Watch ECB’s Christine Lagarde Explain How Greenwashing Central Bank Policy Will Save Europe
Having kept rates unchanged and done nothing to signal a slowdown in money-printing malarkey, most investors eyes and ears will be glued to ECB President Lagarde’s ‘strategic review’ and how her new-found focus on virtue-signaling climate change management will affect the European Central Bank’s mandate.
As Bloomberg notes, her efforts to modernize the ECB include potentially resetting the inflation goal of “below, but close to, 2%,” studying alternative measures of price growth, and assessing its policy tools. She’s benefiting from signs that a deep manufacturing slump in the 19-nation economy is bottoming out before it causes greater harm to the labor market and consumer spending. That should allow policy makers to focus on the review, which will last most of the year and also tackle issues including financial stability, climate change and communication.
“Let’s Talk After She Finishes College” – Mnuchin Slams Greta Thunberg
U.S. Treasury Secretary Steven Mnuchin took a jab at climate activist Greta Thunberg on Thursday during a news conference with reporters at the World Economic Forum in Davos, Switzerland, reported Reuters.
“Who is she? The chief economist?” Mnuchin told reporters. “After she goes and studies economics in college, she can come back and explain that to us.”
Mnuchin’s witty remark came several days after President Trump indirectly called climate activists the “prophets of doom.”
Mnuchin said many developed and emerging economies are moving towards a much cleaner process of extracting and processing fossil fuels, but calling for investors to “divest” from energy is idiotic at the moment.
Thunberg demanded world leaders and top investors at Davos to immediately divest from energy and transition into the green economy.
Climate change was the dominating theme at Davos this year – the 17-year-old climate change activity said world leaders were doing very little to prevent the planet from burning.
She told Davos attendees that “our house is on fire” as global emissions of carbon dioxide are rapidly rising.
President Trump told reporters as he departed Davos on Wednesday that he would’ve liked to listen to Thunberg and insisted the U.S. had the greatest “numbers” of clean air and water quality.
The president said Thunberg should concentrate on other countries – a reference to China and India – where pollution is out of control.
“There is a real misinterpretation of the U.S. policy. Let me be very clear: President Trump absolutely believes in clean air and clean water and having a clean environment,” Mnuchin said.
“It’s Like Cancelling Christmas” – Beijing Scraps Lunar New Year Festivities Amid Virus Outbreak
The ‘Year of the Rat’ is starting not with a bang, but with a whimper. Thanks to the rapid spread of a deadly coronavirus that has confounded China’s public health officials and triggered massive quarantine operations intended to seal off at least three cities from the rest of the country (and world), Beijing has joined three other Chinese cities in cancelling Lunar New Year celebrations.
CNBC’s Eunice Yoon reports that all public gatherings and activities have been cancelled, citing officials from Beijing’s tourism bureau.
Beijing joins Wuhan, Zhejiang, Macau in canceling #LunarNewYear celebrations. #China capital’s culture & tourism bureau says all public gathering activities, incl. traditional temple fairs, are off. (Holiday is normally major consumer spending time. #WuhanCoronavirus) @TheDomino
Yoon tweeted that she was surprised when Wuhan cancelled its New Year’s festivities, even though it’s the epicenter of the virus. The fact that Beijing has followed suit is nothing short of extraordinary, and serves to underscore just how out-of-hand things have gotten with this virus.
When Wuhan canceled #LNY festivities I thought that was like the West cancelling Christmas. Didn’t think Beijing would follow suit. https://t.co/LK1OGpRS1f
China’s state railway operator is offering full refunds to any Chinese impacted by cancellations.
#China State Railway Group, country’s train operator, says it is now offering full refunds for all trip cancellations nationwide 🚂. #LunarNewYear is the biggest travel period as Chinese go home for the traditional holiday. But #WuhanCoronavirus making travelers nervous.😬
Jan 25: Boonie Bears: The Wild Life
Jan 25: Detective Chinatown 3
Jan 25: Leap
Jan 25: Legend of Deification
Jan 25: Lost in Russia
Jan 25: The Rescue
Jan 25: Vanguard
Meanwhile, Beijing is tightening its quarantine restrictions for Wuhan and the other affected cities.
Tighter lockdown for Wuhan. #China Transport Ministry announced: suspension of road and water routes to Wuhan, of inter-provincial and inter-city car-hiring, bus services to Wuhan, strict control of vehicles, ships departing Wuhan, strict checks, control for highways, waterways
#China aviation authority calls on airlines to reduce Wuhan flights. Forbids price gouging. Says 566 flights were scheduled to/from Wuhan Jan23 & as of 11:30am, 288 cancelled. Reminds foreign, Hong Kong, Macau, Taiwan airlines with Wuhan flights to adjust. https://t.co/EyF4OK3oNa
#China locks down more cities due to #WuhanCoronavirus. Huanggang (7.5mln pop.) will suspend public bus, railway from midnight (11a ET). Internet cafes, movie theaters, tourist sites, entertainment venues temporarily closed. Ezhou (1mln pop.) said it shut train stations.
Initially, many declined to speculate about the impact of the coronavirus on global GDP. But the quarantines and cancellations have virtually guaranteed that China’s already-slowing economic growth is about to take another hit.
Analysts at SocGen write “Markets have become concerned about the outbreak of the coronavirus in Wuhan. Clearly, there is still considerable uncertainty as to how the situation will evolve. However, the SARS epidemic in 2003, which lasted for nine months and infected over 5,000 people in China, should be a useful reference for the potential economic impact this time. Drawing from the SARS lesson, if the situation has failed to stabilise by March, 1Q GDP growth will likely fall below 6%, compared with our current forecast of 6.1%. Undoubtedly, consumption and tourism-related sectors would be most affected.”
Elsewhere, the bar for coronavirus-related panic has apparently been set pretty low: The Global Times tweeted that the Chinese embassy in France had called for help after one official complained on social media about having a fever and cough after entering France from China.
Singapore Prime Minister Lee Hsein Loong told reporters that the coronavirus has clearly spread faster than officials in Beijing expected. And with US stocks set to open in the red, it’s clear investors are beginning to worry about the possibility of a global pandemic.
Of course, before anybody gets too bent out of shape about the cancellations, there’s reason to take the news with a grain of salt: Despite plans to shut down all plane traffic in and out of Wuhan, flight tracker FlightAware shows that dozens of flights are scheduled for Thursday in spite of the ban. Earlier media reports claimed that “some” flights would still be taking off.
Are you still confident that Beijing has this under control?
ECB Keeps Rates, QE Unchanged; Launches First Strategy Review In 17 Years
As expected, the ECB announced that it is keeping its rates and QE (€20BN/month) unchnaged, reiterating the familiar forward guidance that “interest rates to remain at their present or lower levels until it has seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2%”, while QE will continue “for as long as necessary to reinforce the accommodative impact of its policy rates, and to end shortly before it starts raising the key ECB interest rates.”
Notably, the Governing Council also announced that it would launch the first review of its monetary policy strategy for the first time since 2003 in a rethink after years of radical monetary stimulus struggled to revive inflation. The institution said it will provide details about the scope and timetable of the exercise in a press release today at 3:30 p.m. Frankfurt time, following Lagarde’s press conference.
