Tag: finance

World stock markets are closing out the week on a euphoric note, with Asian and European stocks and S&P futures roaring higher on Friday amid a sea of green on Friday on renewed hopes that the US and China were starting to repair their badly damaged trade relations.

As shown in the table above, stocks extended gains around the world, as Treasuries dropped and the dollar tumbled on Friday on the back of fresh hopes for trade between the world’s two biggest economies. The buying frenzy was unleashed after Bloomberg News reported that Trump was interested in reaching an agreement on trade with Chinese President Xi Jinping at the Group of 20 nations summit in Argentina this month, and has asked key officials to begin drafting potential terms.

The latest attempt at easing trade tensions (and boosting stocks, incidentally just 5 days before the midterm elections) came less than 24 hours after Trump tweeted that he held a “long and very good conversation” with China’s President Xi, in which trade was the key topic and “discussions are moving along nicely.”

Whether or not the news was signal or more noise – and we’ve had a lot of it in the past 6 months – it achieved its goal, resulting in a surge in Asian stocks that included 2.5-4% leaps for most of region’s big bourses, taking gains on the MSCI Asia Pacific Index to 5% for the week and put the world’s main emerging market index up 3%, on course for its best day and week since early 2016. Even China was quick to forget about its trade troubles, as the Shanghai Composite jumped 2.7%…

… while the yuan soared 500 pips as the USDCNH tumbled from 6.93 to 6.88

Europe was overjoyed too. Germany’s export-heavy DAX jumped 1.5% in its best start since July with Volkswagen +4.5%, pushing the DAX up to best levels this week, while European shares were headed for their best week since late 2016. The Stoxx Europe 600 was over 1% higher taking this week’s gain to 4.1 percent. Even the long-suffering auto and mining sectors edged higher. Luxury and chemicals got a boost, as did technology shares that might otherwise be fretting more over Apple’s disappointing sales forecast.

European earnings have improved lately, though this quarter is still the weakest season in four years as margin pressures build, according to Morgan Stanley. Earnings revisions are at the lowest in 2 1/2 years, while share prices have reacted more strongly to result misses than they have to beats, the U.S. bank said. On the other hand, final Mfg PMIs from around Europe came in slightly on the softer side of prelims while Italian manufacturing shrank the most in nearly four years, but trade news trumped data this morning, however fleeting that may be. BTPs print fresh highs having been knocked on the data, Bund/BTP spread tightens to 289bp.

Meanwhile, even the long-running Brexit drama saw a positive twist this week, with Brexit Secretary Dominic Raab saying he expects a deal by Nov. 21. That’s caused the FTSE 100 to underperform Europe for a third-straight day, as the pound continues to gain.

Dow Jones and S&P futures were also up almost one percent ahead of the monthly non-farm payrolls jobs data, and even the Nasdaq was higher despite the drop in Apple shares pre-market trading after underwhelming sales forecasts.

There was no hiding from today’s euphoria: an index of emerging-market equities jumped the most since March 2016, while currencies from South Korea to Australia joined the rally.

As risk aversion faded, the Bloomberg dollar index tumbled back below 1200 and commodity currencies rallied. Risk-sensitive currencies and stocks extended their recent rebound as the onshore yuan headed for biggest two-day gain since January.

Sterling made ground again to $1.30 on hopes London is closing in on transitional deal for when it leaves the EU next year. If it doesn’t slip it will be the second best week of the year for the pound. Thursday was its best day of the year. “Were it not for Brexit uncertainty, the Bank of England would probably have laid the groundwork (at its meeting on Thursday) for its next rate hike,” BNP Paribas analysts said in a note.

Overall, prospects for easing protectionist tensions are helping round out a week that’s seen appetite for risk assets return following the October rout in equities; the question of course is how much of what Trump has said is just an attempt to goose stocks into the midterms.

“Either President Trump is paving the way for a trade deal being agreed at the Buenos Aires G-20 summit later this month, or he’s cynically driving up equity indices ahead of U.S. mid-terms,” said SocGen FX strategist Kit Juckes. “What’s for sure, is that talk of a trade deal has added further juice to the last few day’s risk appetite.”

“When Trump wants to bump the market ahead of the mid-terms the market likes it,” Saxo Bank’s head of FX strategy John Hardy referring to next week’s mid-term U.S. elections. Hardy said while it might just be “political theater” from Trump for now, the real test would come when he and China’s President Xi Jinping meet at a summit of world leaders later this month in Argentina.

Meanwhile, doubts remain on the capacity of earnings to deliver. Apple’s disappointing forecast for the key holiday period suggested weaker-than-expected demand for the company’s pricier new iPhones. Next up is the U.S. jobs report for October later Friday, while U.S. mid-term elections next week are also weighing on investors’ minds.

As for the renewed euphoria of world trade peace, Bloomberg notes that talks between the U.S. and China may not be straightforward, with intellectual property theft still a stumbling block. A Chinese state-owned company was charged Thursday with conspiring to steal trade secrets from American chipmaker Micron Technology Inc. as the Justice Department steps up actions against the Asian nation in cases of suspected economic espionage.

In rates, Europe’s bond yields rose already on the rise as economists expect a 200,000 rise in U.S. jobs and see hourly earnings increasing 3.1% Y/Y. US 10Y Treasury yields with 3bps higher, at 3.1627%.

In commodity markets, metals led the charge on the hopes a trade deal will prevent China’s resource-hungry economy faltering. Three-month copper on the LME climbed as much as 2.5% to $6,240.50 a ton, its highest in a week. Other base metals were up across the board too, with zinc rising 1.8 percent, nickel climbing 1.7 percent, lead up 1.3 percent and aluminum gaining 0.9 percent.

