Category: zerohedge

Cigarette stocks dropped (then rebounded), after a Bloomberg report that the Food and Drug Administration is threatening to pull flavored electronic cigarettes like Juul off the market if the tobacco industry doesn’t do more to combat growing use of the products by children and teens.

Citing FDA Commissioner Scott Gottlieb, Bloomberg notes that the FDA will soon release data that show a “substantial increase” in youth vaping this year compared with 2017.

“I have grown increasingly concerned around what we see as rising youth use in these products, and I’m disappointed in the actions the companies have taken to try to address this,” Gottlieb told Bloomberg in an interview.

The FDA told five major e-cigarette manufacturers Wednesday to come up with ways to address youth use in 60 days or the agency could require them to stop selling flavored products that appeal to children. The products being targeted are: Juul, Altria Group Inc.’s MarkTen, Fontem Ventures BV’s blu, British American Tobacco Plc’s Vuse and Logic.

Additionally, to gain clearance to return to the market, the tobacco companies would have to prove that the benefits to adults who use e-cigarettes to stop smoking outweigh the risks associated with youth vaping, Bloomberg adds.

“I certainly am in possession of evidence that warrants that,” Gottlieb said, adding that the problem has reached “epidemic proportion” although he declined to disclose the evidence.

That said, a quick look at the numbers confirms as much. According to data from Wells Fargo and Agora Financial, vaping sales reached $10 billion worldwide, a far cry from the mere $20 million in 2008. It is safe to assume that a substantial amount of sales is to young consumers.

In a separate report, of the 3.6 million middle- and high-school students who said in 2017 they are current tobacco-product users, 2.1 million used e-cigarettes, according to the Centers for Disease Control and Prevention. “There is no question that a lot of the youth use is being driven by Juul,” Gottlieb said.

While a variety of vaping products are available in the market, Gottlieb appears to be focused on Juul: “There is no question that a lot of the youth use is being driven by Juul” he told Bloomberg.

Produced by San Francisco-based Juul Labs Inc., Juul devices resemble a USB thumb drive and have become popular among students. The company has more than two-thirds of the U.S. e-cigarette market, according to Nielsen data. The FDA is currently developing a survey to determine what percentage of youth vapers are using Juul products, Gottlieb said.

From June through August, a nationwide sting operation resulted in more than 1,300 warning letters and fines to retailers who sold Juul products and other e-cigarettes to kids. It was “the largest coordinated enforcement effort in the FDA’s history,” according to the agency.

Gottlieb recently began to ask whether the use of Juul and other similar products by kids is overshadowing any benefit to adult smokers using the devices to help them quit cigarettes. He said in June tobacco companies “better step up and step up soon” but he didn’t divulge what consequences the industry could face – until now.

Following a sharp drop in stock prices across the tobacco sector, names like Altria and others have spiked and were up over 4% following speculation that the FDA’s crackdown was not as severe as some had feared.

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Embattled Chicago Mayor Rahm Emanuel is forming a task force that will analyze whether the city should establish a so-called “universal basic income” program, as they Mayor seeks to salvage his legacy – currently associated with Chicago’s horrendous murder rate and broken pension system. Emanuel announced he would not be seeking a third term in next February’s elections.

The task force set up by Emanuel will consist of a panel that will decide whether the welfare initiative could work, as the city wrestles with a $71 billion debt load, nearly $40 billion of which is pension debt. 

A Universal Basic Income scheme was first floated in July by Chicago Alderman Ameye Pawar – who is running for Governor of Illinois this November. Pawar’s called on Emanuel tro launch a pilot program which would pay 1,000 families $500 each month. 

Pawar recently introduced a pilot for a UBI program in Chicago. Under his program, $500 a month would be delivered to 1,000 Chicago families — no strings attached. Additionally, the proposal would modify the Earned Income Tax Credit program for the same 1,000 families, so they’d receive payments on a monthly basis instead at the end of the year — a process known as “smoothing” that enables families to integrate the tax credit into their monthly budgets.

…

“Nearly 70 percent of Americans don’t have $1,000 in the bank for an emergency,” Pawar told The Intercept. “UBI could be an incredible benefit for people who are working and are having a tough time making ends meet or putting food on the table at the end of the month. … It’s time to start thinking about direct cash transfers to people so that they can start making plans about how they’re going to get by.” –The Intercept 

Pawar told the Chicago Tribune he doesn’t think Emanuel is simply trying to take credit for the idea right before his successor has to deal with implementing it. 

“Chicago would be the largest city in the country to take this step,” Pawar told the Chicago Tribune. “I think the mayor sees this as a chance to lead the way as cities try to grapple with poverty and income inequality at a time the federal government is not addressing those things. This would be a legacy issue (for Emanuel).”

My legislation calling for the creation of a Chicago #UniversalBasicIncome pilot has 36 co-sponsors! On to the Commitee on Workforce Development and Audit. Committee chair @40thWard is also a sponsor. More soon! #UBI pic.twitter.com/W7D5Hbx31E

— Ameya Pawar (@Ameya_Pawar_IL) June 27, 2018

In July, former President Obama advocated for Universal Basic Income while speaking at the 2018 Nelson Mandela lecture. 

Whoa Obama just endorsed a UBI.

“It’s not just money that a job provides. It provides dignity and structure and a sense of place and a sense of purpose. So we’re gonna have to consider new ways of thinking about these problems, like a universal income.” pic.twitter.com/3K2veB4R3a

— Jeremy Slevin (@jeremyslevin) July 17, 2018

That said, to Pawar – the question isn’t whether the United States can afford to implement UBI, rather, whether it can afford not to. 

