Pornhub homepage” and perhaps it will generate enough hype to boost website growth.

Pornhub’s pop-up shop is not limited to the United States, as it will capitalize on an international expansion starting in Milan, Italy for the holiday season. Pornhub is ranked #21 in the Untied States and #38 internationally, according to Alexa.

 

Bottomline: The invasion of porn in American culture has hit a new high this holiday season as one of the world’s largest pornographic websites expands into the brick-and-mortar spaces in SoHo and Milan. Add porn to the long list of vices that are eating away at America’s declining middle class.

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Via Dana Lyons' Tumblr,

**The following post was originally issued to The Lyons Share members on November 9, 2017. The Value Line Geometric Composite proceeded to undergo a textbook, successful test of “The Most Important Level In The Stock Market” and subsequent bounce to new highs. See the bottom of the post for an updated chart.

The 536 level on the Value Line Geometric would appear to be a clean and clear line in the sand delineating the business as usual “BTD” environment from one that is more vulnerable to a sharper decline.

We are witnessing today about the first bit of adversity in the U.S. equity large-cap space that we have seen since the current rally kicked off in August. As we’ve discussed at length in our Daily Strategy videos, however, as the large-caps have continued to score new highs over the past month, the broader market has been going nowhere — with a slight downward bias. And while today’s 1% drop (a/o now) in the large-cap averages off of all-time highs is hardly cause for alarm, its impact on the broader market is more serious. That’s because the month-long consolidation has left the broader market in a spot where the selling pressure of the past few days has already placed it at an important level of support.

Specifically, our favorite barometer of the broad market — the Value Line Geometric Composite (VLG), which tracks the “median stock performance” — is presently testing a key level near 535-536 associated with its post-August breakout and other significant lines of support, including:

• The July former all-time high
• The 50-Day Simple Moving Average
• The 23.6% Fibonacci Retracement of the August-October rally
• The 38.2% Fibonacci Retracement of the rally off the early-September launch area to the October top

While this level, near 536 in the VLG, isn’t necessarily a make-or-break line for the broader bull market, a break of it would indicate a change in the market’s character, in our view. Up until now, recent investor behavior has focused on “BTD”, or “Buy The Dip”, into any hint of weakness. As such, the impressive confluence of support lines in the 535-536 area should serve as more than enough impetus for stocks to bounce. If they fail to do so, it will be a clue that the climate has changed and that stocks are likely to test deeper levels.

For now, we have dipped our toes into some small-cap exposure based on this VLG test of significant proportions, as well as similar tests in the small-cap space. Again, if BTD still rules the day, we should see a bounce and a resumption of the post-August rally off of this 535-536 level. If BTD is dead, or on hold and 535-536 is broken, expect a further drop in the VLG to 529, then 525 and ultimately 520.

*  *  *

**Updated Chart – November 22, 2017:

*  *  *

If you’re interested in the “all-access” version of our charts and research, please check out The Lyons Share. Find out what we’re investing in, when we’re getting in – and when we’re getting out. Considering that we may well be entering an investment environment tailor made for our active, risk-managed approach, there has never been a better time to reap the benefits of this service. Thanks for reading!

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• Online sales surge, shoppers throng stores  (Reuters)
• A Split From Trump Indicates That Flynn Is Moving to Cooperate With Mueller (NYT)
• At least 85 people killed in attack on mosque in Egypt’s north Sinai (Reuters)
• Germany’s SPD Softens Stance on Merkel Talks Amid Deadlock (WSJ)
• Irish government set to fall weeks before Brexit summit (Reuters)
• From Ducks to Trucks, Ireland’s Exporters Pivot for Brexit (WSJ)
• A $1 Trillion Wealth Fund Notes ‘Red Flag’ in Real Estate Market (BBG)
• The Party Is Over for Australia’s $5.6 Trillion Housing Frenzy (BBG)
• What Trump Really Told Kislyak After Comey Was Canned (Vanity Fair)
• South African appeals court more than doubles Pistorius sentence (Reuters)
• Mnangagwa the ‘Crocodile’ sworn in as Zimbabwe president (Reuters)
• Uber told SoftBank about data breach before telling public (Reuters)
• In Russia-Ukraine Battle, an Assassin Speaks (WSJ)
• Russia working with Saudi Arabia to unify Syrian opposition: Lavrov (Reuters)
• Lebanon’s Jumblatt criticizes Saudi over Hariri (Reuters)
• With Saudi Ties Fraying, Lebanese Premier’s Construction Empire Crumbles (WSJ)
• There’s a Secret Way Into Monaco’s Most Elite Club (BBG)
• China Reports Breaking Up Gang That Moved $3 Billion Abroad (BBG)
• Houston-area woman charged with mailing explosives to Obama, Texas governor (Reuters)

Overnight Media Digest

WSJ

– Uber Technologies Inc CEO Dara Khosrowshahi learned of the security breach, which company said happened in October 2016 and affected some 57 million accounts, about two weeks after he officially took the helm on Sept. 5 and more than two months elapsed before he notified affected customers and drivers of the incident, people familiar with the matter said. on.wsj.com/2jWwH4X

– An enormous battery system built by Tesla Inc, storing electricity from a new wind farm and capable of supplying 30,000 homes for more than an hour, will be powered up over the coming days, the government of South Australia state said Thursday. on.wsj.com/2jUU7HU

– Millions of consumers are using their phones to shop instead of lining up at stores this year, accelerating a fundamental change in holiday shopping as more consumers spend online. on.wsj.com/2jVHBbh

– The European Commission plans to launch a public consultation in early 2018 on ways to improve how the corporate bond market functions. Since the financial crisis, banks and investors have complained about deteriorating trading conditions in corporate debt markets, making it harder to buy and sell bonds in large sizes. on.wsj.com/2jTSv1j

 

FT

Matthew Westerman, co-head of HSBC Holdings Plc’s global banking division, is stepping down by the end of the month, only 18 months after he was hired to lead a significant push in growth.

Mitsubishi Materials Corp has admitted its subsidiaries falsified data about products used in crucial parts of aircraft and cars, dragging another of Japan’s largest manufacturers into the data falsification scandal at Kobe Steel Ltd.