Meanwhile, WTI was steady as fears over a supply disruption eased after the U.S. was said to agree on giving waivers to eight nations to continue importing Iranian crude. Bloomberg’s gauge of industrial metals extended a rebound from a 15-month low as copper, zinc and nickel led gains in other raw materials.

Market Snapshot

• S&P 500 futures up 0.9% to 2,762.00
• STOXX Europe 600 up 1.1% to 367.19
• MXAP up 2.5% to 154.05
• MXAPJ up 3.1% to 493.46
• Nikkei up 2.6% to 22,243.66
• Topix up 1.6% to 1,658.76
• Hang Seng Index up 4.2% to 26,486.35
• Shanghai Composite up 2.7% to 2,676.48
• Sensex up 2.1% to 35,165.01
• Australia S&P/ASX 200 up 0.1% to 5,849.21
• Kospi up 3.5% to 2,096.00
• Brent Futures down 0.4% to $72.59/bbl
• Gold spot up 0.1% to $1,234.99
• U.S. Dollar Index down 0.2% to 96.10
• German 10Y yield rose 3.5 bps to 0.434%
• Euro up 0.3% to $1.1438
• Brent Futures down 0.4% to $72.58/bbl
• Italian 10Y yield fell 4.6 bps to 3.01%
• Spanish 10Y yield rose 1.0 bps to 1.578%

Top Overnight News from Bloomberg

• President Donald Trump has asked key U.S. officials to begin drafting possible trade deal with China as the two leaders look to meet at G-20 summit this month in Argentina; said will make the right deal with China, President Xi “wants to do it”
• Xi says China will cut taxes, give market access to help private firms
• PBOC: China will speed up opening; sees continued “gray rhino” financial risks; economic and financial risks are controllable overall
• The U.S. has agreed to let eight countries keep buying Iranian oil after it reimposes sanctions on the OPEC producer on Nov. 5, according to a senior administration official
• The Financial Times reported that EU Brexit negotiators are exploring a plan for Northern Ireland that would give U.K. stronger guarantees that a customs border won’t be needed
• Eurozone final Oct. Markit Mfg PMI: 52.0 vs 52.1 flash; fall in order books as exports decline for first time nearly 5.5Y
• Riksbank’s Ingves: matters little whether hike in Dec. or Feb.
• U.S. is said to give 8 countries oil waivers under Iran sanctions

Asian equity markets tracked their Wall St counterparts higher after US stocks posted a 3rd consecutive gain with sentiment underpinned by optimism regarding US-China trade after what US President Trump described as a ‘very good’ conversation between him and Chinese President Xi Jinping. Furthermore, reports that Trump asked the cabinet to draft a potential China trade deal added fuel to the rally and helped US equity futures recover from the after-market pressure triggered by declines in Apple shares after the tech giant missed on iPhone and iPad sales, provided soft Q1 revenue guidance and announced to halt product unit sales data. ASX 200 (+0.1%) and Nikkei 225 (+2.6%) were mixed throughout most the session with Australia dampened by energy names after WTI crude futures slipped 2.7% to below USD 64.00/bbl on higher OPEC production in October, while the Japanese benchmark surged on a weaker currency and the encouraging trade related news. Elsewhere, Hang Seng (+4.2%) and Shanghai Comp. (+2.7%) also rose aggressively on the positive developments between US and China, with gains led by strength in tech names as well as casino stocks post-Macau gaming revenue numbers. Finally, 10yr JGBs were eventually flat as the initial upside was wiped out as US-China trade hopes were kindled by overnight reports, while the BoJ were also in the market today and increased its purchase amounts in the 1-5yr JGBs which was unsurprising given the reduction in the number of occasions it had planned for those purchases this month.

Top Asian News

• Chinese Property Dollar Bond Demand Wanes Amid Heavy Supply
• Fraud-Hit PNB’s Losses Mount as Provisions Surge to $1.3 Billion
• $2.8 Million to Switch Sides? Bribe Allegation Rattles Sri Lanka
• ’Wrath of Markets?’ New Delhi Pokes at India’s Central Bank
• Donmez: Turkey May Be Among Nations Exempted From Iran Sanctions

Main European indices are in the green, continuing the trend from Asia. The FSTE MIB (+1.5%) is leading after reports in Il Sole that Banca Carige are the only Italian bank seen as fragile; while the SMI is lagging (+0.1%) after the US FDA announced that Roche’s (-1.5%) recall is Class 1. Indices are mixed with materials (+2.3%) outperforming due to trade progression between the  US and China, notably President Trump said to have asked his cabinet to draft a potential trade deal. In terms of individual equities Kering (+5%) are higher after being upgraded at RBC, which has had a knock-on impact on other luxury names such as Burberry (4.5%), Moncler (+5.5%) and LVMH (+3.8%) who are up in sympathy. Separately, BMW (+2.5%) are up as they state they are expanding their car share service into 5 more London boroughs.