“My response to Amazon, and Tesla, and Ford, and Uber … we need to start having a conversation about automation and a regulatory framework so that if jobs simply go away, what are we going to do with the workforce? … If [those companies are] reticent to pay their fair share in taxes and still want tax incentives and at the same time automate jobs, what do you think is going to happen?” Pawar asked.

“These divisions are going to grow and, in many ways, we’re sitting on a powder keg.”

Of course, to give Chicago’s entire population of 2.7 million a check for $500 per month would cost $1.35 Billion per month, or $16.2 billion per year. Considering the city’s $71 billion debt load – of which around $40 billion is pension debt, UBI would add nearly 23% per year to that ticking time bomb. 

This is a great idea except redistribution schemes destroy wealth, create dependency, and ultimately rob people of the ambition, pride, purpose and fulfillment associated with creating wealth. Otherwise, should work fine.https://t.co/1A9oUdAKFL

— Andy Swan (@AndySwan) September 12, 2018

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President Vladimir Putin addressed the Skripal case during comments made before an audience at the Eastern Economic Forum (EEF) in the Russian city of Vladivostok, and to the audience’s great surprise, he said “we have found them”.

He said during the Wednesday comments that Moscow knows exactly who the men named by UK authorities as suspects are, saying they are not some kind of notorious criminals but mere civilians. Putin at one point seemed make a direct appeal to the suspects: “I want to address them [the suspects]… [I hope] they contact the media. I hope they appear and tell everything about themselves,” he said before the audience. 

UK prosecutors in early September named two Russians they suspect of poisoning Sergei Skripal and his daughter in Salisbury last March, identifying them as Alexander Petrov and Ruslan Boshirov. In the aftermath Russia slammed Britain as seeking to stir anti-Russian sentiment while making accusations with no substantial evidence to back it.

Upon announcing the suspects, which the UK accuses of being part of Russia’s military intelligence agency, the GRU, British authorities issued European arrest warrants. Russia denies any involvement: Kremlin spokesman Dmitry Peskov had immediately pushed back on the suggestion of a GRU link, saying “Neither Russia’s top leadership nor those with lower ranks, and [Russian] officials, have had anything to do with the events in Salisbury.”

But Putin shocked with this bombshell on Wednesday: “We know who they are, we have found them,” he said during the EFF panel event with Japan’s Shinzo Abe and China’s Xi Jinping, according to the AFP. 

And in what appears a reference to Britain’s charge that the suspects are actually members of Russian intelligence, Putin said, “They are civilians, of course.”

Hinting that the men might appear to make a public statement from Russia, Putin said, “I hope they will turn up themselves and tell about themselves,” and added, “There is nothing special there, nothing criminal, I assure you. We’ll see in the near future.”

The British government says the pair launched the chemical attack on the former Russian spy supposedly using a perfume bottle. Authorities claim the men were also caught on CCTV cameras in Salisbury twice, including on the day of the attack, before quickly returning to the Russian capital. 

Investigators said they had identified the suspected perpetrators of the Novichok attack by crossing referencing CCTV feeds with records of people who entered the country around that time. 

After CCTV images released by Scotland yard a week ago, a number of observers were quick to question how Alexander Petrov and Ruslan Borishov could both occupy exactly the same space at Gatwick airport at precisely the same second, according to the time shots on the published CCTV footage: 16.22.43 on 2 March 2018.

As we also discussed, neither photo shows the other following less than a second behind.

There seems no possible physical explanation for this. You can see ten yards behind each of them, and neither has anybody behind for at least ten yards. Yet they were both photographed in the same spot at the same second.

It will be interesting to see, per Putin’s suggestion, whether the men actually appear before cameras in Moscow to defend themselves and attempt to explain their actions and travels inside Britain when the alleged attack went down. 

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Submitted by Bloomberg macro commentator Richard Breslow

There was a very important story reported on Bloomberg this morning. And a distressing one, from a trading point of view. It suggested the likelihood that the ECB’s economic forecasts have been downgraded and the new projections will be announced after Thursday’s rate-setting meeting. It’s a most interesting development. Not because it will upset expectations for the outcome of the meeting. Other than to perhaps dampen the excitement of those that have been warning us to buckle up because we could be in for a hawkish surprise. What intrigued me was the utterly muted reaction to the news. And this in a world where markets often overreact to spurious headlines and comments.

To be fair, there was some movement in the euro and bunds, but you would be hard pressed to notice it if you weren’t watching the minute-by-minute charts. What struck me is that European equities didn’t seem to take much joy from the news nor, more tellingly, did the dollar.

And this on a day when consumer confidence in Australia fell out of bed and no one is saying it’s stronger than it looks. Not to mention that Chinese and South Korean numbers were noticeable misses sending the Shanghai Composite and the Hang Seng to new lows on the year.

Emerging market currencies seem to be the prime beneficiaries, but I can’t help but wonder if this wasn’t on a change in any European rate expectations but the fact that the dollar may not be the all-powerful king we’ve been making it out to be.

Everyone, including myself, has been factoring dollar strength into our ideas. It has been running roughshod over everything else. Right? Yet, even with today’s meager range, we have seen these prices in the dollar index every day since the end of August. More significantly, the same can be said of the more inclusive Bloomberg Dollar Index.

The summer is over and it should be back to school for everyone, including capital markets. But I rarely talk to anyone outside the U.S. without being asked what is going on in America? And it’s never broached with mere idle curiosity. It’s more like a different spin on fear and greed.

