When there was news that Trump would meet on the sidelines of the U.N. General Assembly in a few weeks there were sighs of relief.
When Benjamin Netanyahu goes to Moscow to get Vladimir Putin’s blessing to continue airstrikes in Syria was told no, the world said, “Finally! Enough is enough.”
The problem is that there were also very powerful people who were not happy about these things.
Moreover, there are a lot of nervous people out there worried that Tuesday’s election in Israel will not go the way they want it.
A lot of people have invested a lot of time and money in ensuring Netanyahu stays in power. And I don’t just mean Bibi himself, who will likely go to jail on corruption charges if he doesn’t win.
I mean a lot of people in the U.S., Saudi Arabia, the U.K. and in Europe, all of the places where anti-Russian, anti-Iranian and pro-Israeli sentiments abound.
And this brings up the main question I always have in the wake of one of these major escalations of tensions with the country currently catching the Twin Eyes of Sauron in D.C. and Tel Aviv.
Why do they always seem to occur right after moments of de-escalation and there’s the threat of peace breaking out somewhere?
Why is it that every time President Trump tries to push the U.S. and the world away from war within a few days there’s an incident which pushes us right back to the brink of it?
Trump visits Kim Jong-un in North Korea, making history, there are attacks on UAE oil tankers. Trump refuses to attack Iran over them shooting down a Global Hawk drone in Iranian airspace escorted by a fully-crewed Poseiden P-8.
Britain seizes the Grace 1 oil tanker. Israel attacks Shi’ite Militia targets outside of Baghdad.
Go back to President Trump first, and biggest, geopolitical blunder. The Syrian Army wins a major battle and is on the verge of victory, and a chemical weapons attack happens deep in Al-Qaeda controlled territory blamed on the SAA.
Trump then launches 57 tomahawks at the Al-Shairat airbase.
Trump declares we’re pulling out of Syria, Israel openly bombs targets deep in Syria. His staff, including John Bolton, freak out and walk it back.
The Houthis send a couple of drones at an Aramco facility far beyond their known capabilities and the UAE pulls out of the Saudi coalition in Yemen.
Moscow has had its fill of Netanyahu. He’s openly mocking Trump at international forums, first offering to sell the U.S. Russia’s hypersonic missiles at the G-20 and then offering to sell S-400 missile defense systems to the Saudis to protect their people from outside actors.
All with tongue firmly implanted in cheek.
Things look bad for the alliance between the U.S., Israel and Saudi Arabia, when your opponents are laughing at you openly. In that moment Putin exposed that the emperor truly was standing naked in front of the world.
And yet, after all of these coincidences I’m supposed to believe, without evidence again, that Iran would jeopardize its future at the very moment when everything is beginning to break their way and the U.S. maximum pressure campaign is failing?
The very fact that we have been shown zero proof of what happened more than 48 hours after the event which has every neocon in the U.S. clamoring for war is your biggest tell that there is something very off about this incident.
Even President Trump doesn’t believe this as he is taking the same tack rhetorically now that he did after the U.S. Global Hawk drone was shot down.
We’ve gone from:
Saudi Arabia oil supply was attacked. There is reason to believe that we know the culprit, are locked and loaded depending on verification, but are waiting to hear from the Kingdom as to who they believe was the cause of this attack, and under what terms we would proceed!
“I don’t want to have war with anybody” but our military is prepared, Trump says at the White House, where he was meeting with Bahrain Crown Prince Salman bin Hamad Al Khalifa. Furthermore, the president said the US is not looking at retaliatory options until he has“definitive proof” that Iran was responsible for attacks on Saudi Arabian oil facilities.
Still, Trump told reporters in the Oval Office that the US “is prepared” if the attacks warrant a response.
Also notably, when asked if he has promised to protect the Saudis, the president responded “No, I haven’t promised the Saudis that… We have to sit down with the Saudis and work something out.”
Moreover, the stunning lack of support from Europe and the rest of the world makes it incredibly suspect that the story that we’ve been told to date, just like with the Global Hawk drone, is anything close to the real one.
And it seems Trump may believe that as well.
In the end, as always, we should be asking the most salient question surrounding this attack.
Cui Bono? (Who Benefits?)
Because it certainly isn’t Iran.
But we know who. The bombs had barely hit their targets when AIPAC’s favorite son, Lindsay Graham, was out in full throat for war. Secretary of State Mike Pompeo told the world Iran was behind 100 strikes of this kind.
Not a shred of evidence. And Trump’s first response was to subordinate U.S. troops sworn to uphold the Constitution and defend the U.S. to the terrorist-funding, repressive regime in Saudi Arabia to do what, exactly?
The Saudis needs $80+ per barrel oil.
The U.S. frackers need $60+ and zero-bound interest rates to keep the red ink flowing just slow enough to get yield-starved pension funds to bite on the next round of unpayable loans.
Israel needs a strong alliance and U.S. presence in the Middle East lest it have to act like a normal country by respecting its borders and making nice with its neighbors now that it has been exposed as one of the chief architects and supporters of the project to turn Syria into a failed state run by Takfiri crazies and anyone else no one wants in their back yard.
But the biggest question of all in this is simple. How dumb do these people think we are?
We can read licence plates from space but we can’t tell where a swarm of missiles that hits one of the most strategically important piece of real estate in the entire world came from?
Seriously?
Whenever a major incident like this happens there’s always this ridiculous fog of war over what happened to obfuscate reality and blame the current enemy of the empire.
The truth is that the Houthis could have pulled this off with help from Iran and there’s little to stop it from happening again and again. They proved their point a few weeks ago.
The Saudis have lost in Yemen. They are now losing a helluva lot more than that.
Iran is serious about taking everyone’s ability to sell oil off the table if they are denied.
Why should anyone be surprised that the Houthis want to cripple Saudi Arabia for its disastrous war and Iran wouldn’t want to assist them in doing so?
Moreover, why isn’t their response justified given the blatant aggression against both?
When is someone in D.C. going to finally realize there is no winning play with Iran anymore?
* * *
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Oil Prices Plunge On Reports Saudi Output Levels Normalized With 2-3 Weeks
WTI and Brent oil prices are plunging after Reuters headlines, quoting sources briefed on the matter, that Saudi oil output will return to normal quicker than initially thought.
WTI is back down to a $60 handle for now – so not entirely convinced…
Brent is down 5% on the news as a “top Saudi source” confirms that Saudi output will be fully back online in next 2-3 weeks.
US Manufacturing Recession Continues For Second Month In A Row
The good news is that total US industrial production, which also includes output at mines and utilities, increased 0.6%, the most in a year as crude oil extraction bounced back after Hurricane Barry depressed drilling in the Gulf of Mexico a month earlier.