Top European News

• Russian Missile Tests Ground Helicopters to Norway Oil Platforms
• It’s Crunch Time for Trump Versus the World on Iran Sanctions
• Macquarie Lures Prop Traders to London After Rivals Retreated
• British Airways Owner Lifts Long Term Profit Goals: IAG Update
• Italy Considers Amending Rules on Strategic Industry M&A: Sole

In currencies, there was no respite for the Dollar, as its retracement from midweek peaks continues, albeit at a more measured pace. The latest downturn comes amidst reports that US President Trump has commissioned a draft trade accord with China following his encouraging chat with Xi and plans for a dinner+ date between the 2 at the upcoming G20 summit in Argentina. The Greenback is weaker vs all G10 counterparts, bar the JPY, which is still bucking the trend as an even safer currency haven, although the headline pair has topped out just above 113.00+ again and is back below its 30 DMA at 112.85, which could be pivotal on a closing basis. On that note, the DXY looks precarious just a fraction ahead of 96.000 in advance of NFP that could determine whether the index stabilises, recoils further or rebounds. AUD – The major outperformer and main beneficiary of constructive dialogue between China and the US, with Aud/Usd extending its marked recovery to 0.7250 before fading and essentially tracking Yuan moves after a considerably lower Usd/Cny fix overnight. EUR/CHF/NZD/GBP/CAD – All firmer vs the Buck, with the single currency not deterred by some downbeat Eurozone manufacturing PMIs and breaching a key Fib at 1.1426 to expose 1.1450 before 1.1460. However, a cluster of hefty option expiries, and 3.1 bn at the 1.1400 strike may stall Eur/Usd, ahead of 1.6 bn between 1.1450-60. The Franc is back above parity, and perhaps belatedly taking some note of SNB commentary yesterday about the inevitability of tighter policy, while the Kiwi continues to piggy-back its Antipodean peer with gains up towards 0.6700 before waning. Elsewhere, Cable has sustained 1.3000+ status after a knee-jerk visit post-BoE super Thursday, and cleared its 10 DMA circa 1.3005-10 with the aid of more positive-sounding Brexit reports (on paper), but respecting the 100 DMA from 1.3045-50. The Loonie is holding near the upper end of 1.3050-1.3100 parameters and also has jobs data looming to provide some independent direction. EM – Broad gains vs the Usd, with the Try through 5.5000 and Cnh breaking 6.9000, but Rub lagging against the backdrop of still soggy oil prices.

In commodities, WTI (-0.1%) and Brent (+0.3%) began the session lower following increased oil supply from Russia, OPEC and the US for October, notably the highest OPEC level since December 2016; an increase which has thrust the oil market into an oversupply dragging down prices. However, this has since reverted as Iran’s Deputy Oil Minister commented that he is unsure if waivers are permanent; comments which follow reports that 8 countries have received waivers allowing them to continue to purchase Iranian oil. Gold (+0.1%) is continuing the steady trade seen in Asia overnight, although off of yesterday’s highs of USD 1237.39/oz as market sentiment improves following Presidents Trump and Xi expressing optimism over the trade dispute. Separately, Trump has initiated an executive order preventing anyone within the US from dealing with anyone associated with gold sales from Venezuela. US is to give 8 countries waivers on new Iran oil sanctions, according to sources; updates to follow on the breakdown but India and South Korea have been touted as two of the nations.

Looking ahead to today, the highlight is almost certain to be the October employment report in the US this afternoon however prior to that this morning we’ll get the final manufacturing PMI revisions in Europe including those for the Euro Area, France and Germany, as well as a first look at the data for the periphery. Also out this morning is the September import price index reading in Germany, while in the US we’ll also get the September trade balance, September factory orders and final September durable and capital goods orders data. Away from that, the BoE’s Tenreyro is due to take part on the panel of an IMF conference while the big earnings releases include Berkshire Hathaway, Alibaba, Exxon Mobil, Chevron and AbbVie.

US Event Calendar

• 8:30am: Trade Balance, est. $53.6b deficit, prior $53.2b deficit
• 8:30am: Change in Nonfarm Payrolls, est. 200,000, prior 134,000
  • Unemployment Rate, est. 3.7%, prior 3.7%
  • Average Hourly Earnings MoM, est. 0.2%, prior 0.3%
  • Average Hourly Earnings YoY, est. 3.1%, prior 2.8%
  • Average Weekly Hours All Employees, est. 34.5, prior 34.5
• 10am: Factory Orders, est. 0.5%, prior 2.3%; Factory Orders Ex Trans, prior 0.1%
• 10am: Durable Goods Orders, prior 0.8%; Durables Ex Transportation, prior 0.1%
• 10am: Cap Goods Orders Nondef Ex Air, prior -0.1%; Cap Goods Ship Nondef Ex Air, prior 0.0%

DB’s Jim Reid concludes the overnight wrap

Early in the session yesterday it had looked like US equity markets might have had their legs taken away from them after this week’s rally. This followed a softer than expected ISM reading (more below) but a more upbeat comment from President Trump on Twitter about potential upcoming trade talks with China seemed to kick start a steadily climbing market for most of the rest of day. The S&P 500 rallied +1.06% which means it is now up +3.75% in the last three sessions. So it’s recouped about a third of the loss the index took into October 29th from the end of September. That three-day gain is the biggest since immediately following the US elections in November 2016 now for the S&P. The DOW (+1.06% yesterday) has also had its strongest three-day run since November 2016 while the NASDAQ (+1.75% yesterday) and NYSE FANG index (+2.56% yesterday) have had the strongest runs since June and February 2016 respectively.

Apple earnings poured a bit of cold water on things after the bell though. Earnings per share and revenue both beat the consensus forecasts at $2.91 versus $2.78 and $62.9bn versus $61.4bn, but the company’s guidance was disappointing. In addition, Apple sold fewer iPads, Macs, and iPhones than expected, and the stock traded around -6% lower in after hours trading.

In Asia S&P futures were initially down around 0.5% on the back of Apple but more positive China/US trade headlines have reversed this as we type. They are now up 0.6%. Looking at the trade headlines chronologically, the tweet from President Trump which helped markets to bounce in the morning US session was a vote of confidence from the President that conversations with Chinese President Xi Jingping on trade and also North Korea ahead of the G20 meeting later this month are “moving along nicely.” Reuters followed with a headline quoting Xi as saying that the President hopes China and the US can promote a steady and healthy relationship. The reporting by Chinese state-run television was similarly rosy, saying that Trump “cherishes the good relationship with the Chinse president” and that Xi “wishes to keep the Sino-US relationship healthy and stable.”