Markets are global animals, even though we too often think otherwise. Everyone, and I mean everyone, outside the U.S., is consumed with interest in the midterm elections. I have this morbid fear, that, rightly or wrongly, we could sit very close to these levels until we find out the results. It also makes me convinced that to think the outcome won’t potentially have profound effects on where we go between then and the end of the year would be a mistake.

I’d hate to think we will have to wait until then to see the volatility spike that could make things interesting.

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With all eyes on US CPI inflation data tomorrow to confirm the overheating aspects of last Friday’s blistering hot jobs report, moments ago the BLS reported that wholesale inflation in the form of producer prices unexpectedly fell in August, its first drop in 18 months since last February; the decline followed an unchanged print in July and missed expectations of a 0.2% increase.

Excluding food and energy, core PPI fell also 0.1% M/M, below the exp. 0.2% rise;

On an annual basis, headline PPI rose just 2.8% y/y, missing expectations of a 3.2% print and down from 3.3% last month; core PPI was up 2.3% y/y, missing the estimate of 2.7%, and down from last month’s 2.7% print.

According to the BLS, the decline in the PPI reflected a 0.1 percent drop in the cost of services – more than 80% of which was accounted for by falling margins for machinery and equipment wholesaling. Goods prices were unchanged, as a 0.6% drop in food costs offset a 0.4% increase in energy.

While headline PPI fell, underlying producer prices rose, as core PPI – excluding food, energy, and trade services costs – rose 0.1% from the previous month following a 0.3% increase, however that too missed the 0.2% consensus print.

The report also notes that in August, the index for residential electric power moved up 0.6 percent. Prices for fresh and dry vegetables, corn, gasoline, and passenger cars also increased. In contrast, the index for fresh fruits and melons dropped 11.3 percent. Prices for diesel fuel, meats, eggs for fresh use, and iron and steel scrap also declined.

Some other details:

• Machinery and equipment wholesale margins fell 1.7 percent, most since December; health, beauty and optical goods retail margins dropped 2.7 percent, most since February
• Airline passenger services fell 2 percent, most since January
• Construction machinery and equipment rose 0.8 percent, most since 2011
• Processed lumber for intermediate demand fell 6.9 percent, the most since 1980

According to Bloomberg, today’s unexpectedly soft data suggest that inflationary pressures may be taking a breather even as most signs of economic growth remain solid. Analysts are also watching for signs of how trade tariffs and retaliatory levies are affecting companies, particularly how they are filtering through the production pipeline to other businesses and consumers.

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One week ago, Bank of America’s CIO Michael Hartnett predicted that Europe will be the “missing link” for the emerging market crisis to spread to the rest of the developed world and “morph into a global deleveraging event.”

But where would the crack appear: after all, until recently European economic data had been surprisingly strong… if not so much in the past few days, because after emerging into the green, the Citi Eurozone economic surprise index appears to have rolled over, and returned back into negative territory.

Then, as if to confirm that Europe was finally starting to groan under the weight of EM turmoil, overnight Bloomberg reported that the ECB was set to revise its forecasts lower for euro-area economic growth during its press conference on Thursday “as global trade tensions damp external demand, according to officials familiar with the latest projections.”

According to Bloomberg’s sources, the main nations dragging on demand were the U.K. and Turkey, though the U.S. outlook is still positive.

In June, the ECB predicted economic growth would slow from 2.1 percent this year to 1.7 percent in 2020, with inflation averaging 1.7 percent in all three years covered in the forecast.

The growing pessimistic outlook comes at an “awkward time” for the Governing Council, just as it prepares to wind back stimulus, though the adjustments probably aren’t big enough to derail those plans yet, unless of course the EM turmoil continues and results in even more German foreign factory order weakness.

The silver lining: the path of inflation, the primary consideration for monetary policy, remains unchanged… for now.

Ahead of Draghi’s statement tomorrow, in which every word is scrutinized, the ECB committee now sees “the risks to economic growth as tilted to the downside.” While that’s a change from policy makers’ latest view that the risks are “broadly balanced,” the Governing Council could choose to disagree with that assessment and keep its existing language at its meeting on Thursday.

“We’ve thought for months that it was a little strange to say risks are balanced, when every single one mentioned was on the downside,” said Nick Kounis, an economist at ABN Amro Bank NV in Amsterdam. “Given the ECB hasn’t said risks are tilted to the downside until now, it would be surprising if they changed their outlook now, even though it would be justified.”

ECB head Mario Draghi, who will unveil the final projections after the Governing Council meeting on Thursday, has acknowledged the damage to confidence from protectionist threats and global uncertainties in recent months. Since then, Turkey and Argentina have slid deeper into crisis, triggering turmoil across the emerging-markets world, and the U.K. is still at risk of breaking away from the European Union without a trade agreement.

The economic downgrade comes at a time when the ECB is rapidly tapering its QE program. Consensus expects the ECB to confirm that monthly bond buying will be reduced to €15 billion from €30 billion starting next month, before ending in December. Interest rates are seen rising in late 2019.

The euro slipped after the report and traded as low as $1.1570 although it has since recovered much of the losses.

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Episodes of threats and violence perpetuated by angry leftists furious about President Trump’s agenda and policies, are becoming increasingly common in the US, particularly after a deranged Bernie Sanders supporter nearly killed majority whip Steve Scalise after opening fire on a practice session for the Congressional baseball game.

Another incident unfolded on Tuesday in northern California, where a 35-year-old man was arrested for whipping out a switchblade and attempting to stab Republican Congressional candidate Rudy Peters while the candidate was working a booth at the Castro Valley Fall Festival.