As Bloomberg notes, her efforts to modernize the ECB include potentially resetting the inflation goal of “below, but close to, 2%,” studying alternative measures of price growth, and assessing its policy tools. She’s benefiting from signs that a deep manufacturing slump in the 19-nation economy is bottoming out before it causes greater harm to the labor market and consumer spending. That should allow policy makers to focus on the review, which will last most of the year and also tackle issues including financial stability, climate change and communication.
At today’s meeting the Governing Council of the European Central Bank (ECB) decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00%, 0.25% and -0.50% respectively. The Governing Council expects the key ECB interest rates to remain at their present or lower levels until it has seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2% within its projection horizon, and such convergence has been consistently reflected in underlying inflation dynamics.
The Governing Council will continue to make net purchases under its asset purchase programme (APP) at a monthly pace of €20 billion. The Governing Council expects them to run for as long as necessary to reinforce the accommodative impact of its policy rates, and to end shortly before it starts raising the key ECB interest rates.
The Governing Council intends to continue reinvesting, in full, the principal payments from maturing securities purchased under the APP for an extended period of time past the date when it starts raising the key ECB interest rates, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation.
The Governing Council also decided to launch a review of the ECB’s monetary policy strategy. Further details about the scope and timetable of the review will be published in a press release today at 15:30 CET.
The President of the ECB will comment on the considerations underlying these decisions at a press conference starting at 14:30 CET today.
A post by Robert Van Horn at the blog of Stigler Center of University of Chicago’s Business school asserts that “from 1946 throughout the 1950s, corporations made possible and crucially supported the rise of Chicago law and economics through funding and advice…” He implies that corporate involvement influenced the normative positions of Chicago School economics, in particular skepticism of antitrust laws. Michael Simkovic at Leiter has more.
The problem is that there is nothing in Van Horn’s post documenting that corporations funded the relevant scholars at Chicago. The only funding discussed in the article is from the Volker Fund. As Wikipedia explains: “The William Volker Fund was a charitable foundation established in 1932 by Kansas City, Missouri, businessman and home-furnishings mogul William Volker. Volker founded the fund with the purposes of aiding the needy, reforming Kansas City’s health care and educational systems, and combating the influence of machine politics in municipal governance. Following Volker’s death in 1947, Volker’s nephew, Harold W. Luhnow continued the fund’s previous mission, but also used the fund to promote and disseminate ideas on free-market economics.”
So out of curiosity I checked the longer academic article on which the blog post was based. There, I found that Van Horn refers to Volker as a “nonprofit corporation.” Sure, but when we talk about “corporate funding,” we aren’t usually referring to philanthropies. Is funding from the Ford Foundation “corporate funding?”
Beyond that, we learn that Chicago Law School Dead Edward Levi “obtained funding for fellowships from corporations. Starting in the fall of 1952, Standard Oil of Indiana, Swift and Co., International Harvester, International Mineral and Chemical Co., Borg-Warner Co. and Sears Roebuck provided funds for three years. The funding would go toward the study of antitrust law, and the project became known as ‘The Antitrust Project.'” Beyond that, another corporation funded a two-week antitrust seminar for lawyers.
In sum, “corporate funding” amounted to a handful of three-year fellowships for independent scholarly research, and a two-week seminar. To extrapolate from that corporate funding was “crucial” to the rise of law and economics (the start of which the author himself dates to several years earlier), much less that it affected the substantive views of those involved, is quite a stretch.
This perhaps is not of great interest in and of itself, but seems part of a pattern. There has been a sudden outpouring of scholarship from left-leaning scholars on the history of post-World War II free market and libertarian thought. Much of it lacks academic rigor and has something of a conspiratorial tone, as if no reasonable person could believe such ideas, and therefore they must be the product of corporate influence, a cover for racism and white supremacy, and so on.
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Religious arbitration is best defined as the voluntary submission of a dispute for binding resolution to religious authorities for adjudication in accordance with religious law. Religious arbitration agreements and arbitration awards are routinely enforced by courts, which comports with arbitration law more generally. But this case has raised concerns because of the facts of the case. The plaintiffs allege they were sexually assaulted by Daniel Masterson, himself a member of the Church of Scientology, and that the Church of Scientology sought not only to cover up these incidents, but also threatened and harassed the plaintiffs once they reported the incidents.
All arbitration agreements define the scope of the controversies they cover. In this case, the arbitration agreement states: “I hereby expressly agree that any controversy arising under this Application/Agreement or in connection with my participation in the Service shall be resolved by such Binding Religious Arbitration.” The term religious services varies by agreement. In some it is defined as the specific religious coursework in which the plaintiffs enrolled (see Exhibits 1-7); in others, it refers to the general rubric of church activities and practices (see paragraph 2d in Exhibits 8-14).
However, according to the complaint, most of the plaintiffs’ causes of action are based upon conduct after they left the Church of Scientology. As a result, it would be difficult to read them as falling under the umbrella of religious services as defined by any of the agreements.
The Church of Scientology addresses this argument in two ways. First, by arguing that some of the implicated conduct—for example, the alleged sexual assaults—took place while the plaintiffs were members of the church. Therefore, the causes of action should still fall under the arbitration agreement. This seems like a tough sell, but is ultimately a question of contract interpretation.
The second argument is more interesting. Here the Church of Scientology argues that the body that should adjudicate the question of scope—that is, who should decide whether the complaint falls within the scope of the arbitration agreement—are the religious arbitrators and not the court.
The Church of Scientology is correct that arbitration agreements can require parties to submit these sorts of disputes (i.e. questions of substantive arbitrability) to the arbitrators themselves. Once again, this is a question of contract interpretation. Thus, if an arbitration agreement states that any questions regarding validity, enforceability and scope will also be heard by the arbitrators—what the law often refers to as a “delegation clause”—then not only would arbitrators have the authority to adjudicate the underlying merits, but they would have the right to address any such threshold issues.
This was the case in a recent Supreme Court decision, Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S. Ct. 524 (2019), which the Church of Scientology cites as support in its motion to compel. In Henry Schein, the arbitration agreement incorporated the American Arbitration Association rules, which include Rule 7: “The arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope, or validity of the arbitration agreement or to the arbitrability of any claim or counterclaim.” Thus, in Henry Schein, the power to determine the scope of the arbitration agreement was expressly granted to the arbitrators through the incorporation of the AAA rules.
By contrast, it does not appear that there is a delegation clause in the Church of Scientology arbitration agreement that expressly submits questions of scope to the arbitrators. I therefore think that this issue would likely be heard by a court; and, I also think the court would find these claims as falling outside the scope of the arbitration agreement, thereby allowing the suit to go forward in court.
[II.] Arbitrator Qualification Clause
In the future, the Church of Scientology could remedy the limited scope of their agreement by simply including a delegation clause in their boilerplate arbitration agreements. Issues related to their arbitrator qualification clause are not obviated quite so easily.
Church of Scientology arbitration agreements include an arbitrator qualification clause that requires “all arbitrators shall be Scientologists in good standing with the Mother Church.” Prior plaintiffs seeking to file suit against the Church of Scientology have previously challenged Church of Scientology arbitration agreements on that basis, arguing that having their claims submitted to arbitrators affiliated with the Church of Scientology would make it impossible for the arbitration proceedings to be fair and neutral.