Mitchells & Butlers Plc blamed economic and political uncertainty in the UK for its decision to cancel its next dividend

 

NYT

– Lawyers for Michael Flynn, U.S. President Trump’s former national security adviser, notified the president’s legal team in recent days that they could no longer discuss the special counsel’s investigation, an indication that Flynn is cooperating with prosecutors or negotiating a deal. nyti.ms/2A64kW3

– The U.S. Federal Reserve is preparing to raise its benchmark interest rate in December, despite the concerns of some Fed officials about the persistent weakness of inflation, according to an account of the Fed’s most recent policy meeting. nyti.ms/2A7rQlL

– The United States Navy on Friday ended its search for three sailors who have been missing since a transport plane crashed near Japan this week, the Navy’s Seventh Fleet said in a statement. nyti.ms/2A8fNVl

 

Canada

THE GLOBE AND MAIL

** Toronto makes up a third of all financial-sector employment in Canada, securing its status as a vital engine for growth, according to a Conference Board of Canada report released on Thursday. tgam.ca/2i3e9zJ

** Grocery chain Sobeys Inc is laying off more than 800 of its employees – almost 20 percent of its office staff across the country – in its efforts to cut costs and turn around its struggling operations while preparing for a more digital future. tgam.ca/2jXc0Wx

NATIONAL POST

** The Finance Ministry’s recent amendments to its contentious tax proposals will significantly reduce the number of private corporations exposed to higher tax rates on passive income, but it would still fetch C$6 billion ($4.71 billion) for the federal government after a decade, according to a study released by the Parliamentary Budget Officer. bit.ly/2jTiENM

** In a preview of the Paris-based OECD’s economic outlook, Canada stands out in the report, which noted that the country’s debt has “continued to rise from high levels. The report’s debt warning comes as Canada is forecast to enjoy economic growth that will outstrip some of its global peers. bit.ly/2jUhaTx

Britain

The Times

– Uber Technologies Inc has been accused by British digital minister Matt Hancock of providing unreliable figures about the number of Britons affected by a hacking attack on the taxi-hailing company. bit.ly/2hZNAvg

– Britain’s largest water company Thames Water has appointed Ian Marchant as its new independent chairman. bit.ly/2AsvLfX

The Guardian

– The British government’s forensic regulator has called for fresh scrutiny on drug and alcohol testing carried out for the family courts, after a scandal at a Manchester laboratory raised doubts about the quality of evidence used in thousands of child custody proceedings. bit.ly/2i0ui8X

– Irish airline Ryanair Holdings Plc has told its cabin crew they could face “disciplinary proceedings” and have their working hours forcibly changed unless they sell more perfume and scratchcards. bit.ly/2jTaa9e

The Telegraph

– Hundreds of thousands of UK taxpayers will be let off immediate 100 pound fines for filing their tax returns late every year under plans to be unveiled next week by the Treasury. bit.ly/2zgzJEe

– HSBC’s joint global banking boss Matthew Westerman is leaving the bank less than two years after joining from Goldman Sachs. bit.ly/2jk4gKn

Sky News

– Consumer goods maker Unilever NV, has begun working with executive search firm Egon Zehnder International to help to identify a successor to Chief Executive Paul Polman. bit.ly/2jiHKBy

– Terry Burns‎, the former chairman of Channel 4, is in talks to become the next chairman of media regulator Ofcom. bit.ly/2ji64nh

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Godwin’s law states that “as an online discussion grows longer, the probability of a comparison involving Hitler approaches 1.” Saudi Arabia’s powerful, and controversial, 32-year-old Crown Prince Mohammed bin Salman – who in just a few months has made more local (and foreign) enemies than most of his predecessors accumulated over a lifetime, decided he does not need to wait that long, and in a glowing interview with the New York Times‘ Thomas Friedman, which touched on everything from the accommodations of the Riyadh Ritz-Carlton, to the recent power grab anti-corruption campaign, to Donald Trump, to the Saudi social and religious revolution, called the Supreme Leader of Iran “the new Hitler of the Middle East”, escalating the war of words between the arch-rivals. For his part, Khamenei has referred to the House of Saud as an “accursed tree”, and Iranian officials have accused the kingdom of spreading terrorism.

MbS, as he is also known, and who after the recent purge is also Saudi defense minister, also slapped down the ISIS card and suggested the Islamic Republic’s alleged expansion under Ayatollah Ali Khamenei needed to be confronted.

“But we learned from Europe that appeasement doesn’t work. We don’t want the new Hitler in Iran to repeat what happened in Europe in the Middle East,” the paper quoted him as saying.

As reported previously, tensions between Iran and the Saudi Kingdom soared once again this month when Lebanon’s Saudi-allied Prime Minister Saad Hariri resigned in a television broadcast from Riyadh, citing the influence of Iran-backed Hezbollah in Lebanon and risks to his life. Hezbollah called the move an act of war engineered by Saudi authorities, an accusation they denied.

The NYT subtitled the Friedman interview “The crown prince has big plans to bring back a level of tolerance to his society”, which is ironic considering MbS just rounded up most of his country’s wealthiest royals and gave them an ultimatum: your money or your freedom. And speaking of extortions, the Crown Prince said that 95% of of suspects agree to a “cash settlement”, adding that the public prosecutor expects govt to recover about “$100 billion in settlements.”

Needless to say, Saudi Arabia desperately needs the money: with oil refusing to rise to its previous level of $100/barrel, Riyadh is hard-pressed to find sources of cash for its ongoing war of aggression against neighboring Yemen, now in its third year, to defeat the Iranian-aligned Houthi movement that seized broad swaths of the country. Salman told the Times that the war was going in its favor and that its allies controlled 85% of Yemen’s territory. Which of course, is meaningless: the Houthis still retain the main population centers despite the war effort by a Saudi-led military coalition which receives intelligence and refueling for its warplanes by the United States.

Some 10,000 people have died in the conflict, largely thanks to weapons made in the US.

Ominously, Bin Salman said in May that the kingdom would make sure any future struggle between the two countries “is waged in Iran.” Now that Israel is openly on the side of Saudi Arabia in the upcoming middle-east war, said Iran-based “struggle” may be imminent.

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FOMC minutes show uncertainty and concern about markets are affecting officials’ decision-making

– Officials were cautious when evaluating market conditions and the ‘damaging effects on the economy’
– Worry about ‘potential buildup of financial imbalances’ and a sharp reversal in asset prices’
– Members seem oblivious to impact of inflation on households and savings
– Physical gold and silver remain the only assets for real diversification and safety

After nearly a decade of pumping up the US and global markets, Janet Yellen and team are now starting to show some concern for financial market prices. The FOMC is concerned that they are getting out of hand and are a danger to the US economy.

The minutes of the Fed’s October meeting show that the committee is largely optimistic about the US economy:

“In their discussion of the economic situation and the outlook, meeting participants agreed that information received since the FOMC met in September indicated that the labor market had continued to strengthen and that economic activity had been rising at a solid rate despite hurricane-related disruptions.”

But caution was the name of the game when it came to looking at overall market conditions:

“In light of elevated asset valuations and low financial market volatility, several participants expressed concerns about a potential buildup of financial imbalances…They worried that a sharp reversal in asset prices could have damaging effects on the economy.”

There isn’t a huge amount you can say in response to the FOMC minutes. There was no surprise, they practically telegraphed a December rate hike. And, when it comes down to ‘financial imbalances’, you really just want to tweet them with ‘…no shi*t sherlock’.

Why the sudden concern?

Really, why the sudden concern about financial imbalances? After all the FOMC has been pumping asset prices for the last decade. They are overjoyed to see the S&P500 regularly breaking through new highs.

The ‘imbalance’ committee members refer to is likely in regard to the risk/reward profile in the price of equity markets. This is somewhat ironic given almost the exact same thing happened with bond markets thanks to QE and the Fed’s balance sheet expansion. Just consider that their own yield curve lies at the heart of the current equities bull market.

The fear seems to be that in the last decade there has been such an expansion of credit that we are now faced with an unprecedented bubble. The Fed has no idea how this can be managed across central banks. They are concerned not only how the bubble will burs but what the contagion will be.