Rudy Peters

The man, who was later identified as Farzad Vincent Fazeli, was arrested and charged with one felony count of making criminal threats and a misdemeanor count of exhibiting a deadly weapon. According to media reports, Fazeli approached Peters unprovoked and started shouting “fuck Trump” and other “disparaging profanities” about the Republican Party. Fazeli then allegedly pulled out a switchblade and tried to stab Peters, but was foiled when the blade malfunctioned.

The Alameda County Sheriff’s Office issued a statement about the incident (read it below):

Fazeli “approached the victim in an aggressive manner and made disparaging remarks about his political party and elected officials,” Alameda County Sheriff’s Office said in a statement.

“During the incident, Fazeli is suspected to have pulled out a switchblade knife and attempted to stab the victim. The knife malfunctioned and the victim became involved in a physical struggle with Fazeli.”

County police responded to the incident at around 3:45 pm local time after somebody called in about a disturbance near Peters’ booth.

Peters said he has never before been concerned about his safety prior to the attempted stabbing. “People are just polarized right now, and this country’s divided and it’s just a mess. It shouldn’t be that way,” Peters said, according to the San Francisco Chronicle.

“It’s a shame,” he said. “People are just polarized right now, and this country’s divided and it’s just a mess. It shouldn’t be that way.”

“All of a sudden we hear someone screaming, “F— Trump, f— Trump!” Peters recalled. He said the man raised his middle finger and was “standing right in front of the booth.”

Peters had been sitting with Joseph Grcar, a Republican state Assembly candidate, when Fazeli approached. Peters said he and Grcar were both “kind of shocked” by the attack, but that the man seemed like he was walking off. “The next thing you know,” Peters said, “he stops and turns around and says, ‘I’ll show you,’ and runs at the booth.”

Farzad Fazeli

Per the San Francisco Chronicle, Fazeli grabbed a coffee cup from a nearby table and threw it at him, prompting Peters to come around the table and “grab him”. An altercation ensued, where Peters said he threw Fazeli to the ground before the suspect hopped back up, reached into his pocket and grabbed the switchblade.

“He’s screaming, ‘I’m gonna kill you, motherf—er!'” Peters said. “He had the knife, but the blade wouldn’t shoot out.”

Fazeli then threatened to use his pink switchblade to stab Peters, but he “could not open it.”

Peters then grabbed a sign from a nearby booth and used it as a shield, but fortunately someone stepped in and urged the attacker to calm down. Peters reported the incident, and Fazeli was soon detained.

Peters is running against Democratic Rep. Eric Swalwell in California’s fifteenth Congressional district. Given the miraculous factors that prevented this close call from becoming an unmitigated tragedy, one can’t help but wonder how many more acts of extreme violence will be directed at Republicans between now and Nov. 6, and if any of them will result in tragic outcomes.

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Following a week of what appeared to be harmonious agreement between top Italian government officials, its finance minister and Europe over the controversial topic of Italy’s budget deficit which somehow has to remain under 3% of GDP even as it made exorbitant promises to the population, including the very expensive vow of “citizen income”, moments ago Italian bond yields spike and stocks tumbled to three day lows, following a report in Italy’s Ansa that the coalition member Five Star wants €10BN for its citizen-income proposal or else the resignation of Finance Minister Tria.

Media reports on Tuesday had suggested they were seeking €5BN.

In immediate response, Italy 2Y yields spiked, while the 10Y spread to Germany widens 9bps from tightest level to 255bps.

In similar risk off kneejerk response, the Italian FTSE MIB index dropped by nearly 300 points, and was trading down over 0.5% lower as the Italian budget risk appears to be back squarely on the table.

 

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Amid fears of global oil supply disruption and production curbs, in its latest monthly report, OPEC expects global oil supplies to remain stable, while cautioning that demand is becoming a growing concern.

In the latest report, OPEC said that preliminary data suggested that the global oil supply increased 490,000 barrels a day to average 98.9 mb/d in August, compared with the previous month.

OPEC projects that in 2018, non-OPEC oil supply will grow by 2.02 mmb/d despite making a downward revision of 64,000 b/d from its last report. In 2019, non-OPEC oil supply is expected to grow by another 2.15 mb/d, an upward revision of 17,000 b/d. Meanwhile, OPEC’s supply is also rising.

According to secondary sources total crude oil production by OPEC members averaged 32.56 mb/d in August, an increase of 278,000 b/d over the previous month. As shown in the table below, oil output increased mostly in Libya, Iraq and Nigeria, while production declined in Iran, which is due to be hit with sanctions on its oil industry from November onwards, Venezuela, which is experiencing economic and political upheavals depressing production, and Algeria.

Meanwhile, oil production by OPEC’s leader Saudi Arabia rose by 38kb/d to 10.4 million barrels daily, ticking up every months since May, when it and Russia signalled that they could increase output to fill any supply shortages due to incoming U.S. sanctions on Iran’s oil industry.

One curious divergence: according to secondary sources, Iran’s oil supply production fell by 150,000 barrels a day from July to August to around 3.5 mb/d. But according to Iran’s own reporting, production was stable and unchanged production figures for the last three months, however, of 3.8 mb/d.

But while OPEC sees supply as stable, some clouds emerged on the demands side, where OPEC expects that in 2018 global oil demand is expected to grow by 1.62 million barrels a day, a minor downward revision from last month’s projection.

“World oil demand growth in 2018 was revised downward by around 20,000 b/d, primarily as a result of the slower-than-expected performance by non-OECD Latin America and the Middle East during the second quarter of 2018” OPEC said. “Hence, world oil demand growth is now pegged at 1.62 mb/d for 2018, with total global consumption at 98.82 mb/d.”