Overnight, following yesterday’s call between the US President Trump and China’s President Xi Jinping, Trump has asked his key cabinet secretaries to have their staff draw up a potential deal to signal a ceasefire in an escalating trade conflict. This was reported by Bloomberg citing unidentified sources. In the meantime, China’s daily South China Morning Post reported, quoting unidentified sources, that Mr Trump has offered to host a dinner for Chinese President Xi Jinping on December 1 in Buenos Aires after the G20 leaders summit, an invitation China has tentatively accepted.

The possible thaw in the trade war has helped risk gain momentum in Asia this morning. The Nikkei (+2.36%), Hang Seng (+3.58%), Shanghai Comp (+2.14%) and Kospi (+3.46%) are all up along with most Asian markets. Asia FX is largely up on the pause in trade war escalations with export oriented countries leading the gains – the Taiwan dollar (+0.85%), South Korean Won (+1.43%), China’s onshore yuan (+0.23%) and Australian dollar (+0.51%) are all up.

In spite of the rebound this week, October won’t be forgotten in a hurry, given the extent of the sell-off across markets. This is a good time to remind readers that we published our usual monthly performance review yesterday for October as a supplement to the usual EMR. You can find the link here .In it, we show an interesting chart that highlights how 2018 is shaping up to be the worst year on record in terms of breadth of negative assets returns in dollar terms, with data going back to 1901. In our sample, 89% of assets have now seen negative total returns in dollar terms this year. That is after 2017 saw the ‘best’ performance on this measure with just 1% (or 1 asset) with a negative dollar return. Hardly a coincidence in our view that this occurred as we moved from peak global QE to global QT over the past 2 years.

With markets faring well into the end of the week, there’s still one more test with today’s payrolls report in the US due up. The market consensus is for a 200k reading following that softer-than-expected 134k last month. Our US economists expect a 185k print, but believe that risks are to the downside due to the hurricane disruptions. Our colleagues expect the unemployment rate to remain steady at 3.7% (with risks it rounds down to 3.6%) while they expect average hourly earnings to rise +0.2% mom and to a new post-crisis high of 3.1% yoy – the highest since early 2009. This represents a jump of almost 40bps from the September reading which is largely due to base effects from October 2017, when earnings plunged after Hurricane Harvey, Irma and Maria boosted September 2017’s print.

Staying with economics, our German economics yesterday downgraded their near-term growth forecasts in light of recent data and also published the first big DB 2019 Outlook piece. In it they revised down their third quarter GDP forecast from 0.4% for 0.0.%, and their 2019 projection to 1.3% from 1.7%. This partially reflects the disruptions from new emissions standards, but it is also attributable to softer external demand as net exports drag on growth. On the political front, snap elections look more likely after Chancellor Merkel’s decision to not seek another term as party leader. The continuity replacement candidate would be Annegret Kramp-Karrenbauer, while a slightly more conservative and market-friendly option would be Friedrich Merz. Regardless, the SPD will reconsider its membership in the grand coalition and snap elections could come sooner than many currently expect.

Back to yesterday and European markets lagged behind the US with the STOXX 600 closing +0.41% and the DAX +0.18% – the former hindered by a struggling energy sector after oil tumbled around -2.5% following the latest supply numbers from OPEC which showed crude production had climbed to the highest level since 2016. European Banks did, however, finish up +1.47% – the third >1% rise for the index in the last six sessions – while bonds were slightly weaker at the margin (Bunds +1.4bps) with the exception of BTPs which ended -4.8bps lower in yield. Treasury yields turned lower after the ISM manufacturing print which declined 2.1pts from September to a below market 57.7 (vs. 59.0 expected). New orders tumbled 4.4pts to 57.4 and employment 2pts to 56.8. While these headline moves looked a lot softer than expected its worth putting the overall level in the context of what is still a number firmly in growth territory. Plus, the prices paid subindex rose to 71.6 versus the expected 69.0. It’s therefore unlikely to deter the Fed from the current path with respect to the growth outlook.

Here in the UK, we had the double act of a BoE meeting and more Brexit headlines. Gilt yields faded from early highs to close just +1.8bps higher, however Sterling rallied +1.93% for its biggest gain since April 2017 and in the process edged above $1.300 again after trading as low as 1.2696 just three days ago. The BoE meeting wasn’t much of game changer with policy left unchanged as expected, but with minor tweaks to the Inflation Report (mostly in line with our expectations) tilting the outlook slightly towards the hawkish side.

As for Brexit, well the Times “financial services deal” article that was out early yesterday morning was quickly downplayed from all sides, however a more material story was the MNI article which said that the EU is moving toward a semi-temporary customs union arrangement for the whole of the UK. Such a setup would apparently include strong regulatory alignment and would have no  fixed end-date. This would likely be sufficient to prevent the imposition of border checks in Northern Ireland (between NI and either Ireland or the rest of the UK), which should keep the DUP onside. We have long viewed this outcome as the most likely, though it is likely to enrage the hard Brexit wing of the Conservative government, potentially raising the odds of a political crisis if the story is confirmed. Later in the session, the FT reported a similar story about the proposed deal, and the pound held its gains. The chatter of late points to a deal being in sight but then the domestic political fun and games will start.