For example, in Garcia v. Church of Scientology, Maria and Luis Garcia—former church members—filed suit in federal district court against the Church of Scientology, alleging fraud and breach of contract claims predicated on monies they had previously given the church. When the church filed a motion to compel arbitration, the Garcias claimed that the agreement was unconscionable, in part, because of the arbitrator selection clause. As summarized by the court, the Garcias argued that they had been “declared ‘Suppressive’ by the Church and according to Church doctrine, have no rights as Scientologists and are not eligible for the benefits of the Codes of the Church.” Moreover, they alleged it would “be impossible for them to receive a fair and neutral arbitration because Scientologists in good standing are prohibited by Church doctrine from communicating with suppressive individuals.”
The court, however, rejected the Garcias’ claim because addressing the claim would require adjudication of a religious question, which the Establishment Clause prohibits: “it necessarily would require an analysis and interpretation of Scientology doctrine. That would constitute a prohibited intrusion into religious doctrine, discipline, faith, and ecclesiastical rule, custom, or law by the court.”
But as I’ve argued, I don’t think this is correct—in fact, I think the opposite is true. Even if assessing the unconscionability challenge would be unconstitutional, enforcing the Church of Scientology arbitrator qualification clause would still violate Establishment Clause pursuant to the religious question doctrine.
As an example of why, consider In Matter of Ismailoff, where a New York surrogate court refused to enforce an arbitrator qualification clause that required selection of “three persons of the Orthodox Jewish faith.” The court concluded that enforcing such a provision would violate the Establishment Clause because it would require a judicial determination as to whether the arbitrators were “orthodox.” And doing so would entail impermissibly resolving an “issue concerning religious doctrine or practice.”
This logic would seem to apply equally to determining whether an arbitrator is “in good standing with the Mother Church.” Determining whether proposed arbitrators satisfied this standard would presumably require judicial interrogation of religious doctrine; it seems most likely that interpreting and applying that standard both entails identifying what religious behaviors are necessary for good standing and then applying those religious standards to prospective arbitrators. As a result, it would be unconstitutional to enforce the arbitrator qualification clause.
One can imagine the Church of Scientology responding with the following counter-argument: the arbitrator qualification provision in Garcia does not require adjudication of a religious question, but simply asking the church whether the proposed arbitrators satisfied the theological requirements of good standing.
The problem with this argument is that it would empower one party to determine which prospective arbitrators are, and which are not, eligible to serve as members of the arbitral tribunal. And granting one party authority to either control the arbitrator selection process or to circumscribe the pool of eligible arbitrators renders an arbitration provision unconscionable precisely because it threatens to undermine the neutrality of the arbitration panel. See Zabrowski v. MHN Gov’t Servs., 601 F. App’x 461, 463 (9th Cir. 2014); Hooters of Am., Inc. v. Phillips, 173 F.3d 933, 938 (4th Cir. 1999). Indeed, granting the Church of Scientology final say over which arbitrators satisfied the “in good standing” requirement is particularly problematic given that no court could ever review the Church’s determination because of the religious question doctrine.
Importantly, there’s an additional consequence to invalidating the arbitrator selection clause. To the extent a court were to invalidate the arbitrator qualification provision, it is quite likely that it also should invalidate the entire arbitration agreement. This is because courts are to invalidate the entirety of an arbitration agreement “where the designation of the arbitrator was ‘integral’ to the arbitration provision [and not] merely an ancillary consideration.” See, e.g., Khan v. Dell Inc., 669 F.3d 350, 354 (3d Cir. 2012); see also Brown v. ITT Consumer Fin. Corp., 211 F.3d 1217, 1222 (11th Cir. 2000); Gutfreund v. Weiner (In re Salomon Inc. Shareholders’ Derivative Litig.), 68 F.3d 554, 561 (2d Cir. 1995). Given the nature of the overall arbitration agreement, it seems to my mind that the arbitrator qualification clause requiring arbitrators in good standing with the Church of Scientology ought to be viewed as integral to the Church of Scientology arbitration agreement.
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A post by Robert Van Horn at the blog of Stigler Center of University of Chicago’s Business school asserts that “from 1946 throughout the 1950s, corporations made possible and crucially supported the rise of Chicago law and economics through funding and advice…” He implies that corporate involvement influenced the normative positions of Chicago School economics, in particular skepticism of antitrust laws. Michael Simkovic at Leiter has more.
The problem is that there is nothing in Van Horn’s post documenting that corporations funded the relevant scholars at Chicago. The only funding discussed in the article is from the Volker Fund. As Wikipedia explains: “The William Volker Fund was a charitable foundation established in 1932 by Kansas City, Missouri, businessman and home-furnishings mogul William Volker. Volker founded the fund with the purposes of aiding the needy, reforming Kansas City’s health care and educational systems, and combating the influence of machine politics in municipal governance. Following Volker’s death in 1947, Volker’s nephew, Harold W. Luhnow continued the fund’s previous mission, but also used the fund to promote and disseminate ideas on free-market economics.”
So out of curiosity I checked the longer academic article on which the blog post was based. There, I found that Van Horn refers to Volker as a “nonprofit corporation.” Sure, but when we talk about “corporate funding,” we aren’t usually referring to philanthropies. Is funding from the Ford Foundation “corporate funding?”
Beyond that, we learn that Chicago Law School Dead Edward Levi “obtained funding for fellowships from corporations. Starting in the fall of 1952, Standard Oil of Indiana, Swift and Co., International Harvester, International Mineral and Chemical Co., Borg-Warner Co. and Sears Roebuck provided funds for three years. The funding would go toward the study of antitrust law, and the project became known as ‘The Antitrust Project.'” Beyond that, another corporation funded a two-week antitrust seminar for lawyers.
In sum, “corporate funding” amounted to a handful of three-year fellowships for independent scholarly research, and a two-week seminar. To extrapolate from that corporate funding was “crucial” to the rise of law and economics (the start of which the author himself dates to several years earlier), much less that it affected the substantive views of those involved, is quite a stretch.
This perhaps is not of great interest in and of itself, but seems part of a pattern. There has been a sudden outpouring of scholarship from left-leaning scholars on the history of post-World War II free market and libertarian thought. Much of it lacks academic rigor and has something of a conspiratorial tone, as if no reasonable person could believe such ideas, and therefore they must be the product of corporate influence, a cover for racism and white supremacy, and so on.
from Latest – Reason.com https://ift.tt/2uu2vDS
via IFTTT
Religious arbitration is best defined as the voluntary submission of a dispute for binding resolution to religious authorities for adjudication in accordance with religious law. Religious arbitration agreements and arbitration awards are routinely enforced by courts, which comports with arbitration law more generally. But this case has raised concerns because of the facts of the case. The plaintiffs allege they were sexually assaulted by Daniel Masterson, himself a member of the Church of Scientology, and that the Church of Scientology sought not only to cover up these incidents, but also threatened and harassed the plaintiffs once they reported the incidents.
All arbitration agreements define the scope of the controversies they cover. In this case, the arbitration agreement states: “I hereby expressly agree that any controversy arising under this Application/Agreement or in connection with my participation in the Service shall be resolved by such Binding Religious Arbitration.” The term religious services varies by agreement. In some it is defined as the specific religious coursework in which the plaintiffs enrolled (see Exhibits 1-7); in others, it refers to the general rubric of church activities and practices (see paragraph 2d in Exhibits 8-14).
However, according to the complaint, most of the plaintiffs’ causes of action are based upon conduct after they left the Church of Scientology. As a result, it would be difficult to read them as falling under the umbrella of religious services as defined by any of the agreements.