Since the Fed started hiking rates up, markets and financial conditions have not tightened. At all. One could speculate that this shows the market is convinced that the moment equities suffer a selloff, the Fed will either stop hiking altogether, or (worse) revert to the status quo and announce QE4.

At the moment the market is pricing in the risk of further rate hikes into next year. The chart below from HSBC shows “the market has been pricing in more and more 2018 hiking risk. The maroon line in the chart below shows the increase in hiking expectations in recent weeks, with investors pricing in more than 1 1/2 hikes for the first time since April.”

No matter market predictions of Fed rate rises no one can prepare for the aftermath of a $50 trillion debt build-up since the financial crisis of 2008. Nothing like this has been seen before.

In this year alone we have hit a new record when it comes to money printing by central banks. Of course no one knows what we are dealing with. What is more concerning is that the world’s most powerful central bank is only now wondering about financial imbalances in the market.

It’s a fix

As has been the case in many Western countries, central banks have expressed frustration at the stubbornly low levels of inflation. What’s interesting about this is that many of them have spent a long time ensuring that the means by which inflation is calculated gets them closer to their target.

The basket of goods used to calculate the level of price inflation is continuously manipulated.Very often ‘volatile’ food and fuel is not included in the US measure. Why does this matter? Because these are the two main items that affect household finances.

So far this year US inflation has averaged 1.6% so far this year (when you exclude food and fuel) and it came in at just 1.3% in September. This (artificial) low level of inflation appears to have almost baffled FOMC members, with much disagreement amongst them.

For those who believe inflation is low this “might reflect not only transitory factors, but also the influence of developments that could prove more persistent,” according to the minutes. However there were also a few members who expressed concern that it could begin to climb due to “increasing upside risks” to inflation as the labor market continues to tighten.

It was then suggested by ‘a couple’ of members that the Fed tweak its approach to inflation, moving away from the current 2% target and toward a “gradually rising path” in prices instead. A nebulous approach.

We continue to see a divided FOMC, with neither side getting our vote. As they continue to debate inflation and how to manage it, they are failing to do anything about it or even acknowledge what is really going on.

It is concerning enough that the current inflation measures do not reflect the impact on households, savings and the depreciation of the US dollar. It is even worse when the FOMC is discussing whether they should even try and target inflation at all.

Bill Blain of Mint Partners published an email from a reader expressing these very concerns with the FOMC:

On the inflation theme, I got an absolutely classic email y’day from a reader whom I don’t actually know, but had picked up my comments on some financial wire. Thank’s Geoff! His thesis is the global authorities have been spinning us a line when it comes to inflation – pointing out in 1971 it would have taken a low wage worker 2 hours and 10 mins to afford a ticket to the then new Disneyland. Disney prices have experienced 8% y-o-y inflation since the park opened. The same ticket will now require 7 hours and 20 mins work – and they are still playing that damn tune. (The lyrics would almost be profound if the tune wasn’t so inane!)

Geoff went on to point out: “The Indians shamefacedly admit their inflation is 9-13% – they are the only honest country on the planet!”

 

Not just a nervous Fed

The FOMC’s nervousness should be a cause for alarm but it should not be a feeling alien to market participants. They have long been concerned with the impact of central banks’ planned unwinding of balance sheets.

A shift in monetary tightening has been identified in global surveys as the most likely cause of the next recession. These concerns are based in history.

In 1994 the Fed began boosting rates, in a similar transition to today. The tightening triggered one of the worst corporate bond slides in two decades. The biggest loser was the suddenly devalued Mexican peso.

Adding to this, three of the four most powerful central bank chiefs are set to be replaced. Expectations are that their successors will not want to be seen hanging around delaying monetary tightening. They will most likely continue to set aside inflation concerns in a drive to curb the financial excesses that they have encouraged for a decade.

This will likely come with some problems, ones which the FOMC seems to be blind too. Yellen famously described balance sheet tightening as uneventful as ‘watching paint dry’. However, when one considers that more than half the gains in the S&P 500 from 2008 until the end of 2015 (when the FOMC began raising rates) came on days the Fed announced policy decisions then we should prepare for some harsh market reactions.

A pantomime farce

In the United Kingdom we have a very odd tradition at Christmas of ‘going to the pantomime’. The pantomime to those who haven’t been always seems to be a peculiar way to be entertained. It is not a pantomime as in a mime, as the word means in other countries, but instead it is a form of slap-stick musical entertainment.

One of the ‘hilarious’ parts to every pantomime is when the hero is trying to catch the baddie of the show. The baddie keeps appearing behind the hero, but our protagonist always seems to not notice or just miss him. Meanwhile the audience’s calls for ‘He’s behind you!!’ grow louder and more raucous as the show goes on.

The joke is, of course, that it seems to be near impossible that someone could miss a baddie looming so close and so obviously in the background.

The same can be said of the FOMC and their apparent ignorance of the threat of ‘financial imbalances’ for the last decade. For years we have watched incredulously as the FOMC along with other central bank committees pump away at markets. It is as if we have come nearly to the end of the pantomime where the ‘hero’ is finally getting wise to the baddie’s tricks and is close to catching him.

The only difference between a central bank pantomime and a real one is that there is unlikely to be a happy ending, as it will be the baddie who gets the better of the so-called ‘hero’.

In this pantomime we do not know how it is supposed to end. How can we?

 

Once again we conclude that this comes down to uncertainty. Whilst we have long-advocated for investors to line their portfolios with assets that offer true diversification and safety, it now seems more pertinent than ever.

Central banks rarely admit that they are confused about the state of markets. This latest statement was the beginning of them starting to scratch their heads and admit they don’t have all the answers. As this uncertainty and confusion seeps through and grows, investors should be prepared for panic in both policy making and financial decisions.

It is times like this when holding allocated, segregated gold in your portfolio makes even more sense. With a central bank wondering how to manage things, you can rest assured that your wealth is out of the reach of central bankers and their reactionary monetary policies.

Related reading

Gold Investment “Compelling” As Fed Likely To Create Next Recession

“This Is Where The Next Financial Crisis Will Come From” – Deutsche Bank

Gold Price Reacts as Central Banks Start Major Change

News and Commentary

Gold steadies as dollar weakens further (Reuters.com)

Japanese Stocks Decline, China Slide in Focus (Bloomberg.com)

Dollar poised for weekly losses, Fed’s inflation caution drags (Reuters.com)

Russian central bank: Gold holdings support national security (Reuters.com)

Putin orders Russian companies to be ready for urgent transition to war-time operations (RT.com)

Kremlin pledges to stand up for Russian billionaire arrested in France (Reuters.com)

Bank Deposits No Longer Off Limits as ECB Seeks Power to Freeze (Bloomberg.com)

Source: Bloomberg

The Party Is Over for Australia’s $5.6 Trillion Housing Frenzy (Bloomberg.com)

China’s Debt Surge May Increase Risk of Financial Crisis (Bloomberg.com)

What Germany’s Political Crisis Means for Your Money (MoneyWeek.com)

Three things you should know about rich people (StansBerryChurcHouse.com)

Guggenheim CIO Warns “Everything Is Liquid Until You ‘Need’ To Sell” (ZeroHedge.com)