The bad news is that it was not enough to improve the deteriorating annual trend which showed a mere 0.4% YoY growth – the weakest since January 2017…
Source: Bloomberg
Manufacturing production jumped 0.5% MoM (well above the +0.2% expected) but…
But thanks to production of motor vehicles decreasing 1%, the most in four months, the worst news is that manufacturing production remains down on a YoY basis (-0.4% YoY) for the second month in a row…
Source: Bloomberg
The industry slipped into a recession during the first half of 2019 amid slowing overseas demand, exacerbated by an ongoing trade war with China. While domestic demand may help cushion producers from a deeper slowdown, the risk is that output could remain anemic in coming months.
Something critical is going on in overnight funding markets: ever since March 20, the Effective Fed Funds rate has been trading above the IOER. This is not supposed to happen, and it just got significantly worse.
As a reminder, ever since the financial crisis, in order to push the effective fed funds rate above zero at a time of trillions in excess reserves, the Fed was compelled to create a corridor system for the fed funds rate which was bound on the bottom and top by two specific rates controlled by the Federal Reserve: the “floor” for the corridor was the overnight reverse repurchase rate (ON-RRP) which usually coincides with the lower bound of the fed funds rate, while on top, the effective fed funds rate is bound by the rate the Fed pays on Excess Reserves (IOER), which served as the corridor “ceiling.”
Or at least that’s the theory. In practice, the effective FF tends to occasionally diverge from this corridor, and when it does, it prompts fears that the Fed is losing control over the most important instrument available to it: the price of money, which is set via the fed funds rate.
Ever since March 20, this fear is front and center because as shown in the chart below, starting on March 20, the effective Fed Funds rate rose above the IOER first by just 1 basis point. The Fed attempted to technically tamp this down.. and failed. But today the Effective Fed Funds Rate has exploded….
Smashing above the IOER…
Source: Bloomberg
As we noted earlier, no one is sure of what is driving this apparent liquidity shortage
elevated UST supply,
bloated dealer balance sheets and year-end regulatory constraints
a banking system near reserve scarcity,
investors selling bonds back to dealers, and
banks and money-market funds to make their quarterly tax payment.
The bottom line is simple – The Fed has lost control of its rate-control mechanism.
So what should the Fed do to regain control over interest rates?
According to Barclays to address the expected increase in fed funds volatility, the Fed, having ended the balance sheet runoff this summer instead of waiting until September, could create a standing repo facility – something which has been rumored for months – or conduct standard open market operations, injecting even more liquidity into the system.
But as we noted earlier, the problem for the Fed is that following today’s massive move in repo higher, it now appears that the Fed is once again behind the curve, and this time the funding squeeze could have dire consequences for not only the economy but the market, as the broken repo plumbing means that despite $1.4 trillion in excess reserves, one or more banks are suddenly left without liquidity, which as we explained over a month ago in “Forget China, The Fed Has A Much Bigger Problem On Its Hands”, the only alternative Powell may soon have is to restart QE.
Fun week so far:
Monday: biggest ever surge in oil
Tuesday: biggest ever surge in GC repo
But stocks are near record highs, because… The Fed.
Energy Expert Warns Oil Shocks Hit The Economy With Incredible Speed, Usually Within Thirty Days
Submitted by Steven Kopits of Princeton Energy Advisors
The lasting damage from the weekend’s attacks on Saudi oil infrastructure is yet to be fully assessed. Having said that, we can make some broad statements about supply outages and economic cycles.
Although we tend to forget it, almost all of the major US recessions since 1945 have been triggered by wars in the Middle East involving Persian Gulf countries and oil politics.
Specifically:
The 1956-1957 Suez Crisis led to the closing of the Suez canal and rapidly precipitated a recession in the advanced economies
The Yom Kippur War of 1973 led to an embargo on oil exports to the US and other western countries, precipitating the first US post-peak oil shock
The Iran-Iraq War created another price spike, triggering the Second Oil Shock, two back-to-back recessions in the US (1979-1983)
Price increases associated with Saddam Hussein’s preparations for the First Gulf War tipped in the US into recession in 1991
The Arab Spring of 2011 created supply shortages which sent oil prices back over $100/barrel, leading to a two year recession in Europe
In recent times, only the 2001 Dot.com bust and the 2008 oil price spike were not associated with supply outages related to a conflict in the Middle East. A conflict-induced recession would not be an exception to the rule, but rather the typical trigger ending a late stage expansion in the west.
Oil shocks hit the economy with incredible speed, usually within thirty days.
The magnitude necessary to precipitate a price spike and a resulting recession is probably less than a loss of 3 mbpd, 3% of global supply. Over the weekend, Saudi outages totaled 5.7 mbpd. The oil price would have to reach around $110 / barrel to push the world into recession, before taking into consideration the phase of the business cycle. The closest parallel is 1991, when a brief oil price spike pushed an already tottering US economy into recession.
The futures curve as of this morning can be seen on the graph below. At present, it appears to represent no major risk to the global economy.
We had earlier stated that the administration’s ‘maximum pressure’ strategy on Iran enhanced the attractiveness of a lose-lose scenario for Tehran. That is, if Iran could not export across the Strait of Hormuz, no one would. We take the current attack to represent yet another step up in this lose-lose mentality, that is, Iran is hoping to force the US back to the bargaining table while employing tactics which can only be described as fatalistic and self-defeating.
At this point, it looks like the die is cast, and the situation is more likely to deteriorate than improve, perhaps materially so.
“Nobody Knows What’s Going On”: Repo Market Freezes As Overnight Rate Hits All Time High Of 10%
Back in the summer of 2013, China’s banking system was on the verge of collapse when its overnight repo rates briefly soared to the mid-20% range, prompting the central bank to take emergency intervention to avoid a funding freeze.
As of this morning, the US is halfway there.
After we reported yesterday that “something snapped” as chaos hit the report market, and the overnight repo rate exploded as high as 7% for a variety of reasons including:
elevated UST supply,
bloated dealer balance sheets and year-end regulatory constraints
a banking system near reserve scarcity,
investors selling bonds back to dealers, and
banks and money-market funds to make their quarterly tax payment.
… on Tuesday this paniced funding shortage has intensified to never before seen levels, as overnight repo has now hit 10% and shows no signs of slowing.
While specific prints are scarce as the bid/ask spread is a massive 2% at last check, Reuters has GC repo at 10%, while Bloomberg’s own pricing sources show the key funding rate soaring by more than 600 basis points to 8.53%, based on ICAP pricing, after opening around 7%.
Putting this move in context, overnight GC repo has not only just had its biggest surge in history, but it is printing at the highest level in decades!