Apart from the ISM print, covered above, US data showed that productivity rose +2.2% qoq in the third quarter while unit labour costs increased +1.2%. This indicates that the supply side of economy may be improving, while inflationary pressures simultaneously continue to build. September construction spending printed at 0.0% as expected, but August was revised up to +0.8% from +0.1%. This presents upside risks to the second print of third quarter GDP. The only notable data releases in Europe were the UK’s nationwide house price index (which rose +1.6% versus expectations for +1.9%) and the October manufacturing PMI, which fell to 51.1 compared to consensus forecasts for 53.0. That’s its lowest level since July 2016 immediately following the Brexit referendum

Looking ahead to today, the highlight is almost certain to be the October employment report in the US this afternoon however prior to that this morning we’ll get the final manufacturing PMI revisions in Europe including those for the Euro Area, France and Germany, as well as a first look at the data for the periphery. Also out this morning is the September import price index reading in Germany, while in the US we’ll also get the September trade balance, September factory orders and final September durable and capital goods orders data. Away from that, the BoE’s Tenreyro is due to take part on the panel of an IMF conference while the big earnings releases include Berkshire Hathaway, Alibaba, Exxon Mobil, Chevron and AbbVie.

via RSS https://ift.tt/2yKys9V Tyler Durden

With oil prices already extending the drop from their highs as the trader “panic attack” identified by celebrated energy analyst Art Berman abates, and approaching a bear market from recent highs, a Friday morning report from Bloomberg will likely ensure that prices continue to move lower.

According to an anonymous “senior administration official”, the US will soon approve waivers for eight countries, including Japan, India and South Korea, that will allow them to continue buying Iranian crude oil even after sanctions are reimposed on Monday. China is also believed to be in talks to secure a waiver, while the other four countries weren’t identified. The waivers are part of a bargain for continued import cuts, which the administration hopes will lead to lower oil prices.  Secretary of State Mike Pompeo is expected to announce the exemptions on Friday.

Speculation that waivers could be forthcoming had been brewing for some time, and has been one of the factors driving oil prices lower in recent weeks. Pompeo has acknowledged that waivers were being considered for countries who insist that they depend on Iranian supplies, while adding that “it is our expectation that the purchases of Iranian crude oil will go to zero from every country or sanctions will be imposed.” Assuming the US does follow through with the waivers, it’s expected that they would be temporary, and the US would expect that the recipients would continue to wean themselves off Iranian crude. The administration will also reportedly ask that these countries reduce their trade in non-energy goods.

It’s believed that Turkey, another major importer of Iranian crude, may be one of the four working on an exemption, according to Turkish Energy Minister Fatih Donmez told reporters in Ankara on Friday. Iran was Ankara’s biggest source of oil last year, accounting for more than 25% of Turkey’s daily average imports of around 830,000 barrels. The identities of the recipients are expected to be released on Monday as sanctions take effect.

Despite the international outcry over Trump’s decision to withdraw from the Iran deal, the administration believes the sanctions are working. According to internal estimates, exports of Iranian crude have fallen to 1.6 million barrels a month, from 2.7 million barrels. That compares favorably to the 1.2 million barrels a month removed from the market under President Obama and the EU during the negotiations for the deal. Obama also extended waivers to 20 countries. 

The administration’s decision to issue waivers to eight countries also marked a significant reduction from the Obama administration, which issued such exemptions to 20 countries over three years. During the previous round of sanctions, nations were expected to cut imports by about 20 percent during each 180-day review period to get another exemption.

And in order to ensure that oil money isn’t used by Iran to finance terrorism, the US is reportedly developing an escrow system that will ensure that Iran can only spend its oil money on food, medicine and other crucial supplies.

Countries that get waivers under the revived sanctions must pay for the oil into escrow accounts in their local currency. That means the money won’t directly go to Iran, which can only use it to buy food, medicine or other non-sanctioned goods from its crude customers. The administration sees those accounts as an important way of limiting Iranian revenue and further constraining its economy.

“It’s a virtual certainty that Western banks are not going to violate the escrow restrictions,” said Mark Dubowitz, the chief executive of the Washington-based Foundation for Defense of Democracies who has advised Pompeo. “The message they’re sending is don’t screw around with these escrow accounts and try to get cute.”

Oil prices were little-changed following reports of the waivers, though it’s possible the reaction could be delayed until Pompeo releases more details about the countries that will be granted the waivers, and the details of what the waivers will look like.

It’s also possible that, since the killing of Jamal Khashoggi has thrown a wrench in the US’s plans to enlist Saudi help to further pressure the Iranian energy industry, that the likelihood of waivers had already been priced in.

via RSS https://ift.tt/2Q9wFlr Tyler Durden

Is a harmonious conclusion to the six-month-long US-China trade battle finally within reach? Or this just a ploy to push US stocks higher ahead of an election that will decide which party controls Congress for the balance of Trump’s term?

That’s the question traders will be asking themselves as they try to suss out the implications of a Bloomberg report claiming that President Trump has asked his cabinet to begin drawing up the terms of a deal following a “long and very good” conversation with Chinese President Xi Jinping on Thursday – the first phone call between the leaders of the world’s two largest economies in months. According to Bloomberg, Trump has asked key cabinet secretaries to have their staff draw up a draft deal that he hopes will signal an end to the trade conflict, BBG’s anonymous sources said. What remains unclear is whether Trump will drop the list of demands that have reportedly been a sticking point in negotiations since the spring. Among those demands are that China scale back state support for its ‘Made in China 2025’ initiative, drop policies that support the siphoning of intellectual property from foreign companies and reduce the country’s trade surplus with the US.