The Church of Scientology addresses this argument in two ways. First, by arguing that some of the implicated conduct—for example, the alleged sexual assaults—took place while the plaintiffs were members of the church. Therefore, the causes of action should still fall under the arbitration agreement. This seems like a tough sell, but is ultimately a question of contract interpretation.
The second argument is more interesting. Here the Church of Scientology argues that the body that should adjudicate the question of scope—that is, who should decide whether the complaint falls within the scope of the arbitration agreement—are the religious arbitrators and not the court.
The Church of Scientology is correct that arbitration agreements can require parties to submit these sorts of disputes (i.e. questions of substantive arbitrability) to the arbitrators themselves. Once again, this is a question of contract interpretation. Thus, if an arbitration agreement states that any questions regarding validity, enforceability and scope will also be heard by the arbitrators—what the law often refers to as a “delegation clause”—then not only would arbitrators have the authority to adjudicate the underlying merits, but they would have the right to address any such threshold issues.
This was the case in a recent Supreme Court decision, Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S. Ct. 524 (2019), which the Church of Scientology cites as support in its motion to compel. In Henry Schein, the arbitration agreement incorporated the American Arbitration Association rules, which include Rule 7: “The arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope, or validity of the arbitration agreement or to the arbitrability of any claim or counterclaim.” Thus, in Henry Schein, the power to determine the scope of the arbitration agreement was expressly granted to the arbitrators through the incorporation of the AAA rules.
By contrast, it does not appear that there is a delegation clause in the Church of Scientology arbitration agreement that expressly submits questions of scope to the arbitrators. I therefore think that this issue would likely be heard by a court; and, I also think the court would find these claims as falling outside the scope of the arbitration agreement, thereby allowing the suit to go forward in court.
[II.] Arbitrator Qualification Clause
In the future, the Church of Scientology could remedy the limited scope of their agreement by simply including a delegation clause in their boilerplate arbitration agreements. Issues related to their arbitrator qualification clause are not obviated quite so easily.
Church of Scientology arbitration agreements include an arbitrator qualification clause that requires “all arbitrators shall be Scientologists in good standing with the Mother Church.” Prior plaintiffs seeking to file suit against the Church of Scientology have previously challenged Church of Scientology arbitration agreements on that basis, arguing that having their claims submitted to arbitrators affiliated with the Church of Scientology would make it impossible for the arbitration proceedings to be fair and neutral.
For example, in Garcia v. Church of Scientology, Maria and Luis Garcia—former church members—filed suit in federal district court against the Church of Scientology, alleging fraud and breach of contract claims predicated on monies they had previously given the church. When the church filed a motion to compel arbitration, the Garcias claimed that the agreement was unconscionable, in part, because of the arbitrator selection clause. As summarized by the court, the Garcias argued that they had been “declared ‘Suppressive’ by the Church and according to Church doctrine, have no rights as Scientologists and are not eligible for the benefits of the Codes of the Church.” Moreover, they alleged it would “be impossible for them to receive a fair and neutral arbitration because Scientologists in good standing are prohibited by Church doctrine from communicating with suppressive individuals.”
The court, however, rejected the Garcias’ claim because addressing the claim would require adjudication of a religious question, which the Establishment Clause prohibits: “it necessarily would require an analysis and interpretation of Scientology doctrine. That would constitute a prohibited intrusion into religious doctrine, discipline, faith, and ecclesiastical rule, custom, or law by the court.”
But as I’ve argued, I don’t think this is correct—in fact, I think the opposite is true. Even if assessing the unconscionability challenge would be unconstitutional, enforcing the Church of Scientology arbitrator qualification clause would still violate Establishment Clause pursuant to the religious question doctrine.
As an example of why, consider In Matter of Ismailoff, where a New York surrogate court refused to enforce an arbitrator qualification clause that required selection of “three persons of the Orthodox Jewish faith.” The court concluded that enforcing such a provision would violate the Establishment Clause because it would require a judicial determination as to whether the arbitrators were “orthodox.” And doing so would entail impermissibly resolving an “issue concerning religious doctrine or practice.”
This logic would seem to apply equally to determining whether an arbitrator is “in good standing with the Mother Church.” Determining whether proposed arbitrators satisfied this standard would presumably require judicial interrogation of religious doctrine; it seems most likely that interpreting and applying that standard both entails identifying what religious behaviors are necessary for good standing and then applying those religious standards to prospective arbitrators. As a result, it would be unconstitutional to enforce the arbitrator qualification clause.
One can imagine the Church of Scientology responding with the following counter-argument: the arbitrator qualification provision in Garcia does not require adjudication of a religious question, but simply asking the church whether the proposed arbitrators satisfied the theological requirements of good standing.
The problem with this argument is that it would empower one party to determine which prospective arbitrators are, and which are not, eligible to serve as members of the arbitral tribunal. And granting one party authority to either control the arbitrator selection process or to circumscribe the pool of eligible arbitrators renders an arbitration provision unconscionable precisely because it threatens to undermine the neutrality of the arbitration panel. See Zabrowski v. MHN Gov’t Servs., 601 F. App’x 461, 463 (9th Cir. 2014); Hooters of Am., Inc. v. Phillips, 173 F.3d 933, 938 (4th Cir. 1999). Indeed, granting the Church of Scientology final say over which arbitrators satisfied the “in good standing” requirement is particularly problematic given that no court could ever review the Church’s determination because of the religious question doctrine.
Importantly, there’s an additional consequence to invalidating the arbitrator selection clause. To the extent a court were to invalidate the arbitrator qualification provision, it is quite likely that it also should invalidate the entire arbitration agreement. This is because courts are to invalidate the entirety of an arbitration agreement “where the designation of the arbitrator was ‘integral’ to the arbitration provision [and not] merely an ancillary consideration.” See, e.g., Khan v. Dell Inc., 669 F.3d 350, 354 (3d Cir. 2012); see also Brown v. ITT Consumer Fin. Corp., 211 F.3d 1217, 1222 (11th Cir. 2000); Gutfreund v. Weiner (In re Salomon Inc. Shareholders’ Derivative Litig.), 68 F.3d 554, 561 (2d Cir. 1995). Given the nature of the overall arbitration agreement, it seems to my mind that the arbitrator qualification clause requiring arbitrators in good standing with the Church of Scientology ought to be viewed as integral to the Church of Scientology arbitration agreement.
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The ECB are expected to stand pat on rates this week, according to surveyed analysts with markets currently pricing in around a 25% chance of a 10bps rate reduction at the first meeting of 2020; note, less than 3bps worth of loosening is currently priced in throughout the year. Focus for the press conference will center around the upcoming strategic review and how policymakers at the Bank evaluate the Eurozone’s growth prospects in lieu of recent macro developments.
Below we present a summary preview of what to expect from today’s ECB announcement, courtesy of Christopher Dembik of Saxobank
For the first meeting of 2020, we don’t expect to see any changes in policy stance as the macro outlook is broadly unchanged compared to the end of 2019 in the eurozone. There is a wide consensus that the ECB is on hold throughout 2020. Risks to growth in December have moved downward while the 5-year, 5-year forward inflation expectation rate, which has always been monitored closely by Mario Draghi, continues to show signs of improvement (currently at 1.3% vs 1.1% a few months ago). Macro-stability will allow the ECB to focus on the launch of the second strategic review in the 20-year history of the organization that is expected to last one year.