Not even the rates experts are stumped, with one STIR trader saying “nobody knows what is going on”, and desks are simply watching what appears to be a relentless dollar funding squeeze as one or more entities are in desperate need for funding and will pay any price for it (even though it is neither month nor quarter end yet).
As a reminder, commenting on Monday’s just as shocking move, BMO rates strategist Jon Hill said that “secured funding markets are clearly not functioning well,” adding that a jump like this, one which is not happening during the traditional quarter end window dressing period, is “bordering on chaos.”
It is thus safe to say that secured funding markets are now officially broken.
Separately, Bloomberg points out that the Libor replacement rate, SOFR, or Secured Overnight Financing Rate, which is backed by overnight GC repo transactions, also jumped to 2.43% Monday from 2.20%, New York Fed data show. That’s the highest since July 31, and it is odd because it is taking place as the Fed already cut rates once and is expected to cut rates again tomorrow by at least 25bps.
Meanwhile, as we warned last Friday, the funding shortage has now spilled over into money markets, making dollar funding much more expensive, as any USD-based cross-currency swap spike. As Bloomberg notes, “demand for the dollar is showing up in swap rates from euros, pounds, yen and even Australia’s currency. As an example, the cost to borrow dollars for one week in FX markets while lending euros almost doubled.”
Just like Monday, while there was no immediate catalyst, as we explained on Friday, the reason behind Monday’s GC repo explosion is a combination of factors including the settlement of the mid-month Treasury coupon auctions that pushed collateral into the repo market, even as cash is leaving the funding space as corporations have withdrawn cash parked with banks and money-market funds to make their quarterly tax payment.
The funding shortage was made worse by an unexpected ill-timed event, because just as companies were withdrawing cash from money markets to pay corporate tax, a glut of new bonds appeared on the market as the U.S. government sold some $78 billion of 10- and 30-year debt last week. And with just $24 billion of bonds maturing in the period, this became one of three occasions this year when the imbalance between debt redemption and cash needed to buy new Treasuries exceeded $50 billion, according to Bloomberg.
But the biggest reason for the creeping dollar shortage is that as discussed extensively previously, following the recent debt ceiling deal, the Treasury is aggressively pushing its cash balance higher while depleting the amount of bank reserves in the system.
“Repo pressure is almost entirely a settlement story with $54 billion of net supply in Treasury coupons landing on already very crowded dealer balance sheets,” wrote Blake Gwinn, head of front-end rates at NatWest Markets, adding that the tax deadline probably exacerbated the situation.
The drop-off in reserves and fund outflows is driving up funding rates and is starting to spill into the fed funds market because repo’s attractive yields can draw some lenders away from the unsecured market.
Which again brings us the $64 trillion question: as a reminder, on Friday we concluded by asking rhetorically, “how to determine if the dollar funding squeeze will cause another major risk off episode?” Here, BofA said that as the Fed starts to test these reserve lows, “we expect funding markets to react by showing further Treasury cheapening, widening of FRA-OIS, and narrowing of front-end spreads & SOFR-FF basis.”
However, once the Fed responds by engaging in repo or outright UST purchase operations we expect these markets to move in the opposite direction. We suggest clients continue to trade these themes tactically and consider moving out of UST cheapening positions as fed funds rises towards the IOER +15 to +20 bps level.
We also said that “if the Fed wants to front-run the funding shortage, and aggressively inject liquidity into the system, nothing prevents it from following in the ECB’s footsteps and hint at another round of QE in the near future: not only would that send stocks soaring in the asset bubble’s “Icarus song”, but it would also make Trump happy, if only until it all comes crashing down.”
The problem for the Fed is that following today’s massive move in repo higher, it now appears that the Fed is once again behind the curve, and this time the funding squeeze could have dire consequences for not only the economy but the market, as the broken repo plumbing means that despite $1.4 trillion in excess reserves, one or more banks are suddenly left without liquidity, which as we explained over a month ago in “Forget China, The Fed Has A Much Bigger Problem On Its Hands”, the only alternative Powell may soon have is to restart QE.
With rumors that valuations have cratered to around $10-12 billion, is anyone surprised?
That is not what Masayoshi Son wants to see.
As we noted previously, if WeWork does follow the advice of its equity sponsor to delay the IPO, it may soon find itself in a liquidity crisis as it will also lose access to a $6 billion loan from a group of banks, including JPMorgan Chase and Goldman Sachs, that was contingent on the IPO raising at least $3bn in new investment.
The sudden loss of more than $9 billion in total new capital which had already been factored into the company’s growth trajectory, would force a dramatic change in the We Company’s corporate strategy according to the FT; it would also cripple its aggressive expansion strategy that has seen it open 528 locations in more than 110 cities.
And considering the company’s gargantuan losses – by the end of 2019 the company will have burned through $6 billion since 2016 – it might, as some have speculated, even lead to the company’s bankruptcy, which brings up even more pertinent questions: what would happen to the US commercial real estate sector where WeWork has emerged as one of the biggest players?
“My country can never again afford the luxury of another Montgomery success…”
Luxembourg? Where? Fetch the Map!
Just over 75 years ago the Allies – largely British, Canadian and US troops, destroyed the German armies in Normandy, broke out and liberated Paris, Brussels and Luxembourg. (The sole French division, lately arrived from the UK and equipped by the American’s, got to lead the parade down the Champs Elysees.)
Yesterday, Luxembourg’s premier’s calculated insults towards the UK at a loaded one-sided press conference were extraordinary. I doubt he helped win Europe any friends from here in Blighty, but at least he said out loud what Europe thinks of us today. For the benefit of Xavier Bettel et al, and his limited understanding of parliamentary democracy: the deal Theresa May “negotiated” from Europe was rejected by Parliament, which is why the UK is asking for something different.
Are we bothered about Luxembourg?
Luxembourg has been in the news before, back in the 17th Century I think. Check out this video to understand its significance re the Treaty of Westphalia.
………………………….
Meanwhile…
The news this morning is all about a market braced for the next stage of the current oil-shock. I read taking out the Saudi installations was the largest single day drop in oil production ever – no wonder markets are nervous. It’s how the stand-off between Iran vs Saudi/US plays out that matters next. Normally, we’d be looking to hear how the US president justifies a retaliatory strike– this time, we’re waiting for what Trump dithers on.
Back in the real world… Last week’s ECB meeting continues to reverberate around markets – raising very pertinent questions about what the US Fed faces this week. Commentators are predicting all kinds of negatives from the ECB’s renewed QE and bond purchases, not just from the likely on-going damage to Europe’s already weakened Banking sector from continuing the same NIRP (Negative Interest Rates) policies. Draghi’s call for fiscal stimulus has also been widely criticised. But if monetary policy ain’t working – what’s the alternative to trying something different?