Predictably, the news ignited a torrid rally in Asian shares, with the Hang Seng Index rising 4.2%, the biggest gain since 2011, while the Shanghai Composite Index climbed 2.7% to cement its first four-day winning streak since February. The Chinese yuan, meanwhile, traded back below 6.9 to the dollar, while US stock futures moved higher, signaling that shares could be on their way to a fourth straight day of gains.

Analysts were split on their interpretation of the news. Some believed that the rash of downbeat forward guidance that helped trigger the ‘Shocktober’ market rout had finally inspired the president to try and quash the trade beef.

Tuuli McCully, head of Asia-Pacific economics at Scotiabank in Singapore, called the news “encouraging.” It “likely reflects the fact that businesses in the U.S. are starting to feel the impact of the trade conflict through higher prices and squeezed margins,” she said.

Others insisted that the news was a ploy and that, if anything, deal talks remain in preliminary stages.

The telephone conversation on Thursday was Trump and Xi’s first publicly disclosed call in six months. Both sides reported that they had constructive discussions on North Korea and trade, with Chinese state media saying that Trump supported “frequent, direct communication” between the presidents and “joint efforts to prepare for” the planned meeting on the sidelines of the Group of 20 summit, which is scheduled to take place from from Nov. 30 to Dec. 1.

We now wait for Trump economic advisor Larry Kudlow to pour cold water on the report during a Friday morning interview.

 

 

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

Authored by Jeffrey Snider via Alhambra Investment Partners,

Europe – From ‘Boom’ To The Precipice Of Recession

Data dependent, they claim. They aren’t. Mario Draghi at his last press conference admitted, “incoming information, [is] somewhat weaker than expected.” There is so much riding on the word “somewhat.” Because of the weasel, the head of the ECB told the assembled media policy normalization was unimpeded. He did so with a straight face.

Good. Europe’s QE experiment needs to end. Not because it succeeded, rather since there was no hope for it from the beginning. It was a giant waste, at best an enormous distortion. At most, it was a huge distraction from the real problem.

You have to hand it to the Germans. They seem quite capable of the more serious business of economics (small “e”). Where Economists (capital “E”) like Draghi play the game of somewhat data dependent, businesses in Germany refuse license to the same luxury. They are business dependent, meaning that if things really were booming they would act that way. And if something like recession looms, the Germans would know it.

And that’s exactly what they’ve said for much of this year particularly the past four or five months. The global economy, which heavily influences Germany’s, is heading for another downturn. For Europe as a whole, it’s a whole lot of trouble.

The European Union’s statistical body confirms today what German sentiment has been warning about. The European economy is already on the precipice of recession. The ZEW survey in September was as low as it was when Europe was last contracting. In Q3 2018, Eurostat reports that GDP expanded by just 0.16% over Q2. That was about one-third the rate in Q2, which was itself about three-quarters the gain in 2017.

Data dependent. Like the ZEW index, GDP growth was the lowest since Europe’s last recession.

This is quite a change from just three quarters ago. The latter half of last year was a veritable golden age for central bankers. They couldn’t contain themselves from seeing actual success within their grasp. At least that’s what they thought. If they had actually been data dependent they might’ve been far more cautious if still somewhat optimistic.

In truth, they seized on some positive numbers and hyped them as far as they possibly could. The economy of 2017 in Europe or anywhere else really wasn’t anything to get excited about. It was, consistent with the last decade, nothing more than the same low ceiling upturn we’ve experienced since August 2007. The question now is whether it was intentional misdirection, an economic fraud of sorts.

You give people the idea of QE, money printing supposedly, and then some positive numbers and then let them imagine a boom. Monetary policy that since Paul Volcker’s reign has been ruled by expectations management rather than money supply actually believes if enough people believe, it becomes self-fulfilling.

It’s not data dependent, it’s sheer lunacy. This is Economics.

Therefore, the results have been rising insanity. Picture yourself as an Italian. Europe’s political class tells you, based on Economists’ math, that you better just accept the way things are, that you don’t know how good you have it. Europe’s economy is booming and therefore you must be some form of detestable “ism” to resist their carefully laid plans.

Now, all of a sudden, the European economy as a whole is slowing and even contracting in some parts. You never felt this boom they talked about endlessly and now you can sense even that might be gone.

And that’s why it is really dangerous. Because Italy’s economy, Europe’s third largest, has shrunk. In Q2 2018, the latest Eurostat figures for Italy alone, Italian GDP was still 5% below the peak in Q1 2008. Five percent is a huge contraction for any single recession. Stretched out over ten and a half years it is nothing at all like recession, it is absolute criminal corruption. Not the kind where officials are looting the Treasury, but intellectual corruption that is far more dastardly and ultimately destructive.

And if Europe’s economy as a whole is now at best slowing, you know as an Italian the chances Italy’s economic condition will somehow change for the better is practically nothing. For if Europe isn’t growing, Italy hasn’t a prayer.

The Italians, they are data dependent.

This would be alarming enough on its own, but Europe’s sudden economic struggles in 2018 quite against all mainstream expectations and perceptions presage rough times for more than just unfortunate Europeans stuck with Draghi and the ECB. Economists and policymakers (redundant) in the United States currently gloating about some US boom should take note of the tone and audaciousness of their European counterparts late last year.

The President’s recent rhetoric with regard to Powell suggests that he has.

Europe is merely further along the same path than the US economy. Quite simply, it hit its low ceiling before the American economy did. The idea of decoupling is as ridiculous as “somewhat weaker than expected.”

From the get-go, in January, 2018 has been a huge disappointment. That already told us Economists hadn’t actually been paying close attention to data and making honest assessments. As it goes further along, though, we may end the year in far more dangerous than merely frustrating circumstances.