At 15:30 today, we may have a document revealing the main “parameters” of the review. As far as we know, the ECB plans to split the review into two parts: (1) ECB’s performance since the last review in 2003 and review of the framework, the instruments and the way inflation is measured and (2) financial stability, communication and climate change.
The ECB review should revive a very old debate about the way to track inflation. The ECB, under Draghi’s leadership, seemed in favor of including housing prices in HICP but, in 2018, the EC advised against it due to the lack of timeliness of the new OOH Index (Ower-Occupied Housing Index). Any change in order to include housing prices could prove super hawkish. More basically, the review might also bring some clarity about what the objective of inflation really means. It could get rid of the “below, but close to” 2% inflation target and it could adopt a more flexible approach, i.e. a range of 1-3% for instance.
Based on a strict interpretation of the Treaty, the ECB can play a role to protect the environment. We believe the likelihood it launches some kind of “Green QE” is high in 2021. The ECB has mostly three options at its disposal: (1) favoring green bonds as part of the revived QE programme, (2) applying a punitive haircut to bank collateral assorted to high carbon intensity activities and (3) targeting transition bonds for dirty companies that try to become greener.
PREVIOUS MEETING: Rates were unchanged, in line with expectations, and the ECB’s policy statement was also little changed. President Lagarde provided a balanced assessment, largely sticking to the ECB’s script; but there were a few interesting remarks. Lagarde noted that while risks remained tilted to the downside, they were somewhat less pronounced given the stabilisation in data. Analysts also said she did a good job of assuring markets that the ECB was not on the cusp of a hawkish tilt. While she is pleased that inflation is moving in the right direction (noting that in Q4 2022, HICP is forecast to be sitting at 1.7%), she seemed displeased that it was not at target. She also appeared to suggest that the central bank’s mandate will not be changing from price stability, but is very aware of the side effects of negative rates, which she said was a ‘preoccupation’. Crucially, Lagarde was asked about the reversal rate (the point at which expansionary policy becomes contractionary), and she did not believe that the ECB was near it yet. Lagarde was again asked about her policy stance, batting away the question by suggesting she was neither a hawk nor a dove, and she wanted to be an ‘owl’. Lagarde was asked about unity on the Governing Council, and she said that she was aiming for decisions to be as consensual as possible, in line with reports heading into the confab.
RECENT DATA: Since the previous meeting, December flash inflation metrics saw headline CPI picking up to 1.3% from 1.0% with the ex-food and energy print remaining at 1.4%; the rise in the headline was largely attributed to energy price effects. From a growth perspective, there has been little in the way of fresh evidence for the Q4 outturn (flash EZ GDP released on 31st Jan) other than the FY 2019 German GDP print which showed growth slowing to 0.6% from 2018’s 1.5%; Pantheon Macro noted that based on the FY reading and allowing for rounding Q4 GDP will print around 0.1-0.2%. Survey data has perhaps been of greater interest with December Markit PMIs showing the Eurozone-wide composite reading ticking higher to 50.9 from 50.6, however, the differing performances of the services and manufacturing sectors remains a key feature of the bloc’s outlook. Note, the January PMI report will be released the day after the ECB policy announcement.
RECENT COMMUNICATIONS: Given the Festive period and “wait and see approach at the Bank”, rhetoric by policymakers has been relatively limited. ECB President Lagarde at the beginning of the year noted that it “makes sense” for the Bank to use all of the tools at its disposal when it comes to increasing growth, which will also result in inflation moving towards levels close to 2%, adding that the biggest threat to the economy is a downturn in trade activity. On the hawkish end of the spectrum, in the immediate aftermath of the December meeting, Austria’s Holzman said he is looking for a potential increase in the ECB’s deposit rate in 2020 in the event that the inflation trough passes during 2020, whilst Netherland’s Knot stated that “the balance between positive and negative effects of low interest rates is shifting in the wrong direction”. Elsewhere, the upcoming strategic review has also been referenced by various members of the Governing Council with Germany’s Schnabel noting “the (inflation) target worked very well in the past but structural changes in the economy justify a careful discussion”, whilst Villeroy of France has stated “our inflation target must be symmetric. If the central target is seen as a ceiling, we have less chance of meeting it”.
THE CURRENT BAR TO POLICY ADJUSTMENTS: Despite some stabilisation in EZ data, the signing of a phase one trade deal between the US and China and some near-term declines in Brexit-related uncertainty, policymakers look unlikely to make any adjustments on the policy front this time around. From a data perspective, the services sector continues to resist any spill-over from the contraction in manufacturing, however, policymakers will likely want further evidence that the Eurozone economy is “bottoming out” and inflation is seeing a meaningful pickup; a view shared by Danske Bank who have suggested the ECB has nothing to gain from being “proactive”, rather than waiting for more evidence that the Euro Area recovery is strengthening. As such, Danske believe that January will not see the Bank change their growth assessment to a “balanced” view following the December adjustment which noted that downside risks have become “less pronounced”. On the trade front, despite the signing of the phase one deal between the US and China, some tariffs between the two nations remain in place and will serve as a headwind, with phase two talks not expected to begin until after the November US Presidential election. Of greater concern for EZ policymakers comes from the direct threat of US tariffs on the bloc with President Trump to set his sights on addressing trade imbalances between the two regions; a move that could eventually hamper the Eurozone’s auto sector. Additionally, despite the near-term certainty bought around by the Conservative December election victory, the refusal by the Johnson government to extend the current transition period beyond December 2020 has led to heightened fears of a less-favourable outcome in EU-UK trade talks. With this in mind, the ECB are widely perceived to be in “wait and see mode” at the January meeting.
THE ROAD AHEAD: With the January meeting set to see policy settings unchanged, looking further ahead, markets currently price in around 1.65bps of loosening by year-end with the bias for rates being to the downside; note, in December President Lagarde suggested the Bank is not near the reversal rate (therefore, there is scope for rates to be lowered further). In terms of house calls, Capital Economics look for a 20bps rate cut in September to coincide with a EUR 10bln increase to the ECB’s monthly asset purchases (via corporate bonds); cites an easing of core inflation in the coming months. UBS’ forecast looks for a 10bps cut to the deposit rate in March. Rabobank suggest that the “cracks in the US economy” could force the hand of the ECB to cut rates in June. ABN AMRO look for a 10bps cut in the deposit rate, an increase in asset purchases by EUR 20bln and an increase in upcoming TLTROs to be announced in March. Oxford Economics look for policy to remain on hold throughout the year, however, suggest that structurally low inflation will remain a “permanent headache”.
TIMING AND FOCUS OF THE STRATEGIC REVIEW: With policy set to remain on hold, a key source of focus instead will be on the technical aspects of the ECB’s policy approach; namely, the upcoming strategic review due to be announced this week. Last week, reports suggested that President Lagarde has requested that policymakers refrain from making public comments before the upcoming review and therefore details are relatively limited thus far. However, a recent survey conducted by Bloomberg News showed that 90% of respondents believed that the ECB will adopt a more symmetrical approach to inflation targeting (equal weighting between too-low and too-high inflation), whilst half of respondents believe that the current goal of “below, but close to, 2%” will be made more precise. The review will likely focus on several key areas: 1) inflation target, 2) inflation measure, 3) communication strategy, 4) role in addressing climate issues. Tempering expectations for this week’s release, Capital Economics forewarns that those expecting to see the specifics on the scope and timetable of the review, might be disappointed. In terms of a timeline going forward, HSBC (last year) speculated that such a review could take 3- 6 months and ultimately lead to “fairly minor” tweaks on the basis that limited firepower for the ECB’s monetary policy could see them fall short of any potential new mandate and thus lose credibility. Oxford Economics believes that the review could last up to a year on the basis that Lagarde has pledged to leave “no stone unturned”.