OPEC revised world oil demand growth lower for 2019 as well.

“In 2019, world oil demand growth was revised slightly lower by 20,000 from the previous month’s report, primarily as a result of economic revisions to Latin America and the Middle East. World oil demand growth is now anticipated at 1.41 mb/d and total global consumption at around 100.23 mb/d.”

What is becoming a growing demand-side concern to the oil market are fears that punitive U.S. tariffs on Chinese imports could weaken demand the country’s demand for oil. Looking at the global oil trade, OPEC noted that while China’s crude oil imports dropped in July by 70,000 barrels a day from the previous month to average 8.62 mb/d, based on an annual comparison, China’s crude imports were still higher by 420,000 b/d in August, or 5 percent higher from a year ago.

As a result, demand for oil from the 15-member producing group OPEC is expected to fall the rest of 2018 and into 2019, OPEC said. In 2018, demand for OPEC crude is expected at 32.9 million barrels a day (mb/d), which is 500,000 barrels a day lower than in the previous year, the organization said.

OPEC forecasts that demand for its crude at 32.1 mb/d in 2019, around 900,000 b/d lower than a year earlier. Yet, as CNBC notes, total world oil demand in 2019 is now projected to surpass 100 mb/d for the first time and reach 100.23 mb/d.

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Summary:

• Asian stocks slumped for the 10th consecutive day, the longest losing streak since 2002.
• European and US stocks reversed Asian losses, trading modestly in the green
• Oil extended previous sessions gains post API’s as Hurricane Florence approaches the Carolinas
• CAD extends overnight gains NAFTA nears a perfect storm on dairy access
• Dark clouds clearing for UK PM May as ERG downplays overthrow but presents an alternate Brexit deal
• Looking ahead, highlights include, DoEs, Fed’s Brainard & Bullard and supply from the US

The “alligator jaws” chart presented by Jeff Gundlach during his Double Line conference call on Tuesday, which showed the unprecedented divergence between the US stocks and the rest of the world…

… was on display overnight, when Asian markets slumped once again, defying repeated calls for a rebound, as the MSCI Asia Pacific Index ex-Japan posted its 10th consecutive decline, the longest losing streak since 2002…

… although European stocks advanced modestly on Wednesday while US stock futures were once again in the green.

MSCI’s all-country equity index inched up marginally, looking to extend two sessions of modest gains that had snapped six straight days of losses. But emerging equities retreated to new 15-month lows, while fresh sparring between Washington and Beijing over trade kept world stocks close to three-week lows on Wednesday, and a slight dollar pullback gave little respite to emerging markets; the Indian rupee plumbing new record lows. Treasury yields edged lower after climbing a day earlier.

Meanwhile, as Bloomberg notes, central banks are back in the spotlight this week, with market participants increasingly preparing for the Fed to raise rates twice more in 2018, and policy meetings on the schedule for the European Central Bank and Bank of England, as well as Turkish and Russian central banks. Meanwhile, investors will be gauging the potential for extreme weather to disrupt economic activity, as threats from trade tension and Brexit negotiations linger.

“What the market needs is a signal of some relaxation in trade rhetoric, a bit of climb down,” said Lombard Odier’s Salman Ahmed. “That should be enough as fundamentals are strong. But you do need a trigger point and so far we have not seen it.” Another catalyst could be signals from the U.S. Federal Reserve that it could slow the pace of rate rises but given the torrent of strong U.S. data, that looks unlikely: data this week showed U.S. small business optimism at the highest level on record.

As a result of these two trends, Asian equities excluding Japan hit their lowest since July 2017 as the Shanghai Composite dipped below the 2016 closing low and most regional currencies declined.

Japan also closed in the red, down -0.3%, as the Yen halted a three-day drop against the dollar, pressuring stocks: “equities, particularly the Nikkei, are not having a good day and as a result USD/JPY has given back some of Tuesday’s gains,” said Rodrigo Catril, a currency strategist at National Australia Bank Ltd. in Sydney.

Emerging currencies also stayed under pressure, with the yuan slipping to a two and a half week lows against the dollar leading Asian peers lower and keeping the Australian dollar heavily linked to Chinese trade, close to its lowest since February 2016.

Australia’s dollar fell toward a more-than two-year low, dropping as low as 0.7094 after the Westpac consumer confidence fell 3% m/m in Sept, after dropping 2.3% in August and as declines in Asian stocks, the offshore yuan and iron ore sapped demand for the currency.  As discussed yesterday, emerging markets have been the biggest victims of the trade spats and rising U.S interest rates. The MSCI index of emerging currencies is down over 8% this year.

Emerging markets’ woes are being exacerbated by heavy dollar-denominated borrowing over the past decade, with Societe Generale analysts noting that “the misallocation of capital following a decade of cheap money is starting to be exposed”

Meanwhile, while the Turkish lira and Argentine peso have steadied off record lows, the Indian rupee continues to plumb new lows, taking year-to-date losses versus the dollar to more than 12%. “The rupee … is symptomatic of the overall situation in emerging markets, but it also embeds some idiosyncratic problems – with the fiscal deficit growing and the current account deficit widening on back of rising commodity prices,” said Cristian Maggio, head of emerging markets strategy at TD Securities.

European stocks shook off Asia’s woes on Wednesday and were modestly in the green, led by energy companies and miners who were among the biggest winners in Europe as Bloomberg’s commodity index rose. Futures on the Dow, S&P 500 and Nasdaq advanced even as America’s East Coast battened down for Hurricane Florence.