By all means, end QE. To do it close to or perhaps in full-blown recession would be perfectly fitting for the whole regime. The reasons and justifications won’t matter. That’s because it didn’t, and doesn’t, matter. QE or no QE, the global economy isn’t moved by central banks. They are, and have been, irrelevant. That much should be painfully obvious by now.

They really don’t know what they are doing. It’s starting to show, again, for a fourth time. The world simply will not stand for much more of this. 

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UK Twitter users divided over Islam may have fallen victim to Russian trolls, according to a research group which analyzed over 9 million tweets. 

A report released Thursday by the UK’s cross-party Demos think tank shows that a St. Petersburg “troll farm” tweeted far more about Islam than Brexit, reports Bloomberg. 

Using a Twitter-provided data set of 3,841 blocked accounts said to be linked to the Internet Research Agency, the study shows how accounts “camouflaged” themselves after their creation in 2011 by tweeting innocuous things about exercise and fitness in order to appear genuine, before becoming politically active to divide people. Demos adds as a caveat that they are “dependent on Twitter’s determination that these are indeed Russian state-operated accounts.” 

According to Demos:

• There were three phases in Russian influence operations: under-the-radar account building, minor Brexit vote visibility, and larger-scale visibility during the London terror attacks.
• Russian influence operations linked to the UK were most visible when discussing Islam. Tweets discussing Islam over the period of terror attacks between March and June 2017 were retweeted 25 times more often than their other messages.
• The most widely-followed and visible troll account, @TEN_GOP, shared 109 Tweets related to the UK. Of these, 60 percent were related to Islam.
• The topology of tweet activity underlines the vulnerability of social media users to disinformation in the wake of a tragedy or outrage.
• Focus on the UK was a minor part of wider influence operations in this data. Of the nine million Tweets released by Twitter, 3.1 million were in English (34 percent). Of these 3.1 million, we estimate 83 thousand were in some way linked to the UK (2.7%). Those Tweets were shared 222 thousand times. It is plausible we are therefore seeing how the UK was caught up in Russian operations against the US.
• Influence operations captured in this data show attempts to falsely amplify other news sources and to take part in conversations around Islam, and rarely show attempts to spread ‘fake news’ or influence at an electoral level.

In other words, the suspected Russian bots weren’t spreading fake news – they were amplifying legitimate news sources. 

Of the nine million tweets analyzed, a staggering one thousand four hundred and sixteen (1,416, or 0.0015%) were “messages sent by Russian state-operated accounts” after three London Islamic terror attacks, and were “widely shared on the platform.” The 1,416 tweets were retweeted 98,499 times – however Demos notes that they “cannot tell how many of these retweets were from other state-controlled or otherwise malicious accounts.” 

Demos offers the following caveats to their analysis:

• we cannot say with confidence what proportion of Russian state-operated accounts that were active over the period the data represents.
• we expect there to be significantly more accounts that have either not been detected or were not contained in the data released
• Although this is a useful window into Russian influence operations, we cannot be sure it is a representative one. We are equally dependent on Twitter’s determination that these are indeed Russian state-operated accounts.
• One of the major questions that this analysis cannot answer is whether this data set reveals Russian operations against the UK directly, or a small part of a Russian operation against the USA which happened to include UK-related messaging.

Read the working paper below: 

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Authored by Don Quijones via WolfStreet.com,

…the French megabanks are on the hook!

France was just served with a stark reminder of an inconvenient truth: €277 billion of Italian government debt — the equivalent of 14% of French GDP — is owed to French banks. Given that Italy’s government is currently locked in an existential blinking match with both the European Commission and the ECB over its budget plan for 2019, this could be a big problem for France.

On Friday, France’s finance minister, Bruno Le Maire, urged the commission to “reach out to Italy” after rejecting the country’s draft 2019 budget for breaking EU rules on public spending. Le Maire also conceded that while contagion in the Eurozone was definitely contained, the Eurozone “is not sufficiently armed to face a new economic or financial crisis.” As Maire well knows, a full-blown financial crisis in Italy would eventually spread to France’s economy, with French banks serving as the main transmission mechanism.

France isn’t the only Eurozone nation with unhealthy levels of exposure to Italian debt, although it is far and away the most exposed. According to the Bank of International Settlements, German lenders have €79 billion worth of exposure to Italian debt and Spanish lenders, €69 billion. In other words, taken together, the financial sectors of the largest, second largest and fourth largest economies in the Eurozone — Germany, France and Spain — hold over €415 billion of Italian debt on their balance sheets.

While the exposure of German lenders to Italian debt has waned over the last few years, that of French lenders has actually grown, belying the ECB’s long-held claim that its QE program would help reduce the level of interdependence between European sovereigns and banks.

If anything, the opposite has happened: thanks to the ECB’s tireless efforts to underpin the Eurozone’s bond markets (by doing “whatever it takes” to make sovereign bonds virtually risk-free), banks have been able to make a tidy margin by simply bulk-buying government bonds at officially zero risk.

A few years ago fiscally hawkish Eurozone countries such as Germany, the Netherlands, and Finland lobbied to put an end to this practice by removing the risk-free status of certain risk-prone sovereign bonds. But their efforts were staunchly opposed by French, Italian and Spanish politicians and bankers, who feared that any such move would result in market mayhem.

Today, market mayhem is not off the cards. The dispute over Italy’s draft budget is unsettling investors. This is reflected not only in the spread between Italian and German ten-year bond yields, which hit four-year highs a couple of weeks ago, but also the sentix Euro Break-up Index, which in October rose to its highest level since April 2017, mainly due to the strong rise in the Italian sub-index.