FISCAL POLICY: As has been a common theme already during Lagarde’s leadership at the Bank and given the perceived limited room for further monetary policy, the ECB Chief will likely continue to bang the drum for assistance on the fiscal front. Deutsche Bank suggest that coordination of fiscal and monetary policy will likely prove to be more effective than the latter on its own, adding that “fiscal easing targeted at infrastructure spending could boost trend growth expectations and hence raise r*”. However, as it stands, there has been little evidence of Eurozone governments engaging on this matter, whilst Deutsche Bank also raises the possibility of some of the more hawkish elements of the ECB flagging concerns over monetary financing.
Global Stocks Slide, China Plunges Most Since May As Optimism Virus Is Conatined Mutates To Pessimism
Yesterday’s optimism that China’s coronavirus epidemic is contained (supposedly because Beijing was “transparent” with the fiasco and Trump was convinced by Xi) which sent S&P futures to an all time high of 3,333 has mutated into pessimism that it isn’t…
… after China quarantined two cities (one with 11 million, the other with 6 million people), which sent US equity futures and global markets sliding and Chinese stocks tumbling.
The global risk off mood, was led by the biggest decline in Chinese stocks in more than eight months, as concerns mounted that the spread of a deadly virus in China is now beyond Beijing’s control and will affect everything from tourism to corporate sales and economies. With millions of Chinese preparing to travel for the Lunar New Year which begins on Saturday, the potential the disease to spread, along with the tendency of traders to reduce their exposure before holidays, left markets struggling.
Deaths in China from the coronavirus rose to 17 on Wednesday, with nearly 600 cases confirmed. The outbreak has evoked memories of SARS in 2002-2003, another coronavirus that broke out in China and killed nearly 800 people worldwide.
“The coronavirus has introduced some caution,” said Michael McCarthy, chief market strategist at CMC Markets in Sydney. “There is no reason to expect a global pandemic now, but there is some repricing in financial markets.”
As the virus took hold, MSCI’s broadest index of Asia-Pacific shares outside Japan fell 1.07%. Chinese shares dropped 2.8%, the biggest daily decline since May, when Trump’s threats of additional tariffs on Chinese goods rocked financial markets, and biggest drop on the last trading day before the Lunar New Year holiday in the benchmark’s three-decade history. Hong Kong shares ended down 1.5% and Japan’s Nikkei index slid 1%.
European stocks followed Asia lower as mining shares led the Stoxx Europe 600 Index lower. Euro Stoxx 50 pares earlier losses to trade 0.2% lower, DAX down 0.4% after falling as much as 0.8%. E-mini S&P futures little changed.
Among major currencies, the Chinese yuan fell to a two-week low, on course for its worst week since August. The Japanese yen climbed 0.2% to secure a third day of gains. Other safe havens government bonds also rose with the yield on 10Y TSYs sliding to 1.75%. Core European, U.K and U.S. bond yields are 2bps-3bps lower across most maturities, with slight curve flattening bias in 2y-10y tenors. Italian bonds and equities outperform, shrugging off potential political uncertainty. 10-yr BTP yield -7bps, FTSE MIB +0.7%.
“Ultimately, the coronavirus is a slow-burning but important story for markets that is likely to last for months rather than just a few days,” said TD Securities’ European head of currency strategy, Ned Rumpeltin. “And the natural go-to currencies when there are headlines like these are the yen and the Swiss franc.”
Elsewhere in FX, the Bloomberg Dollar Spot index was little changed alongside the euro ahead of the European Central Bank policy decision. The Australian dollar led gains in the Group-of-10 currencies following better-than-expected jobs data which dampened rate-cut expectations. The Swiss franc rose to a near three-year high against the euro overnight, but it was trading little changed as the focus in Europe turned to its central banks. Norway’s central bank had already left its interest rates unchanged.
The ECB holds its first meeting of the year later on Thursday, where it’s expected to outline its first formal policy review in 17 years. It will probably last for most of the year and span topics from the inflation target to digital money and the fight against climate change. “Quite a lot has happened in the last 17 years,” Rumpeltin said. “They are due for a rethink.” ECB President Christine Lagarde will speak to the press afterwards.
In other central bank news, SNB Chairman Jordan does not see a new minimum exchange rate at present, noting that CHF remains highly valued and it’s important to keep expansive policy. Negative rates are a necessity in Switzerland could cut rates further if needed, he sees slight Swiss growth improvement this year, but more risks are to the downside; aware that negative rates have side effects, tiering aims to minimize these.
The threat to airline travel and an increase in supply pushed oil prices to seven-week lows: WTI crude dropped to its lowest level since early December.
Gold rose as China blocked travel to and from Wuhan, the city where the coronavirus outbreak originated. Gold later recovered in Europe.
Expected data include jobless claims and the Leading Index. American Airlines, Comcast, Kimberly-Clark, P&G and Intel are among companies reporting earnings.
Market Snapshot
S&P 500 futures little changed at 3,318.75
STOXX Europe 600 down 0.2% to 422.35
MXAP down 0.7% to 172.35
MXAPJ down 0.8% to 561.27
Nikkei down 1% to 23,795.44
Topix down 0.8% to 1,730.50
Hang Seng Index down 1.5% to 27,909.12
Shanghai Composite down 2.8% to 2,976.53
Sensex up 0.6% to 41,373.12
Australia S&P/ASX 200 down 0.6% to 7,087.96
Kospi down 0.9% to 2,246.13
German 10Y yield fell 1.8 bps to -0.278%
Euro down 0.1% to $1.1079
Italian 10Y yield fell 2.3 bps to 1.178%
Spanish 10Y yield fell 2.8 bps to 0.385%
Brent futures down 1.2% to $62.43/bbl
Gold spot down 0.3% to $1,554.29
U.S. Dollar Index little changed at 97.53
Market Snapshot
Chinese officials halted travel from Wuhan, essentially locking down the city of 11 million people as they try to stop the spread of a new SARS-like virus that’s already killed 17 and infected hundreds
President Donald Trump put European leaders on notice, renewing a threat to hurt the economies of transatlantic allies if they aren’t willing to compromise on a trade deal before the U.S. elections. U.K.’s Sajid Javid snubs Trump trade offer, saying EU deal comes first
Prime Minister Boris Johnson’s Brexit deal cleared its final hurdles in Parliament, bringing the crisis that paralyzed U.K. politics since the country voted to leave the European Union almost four years ago to a close
Japanese exports dropped more than expected in December, with the slump dragging on for a 13th month despite recent signs of green shoots in global manufacturing. The value of shipments overseas fell 6.3% from a year earlier, weighed down by sliding exports of cars and auto parts
Luigi Di Maio’s resignation as leader of the biggest party in Italy’s fractious coalition has set the stage for a bruising succession battle that threatens to destabilize Prime Minister Giuseppe Conte’s government
China’s securities regulator is looking at the potential to raise the cap on foreign ownership in the nation’s listed companies, according to a senior official. Fang Xinghai, vice chairman of the China Securities Regulatory Commission, said there’s potential to lift the limit to “more than 30%” given that other countries in the region have higher caps
House Intelligence Chairman Adam Schiff presented the U.S. Senate with a dark portrait of a deeply flawed, even dangerous president as he argued that Trump should be removed from office.