The dollar dipped 0.2% lower against a basket of currencies as hopes grew of concessions by Canada that would resolve disputes over reworking the North American Free Trade Agreement. The euro slipped and German bonds rallied after the news that ECB is to cut its growth outlook for the euro area while euro-zone industrial production fell 0.8% m/m in July vs est. 0.5% drop; the pound fluctuated after comments by European Commission President Jean- Claude Juncker who said he would work “day and night” for a divorce deal with the U.K. on Brexit though Britain can’t stay in “parts” of the bloc’s single market; it also slipped off five-week highs hit this week against the dollar, following the latest news from ITV about a Brexiteer plot to oust Theresa May.

Two-year Treasury yields held near a decade high and the dollar edged lower. Long-dated U.S. bond yields stayed just off the one-month highs hit on Tuesday after data showing sustained strength in the jobs market and the Treasury started a record debt sale amounting to almost $150 billion. The rise in U.S. TSY yields has hit Italy. It has been one of the bright spots in world markets in recent days, as fears have receded of a government spending binge. But Italian 10-year yields rose 2 bps off six-week lows.

BoE Governor Carney warned against complacency in the 10th anniversary of the GFC, while he outlined risks to the UK  economy including high levels of household debt, no-deal Brexit, high debt for China’s economy and a catastrophic cyber-attack.

In geopolitical news, US, North Korea and South Korea mull October for the 2nd summit between US President Trump and North Korean Leader Kim.

In the neverending Brexit drama, a source report noted that Brexit deal summit said to be likely by mid-November, with UK and EU preparing for meeting with leaders to sign deal and that a plan will likely be announced at September 19th-20th meeting in Austria. Downing Street is reportedly drawing up secret plans and has 2 escape options if the EU rejects PM May’s Chequers proposal. The first option would see Chequers parked until talks resume after Brexit day for a loosely-worded fudge on the future relationship instead. The second, is to abandon it altogether and return to a more basic Canada style free trade agreement – but only if the EU gives way on its Irish border hardline.

Elsewhere, cryptocurrencies extended their collapse from a January high to 80 percent, surpassing the Nasdaq’s peak-to-trough bust in the 2000s.

Oil prices extended Tuesday’s $2 surge, with Brent futures closing in on $80 a barrel as Hurricane Florence advanced and U.S. sanctions started weighing on Iran’s exports.

Scheduled economic publications include mortgage applications, PPI data and Fed’s Beige Book. Hudson’s Bay, Pivotal Software are due to report earnings, while Apple is set to unveil its latest iPhones.

Market Snapshot

• S&P 500 futures up 0.2% to 2,894.00
• STOXX Europe 600 up 0.4% to 376.94
• MXAP down 0.2% to 158.57
• MXAPJ down 0.09% to 507.44
• Nikkei down 0.3% to 22,604.61
• Topix down 0.5% to 1,691.32
• Hang Seng Index down 0.3% to 26,345.04
• Shanghai Composite down 0.3% to 2,656.11
• Sensex up 0.7% to 37,682.00
• Australia S&P/ASX 200 down 0.06% to 6,175.92
• Kospi down 0.01% to 2,282.92
• German 10Y yield fell 1.1 bps to 0.419%
• Euro down 0.05% to $1.1600
• Brent Futures up 0.2% to $79.24/bbl
• Italian 10Y yield rose 3.3 bps to 2.581%
• Spanish 10Y yield unchanged at 1.466%
• Brent Futures up 0.2% to $79.25/bbl
• Gold spot down 0.2% to $1,196.35
• U.S. Dollar Index down 0.2% to 95.08

Top Overnight News

• European Commission President Jean-Claude Juncker says in annual State of the Union address that the union should propose measures for strengthening the status of the euro
• Japanese Economy Minister Toshimitsu Motegi and U.S. Trade Representative Robert Lighthizer will likely hold second round of trade talks in U.S. on September 21, Reuters reports, citing unidentified source familiar with the matter
• The U.K. and the EU are preparing for a special summit to sign the Brexit deal in November and the meeting could be announced within days, according to people familiar with the matter
• Luigi Di Maio, one of Italy’s two deputy prime ministers, renewed his push for a so-called citizen’s income, saying abandoning the key pledge would threaten the government
• Russian President Vladimir Putin rejected British allegations that the Russians suspected of carrying out a nerve- agent attack on a former spy in the U.K. are intelligence agents and called on them to go public, making his first official comments on the charges
• Chancellor Angela Merkel offered implicit support for military action against Syria, upbraiding her coalition partner for ruling out German participation in a response to an offensive in the country’s last rebel stronghold
• On Sept. 21, China will ask the Geneva-based organization to sanction trade retaliation against certain U.S. products, according to a Tuesday statement from the WTO. China asked the WTO to approve annual retaliatory trade measures against $7 billion in U.S. goods, according to a separate release
• The Canadian government is poised to release a blueprint to reform the World Trade Organization as countries adjust to a newly protectionist America that has threatened to leave the organization entirely
• After one of the most tumultuous elections in modern Swedish history, the country’s future may now depend on the content of about 200,000 ballots that were just added to a recount
• Oil futures in New York advanced beyond the session’s 2.5 percent jump after the American Petroleum Institute was said to report an 8.64 million-barrel drop in domestic inventories last week. Supplies also declined at the important storage complex in Cushing, Oklahoma, the API was said to disclose, a strong signal of tightening markets
• Islamic State claimed responsibility for an attack on the headquarters of Libya’s main oil company in Tripoli and said oil fields in the North Africa nation are a “legitimate target” for its militants

Asian equity markets were lower across the board after the region failed to sustain the early momentum from US, where the Nasdaq outperformed as Apple shares were lifted ahead of its special event and with energy names boosted by a rally in oil prices. ASX 200 (flat) was subdued as losses in telecoms and financials overshadowed the upside in energy stocks and with Myer shares hit after it reported a full-year loss, while Nikkei 225 (-0.3%) slipped amid a pullback in USD/JPY. Elsewhere, Hang Seng (-0.3%) delved deeper into bear market territory and Shanghai Comp. (-0.3%) also conformed to the downbeat tone despite the PBoC’s first open market operation after a 15-session hiatus, as trade uncertainty lingered and amid Chinese commodity losses. Finally, 10yr JGBs were flat with trade kept in a very tight range as prices failed to benefit despite the risk averse tone and BoJ’s presence in the market in the belly to super-long end.