Bitcoin Paving Way for Gold’s Return as Global Currency – Ned Naylor-Leyland (Gata.org)

Gold Prices To Quadruple To $5,000 On ‘Money Tsunami’ – McEwen (Bloomberg.com)

Gold Prices (LBMA AM)

24 Nov: USD 1,289.15, GBP 967.89 & EUR 1,086.37 per ounce
23 Nov: USD 1,290.15, GBP 969.93 & EUR 1,089.40 per ounce
22 Nov: USD 1,283.95, GBP 969.25 & EUR 1,092.51 per ounce
21 Nov: USD 1,280.00, GBP 967.04 & EUR 1,090.69 per ounce
20 Nov: USD 1,292.35, GBP 974.82 & EUR 1,096.43 per ounce
17 Nov: USD 1,283.85, GBP 969.31 & EUR 1,088.19 per ounce
16 Nov: USD 1,277.70, GBP 969.01 & EUR 1,085.53 per ounce

Silver Prices (LBMA)

24 Nov: USD 17.05, GBP 12.80 & EUR 14.38 per ounce
23 Nov: USD 17.10, GBP 12.84 & EUR 14.43 per ounce
22 Nov: USD 16.97, GBP 12.81 & EUR 14.44 per ounce
21 Nov: USD 17.00, GBP 12.85 & EUR 14.50 per ounce
20 Nov: USD 17.15, GBP 12.94 & EUR 14.56 per ounce
17 Nov: USD 17.09, GBP 12.95 & EUR 14.49 per ounce
16 Nov: USD 17.04, GBP 12.92 & EUR 14.48 per ounce

Recent Market Updates

– Brexit Budget – Grim Outlook As UK Economy Downgraded
– Geopolitical Risk Highest “In Four Decades” – Gold Demand in Germany and Globally to Remain Robust
– Gold Versus Bitcoin: The Pro-Gold Argument Takes Shape
– Money and Markets Infographic Shows Silver Most Undervalued Asset
– Is New Fed Chief A “Swamp Critter Extraordinaire”?
– Deepening Crisis In Hyper-inflationary Venezuela and Zimbabwe
– UK Debt Crisis Is Here – Consumer Spending, Employment and Sterling Fall While Inflation Takes Off
– Protect Your Savings With Gold: ECB Propose End To Deposit Protection
– Internet Shutdowns Show Physical Gold Is Ultimate Protection
– Gold Coins and Bars Saw Demand Rise 17% to 222T in Q3
– Prepare For Interest Rate Rises And Global Debt Bubble Collapse
– Platinum Bullion ‘May Be One Of The Only Cheap Assets Out There’
– World’s Largest Gold Producer China Sees Production Fall 10%

Important Guides

For your perusal, below are our most popular guides in 2017:

Essential Guide To Storing Gold In Switzerland

Essential Guide To Storing Gold In Singapore

Essential Guide to Tax Free Gold Sovereigns (UK)

Please share our research with family, friends and colleagues who you think would benefit from being informed by it.

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Earlier this month, newly minted Uber CEO Dara Khosrowshahi made his first high-profile public appearance when he sat down for an interview with the New York Times’s Andrew Ross Sorkin.  Speaking in dulcet tones, Khosrowshahi laid out his vision for making Uber’s workplace culture more inclusive, for building out the product, working with regulators who famously chafed at some of the policies of his predecessor, while also discussing his relationship with Uber’s board members, including former CEO and founder Travis Kalahnick.

Or course, whatever goodwill Khosrowshahi earned from that public-relations coup quickly dissipated earlier this week when he disclosed that hackers had stolen personal data from some 57 million accounts in October 2016 – one year earlier. Furthermore, he admitted that Uber – under Kalanick’s orders – paid the hackers a $100,000 bribe to delete the data, which they said they did. Compromised data from the October 2016 attack included names, email addresses and phone numbers of over 50 million Uber riders around the world, the company told Bloomberg on Tuesday.

The personal information of about 7 million drivers were accessed as well, including some 600,000 U.S. driver’s license numbers.

Khosrowshahi has apologized for the delay, and promised to conduct a thorough investigation (keep in mind, this isn’t the only fiasco he’s dealing with: Uber is still struggling to convince London’s taxi regulator to reinstate its license, and is also facing at least one federal probe into its use of specially designed software to circumvent law enforcement).

Still, the Wall Street Journal has learned that Khosrowshahi learned of the hack just two weeks after taking over on Sept. 5.

So why did he sit on the information for two whole months? In the state of California, where Uber is based, companies must disclose “material” information to investors within a two-month window. According to Khosrowshahi’s own admission, the company appears to have violated these rules.

While the massive data breach at Uber Technologies Inc. didn’t happen under the watch of its new chief executive, more than two months elapsed before he notified affected customers and drivers of the incident, people familiar with the matter said.

 

CEO Dara Khosrowshahi learned of the breach, which Uber said happened in October 2016 and affected some 57 million accounts, about two weeks after he officially took the helm on Sept. 5, one of the people said. Mr. Khosrowshahi said he immediately ordered an investigation, which he wanted to complete before making the matter public.

 

About three weeks ago, though, Uber disclosed the investigation and the broad outlines of the breach to SoftBank Group Corp., which is considering a multibillion-dollar investment in the ride-hailing company, according to other people familiar with the matter. Uber officials, including its chief security officer, knew at the time of the breach that personal information had been accessed. Uber only informed customers and drivers on Tuesday.

 

Under way at the time of the disclosure to SoftBank was an investigation led by FireEye Inc.’s Mandiant forensics arm. Uber had to conduct multiple interviews with employees and others, as well as review accounts, to determine how many customers and drivers were impacted, one of the people said. The company disclosed the breach to the public only after it could put a firm number on how many accounts were affected and cut ties with two executives who it said mishandled the breach, this person said.

Khosrowshahi disclosed that former CEO Travis Kalanick, who resigned as CEO in June, learned of the attack in November 2016 and authorized the payment. In response to Khosrowshahi’s disclosure, several states, along with the Federal Trade Commission and at least three European government agencies, opened inquiries this week into why it took Uber more than a year to disclose the breach. Uber says it’s cooperating, but it isn’t clear what penalties, if any, it might face.

But more germane to Khosrowshahi’s future as CEO is how he handled disclosing the breach to SoftBank, the Japanese conglomerate that has been engaged in seemingly interminable negotiations to purchase a stake in the company. The firm is reportedly planning to invest $10 billion in Uber – $1 billion of which would go directly into the company’s coffers. And as WSJ noted, the hack – even though the data were purportedly destroyed – could still impact the valuation at which Softbank makes its investment.

Dara Khosrowshahi

Of course, some have suggested that Uber hid the hack because of the timing. The company had just settled a lawsuit with the New York attorney general over data security disclosures and was in the process of negotiating with the Federal Trade Commission over the handling of consumer data. Regardless, even when disclosures like this are made within the legally acceptable window, a company’s brand can still endure lasting damage.

“In the U.S. today, most laws allow six to eight weeks for companies to notify regulators and consumers,” said Bo Holland, the chief executive of AllClear ID Inc., a company that helps corporations respond to data breaches. Even companies that meet this standard can suffer tarnished reputations because consumers and investors expect a speedier response, he said in an email message.