The Swiss National Bank left the door open to a further easing of policy to rein in the “highly valued” franc, though a new currency cap isn’t in the cards for now, SNB President Thomas Jordan told Bloomberg TV
Norway’s central bank kept its benchmark rate unchanged, and stuck to its message that monetary policy will be on hold for the foreseeable future
Hedge funds suffered almost $98 billion in net outflows in 2019, the most in three years, as managers trailed the stock market rally, according to data compiled by eVestment
Asian equity markets weakened following the indecisive performance on Wall St where stocks finished relatively flat after a pullback from record highs, and with sentiment spooked amid ongoing coronavirus as the total confirmed cases in China rose to 571 and number of deaths at 17. ASX 200 (-0.6%) was dragged lower by heavy losses in Industrials, with better than expected jobs data dampening calls for an RBA rate cut next month. Nikkei 225 (-1.0%) was pressured by a firmer currency and disappointing trade data including a wider than expected decline in Exports, while Hang Seng (-1.5%) and Shanghai Comp. (-2.8%) slumped with investors reducing exposure heading into the start of the week-long mainland holiday closure and tomorrow’s shortened session in Hong Kong as focus centred on the outbreak concerns, with losses for the mainland bourse exacerbated on a break below the psychological 3000 level. Furthermore, it was reported that China shutdown public transit as well as the airport in Wuhan to contain the spread of the virus and local doctors estimated the number of cases could reach as many as 6000, in which the related jitters kept markets on edge and overshadowed the upward revision to Chinese December trade data, as well as the PBoC’s targeted medium-term lending facility announcement. Finally, 10-year JGBs were higher and tracked similar upside in T-notes with prices supported by the risk averse tone and with the BoJ present in the market today heavily concentrated on 5yr-10yr maturities.
Top Asian News
China Refrains From Adding More Liquidity Ahead of Holiday
Toyota Outlook to Neg. at Moody’s on Margins, Profitability
Asia Gas Sinking to Bottom Under Weight of Fading China, Glut
European stocks trade relatively mixed, with bourses off worst levels [Eurostoxx 50 -0.1%] – following on from a downbeat APAC session which saw the Mainland underperform on coronavirus jitters alongside position closures ahead of its week-long Lunar New Year holiday. Sectors are mixed with defensives performing slightly better than cyclicals, and with underperformance seen in the consumer discretionary sector – heavily weighed on by Renault (-4.2%), following a downgrade at Citi. In terms of other individual movers, STMicroelectronics (+7.3%) leads the gains in the Stoxx600 following an upbeat earnings report in which it also stated that it will invest USD 1.5bln in Capex to support strategic initiatives. Sticking with upside, Novozymes (+6.4%) remains a top-gainer post-earnings in which it announced a share buyback programme. On the flip side, miners including the likes of Rio Tinto (-2.1%), Antofagasta (-2.8%) and BHP (-1.6%) bear the brunt of softer base metal prices. Broker-induced action includes Maersk (+1.1%), Compass Group (-1.6%) and Continental (-1.3%).
Top European News
ACS, Hochtief Tumble on Mid-East Construction Troubles
LVMH, Swatch Fall After China Shares Slump on Coronavirus Risk
STMicro Beats Estimates Marking Another Chipmaker Rebound
SNB Can Cut Rates But Isn’t Weighing New Franc Cap, Jordan Says
In FX, the marked G10 outperformers, as the Aussie rebounds firmly against the Greenback and Kiwi on the back of better than expected jobs data, albeit largely seasonal, to test resistance around the 200 DMA (0.6880) and reclaim 1.0400+ status respectively. To recap, December’s payroll count beat consensus almost 2-fold, and while entirely due to the part-time tally, the jobless rate dipped to 5.1% and prompted at least a couple of local banks to roll-back RBA rate cut forecasts. Meanwhile, the Yen has made a more concerted break above 110.00 vs the Buck towards 109.50 amidst renewed qualms over the spreading Chinese coronavirus and further retracement in the Renminbi through 6.9000 to 6.9330+.
NZD/GBP/EUR/CHF/SEK/NOK – All holding relatively steady vs the Usd, as the DXY continues to dither either side of 97.500 rather aimlessly awaiting further direction and/or independent impetus that may come via weekly claims and the LEI. On that note, Nzd/Usd remains retrained just below 0.6600 ahead of Q4 NZ CPI that will feed into February’s RBNZ policy meeting considerations, while Cable is still capped circa 1.3150 before Friday’s preliminary UK PMIs and following mixed data/surveys since several BoE members, including Governor Carney, revealed dovish leanings along the lines of existing MPC dissenters Saunders and Haskel. Conversely, Eur/Usd is not anticipating much from the upcoming ECB confab other than information about the strategic review, with the pair meandering under 1.1100, but keeping afloat of key support levels that kick in from 1.1070. Elsewhere, SNB chair Jordan has backed up Maechler’s insistence that being labelled as a currency fixer by the US will not impact policy, adding that NIRP and FX interventions are still necessary as the Franc remains highly valued. Moreover, rates may yet be required to be more negative, leaving Usd/Chf idling between 0.9674-93 and Eur/Chf nudging the top of a 1.0730-47 band. Turning to Scandinavia, Eur/Sek and Eur/Nok are pivoting 10.5400 and 9.9600 respectively, with the Swedish Crown deriving some support from a significant decline in jobless rates and Norwegian Krona acknowledging broadly unchanged assessments and guidance for steady depo rates from the Norges Bank.
CAD – The major laggard and still smarting after Wednesday’s dovish/cautious BoC outlook that was underscored by Governor Poloz stating that easing is now an option depending on how data unfolds and the domestic economy develops rather than a pre-emptive cut that was discussed. The Loonie has nursed some losses after sliding to circa 1.3170, though Usd/Cad remains above 1.3150 and still prone to extending gains towards upside chart targets ahead of 1.3200, such as the 100 DMA (1.3179).
In commodities, a subdued session in the commodity sphere for now– WTI and Brent front-month futures remain in the doldrums given the implications of coronavirus on sentiment, global growth and on airline fuel demand, with added pressure from the surprise build in API crude (+1.6mln vs. Exp. -1.0mln). Desks also keep in mind the recent supply-side developments that markets seem to have overlooked for now: 1) Libya’s output decline on force majeures, 2) Iraqi blockades, 3) halted Kazakh oil flows to China and 4) Shell declaring force majeure of its Nigerian Bonny Light imports. Analysts at ING calculate that the disruptions add up to around 1.4mln BPD – “which would be more than enough to shift the global market into deficit over 1H20”, ING says, adding that spare capacity is capping gains with OPEC’s +3mln BPD holding. On that note, Nigerian Oil Minister Sylva stated that the current OPEC+ cuts are sufficient to avoid oversupply, whilst stating that his preferred Brent prices stands between USD 60/bbl and the “upper 60s”. WTI Mar’20 futures dipped below the USD 56/bbl having taken out in its 200 and 100 DMAs at 57.53/bbl and 57.29/bbl respectively, whilst Brent Mar’20 hit seems to be capped by its 100 DMA at 62.82/bbl. Elsewhere, spot gold retains its 1550/oz+ status with little by way of fresh fundamental catalysts to influence price action – although from a technical standpoint, the 50 and 200DMA have converged to form a golden cross around 1500/oz. Copper has meanwhile succumbed to the humdrum risk sentiment with prices finding mild intraday support at its 50 DMA ~2.7415/lb.