Top Asian News

 

• Indonesia Wants Tighter FX Rules for Exporters to Bolster Rupiah
• Rupee Rallies as India Considers Steps to Support the Currency
• India Measures Likely on Rupee, Oil After Modi Reviews Economy
• Hikvision Slumps on News U.S. May Sanction China on Muslim Camps

 

Core European bourses trade mostly higher (Euro Stoxx 50 +0.2%) despite the negative lead from Asia. UK’s FTSE 100 lags its peers as the index is weighed on by currency effects and weakness in utility names following a profit warning from SSE (-7.6%), dragging the sector (-1.0%) and fellow utility names such as Centrica (-3.7%) and National Grid (1.6%) in sympathy. In terms of individual movers, FTSE 100 heavyweight Rolls-Royce (-3.0%) rests near the foot of the index, while traders cite reports of an emergency landing made by an Iberian flight with Rolls-Royce XWB engines.

Top European News

• Swedish Establishment Mulls Collaboration to Block Nationalists
• Inditex Says Revenue May Accelerate After Four-Year Lull
• Playing With Fire in Europe’s Powder Keg as Balkan Tensions Rise
• Goldman Sees ‘Meaningful Upside’ in European Bank Stocks

In FX, focus was on cable, where more positive EU Brexit vibes, and this time from EC President Juncker have given Sterling another boost, with the pount back on the 1.3000 handle after a dip below on more reports about Tory plots against UK PM May, while EUR/Gbp slips back towards 0.8900 irrespective of the single currency’s rebound vs the Usd to retest 1.1600 before dipping again amidst ECB ‘source’ reports suggesting downgrades to staff GDP forecasts and downside risks to the growth outlook tomorrow. EM – Some comparative calm across the region ahead of what could well be another storm or at least volatile session on Thursday when the CBRT decides on policy and needs to deliver given aggressive/hawkish market expectations. However, reports about potential intervention from India have lifted the Rupee pre-emptively and to the benefit of others to a degree. AUD/NZD – Narrowly mixed vs their US rival with the Aud recovering quite well from another 0.7100 downside probe given deteriorating Aussie consumer confidence overnight, and the Kiwi also keeping its head above a big figure (0.6500), albeit just.

In commodities, WTI and Brent futures took a breather following yesterday’s rally amid hurricane concerns, which was exacerbated by a larger than expected draw API crude inventories. Inventories showed a draw of 8.636mln barrels against the expected draw of 800k barrels. WTI futures retreated back below USD 70/bbl in recent trade. The latest from the NHC states Hurricane Florence heading towards the US East Coast and is expected to bring life-threatening storm surge and rainfall to portions of the Carolinas and mid-Atlantic states. While there are only a few refineries in Florence’s path, the hurricane poses problems in terms of cargo shipping. Laden energy cargos have not been heading towards the North/South Carolina region ahead of the hurricane. Elsewhere, gold is uneventful while copper outperforms following the recent decline in the red metal.

On today’s calendar, the main focus in the US should be on the August PPI report where a +0.2% mom print is expected for both the headline and core readings. The Fed’s Beige Book is also out this  evening while St Louis Fed President James Bullard speaks at 2.40pm BST and then Governor Lael Brainard will speak at 5.45pm BST.

US Event Calendar

• 7am: MBA Mortgage Applications, prior -0.1%
• 8:30am: PPI Final Demand MoM, est. 0.2%, prior 0.0%;
  • PPI Ex Food and Energy MoM, est. 0.2%, prior 0.1%; PPI Ex Food, Energy, Trade MoM, est. 0.2%, prior 0.3%
  • PPI Ex Food and Energy YoY, est. 2.7%, prior 2.7%; PPI Ex Food, Energy, Trade YoY, prior 2.8%
• 2pm: U.S. Federal Reserve Releases Beige Book

DB’s Jim Reid concludes the overnight wrap

Today is the day where every year I wake up completely happy with my current phone but go to bed completely dissatisfied with it and the day I have to justify to my wife why I need a new phone while realising after listening to myself that I don’t. However, since having children this conversation has gotten easier as the camera usually gets ever so slightly better each year and I can persuade my wife that the photos of the kids will be enhanced. So yes, it’s the annual Apple iPhone launch day. Given their status as the world’s biggest company it does matter for markets as well as for personal curiosities. They’ve added $160bn of market cap since the start of August which to put in some context that amount would equate to the 35th biggest S&P 500 company and the 13th biggest STOXX 600 company.

Talking of Apple, a weak early European session and US open was reversed as tech rebounded from recent weakness with Apple (+2.53%) firm ahead of its big day. The S&P 500, DOW and NASDAQ closed +0.37%, +0.44% and +0.61% after hitting lows of -0.36%, -0.40% and -0.55% respectively just after the open. Europe also fought back from earlier losses of as much as half a percent or so with the STOXX 600 finishing -0.05%. The early dip seemed to be sparked by a WTO news release suggesting that China was to ask the WTO to sanction trade retaliation against the US over failure to comply with a dispute ruling from last year which found that parts of the US anti-dumping regime had proven to be illegal. This was slightly stale news though and as such was downplayed somewhat but nevertheless did have a bit of an impact on markets.