The doomsters say QE infinity just prolong crisis for Europe, making the already ailing banking system weaker as negative rates destroy profitability and eat away capital. Since QE has had such limited effects on the real economy – driving inflation in financial assets and rising income inequality instead – why continue? They further fear a fiscal orgy of bond issuance will leave European banks and the ECB gorging on European sovereign bonds which sets themselves up for future failure when credit concerns inevitably rise, triggering downgrades and are followed by defaults.
The usual defence is: “this time its different.” Sure, it is. Europe’s central bank already holds much of the debt and has the heft (if not the mandate) to effectively bail any nation. They could, conceivably, simply cancel the debt they hold – the money is out there in the economy (actually in the pockets of the banks and investors that coat-tailed their bond buying.)
Fiscal policy – or Keynesian mumbo-jumbo as one reader described it – is fundamentally dangerous. Leveraging up on debt when rates are artificially low, still leaves nations (and companies) indebted. And governments have a horrible record spending money – rather than critical infrastructure and social infrastructure, how much will simply pay off bloated state pensions? The doomsters see a massive supply side distortion across Europe as the public sector squanders money and inevitable collapse in confidence in the Euro. They argue govt spending seldom works, always end up in wrong places while hefty fiscal spending does not “pump-prime” economies, but simply crowds out private markets.
Sure… both arguments are based on historical reality – but there is little choice for Europe but to try something new.
What about the US? The economy is challenged by recession, politics and trade war. It is not broken. Banking has been challenged, but is thriving. The US needs infrastructure spending. Addressing the strong dollar would have as more economic effect than a pointless small cut in rates designed to fluff the President’s ego and electoral prospects. If the Fed panders to White House chaos, then the implications for markets are long-term bad. Normalisation looks a better call, but so do the prospects for rebuilding the nation through infrastructure spending – which might also stem the dollar. Dangerous game… but maybe worth a spin?
Meanwhile… as expected WeWork has postponed its IPO, triggering a whole series of what next questions. How will its fund its cash burn when it was dependent on the IPO to unlock the next $6 bln bank facility? How will the company continue its growth trajectory? As start-ups and other potential customers read the headlines, how many will look elsewhere for office space? (There’s a trade idea – look at Regis!)
However, while WeWork turns out not to be a Unicorn but just another donkey with a toilet roll glued to its forehead, the real loser might be Softbank and its investors. Maybe more on Softbank tomorrow, but I can’t but wonder at Saudi Arabia investing tens of billions into a fund now worth mere millions. If my suspicions about Softbank are correct, and its worth a fraction of what its invested, then Saudi will have lost nearly as much as it spends on defence – which as the weekend demonstrated, hasn’t proved money well spent either.
Ouch..
Postscript…
Today marks the 75th anniversary of the Battle of Arnhem – the launch of Operation Market Garden, known as the “Bridge too Far”. The plan was to charge a British Armoured Corps up a narrow road across a succession of Rhine bridges seized by a carpet of Allied airborne troops (US, British and Poles) to strike into the German industrial heartlands. It failed. The Germans rallied and the British Paratroopers were forced to retreat. It’s become a great “what-if” argument among military historians: What if it had been better planned and coordinated? What if they’d landed closer and grabbed each bridge by coup-de-main? What if the radios had worked? What if they weather had been kinder? What if the two panzer divisions had been refitting elsewhere? What if they’d listened to the Dutch…? what if.. what if..
It was an extraordinary effort to exploit opportunity – to brush aside weak, demoralised and unbalanced German forces reeling after utter defeat in Normandy just a month before. It was an incredible effort. It was also a limited risk – by that stage of the war the Allied economies were on a full war footing meaning the allied logistics chains were unbeatable, while Germany was in a state of near economic exhaustion and collapse.
The really interesting question is to consider what would we remember if Market Garden had succeeded? I suspect the battle would now be vaguely recalled as part of the 1939-44 war. Sometimes gallant failure beats success… A lesson to remember.
Here Are The Most Bizarre Soundbites From Elon Musk’s “Pedo Guy” Deposition
With the public transfixed by Elon Musk’s recent nervous breakdown over the release of the Porsche Taycan, it’s almost easy to forget how badly he embarrassed himself more than a year ago when accusing British cave diving hero Vern Unsworth of being a pedophile and then taunting Unsworth to sue him… which Unsworth did.
So it’s time to refresh our memories, and helping us remember that absurd story is L. Lin Wood, the attorney that Unsworth hired to represent him in his lawsuit against Musk. As part of discovery for the lawsuit, Wood had a chance to depose Elon Musk, with PlainSite releasing over 300 pages of deposition for the world to analyze today.
The deposition can best be described as a batsh*t crazy dumpster fire bizarre and embarrassing for the so-called “genius” who we now know baselessly accused the worldwide hero of being a “pedo guy”.
In the deposition, Musk makes a litany of downright ridiculous statements, finally giving us a glimpse into the mind of the man that, according to his followers, is going to save the earth.
First, Musk opens up his motion for summary judgment by claiming that by referring to Unsworth as “pedo guy”, he didn’t actually intend on implying that he was a pedophile.
This entire paragraph is highlighted because it’s all too much for any sane person to believe. pic.twitter.com/yazes7vetG
Immediately, skeptics on social media speculated that Musk had committed felony perjury.
In which Musk unambiguously commits perjury by pretending “pedo guy” did “not intend to . .imply . .pedophilia” despite making it 100% clear thats exactly what he meant.
“Stop defending child rapists”✔️
Focus on Pattya Beach “renowned for sex-trafficking”✔️
When Musk is asked by Wood what a “pedo guy” looks like, he responds “old angry white guy living in Thailand”. Musk then also admits to doing his research on Unsworth and the area he lived, Chiang Rai, on Google.
Musk also mentions that he was worried that Unsworth could be “another Jeffrey Epstein“:
Which is amusing, considering that Epstein once claimed to be helping Teslain its board search. We wonder if there’s a shot of Unsworth galavanting around town with Ghislaine Maxwell?
But, we digress. Musk continues, blaming his mess on the BuzzFeed journalist who never agreed to go off the record with him and subsequently released Musk’s e-mails, referring to Unsworth as a “child rapist”.
Musk also then admits that information he got from a private investigator – who he hired for $50,000 to dig up dirt on Unsworth – turned out not to be true.