US Event Calendar
8:30am: Initial Jobless Claims, est. 214,000, prior 204,000
8:30am: Continuing Claims, est. 1.75m, prior 1.77m
11am: Kansas City Fed Manf. Activity, est. -6, prior -8
DB’s Jim Reid concludes the overnight wrap
Some of the speaker highlights today at Davos are special addresses by German Chancellor Merkel (2.15pm CET) while prior to this DB CEO Christian Sewing also speaks on the panel topic “After Brexit: Renewing Europe’s Growth” at 10.15am CET. So plenty of potential headlines to track. Meanwhile, Italian PM Conte’s (4pm CET) address has been cancelled at the last minute following yesterday’s resignation of Luigi Di Maio – leader of the M5S party (more below). Elsewhere at the event, Mr Trump was a bit more hawkish towards Europe yesterday than he was the day before suggesting that tariffs were possible on EU autos before the election if negotiations don’t progress. Also the U.K.’s Sajid Javid said they will go ahead with a digital tax in April which may complicate a free trade agreement with the US and risk tariff reprisals but I’m sure they would have had discussions on this behind the scenes.
As I now return from Davos, while I’m sure many readers will be cynical that the leaders present will do anything about sustainability in the months and years ahead, I certainly detected that the general mood was that if they didn’t do something then it will be disadvantageous to them in terms of news-flow and financially. So business is moving to varying degrees even if it’s for self-interest. Will governments and citizens do so too? As we say in our report, difficult trade-offs lie in the near future if the globe wants instant action.
About 500km north of Davos the ECB will be holding their latest policy meeting today. No surprises are expected and our economists, in their preview which you can find here, concluded that they expect the ECB to maintain that an accommodative policy stance remains appropriate. They also expect the Council to conclude that the balance of risks remain tilted to the downside but continue to acknowledge that the risks have become less prominent with an upgrade to neutral being the main upside scenario. The main interest will likely lie with the Strategic Review which may also be announced today and ultimately remains uncertain still, however the potential for market volatility can be counter-balanced by a strong commitment to the current stance in any case.
Just on this, Bloomberg yesterday reported that the Strategy Review could be broken into two, one part will deal with inflation, the policy making framework and policy tools and the other with “financial stability, climate and communications”. This does not necessarily mean the ECB conservatives already have the upper hand and “climate” — potentially requiring large-scale policy coordination — has been relegated. We suspect the differentiation between the two parts of the Strategic Review reflects legal issues and political sensitivities. Price stability is the ECB’s primary goal. If the ECB is to move more into the area of climate etc., it needs to do this with the proper legal and political authority (that is, with Treaty change). This is consistent with the conclusions of DB’s December report on the Strategy Review that decisions made outside Frankfurt will be more important than decisions made inside Frankfurt.
All that to look forward to at 1.45pm CET. Yesterday saw US equities pare back stronger gains from earlier in the session, with the S&P 500 and NASDAQ closing up +0.03% and +0.14% respectively. The pullback happened as news came through from China that public transport would be suspended in Wuhan, the city where the coronavirus outbreak began, with outbound flights and trains coming to a halt. It comes amidst concerns that the upcoming Chinese New Year holiday, which involves large amounts of people travelling, could accelerate the spread of the virus. The latest on the virus is that there have now been 571 confirmed cases with the death toll standing at 17 as January 22 (9 as on January 21). Elsewhere, Macau has cancelled all Lunar New Year festivities while Hong Kong has halted high-speed rail ticket sales to Wuhan (inbound from Wuhan already halted) – a city of 11 million people.
Risk aversion has returned to Asian markets this morning due to renewed concerns about the virus with Chinese bourses leading the declines. The CSI (-3.02%; the largest decline since May 2019), Shanghai Comp (-2.67%; the largest decline since July 2019) and Shenzhen Comp (-3.42%) are all down c. 3%. It should be noted that today is the last trading day for Chinese bourses before the week long Lunar New Year holiday starts. Meanwhile, the Nikkei (-0.96% ), Hang Seng (-2.04% ) and Kospi (-0.99%) are also down. As for Fx, the onshore Chinese yuan is down -0.33%% to 6.9274. Elsewhere the Australian dollar is up +0.26% as investors pared their bets on a rate cut by the RBA on better than expected jobs data. Futures on the S&P 500 are down -0.21% and yields on 10y USTs are -2.6bps while in commodities crude oil prices are down a further c. -2% after an even bigger fall yesterday (more below).
Back to the equity moves yesterday, and it was the tech sector that led the way in the US, helped in part by IBM’s latest earnings report released the night before. Of particular note was a +4.09% gain for Tesla which saw the car manufacturer pass the $100bn market cap mark and which means it now only trails Toyota in terms of the world’s most valuable auto makers. A fairly staggering rise from the $32bn market cap back in June and a huge +218% move.
Elsewhere, bond markets have been fairly muted for the last 24 hours. Indeed 10y Treasuries continue to hover around 1.770% (-0.5bps) with the move index of Treasury volatility hovering around 8-month lows. In Europe yields were around 1bp lower while the STOXX 600 closed -0.08%. The FTSE MIB (-0.58%) did struggle however following Di Maio’s resignation as leader of the Five Star Movement. The regional elections in Italy this weekend will be the next focal point for Italian political risk, though the spread of BTPs over bunds actually tightened by -1.1bps by the close yesterday. Meanwhile, in commodities it was a rough day for oil where Brent and WTI declined -2.14% and -2.81% respectively on supply issues and in reaction to the virus news in China which could be seen as hurting demand.
Before we get to yesterday’s data and the day ahead, last week we published the latest edition of The House View ‘Gaining Speed’ (link here) and now we’ve released an 11 minute podcast version of the report with Marion and Luke, both on my team. You can find it at https://www.dbresearch.com/podzept/ or on the usual podcast providers. Instructions in the link. ***
As for the data yesterday, there was some interest in the CBI survey data in the UK. Both the orders data and optimism data improved. Trends total orders improved 6pts to -22 (vs. -25 expected) while business optimism improved an eye-opening 67pts to 23 (vs. -20 expected) – the highest level since 2014. A word of caution though that the data is notoriously volatile and shouldn’t really be seen in isolation. Data on the whole since the election has been weak to mixed with the big weakness coming in retail sales and the PMIs in particular so it’s unlikely that yesterday’s data will move the dial for the BoE unless they heavily weight survey data versus hard data. Sterling bounced back above $1.31 post the data while the market is pricing in around 13bps of cuts for the January meeting next week.
Finally in the US the December existing home sales print of +3.6% mom bettered expectations for +1.5%. That was actually the highest reading since February 2018 also, underscoring the positive trend in home sales.
Looking at the day ahead, the main focus today is likely to be on the ECB meeting. In terms of data we have the January consumer confidence reading for the Euro Area while in the US we’ve got claims, December leading index and January Kansas Fed manufacturing activity index all due. Away from that the Davos panels will continue, while in Washington the US-China economic and security review commission is due to hold a hearing, mandated by Congress to report annually on national security implications. Finally, earnings highlights include Intel and Proctor & Gamble.