 

“Equifax met the letter of the law, no one was happy with their response, and the executives and shareholders suffered the consequences,” he said. Because there are no federal laws on breach notification, incidents such as the Uber hack are covered by a patchwork of 48 state laws, the strongest of which require companies to notify consumers directly as soon as possible after personally identifiable information is compromised.

 

Uber is subject to these laws in states where it does business. Non-compliance with the laws exposes Uber to a range of state penalties and to consumer lawsuits.

As one of WSJ’s sources pointed out, leadership transition isn’t a legally acceptable excuse to delay disclosure.

“The provisions that allow for delay are not about getting your new management in order,” said Deirdre Mulligan, a University of California, Berkeley, professor who served as an adviser to lawmakers during the creation of California’s breach-notification law, which requires companies to notify consumers as soon as possible after a breach but doesn’t specify a time period. The California Department of Justice declined to comment, citing its policy of not commenting on possible investigations.

 

Uber, which is based in San Francisco, said names, email addresses and phone numbers for millions of riders were accessed, as well as the driver’s license numbers for about 600,000 drivers. The unauthorized access of those names and numbers would have triggered the requirement for such a disclosure in California, Ms. Mulligan said.

WSJ reports that after being contacted by the hackers, Uber pushed them to join the company’s “bug bounty” program, which pays people for information about flaws in the company’s software – an approach that definitely seems questionable. The hackers agreed to join the program and Uber paid them the $100,000, and a subsequent investigation by a cybersecurity contractor turned up no evidence that stolen data had been used for malicious purposes. Uber disclosed the breach to Softbank a few weeks before informing its customers, drivers and the broader public.

Uber needed to disclose the breach to its customers and drivers before the tender offer because a breach of this size and scope could be considered material to investors, and possibly impact the price at which SoftBank offers to buy shares. SoftBank is expected to settle on a fixed price for the offer as soon as next week, but the timing of the deal has been repeatedly delayed.

Ultimately, the impact of the hack will be determined by one number: the valuation at which Softbank agrees to invest in the world’s most valuable Silicon Valley unicorn. If it slips below the $70 billion figure that has been bandied about since the company’s last investment round, the news wouldn’t just taint Kalanick’s legacy, it could also cause potentially irreparable damage to Khosrowshahi tenure at the helm of one of the world’s most valuable (allegedly) private and controversial company.

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Thanks to the buzz surrounding bitcoin and blockchain, decentralization as an approach to services is now also being brought to mainstream discussions.

Bitcoin was built as a decentralized currency in the aftermath of the great recession. It was a reaction to the control centralized authorities such as banks have over people’s financial activities. When banks failed, so did the people who entrusted these institutions with their money. Today, bitcoin continues to reach all-time highs in price. Its value is determined largely by the market and not by some central bank.

If bitcoin can disrupt the current model of currencies, then decentralization should also be applicable to other financial activities such as trade. In the context of trade, marketplaces and exchanges are also mainly controlled by centralized authorities. These companies act as intermediaries connecting buyers and sellers. Parties are allowed to exchange of money and goods as long as they follow these companies’ terms and conditions.

Critics of centralization point out that these companies aren’t essential to the process. These companies supposedly only assert relevance in order to profit from the fees they charge for facilitating transactions. Trade can simply happen among peers. There’s also the problem of security where a failure or breach of the centralized authority could mean the collapse of the whole system. Users could lose their properties and money.

Blockchain companies already seek to challenge centralized approaches and introduce decentralization to trading platforms and marketplaces. For example, Decentrex offers a fully decentralized crypto exchange for trading ether and ERC20 tokens. OpenBazaar takes a shot at the likes of eBay and Shopify by enabling merchants to create online stores and accept bitcoin for payments. Europe-based fintech group Naga is even envisioning a blockchain-based ecosystem that allows for decentralized means to trade financial products, virtual items, and cryptocurrencies.

The emergence and growing acceptance of these decentralized services can truly change the way property and other items of value can be exchanged.

No More Middlemen

If one dissects what centralized services offer, they basically just serve functions such listing, escrowing, payments processing, or shipment booking. While these services provide convenience to users, these companies will often take a cut or a fee for each action they take.

In payments, processors often require various fees to enable merchants to accept various payment methods. This stack of fees usually takes into consideration that the payments system relies on other intermediaries such as banks and clearing houses to work. Each of these intermediaries add to the fees. Trading platforms and exchanges also work similarly. Commissions and fees are charged for every transaction.

This continued involvement of various middlemen is an issue blockchain services seek to address. Merchant services like OpenBazaar allow merchants to accept bitcoin payments. Since crypto payments are transferred directly from the buyer’s wallet to the merchant’s, the process can be done without the need for other intermediaries.

As an exchange, Decentrex uses Ethereum smart contracts to facilitate cryptocurrency trading. By letting the blockchain platform handle transactions, fees are often cheaper compared to those charged by centralized exchanges. Some transactions in decentralized exchanges even only get charged what the blockchain requires to process requests.

Convenience through Consolidation

A trend for many companies today is to consolidate related services within ecosystems. Facebook, for instance, has been investing heavily in its Messenger platform. Using chatbots, users are able to perform action such as booking rides or ordering food within Messenger. The goal is for Facebook to become the definitive portal for both social interaction and transactions.

Decentralized services are also set to offer similar ecosystems that would help make transactions more convenient for customers. Naga aims to consolidate several of its own services by putting cryptocurrency at the core of its ecosystem. Naga’s existing services include SwipeStox – a trading app for stocks, foreign exchange, and indices – and Switex – a marketplace for trading virtual items.

To consolidate these services, Naga is set to have its token sale for its Naga Token. The Token will serve as the currency for the ecosystem and would allow users to make secure payments to any of Naga’s services. As incentive, Naga provides discounts to those who will use the tokens for transactions over those who will use fiat currencies. Payment recipients would also be able to access funds quicker without having to wait for lengthy clearing periods common in traditional means.

Blockchain is Gaining Wider Acceptance

It may have taken a while but more organizations and users are finding value in blockchain’s capabilities. In business, it’s not only startups and ventures that are aggressively adopting the technology. Even traditional institutions have embraced blockchain for their own use. Bitcoin and cryptocurrencies have also drawn the attention of even the average investor to diversify into crypto assets.

This increasing exposure of the average consumer to blockchain is crucial for the successful adoption of decentralized services. Most people take time to become comfortable with innovation especially those that do not follow the popular models of established businesses. If consumers see that blockchain services and crypto activities aren’t as complicated, then they will find transitioning to truly peer-to-peer transactions easier.

Trust in Transactions

Blockchain is designed to be transparent, and immutable record-keeping system. As such, transactions done on blockchain can be reviewed, audited, and tracked by anyone on the chain.

This can help ease the problem of disputes common in many trading and marketplace platforms since the blockchain records can show the true status of each transaction. This also helps thwart fraudsters who typically game centralized systems.

Chargebacks fraud is now a major problem for merchants where fraudsters use stolen credit cards to purchase goods. Card owners can perform chargebacks in order to recover the fraudulent charges made to their cards. Merchants, however, are often left shouldering cost of the goods if ever they successfully fulfill the order. Crypto payments do not allow chargebacks and mechanisms such as blockchain identity and smart contracts could help authenticate transacting parties.