Meanwhile bond markets continued to climb after last week’s bumper US earnings number and additional positive data yesterday (more below) with Treasury yields climbing +4.4bps to 2.976% and to the highest since August 2nd, while yields in Europe were broadly 2-3bps higher following a busy day for supply. EM FX had been fairly calm for much of the session until currencies in Latam started trading with the Argentine Peso (-1.58%) and Brazilian Real (-1.60%) leading losses, though the broader EM FX index was more or less flat as the Russian Ruble (+1.66%) and South African Rand (+0.90%) bounced.

Brazilian assets had a fairly tough day all round with the IBOVESPA tumbling -2.33% and hard and local currency 10 yields rising +11.6bps and +12.0bps respectively.This followed the latest polls (Datafolha) ahead of the October 7th Presidential election, which showed steady support for the right-wing candidate Jair Bolsonaro at 24%. Potentially worrying for markets, two centre-left, marketunfriendly candidates – Ciro Gomes and Fernando Haddad – were looking towards second place on 13% and 9%, and the poll indicates that either candidate would defeat Bolsonaro in the second round runoff.

Elsewhere, bucking the recent trend of late was the slightly more subdued performance for Italian assets. The FTSE MIB ended -0.31% while 10y BTP yields rose as much as +9.5bps from the intraday lows and closed higher for only the second time this month. To be fair there wasn’t a great deal of newsflow and it’s hard to really attribute the move to Finance Minister Tria’s comments. He said at an event in Rome that the government was committed to reducing taxes on personal income in the hotly anticipated 2019 budget but that “it remains to be seen whether this is compatible with budget limits” and also that any cuts might come after eliminating existing tax breaks in other areas. After Italian markets closed, Deputy Prime Minister and head of the League Salvini said in an interview that Italy will respect the 3% deficit limit and that new fiscal policies will be implemented over a 5-year program. Our economists believe that the highest deficit that would still allow the debt to remain sustainable is around 2.3%, and they published a report yesterday focused on the interaction between the budget and macroeconomic growth.

As far as markets overnight have fared, that positive tone from the US session appears to have ended within the first few minutes of Asia trading with bourses back in the red.The Hang Seng (-0.44%) in particular has fallen further into the bear market it entered yesterday while the Nikkei (-0.50%), Shanghai Comp (-0.33%) and Kospi (-0.33%) are also down. It’s worth noting that the Shanghai Comp at one stage traded below its December 2014 closing this morning, meaning its now also down over 25% from its YTD peak. Futures markets in the US and Europe are also lower while Oil (+0.94%) has continued to rise following the +2.53% rally yesterday over supply fears related to Hurricane Florence. Meanwhile the main news overnight came from Reuters suggesting that a second round of trade talks between the US and Japan could take place on September 21st, following a summit between Abe and Trump on the sidelines of the UN General Assembly General Debate. With similar positive headlines about the US and EU this puts the spotlight firmly back on the China trade war situation. Away from that it’s quiet but remember we’ve got super Thursday tomorrow with the ECB, BoE and CBT all meeting and with US CPI also out. So we could easily see a livelier end to the week than the start.

Back to yesterday. In terms of data, in the US the NFIB small business optimism reading jumped to the highest in August  (108.8 vs. 108.0 expected) since data started getting collated in 1974. Capital spending plans were also reported as being the highest since 2007 and inventory investment intentions the highest since 2005. If that wasn’t enough, then the net 26% of owners (on a seasonally adjusted basis) planning to increase employment was also the highest ever. Separately, the monthly jobs openings and labour turnover survey showed several indicators of labour market tightness: there are only 91 unemployed people per 100 job openings, the lowest ever, and the quits rate is at its highest level since 2001. Both series suggest that inflationary wage pressures will continue.

In Germany the September ZEW survey for current conditions jumped an unexpected 4.4pts to 76.0, far exceeding expectations for a small decline to 72.0, while the survey component also improved to -10.6 from -13.7. Both components are well off their recent highs but clearly the positive momentum is welcome.

Here in the UK there was also some decent numbers out of the July earnings data with average weekly earnings ex-bonuses jumping two-tenths and more than expected to +2.9% yoy (vs. +2.8% expected). In July alone basic earnings came in at +3.1% which was the most since 2015. While we’re on the UK, yesterday we got confirmation that BoE Governor Carney was to extend his term as Governor for an extra seven months, taking his term to January 2020 and therefore around half of the way through the period from which the UK will withdraw from the EU. Sterling finished flat yesterday despite those headlines. Late in the US session, media outlets reported that the UK and EU are preparing to formally sign off on a Brexit withdrawal agreement in November, possibly in the week of November 12. The pound edged up around +0.3% on the headlines but failed to hold there, as the more contentious issues, e.g. how to resolve the Irish border, will likely not be completely resolved before the UK withdraws from the EU.

As for what we should be keeping an eye on today, this morning we’ll get the July industrial production print for the euro area which is expected to show a small month on month decline. This afternoon the main focus in the US should be on the August PPI report where a +0.2% mom print is expected for both the headline and core readings. The Fed’s Beige Book is also out this  evening while St Louis Fed President James Bullard speaks at 2.40pm BST and then Governor Lael Brainard will speak at 5.45pm BST.

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