Boom. Big admission here in Musk depo excerpt from Unsworth case (posted by @PlainSite). Info from private investigator “turned out not to be correct.” So, why do Musk’s lawyers now play it so cute in summary judgment motion? $TSLAQpic.twitter.com/UOCvyuekGi
Musk then, as if trying to write a book called ‘101 Bonehead Defenses To Use During a Deposition’, accused Unsworth’s lawyer of trying to “shake him down”:
Elon Musk accuses Lin Wood of trying to “shake him down” with his demand letter that preceded the filing of the defamation suit. I just can’t wait to see the Musk depo excerpts attached to the MSJ response: pic.twitter.com/jxun1cKc7s
And it wasn’t just the deposition that was a dumpster fire. Even prior to the deposition, Musk’s filing, which included spelling errors, also included factually inaccurate information.
Part of the documents were filed today in the Unsworth v Musk defamation case Elon Musk start his declaration with a lie. He is not the founder of Tesla! pic.twitter.com/dqHOfZFWCk
Musk “mobilized” more than 50 top engineers from three of his companies to assist in the Thai cave rescue effort including Tesla, SpaceX and The Boring Company.
After Unsworth criticized the CEO, his family office run by President Jared Birchall, hired a private investigator to learn everything they could about the cave rescuer and his family.
The private investigator they hired, James Howard of Jupiter Military and Tactical Systems, told Musk’s family office (Excession LLC) that Unsworth was said to spend time at a beach known for child sex-trafficking, among other unsavory but inconclusive details.
Unsworth, in a deposition, denied he had spent time at those venues.
A person who works for Musk’s office, James Brickhouse, suggested that the investigator pose as a journalist to interview Unsworth as one method for attaining personal details about him.
If there was any doubt left, this deposition seems to make it clear that Musk’s “pedo guy” statement was 100% baseless. And Musk’s lawyers are already backtracking on portions of the motion they filed, asking to withdraw one declaration that PlainSite’s Aaron Greenspan revealed as having unredacted personal information (passport number) of Vern Unsworths.
But worse yet, the deposition seems to confirm that Musk may not even understand what he did wrong, raising even more questions about his fitness as a public company CEO. But, as usual, we’re sure the board will do absolutely nothing about it, or – better yet – will come out and offer a statement of support.
But Unsworth’s lawyer, Lin Wood, said it best in a statement to Bloomberg:
Markets Slide As Traders Put Oil Crunch On Backburner, Turn To Fed
Global stocks and US equity futures dipped, with the E-mini back under 3,000 again, as attention turned to the Fed (and the slight possibility Powell may disappoint investors again)…
… while Brent shed some of its massive gains on Tuesday as the United States de-escalated concerns of an imminent war with Iran and also flagged the possible release of crude reserves.
Investors, desperate for more love from money printers, were unsure what to do ahead of tomorrow’ interest rate cut from the Fed, which is fully priced in by the market even if tiny doubt appears to have crept in with 5% odds of “no change” which would crash the markets, as well as the next round of U.S.-China trade talks on Thursday.
MSCI’s All-Country World Index was down 0.1% on the day.
European shares opened lower, with energy stocks giving up gains as crude prices eased. Europe’s broad STOXX 600 index dropped 0.2%, led by declines in banks and automakers shares, even though Germany showed clear green shoots, and signs of sentiment rebound after the ZEW Economic Sentiment surged to -22.5 from -44.1, smashing the Expected print of -37.0.
Earlier in Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan was down 0.66%. Chinese shares fell 1.07%, while Hong Kong shares slumped 1.18% after China’s central bank disappointed investors when it refrained from lowering a key interest rate.
US stocks futures were flat to slightly lower, indicating subdued open on Wall Street later, with the S&P set to open below 3,000 once again.
All eyes were on oil however, which gave back only a bit of Monday’s record surge: Brent crude oil fell 0.1% to $68.96 per barrel on Tuesday. On Monday, it surged as much as 14.6% for its biggest one-day percentage gain since at least 1988. In the US, West Texas Intermediate futures were down 0.87% to $62.25 per barrel following a 14.7% surge on Monday, the biggest one-day gain since December 2008.
Saudi Aramco now faces weeks or months before the majority of output is restored at the giant Abqaiq processing plant after the attack, adding a fresh headwind for the global economy. The developments in the Middle East are testing sentiment after a bullish start to the month for global equities and other riskier assets. Meanwhile, Iran won’t negotiate with the U.S. on any level, anywhere, the Islamic Republic’s supreme leader said.
“The key thing to think about is do we have an oil shock or a short-term disruption?” said Virginie Maisonneuve, chief investment officer at Eastspring Investments, in a Bloombergv TV interview. “You’re seeing this wait-and-see attitude, and that’s why the markets are quite nervous.”
Meanwhile, president Trump authorized the release of emergency crude stockpiles if needed, which could ease some upward pressure on crude futures. Trump said on Monday it looked like Iran was behind the attacks but stressed that he did not want to go to war, striking a slightly less bellicose tone than his initial reaction.
“Although Saudi Arabia’s spare capacity and U.S. Strategic Petroleum Reserves could plug some of the lost output, where oil trades in the near term will be influenced by how long it takes for Saudi production to fully recover,” said Lukman Otunuga, research analyst at FXTM. “It is this concern over negative supply shocks amid geopolitical tensions which should keep oil prices buoyed in the short term.”
Middle-eastern events overshadowed investor concerns about the simmering trade war. American and Chinese working-level trade negotiators are set to resume talks in the next week, before a meeting of top officials in October. Meanwhile, President Donald Trump said the U.S. and Japan have reached an initial trade accord over tariffs.
In other news, late on Monday Trump said that the United States has reached initial trade agreements with Japan, but traders are also focused on the U.S.-Sino trade war. “In the next week, positive developments on Brexit and/or Iran have the potential to move markets higher from here. It shows why staying strategically invested in equities is important,” said Mark Haefele, chief investment officer at UBS Global Wealth Management. “But with scope for central banks to disappoint and global growth continuing to slow, we see little reason to change our tactically more cautious stance.”
Deputy-level talks between the United States and China are scheduled to start in Washington on Thursday, paving the way for high-level talks next month aimed at resolving a bitter trade row that has dragged on for more than a year.
In rates, the recent blowout in interest rates continued to fade, as the yield on benchmark 10-year Treasury notes fell slightly to 1.8292%, while the surge in overnight repo rates eased. Euro zone government debt yields edged lower as geopolitical uncertainty stemming from the attack on Saudi underpinned a cautious tone in bond markets.