Security breaches and cyberattacks have also become quite common these days. Many centralized services have been successfully targeted and victimized resulting in stolen customer data. Decentralized services run on distributed peer-to-peer infrastructure making it difficult for attackers to pick a single point of failure to exploit.

Fair Means to Trade

What decentralized services ultimately offer are means for people to trade in faster, fair, and less restrictive ways. By circumventing the need for intermediaries, buyers and sellers are free to price their items and conduct their transactions more flexibly. Users can also place trust on the mechanisms provided by the technology rather than be compelled to put faith on third-parties. As decentralized services also morph into ecosystems, users and consumers are bound to enjoy better usability and convenience.

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Yesterday’s China stock market rout, in which the Shanghai Composite tumbled the most since June 2016 to three month lows, and which prompted traders to question the dedication of Beijing’s plunge protection team, appears to have been forgotten, with the Composite closing unchanged on Friday after some early session weakness, as Chinese yields declined broadly across the board from 3 years highs. As a result, world stocks hovered just below record highs, and set to reverse two straight weeks of losses, and with Asian markets mostly in the green, as MSCI’s Asia-Pacific ex Japan index rose 0.2%, the optimism spread to Europe where Germany’s IFO Business Climate hit a new record high…

#EUROBOOOM! #Germany‘s #Ifo index hits another record-high! http://pic.twitter.com/L9z7b7Of8I

— jeroen blokland (@jsblokland) November 24, 2017

… and now points to a Y/Y GDP growth of 4%.

It is worth keeping in mind that while European business optimism has never been higher, 90% of the responses to the survey were submitted before Angela Merkel’s coalition talks collapsed. Still, the IFO print was in line with the latest November Markit PMIs, which also printed strong and beat consensus, with Eurozone’s flash composite PMI rising to a 6.5 year high (57.5 vs. 56 expected) and is at a level that is broadly consistent with 3.5% yoy GDP growth, which Deutsche Bank called “a stunning figure for the continent.” In addition to the strong IFO data, there was more good news out of Germany where the SPD is now reportedly ready to negotiate with Merkel to form a government and end the political deadlock. In response to these two developments, the EURUSD rose to the highest level since October 13…

 

… and despite the strong currency European stocks which were in the red in early trading, turned positive, helped to an extent by news Asia would slash import tarfiffs in a boost for consumer goods companies, benefiting European exporters. The Stoxx Europe 600 advanced, also thanks to bank shares as Italian lenders were buoyed by a new proposal to deal with bad loans.

“It’s a bit of a Goldilocks situation (for economic growth). It is finely balanced and I think the European Central Bank has very much hinted at that in its actions, but at the moment I can’t really see how this is going to be up-ended,” said Ken Odeluga, market analyst at City Index.

Ironically, as Germany’s crisis appeared to easing, a new crisis emerged in Ireland, whose bond yields climbed to a 10-day high. The standoff over the Irish deputy leader may lead to an early election at a time when the government has to make key decisions on the Brexit process.

Finally, with the US coming back from Thanksgiving holiday for a half-trading Friday, S&P futures are up 6 points, in fresh record territory, with early optimism among merchants expected to benefit from strong Black Friday sales.

In FX, the US dollar remained under pressure after the minutes from the U.S. Federal Reserve’s latest policy meeting highlighted concerns over persistently low inflation, pushing the DXY 0.2% lower. The Bloomberg Dollar Spot Index headed for its third week of losses, the longest losing streak since July, and is down 1.6% this month.

While a drop in Treasuries supported the gauge initially, gains were capped by a rally in cable and demand for the yen after London open, although post-Thanksgiving volumes remained subdued. In Europe, bonds slipped as equities were mixed and crude oil rose. Indeed, as Bloomberg writes, a rebound in Treasury yields wasn’t enough for the dollar to sustain early gains as the London session started off with decent demand for the euro and the pound amid modest post-Thanksgiving flows. Downside Dollar risks prevail on the charts, with momentum driven by the dovish tone from Federal Reserve Chair Janet Yellen earlier in the week amid lack of progress on U.S. tax reform.

Meanwhile, “euro bulls added longs in the spot market, according to traders in Europe and London, albeit in low volumes, with some desks understaffed on Friday” Bloomberg added.  As we discussed earlier, the common currency rose to its strongest level in six weeks, with hedge funds and interbank accounts leading the move higher. The latter look more confident on euro gains after the latest European Central Bank account showed that a pickup in inflation isn’t a prerequisite for policy makers to end monetary stimulus.

The South African rand heavily underperforms as S&P and Moody’s are due to reassess South Africa sovereign rating and potentially cut further.

In commodities, crude futures hit a two-year high on the shutdown of Keystone pipeline, a major crude pipeline from Canada to the United States. WTI crude futures were up 0.9% at $58.53 a barrel from their last settlement. Brent was flattish at $63.46, down 0.1% on the day. In a sign of a tightening market, both crude benchmarks are in backwardation, making it unattractive for traders to store oil for later sale.

Iron ore climbed to a two-month high, while industrial metals headed for the best weekly gain in six. Crude oil surged as OPEC and Russia were said to have agreed on a framework to extend supply cuts.

Expected economic data include November PMIs. Canada’s Valener is reporting earnings.

Market Snapshot

• S&P 500 futures up 0.1% to 2,597.25
• STOXX Europe 600 up 0.2% to 387.68
• MSCI Asia up 0.1% to 173.08
• MSCI Asia ex Japan up 0.2% to 568.34
• Nikkei up 0.1% to 22,550.85
• Topix up 0.2% to 1,780.56
• Hang Seng Index up 0.5% to 29,866.32
• Shanghai Composite up 0.06% to 3,353.82
• Sensex up 0.3% to 33,682.74
• Australia S&P/ASX 200 down 0.06% to 5,982.55
• Kospi up 0.3% to 2,544.33
• German 10Y yield rose 2.3 bps to 0.37%
• Euro up 0.1% to $1.1864
• Italian 10Y yield rose 1.9 bps to 1.518%
• Spanish 10Y yield rose 1.8 bps to 1.481%
• Brent futures down 0.1% to $63.62/bbl
• Gold spot down 0.1% to $1,290.27
• U.S. Dollar Index down 0.1% to 93.10

Top Overnight News

• Former national security adviser Michael Flynn’s lawyers have notified President Trump’s legal team in recent days they can no longer discuss special counsel’s investigation, NYT reports, adding it’s an indication that Flynn is cooperating with prosecutors or negotiating such a deal
• China said it will further cut import taxes for a wide range of consumer goods in a bid to boost consumption
• Germany’s biggest opposition party said it’s open to talks on backing a government led by Chancellor Angela Merkel. The move came after the Green party urged Merkel to forge a coalition with the SPD, while ruling out further attempts to gain a place in any alliance.
• German Ifo business confidence rose to a record high of 117.5 in November vs estimate of 116.7 and 116.8 in October
• BOE official Silvana Tenreyro said two more rate increases will probably be needed to get inflation back to target, but Brexit will be the real determinant of where policy goes next
• The U.K. financial services regulator confirmed all 20 banks have agreed to support the London interbank offered rate until 2021 and will work toward developing an alternative benchmark
• ECB executive board member Benoit Coeure said ECB deposit rate will stay at minus 0.4% for a long time
• U.K. consumer confidence tumbled to 106.6 in November, the lowest level since the aftermath of the Brexit vote, according to a poll by YouGov and the Centre for Economics and Business Research
• Ireland’s deputy PM is pressured to resign by opposition due to historical conduct; potential for fresh elections as PM support for deputy leads to standoff
• In a Thanksgiving address to troops, Trump credited his policies for allowing progress in Afghanistan and against Islamic State, and warned about sending sophisticated weapons to American allies that one day could become the enemy.
• U.K. Prime Minister Theresa May will meet European Union President Donald Tusk Friday as the country seeks guarantees that the bloc will allow stalled Brexit talks to make progress in exchange for new assurances over money.
• Dalian Exchange cuts trading fees for some iron ore futures contracts
• Noble Group Risks Equity Wipeout as Shares Retreat Yet Again
• Credit Suisse-Backed WeLab Is Said to Plan $500 Million IPO
• Temer Said to Agree on Brazil Pension Vote With House Chief

Asia equity markets traded higher albeit with an indecisive tone as markets lacked impetus with US away from market and mainland Chinese markets reeling from yesterday’ s late sell-off. ASX 200 (-0.1%) and Nikkei 225 (+0.1%) were negative at the open with the latter dampened by a firmer currency on return from holiday, while Mitsubishi Materials underperformed as its shares dropped nearly 10% after the Co. disclosed it had falsified product data. However, Japanese stocks then reversed losses in late trade underpinned by a mild rebound in USD/JPY. Hang Seng (+0.5%) and Shanghai Comp. (-0.1%) were mixed with the mainland index jittery after its 2.3% decline on Thursday which was attributed to tighter regulations and deleveraging concerns,  as well as a slump in the bond market. 10yr JGBs were subdued with demand weighed by a reserved BoJ Rinban announcement for only JPY 390bln and in which the central bank reduced  the amount of buying in 25yr+ maturities. This also coincided with overnight weakness in USTs which tripped through stops at 125.00 to the downside. PBoC injected CNY 30bln via 7-day reverse repos, CNY 10bln via 14-day reverse repos and CNY 10bln via 63-day reverse repos, for a net weekly injection of CNY 150bln vs. Prev. CNY 810bln net injection last week. PBoC set CNY mid-point at 6.5810. China Finance Ministry said it will lower import tariffs on some consumer products from December, with import duties to be cut to an average 7.7% from 17.3%.

Top Asian News

• After Sudden Rout, China Stock Traders Question Beijing Put
• China Approves Taiwan ASE-Siliconware Merger with Conditions
• Hong Kong Finance Elite’s Gym of Choice Is Said to Near Sale
• HNA Is Said to Get Nod From Malaysia for Deutsche Bank Stake
• Banks Squeeze India Firms Harder in $207 Billion Bad Loan Fight

In European trading, it is a somewhat calmer end to the week, with the Euro Stoxx rising 0.3% thus far. The growing prospect of a grand coalition in Germany has helped lift the DAX above 13,000. Move higher in European consumer staples has been aided by the announcement from China that they are to cut tariffs on imported consumer goods. As such, Nestle, Danone and Diageo have been leading the charge, with products including baby formula to be impacted. Bunds holding just edging new and deeper sub-163.00 lows in wake of the stronger than expected German Ifo survey overall, with only current conditions unable to match consensus, albeit still robust. The 10 year benchmark has now recoiled to 162.72 from 163.03 at best, with near term or intraday supports at 162.61 looking attractive. Note, Eur/Usd has now moved a tad higher towards 1.1880 having eclipsed its previous MTD best (1.1761) pre-9.00GMT in what appeared to be a bit of front-running and buy the rumour/sell the fact initially. Back to debt futures, Gilts are largely tracking Bunds and have fallen in sympathy to 125.10 from 125.28 at one stage and from Thursday’s 125.31 close. BBA mortgage data up next in the UK.

Top European News

• U.K. Consumer Confidence Hits Level Last Seen After Brexit Vote
• Man Utd.’s Fellaini Sues New Balance Over Foot-Damaging Cleats
• Clariant to Revise Strategy Yet Won’t Bow to Breakup Demands
• Putin Peace Plan Gets Boost as Syria Opposition Unites for Talks

In FX, the the Dollar showing some signs of stabilisation, if not recovery across the board, as the Index holds in above 93.000 after Thanksgiving and ahead of another shortened US session, which will keep trading conditions thin and choppy. The pound was an early gainer and outerperformer (albeit marginal) on more Brexit headlines, as UK PM May and the EU’ s Juncker both claim progress made in negotiations ahead of more ‘crucial’talks. Cable back above 1.3300 as a result, and Eur/Gbp sub-0.8900. The Euro is still firm vs he Greenback, with the headline pair breaching its November peak (1.1861), while the next key chart resistance resides at 1.1880. EUR had been further bolstered by firm German IFO data, in which the Business Climate figure rose to a record high. The yen was off best levels vs the Usd, as strong technical support just above 111.00 is respected (for now), but 112.10 widely seen capping the upside within a new lower range

In commodities, iron ore prices continued its recent upward trajectory, with the spot price hitting its highest level since September 20th amid stronger steel prices. Copper also edging higher with support from the softer USD. The price of the red metal likely helped by a 24hr strike announced yesterday’ s at Chile’ s Escondida copper mine, the worlds largest mine. WTI and Brent crude futures up 0.9% and 0.1% respectively, with focus on next weeks OPEC and Non-OPEC meeting where expectations are for a 9-month extension

Looking at the day ahead, in Germany we received the November IFO survey, which printed at a new record high of 117.5. In the US, we get the flash November PMIs. Black Friday also marks the traditional start of the US holiday shopping season and any clues to footfall and overall sales will be closely watched. One other event potentially keeping an eye on is S&P and Moody’s scheduled sovereign rating reviews of South Africa, with the country at risk of losing its investment grade status. The ECB’s Supervisory chair Ms Nouy will also speak today.

US Event Calendar

• 9:45am: Markit US Manufacturing PMI, est. 55, prior 54.6
• Markit US Services PMI, est. 55.3, prior 55.3
• Markit US Composite PMI, prior 55.2

DB’s Jim Reid concludes the overnight wrap

Welcome to Boxing Thanksgiving Day or Black Friday as it’s commonly known these days. I must have about 10 emails in my inbox already this morning informing me of must have bargains. On the quiet holiday inspired session yesterday the most interesting story occurred after we went to print but before you read it. Chinese bourses weakened very late in the session and ended the day 2-3% lower. The CSI 300 index fell 2.96% – the biggest daily drop since June 2016. The exact cause of the sharp drop is still a bit unclear, but candidates included: the recent domestic govt. bond market sell-off and volatility, rising corporate yields, profit taking, concerns that the government may step up initiatives to cool down the strong gains in certain stocks and further reactions from the recent regulatory tightening in the asset management sector. This aside, we note that despite yesterday’s drop, the CSI index is still up c24% YTD.