In currencies, the dollar gained versus all of G-10 peers as the Fed kicks-off its two-day monetary policy meeting and tensions in the Middle East fail to dictate market sentiment. Investors are focusing on reasons to fade any greenback weakness – ECB easing, a no-deal Brexit, dovish RBA minutes – and the Bloomberg Dollar Spot Index is up 0.1% and approaching a two week high, after forming a bullish outside day on Monday. Elsewhere, the pound slipped 0.2% to 1.2403, down a second day as PM Boris Johnson’s lawyers were set to defend his Brexit strategy in the U.K.’s highest court. The Euro was down 0.1% below 1.10, to 1.0992 as option-related bids above 1.1000 failed to absorb leveraged pressure. On the other side of the world, the Australian dollar led losses in G-10 with AUD/USD down 0.5% to 0.6831, lowest since Sept. 6. The Reserve Bank of Australia said wages growth appears to have stalled and the job market is set to moderate in its September minutes. AUD/USD was also sold by macro and leveraged funds due to the decline in Chinese stocks, according to Asia-based FX traders.
Elsewhere, Gold moves sideways, holding on to recent gains that saw the precious metal jump back above USD 1500/oz; though it has struggled to stay above this mark. Separately, the Indian Government may be considering a full exit from Hindustan Copper as according to reports.
Economic data include industrial production for August. FedEx is due to publish earnings
Market Snapshot
S&P 500 futures down 0.1% to 2,997.25
STOXX Europe 600 down 0.1% to 389.01
MXAP down 0.4% to 159.03
MXAPJ down 0.7% to 510.32
Nikkei up 0.06% to 22,001.32
Topix up 0.3% to 1,614.58
Hang Seng Index down 1.2% to 26,790.24
Shanghai Composite down 1.7% to 2,978.12
Sensex down 1.4% to 36,604.95
Australia S&P/ASX 200 up 0.3% to 6,695.25
Kospi up 0.01% to 2,062.33
German 10Y yield fell 0.6 bps to -0.486%
Euro up 0.2% to $1.1021
Brent Futures up 0.3% to $69.21/bbl
Italian 10Y yield fell 3.7 bps to 0.504%
Spanish 10Y yield fell 0.3 bps to 0.254%
Brent Futures down 0.5% to $68.65/bbl
Gold spot up 0.1% to $1,497.72
U.S. Dollar Index down 0.03% to 98.58
Top Overnight News from Bloomberg
One of the key U.S. borrowing markets saw a massive surge Monday, a sign the Federal Reserve is having trouble controlling short-term interest rates.
American and Chinese senior trade negotiators are expected to resume negotiations in the next week and a half, with much work remaining to reach a comprehensive deal, U.S. Chamber of Commerce Chief Executive Officer Thomas Donohue said.
Swiss National Bank chief Thomas Jordan is out of the hot seat for now — perhaps until Brexit hits.
Gulf dollar bonds went into the weekend as investor darlings and came out as risky assets. Money managers poured into the Gulf region in the weeks running up to Saturday’s unprecedented attack on Saudi Arabia’s key oil facilities.
Saudi Aramco is growing less optimistic there will be a rapid recovery in oil production from the weekend’s attack and now faces weeks or months before the bulk of output is restored at its Abqaiq processing plant
Oil’s record-breaking advance paused as the market awaits clarity on how long it’ll take Saudi Arabia to restore output
President Donald Trump said his administration has reached an initial trade accord with Japan and he intends to enter into the agreement in coming weeks
Chinese working-level trade officials are scheduled to travel to the U.S. this week to prepare for a meeting of top negotiators in October, the Ministry of Commerce said
Boris Johnson will see his decision to suspend Parliament under scrutiny in the first of three days of hearings at the U.K.’s Supreme Court
In minutes of its Sept. 3 meeting, Reserve Bank of Australia said “the upward trend in wages growth appeared to have stalled” and forward-looking indicators suggested employment growth would moderate
Argentina’s central bank modified capital control rule to allow sovereign bond payments to be made abroad
Trump said he “probably” won’t travel to Pyongyang for the next round of nuclear talks with Kim Jong Un, but would be willing to visit the North Korean capital in the future
Asian equity markets were mixed/lower following a subdued lead from Wall St where the S&P 500 slipped back below the 3k milestone and the DJIA snapped an 8-day win streak after attacks on Saudi’s oil facilities, while participants continue to await the looming billow of central bank policy updates. ASX 200 (+0.3%) and Nikkei 225 (+0.1%) were lacklustre in which weakness in Australia’s mining and materials sectors overshadowed the continued rise in energy stocks as oil prices took a breather from the prior day’s record surge, while the Japanese benchmark lacked conviction amid a choppy currency and with SoftBank among the worst performers due to a delay of the WeWork IPO which the Co. and its affiliates hold about a 29% stake in. Hang Seng (-1.2%) and Shanghai Comp. (-1.7%) were the laggards after the PBoC refrained from open market operations and although it announced to lend CNY 200bln through its Medium-term Lending Facility, this was below the CNY 265bln maturing today and the rate was maintained at 3.3% to the disappointment of the increased speculations for a cut. Finally, 10yr JGBs initially gained to reclaim the 154.00 level amid safe-haven flows and with the BoJ also present in the market for JPY 760bln of JGBs in the belly to the shorter-end of the curve, although prices later reversed gains in conformity with the indecision seen across Japanese asset classes.
Top Asian News
Singapore Woos Banks in Battle of Asia’s Biggest Forex Hubs
South Korea Latest Asian Nation Hit by African Swine Fever
Jokowi Orders Crackdown on Arsonists: SE Asia Haze Update
China Stocks Fall, Yuan Weakens as Central Bank Holds Loan Rate
Major European indices are tentative following a mixed lead from the Asia Pacific Session, as the market awaits an update on the damages from the Saudis at 18.00 BST re. the weekend’s attacks, and ahead of tomorrow’s FOMC meeting, with major bourses little changed overall this morning. Energy sector (+1.1%) continues to outperform, as crude prices cling on to the recent outsized gains, which continues to weigh on airline names including EasyJet (-1.3%) and RyanAir (-2.5%). Meanwhile, some strength in the more defensive utilities (+0.6%), health care (+0.9%) and consumer staples (+0.8%) sectors is suggestive of a fragile risk tone, although the risk sensitive tech sector (+0.3%) is also in the green. Leading the laggards are Financials (-1.2%), with this week’s fall in yields and pronounced curve flattening failing to provide any support. In terms of stock specifics; Zalando (-9.1%) is the notable underperformer, after the Co. announced the placement of over 13mln new shares. Total (+1.7%) is deriving support not only from higher crude prices but also the news of a 30% output increase in one of its South Korean ethylene plants. AB InBev (+0.7%) is supported by news that the co. is looking to raise USD 4.8bln (according to a company statement) in the IPO of its AsiaPac unit in Hong Kong; although this is below the pre-market reports that they were seeking around USD 7bln. Finally, ThyssenKrupp (-0.8%) failed to garner support from reports that Advent International and Cinven & Abu Dhabi Investment Authority had teamed up to place a bid on the co.’s elevator unit, which could put them in competition with the likes of Kone (-0.3%).
Top European News
Boris Johnson’s Brexit Plan Goes to Court With EU Talks in Chaos
Balkan Leader Boosts Re-Election Bid With 500 Euro Wage Pledge
Sweden Unemployment Reaches 4-Year High in New Blow to Riksbank
EON Wins Conditional EU Approval to Take Over Innogy
In FX, SEK/AUD marked G10 underperformers and both undermined by Central Bank releases to varying degrees, while worrying data from Sweden has also undermined the Crown as unemployment jumped in August and total employment declined. Eur/Sek has rallied from around 10.6240 to 10.7150+ in wake of minutes from the Riksbank revealing deeper divisions on the repo rate path with Janssen unsure whether it is appropriate to maintain guidance for a hike around the turn of the year. Meanwhile, Aud/Usd has retreated further from recent peaks towards 0.6830 as the RBA remains ready to ease again to support growth and keep inflation on course to reach target, adding that it is reasonable to expect the OCR to be low for a lengthy period of time.
NZD/GBP/CHF – The Kiwi is also on the back foot and hovering around 0.6325 vs its US counterpart after a dip in Westpac’s Q3 consumer survey overnight, but holding up a bit better in Aud/Nzd cross terms within a 1.0827-1.0790 range ahead of NZ Q2 current account data and the latest GDT auction. Meanwhile, Sterling is struggling to survive a stringent test of 1.2400 and support just below at 1.2385 following a fruitless journey to Luxembourg by UK PM Johnson and pending the Supreme Court judgement on his suspension of parliament, and the Franc is trying to contain losses circa 0.9950/1.0950 against the Buck and Euro respectively in the run up to the Fed and SNB tomorrow and Thursday.
JPY/CAD – The Yen has lost a degree of its Saudi safe-haven premium, with Usd/Jpy firmer above the 108.00 level amidst reports that the US and Japan have agreed tentative trade deal terms, while the Loonie is unwinding some oil-inspired gains ahead of Canadian manufacturing sales, as Usd/Cad pivots 1.3250 compared to lows of just a few pips off 1.3200 at one stage yesterday.
EUR – The single currency has made a better fist of overcoming downside pressure at a big figure/psychological marker than the Pound, albeit with some assistance from a much more pronounced improvement in German ZEW economic sentiment than anticipated. Indeed, Eur/Usd has reclaimed 1.1000+ status after another probe below to 1.0990 (close to the 1.0985 pre-ECB base) even though the Dollar is firmer in general with the DXY comfortably back above 98.500 within a 98.573-749 band ahead of US ip data and the aforementioned Fed on Wednesday. However, decent option expiries layered between 1.1025-30 and 1.1040-50 (1 bn each time) may cap further Euro recovery gains vs the Greenback.
RBA Minutes (Sept 3rd) reiterated the board would consider further policy easing if needed to support growth and inflation targets, while it is reasonable to expect extended period of low rates to achieve employment and inflation targets. Furthermore, minutes noted the Australian economy could sustain lower rates of unemployment and that there are further signs of a turnaround in the housing sector, although the turnover is still low and outlook for consumption growth is a key uncertainty.
In commodities, the crude complex consolidated on Tuesday morning, and holds on to the lion’s share of yesterday’s outsized gains which came on the combination of an uptick in geopolitical risk premia and supply shock after an attack left a significant portion of Saudi oil production offline. Brent Nov’ 19 futures, although well off yesterday’s extreme near USD 72/bbl highs, has lost the USD 68.0/bbl handle, while WTI Oct’ 19 futures range places it around the USD 62.0/bbl mark. The market now awaits an official update from the Saudis at 18.00/18:15 BST regarding the extent of the damage to the country’s oil producing infrastructure; mixed reports thus far, some suggested about 40% of the disrupted output has been restored and the remaining production could be back online as soon as month-end, but others were less optimistic and anticipate a return to full output could take months. In terms of commentary, US Energy Secretary Perry, when asked about tapping the US SPR, said that he is confident the markets are well supplied, and that the US will take a wait and see approach when it comes to its potential use. Russian Energy Minister Novak said there is still no information regarding the weekend’s Saudi Oil attacks and that the price spike following the attacks reflects uncertainty and risk. Meanwhile, as the dust settles in wake of the attack, evidence of supply disruptions continue to emerge; Saudi Aramco have reportedly delayed some oil loading grades by a number of days following and have asked some customers to accept different oil grades. Moreover, Indian State refiners are reportedly mulling switching crude oil grades to avoid supply disruptions from Saudi Aramco. Elsewhere, Gold moves sideways, holding on to recent gains that saw the precious metal jump back above USD 1500/oz; though it has struggled to stay above this mark. Separately, the Indian Government may be considering a full exit from Hindustan Copper as according to reports.
US Event Calendar
9:15am: Industrial Production MoM, est. 0.2%, prior -0.2%; Manufacturing (SIC) Production, est. 0.2%, prior -0.4%
10am: NAHB Housing Market Index, est. 66, prior 66
4pm: Net Long-term TIC Flows, prior $99.1b
4pm: Total Net TIC Flows, prior $1.7b
DB’s Jim Reid concludes the overnight wrap
Yesterday was one of the most unexciting, exciting days for markets for a long time. After the huge initial moves in the Asian session for oil, things settled down into a relatively tight range in most markets through most of the Asian, European and US sessions. WTI closed up +12.82% at $61.88, which was the biggest one day move higher since February 2009, with the move taking WTI back up to its highest level since May. Similarly, Brent closed up +14.61% at $69.02, breaking higher towards the session close. The moves weren’t just confined to crude though with Gasoline also rallying +11.45%, while natural gas rose +2.79%. Overnight WTI (-1.41%) and Brent (-1.10%) are both erasing a small amount of yesterday’s gains.
It was no great surprise then that markets elsewhere were dictated by the oil moves with the broad-based move being a moderate risk-off (with the weak China data also a factor). In equity markets the magnitude of the moves were actually fairly minor outside of energy. The S&P 500 closed down -0.31% with a +3.29% rally for the energy sector helping to buffer the slide. The likes of Apache (+16.89%), Hess (+11.18%) and Marathon (+11.57%) were the big winners at a stock level with the move for Apache the biggest since 2008. The DOW (-0.52%) and NASDAQ (-0.28%) also closed lower along with the STOXX 600 (-0.58%), although again the STOXX Oil and Gas index was up +2.13%. Arguably one of the areas of markets most sensitive to oil is US HY credit where spreads at a broad index level finished +0.5bps wider, with energy spreads rallying -24bps to help offset the risk off. It was a similar trend in CDS where there were big moves tighter for the likes of higher beta Chesapeake and Whiting in particular. One credit which did struggle though was A-rated Saudi Aramco where the spread on the 2049s traded about +7.5bps wider.