This morning in Asia, markets are trading a bit mixed. Chinese bourses are down 0.4-0.5% but then again they were down a similar amount this time yesterday before the late sell-off. The Nikkei is up 0.13% after trading resumed from a holiday. Elsewhere, the Hang Seng (+0.25%) and Kospi (+0.09%) are slightly up as we type. The US markets will be open for half day trading today, with the UST 10y yields up c2bp this morning.

Staying with China, DB’s Zhiwei Zhang takes a closer look at potential macro risks from China . In his note, he tries to gauge the impact of tightening policies on tier 3 cities and finds policy tightening to be effective with a time lag of c3 months. Hence, the impact of the 1st round of tightening should have been reflected in today’s property prices, while the impact of the 2nd round is likely to be seen over the next few months. Overall, he reiterates his view that economic growth in China will slow in 4Q17 and 1H18, and that the government may have to loosen property market policy in 2Q18 to stabilise it.

Moving to Europe, the November Markit PMIs were strong and beat consensus which had anticipated a small pullback. The Eurozone’s flash composite PMI rose to a 6.5 year high (57.5 vs. 56 expected) and is at a level that is broadly consistent with c3.5% yoy GDP growth. A stunning figure for the continent. The strength was led by the manufacturing PMI, which rose 1.5pt to 60 (vs. 58.2 expected) – the highest in 17 years, while the Services PMI also slightly beat (56.2 vs. 55.2 expected). Across the region, the improvements in PMIs were broad based and driven by both core and peripherals (more later). So far, subdued core inflation has kept the pressure off the ECB to move more quickly towards tighter policy. With growth so above trend and the level of slack narrowing, the ECB may struggle to maintain expectations of a very gradual removal of easy policy. Overall, DB’s Peter Sidorov see the timing of the first rate hike at around 2020, as too far out.

Turning to Germany, there seems to be a glimmer of hope in the coalition talks to form the next government after a softening in the SPD’s position. Bloomberg reported that the Head of Germany’s biggest opposition party (SPD) Mr Schulz is now ready to hold talks with Merkel and is prepared to back her, but only for a minority led government at this stage. Notably, Ms Merkel has signalled she prefers a new election rather than a minority government. Elsewhere, other SPD members seem to be more accommodating, with SPD lawmaker Mr Lauterbach noting “…we want to help Germany and have not ruled out anything”, which includes the option of a renewed “grand coalition” with Merkel’s party, although did add this is a last resort.

Onto the ECB minutes, which did not seem to be ground breaking as the range of views had already been highlighted in recent speeches. Although, at the margin, it made us feel the first rate hike that is currently priced in at the start of 2020 may need to be moved a bit earlier. In the details, the minutes showed “a large majority” of members supported QE tapering and its  nine months extension, but there were debates on whether to set a firm end date or not. Some concerns were that the “open ended nature of [QE]…might generate expectations of further extensions” post September 2018, which ‘from the current perspective, did not appear justified in the absence of major new shocks”. Conversely, others wanted a longer purchase horizon to provide more monetary support and expressed concern of setting a firm date on when the program will stop. Finally, several members suggested delinking the relationship between QE and the inflation outlook and moving to a reference to the monetary policy stance. Elsewhere, the ECB’s Villeroy noted the ECB is clearly making progress in boosting inflation, but “as we are not yet at our target, we must maintain ample degree of monetary stimulus”.

Over in government bonds, changes in 10y yields were fairly muted. Bunds dipped 0.2bp, while OATs rose 1.2bp and Gilts fell 2.6bp. Notably, peripherals slightly underperformed with yields up 1-2bp.

Now briefly recapping other markets performance for yesterday. With the US markets closed for Thanksgiving, European markets were mixed but little changed. The Stoxx 600 (+0.02%), DAX (-0.05%) and FTSE (-0.02%) were broadly flat. Notably, the CAC rose 0.50% and peripherals also slightly outperformed (Spain’s IBEX +0.19%; FTSE MIB +0.37%), partly buoyed by the solid PMIs.

Turning to currencies, the US dollar index and Sterling both dipped c0.11% while Euro gained 0.25%. In commodities, WTI oil edged up 0.93% to a fresh two year high, while iron ore jumped 3.87% back to a two month high (c8% up in two days), partly driven by supportive steel rebar prices and the ongoing steel production cuts in China.

Away from the markets and onto Brexit. It seems the 4th December may be an important turning point for Brexit talks or at least a focal point. The EU President Juncker has confirmed his meeting with UK’s PM May and noted from there “we will see whether we can move forward or whether we are stuck. My hope would be that we move forward”. The FT had previously reported PM May will present her improved financial settlement offer at this meeting. Elsewhere, the ECB’s Villeroy has cautioned that “all actors should as of now undertake…necessary preparations to avoid potential cliff-edge risk” from Brexit. Finally, DB’s Oliver Harvey notes the December EU Council is likely a crunch point for Brexit talks, but achieving the UK government’s hope of wrapping up key trade talks by early next year may be easier said than done, with potential agreement at the December EU summit representing only the end of the beginning of Brexit negotiations.

Before we take a look at today’s calendar, we wrap up with other data releases from yesterday. In Germany, the final reading for the 3Q GDP was unrevised at 0.8% qoq and 2.8% yoy. In the details, net exports have contributed to c50% of the growth with a rise in inventories contributing the remainder. Elsewhere, both the 3Q private consumption (-0.1% qoq vs. 0.2% expected), and capital investments (0.4% qoq vs. 1.4% expected) were lower than expected, but the softness was partly due to upward revisions to prior readings.

In the UK, the second reading of the 3Q GDP was unrevised at 0.4% qoq and 1.5% yoy. The 3Q private consumption slightly beat expectations (0.6% qoq vs. 0.4% expected) to the highest since 3Q16, but fixed capital formation (0.2% qoq vs. 0.4% expected) was a bit softer. Elsewhere, the November CBI’s distributive trade survey was more upbeat following a tough October, with a net 26% of respondents noting growth in sales over the past year and a net 24% expecting growth to continue next month. Finally, in France , both the November Business confidence (111 vs. 109 expected) and manufacturing confidence (112 vs. 111 expected) were above expectations, with business confidence almost at a decade high.

For completeness, following up on the aforementioned flash PMIs across the EU bloc. In Germany, the composite PMI (57.6 vs. 56.7 expected) and manufacturing (62.5 vs. 60.4 expected) were both higher than expected, with the latter at the highest since 2011, while the services PMI (54.9 vs. 55 expected) was a tad softer. In France, the composite (60.1 vs. 57.2 expected), services (60.2 vs. 57 expected) and manufacturing PMIs (57.5 vs. 55.9 expected) all beat expectations.

Looking at the day ahead, in Germany we’ll receive the November IFO survey. In the US, there is the flash November PMIs. Black Friday also marks the traditional start of the US holiday shopping season and any clues to footfall and overall sales will be closely watched. One other event potentially keeping an eye on is S&P and Moody’s scheduled sovereign rating reviews of South Africa, with the country at risk of losing its investment grade status. The ECB’s Supervisory chair Ms Nouy will also speak today.

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