The risk-off tone also helped fuel a bid for Gold (+0.67%) and Silver (+2.33%) while in FX the oil-sensitive Norwegian Krone (+0.27%) and Canadian Dollar (+0.33%) also benefited. As for rates, most DM markets did their best to reverse a small amount of last week’s selloff but were fairly stable after the initial move. In the end 10y Treasuries ended -4.9bps (down a further -2.1bps this morning) lower at 1.847% having touched as low as 1.810% intraday, while the 2s10s curve fell -0.9bps to 8.3bps (7.9bps this morning). In Europe Bunds rallied -3.3bps and BTPs -3.8bps.
Overnight we have some fresh trade headlines to throw into the mix with China’s Ministry of Commerce saying in a statement that Chinese working-level trade officials are scheduled to travel to the US this week to prepare for a meeting of top negotiators in October. The statement added that Liao Min, deputy director of the Office of the Central Commission for Financial and Economic Affairs and vice finance minister, will lead a delegation to visit the US tomorrow for trade consultations. Separately, USTR Rober Lighthizer spoke with the US Chamber of Commerceyesterday post which the group’s CEO Thomas Donohue said that “there’s much more work” to be done on a trade deal with China while adding that Lighthizer indicated that there’s some movement on China buying US farm products and other issues but it’s “an extraordinary challenge” to get a complete deal. Donohue also said that Lighthizer said there are staff-level meetings between Chinese and U.S. negotiators on Friday, with senior negotiators to meet in the ensuing week or week and a half.
Continuing with trade, President Trump said late yesterday that his administration has reached an initial trade accord with Japan over tariffs and that he intends to enter into the agreement in the coming weeks. USTR Robert Lighthizer has said earlier that the limited trade deal will cover agriculture, industrial tariffs and digital trade. Trump didn’t provide details about what was in the initial deal and didn’t mention whether the limited deal will end his threat to slap tariffs on Japanese auto imports as part of the trade deal.
Asian markets are trading mixed this morning on all the above headlines with the Nikkei (-0.02%) trading largely flat while the Topix (+0.25%) is up as Japanese markets re-opened post a holiday. The Hang Seng (-1.01%), Shanghai Comp (-1.02%), CSI (-0.94%) and Shenzhen Comp (-1.38%) are all down while the kospi (+0.11%) is up. The onshore Chinese yuan is trading weak, down -0.30% to 7.0886, alongside most Asian EM Fx. The Hang Seng seems to be dragged down by the prospect of US sanctions as the city’s prominent local activist Joshua Wong is set to address US lawmakers today who are considering changes to special trade privileges for the financial hub. Ahead of the address, Hong Kong leader Carrie Lam said that “I uphold this principle of accountability, but at the moment it is all for us to see that Hong Kong is undergoing a very difficult situation, and sanctions or punishment are not going to help lift Hong Kong out of this very difficult situation.” Elsewhere, futures on the S&P 500 are trading flattish (-0.06%).
In other overnight news, Bloomberg reported that Former Italian Prime Minister Matteo Renzi is leaving the Democratic Party to found his own movement but pledged continued support for Prime Minister Giuseppe Conte. The report also added that Renzi could announce his move as early as today while Italian news agency ANSA reported that in a telephone call to Conte last night, Renzi assured the premier that his move won’t threaten the newly formed administration.
Coming back to the oil shock, ourUS economists noted that barring a more substantial geopolitical flare-up that leads to a sharp tightening of financial conditions, this move in oil should have only modest effects on the US economy. Reflecting the tension this creates for the Fed’s dual mandate, the recent increase in oil prices, if sustained, could syphon about $12bn away from consumer spending on non-energy items and provide a meaningful lift to five-year, five-year breakeven inflation rates, but with little impact on core inflation. With the Fed worried about too-low inflation expectations and downside risks to the growth outlook, on balance these effects should reinforce the Fed’s already dovish bias. See more here . Looking at the Euro Area angle and its sensitivity to an oil price shock, Peter Sidorov (link here ) writes that a EUR 10 oil price move would add c. 0.25pp to inflation over the short term and reduce around 0.2pp from private consumption after one year.
Away from the oil story we did hear from the ECB’s Lane yesterday, where the most relevant takeaway was the reference “we also retained the so-called easing bias by stating our expectation to keep the key ECB interest rates “at present or lower” levels. We judge that, if needed, we can further lower the deposit facility rate and, with it, the overnight money market rate. As a result, there is no reason for the distribution of future short-term rate expectations to be skewed upwards.” This suggests that the ECB can cut more which is not necessarily something that Draghi indicated last week, although given the publicly expressed views of the hawks on the Governing Council such as Bundesbank President Weidmann, there would certainly be questions as to the degree of support for further ECB action.
As for the latest on Brexit, PM Johnson went to Luxembourg yesterday to meet European Commission President Juncker and Prime Minister Bettel. However, with mass protests and chaotic scenes the joint press conference between Johnson and Bettel was cancelled by the British after their request to hold it inside was turned down. One wag on Twitter suggested that if the British and Luxembourg governments can’t agree on how to hold a press conference then the chances of agreeing a Brexit deal by October 31st are looking quite challenging. The mood music didn’t sound too positive either, with the European Commission’s statement saying that when it came to viable proposals from the UK to replace the backstop “Such proposals have not yet been made.” PM Johnson still said to the BBC that the UK will leave on October 31st regardless of any agreement with Brussels but that he would also obey the law, which says that unless MPs have approved a Brexit deal by October 19 or explicitly approved a no-deal exit then Johnson is required to request a 3-month extension from the EU. So how that circle is squared is anyone’s guess. The implication is that loopholes may be used. Events continue today as the Supreme Court hears the cases relating to the prorogation of Parliament, which will take place over the next 3 days.
In other news, the only data release of note yesterday – other than the early morning China data – came in the US where the September empire manufacturing print declined 2.8pts to 2.0 (vs. 4.0 expected). Notably, capex fell 19pts to the lowest since 2016 which points toward continued weakness in the manufacturing sector while new orders were also lower. The one bright spot was employment which climbed over 10pts to the highest since April.
To the day ahead, which for data this morning includes the September ZEW survey in Germany, while the data due in the US includes August industrial production, September NAHB housing market index and August import price index. Away from that we’re due to hear from a number of ECB speakers including Villeroy, Lane and Coeure. As mentioned the legal challenge to PM Johnson’s suspension of parliament arrives at the Supreme Court, a general election is being held in Israel, while the UN General Assembly opens in New York.