On a more positive note, investors do not yet appear to fear negative contagion effects, as reflected in the low rise of the Greek sub-index and the index for the contagion risk, which even dropped slightly from 36% to 33%. In other words, investors don’t yet fear for the stability of the Eurozone. But as Bloomberg points out, the exposures of French and German banks to Italian debt mean that those countries’ leaders are strongly incentivized to seek a compromise in the current standoff over Italy’s government budget.

Italy’s coalition partners are perfectly aware of this fact. They know that during the Greek crisis of 2010-11, French and German banks held around $115 billion of Greek debt. That was enough to convince the French and German governments of the day to offer Greece a partial bondholder bailout, though eventually, some private-sector bondholders were given a large haircut as part of the deal.

This is all perfectly understood by Italy’s government, as is the fact that French, German and Spanish banks are now far too exposed to Italian debt for their respective governments to even entertain the idea of pushing Italy to the edge. That knowledge is fueling the coalition government’s bravado, with some lawmakers now even talking about extending Italian government funds to struggling Italian banks if economic conditions continue to worsen.

“Brussels would love to see our defeat,” said Claudio Borghi, the Lega economics chief and budget chairman in the Italian parliament.

“They think that we’ll surrender if they cause a crisis for our banks. But we still have €15 billion left in the bank rescue fund from the Renzi era. It is not a great situation but we’re still relatively comfortable. In the end, it will be they who have to back down.”

Lorenzo Bini-Smaghi, a former member of the ECB board, disagrees. He believes that events are following a similar script to the onset of the Eurozone debt crisis in 2011, when surging bond yields caused a massive contraction in credit.

“Italy is going straight into a wall,” he says.

“The economy risks tipping into recession in the fourth quarter. The banks have already cut loans over the summer, as soon as the spreads began to rise. The Italian government has not understood this. You can’t see the wall yet, but the crash is going to be violent.”

It may sound like rank fear mongering from a dyed-in-the-wool eurocrat, but besides being a former central banker, Bini-Smaghi is also the current Chairman of Société Générale, France’s second largest bank, which is presumably filled to the gills with Italian debt. As such, he probably has even more to fear from a full-scale Italian debt crisis than most.

But outside Italy, credit markets are sanguine, and no one says, “whatever it takes.” Read…  Italy’s Debt Crisis Thickens  

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Tens of thousands of migrants undertaking dangerous journeys in search of greener pastures throughout the world are dead or missing, according to an AP tally – nearly doubling estimates from the N’s International Organization for Migration (IOM). 

At least 56,800 migrants worldwide have simply vanished since 2014 by AP‘s count – eclipsing the IOM’s October 1 estimate of around 28,500. This year alone, the IOM has documented over 1,900 deaths in and around the Mediterranean. 

“A growing number of migrants have drowned, died in deserts or fallen prey to traffickers, leaving their families to wonder what on earth happened to them,” reports Fox News. “At the same time, anonymous bodies are filling cemeteries around the world.”

Focusing on Europe alone, AP found almost 4,900 migrants whose families can’t account for their lived ones – nearly half of which are children who have been reported missing to the Red Cross.

… many of those who go missing are uncounted, including boatfuls [sic] of young Tunisians or Algerians and children whose parents lost track of them in the chaos of land border crossings. In all, The Associated Press found nearly 4,900 people whose families say they simply disappeared without a trace in Europe or en route, including more than 2,700 children whose families reported them missing to the Red Cross. –Fox News

Meanwhile, efforts to identify those who have died in shipwrecks trying to make it to Europe have fallen flat. Of the 400 or so remains interred in a Tunisian cemetery for unidentified migrants, for example, only one has ever been identified since its opening in 2005. 

“Their families may think that the person is still alive, or that he’ll return one day to visit,” said one unemployed sailor, Chamseddin Marzouk. “They don’t know that those they await are buried here, in Zarzis, Tunisia.”

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Authored by Michael Snyder via The American Dream blog,

Could it be possible that the U.S. is heading for a major war?  If you ask most Americans that question, they will look at you like you are crazy.  For most people in this country, war with either Russia or China is not something to even be remotely concerned about. 

But the Russians and the Chinese both see things very differently.  As you will see below, Russia and China both seem to be under the impression that war with the United States is coming, and they are both rapidly preparing for such a conflict.

Let’s start with Russia.  After repeatedly slapping them with sanctions, endlessly demonizing their leaders and blaming them for just about every problem that you can imagine, our relationship with Russia is about the worst that it has ever been.

And when the Trump administration announced that it was withdrawing from the Intermediate-Range Nuclear Forces Treaty, that pushed things to a new low.  In the aftermath of that announcement, Russian official Andrei Belousov boldly declared that “Russia is preparing for war”…

He said: “Here recently at the meeting, the United States said that Russia is preparing for war.

“Yes, Russia is preparing for war, I have confirmed it.

“We are preparing to defend our homeland, our territorial integrity, our principles, our values, our people – we are preparing for such a war.”

Here in the United States, there is very little talk of a potential war with Russia in the mainstream media, but in Russia things are very different.  Russian news outlets are constantly addressing escalating tensions with the United States, and the Russian government has been adding fuel to that fire.  For example, the Russian government recently released a video of a mock nuclear strike against their “enemies”…

Russian submarines have recently carried out a mock nuclear attack against their “enemies.” The Russian government has released footage of the atomic strike and it is sparking fears that the third world war is quickly approaching.

The Russian Ministry of Defense (MoD) has published shocking videos that show a range of nuclear missile drills including a submarine carrying out a mock atomic strike. These videos are the latest in a series of escalating war-games ordered by Russian President Vladimir Putin, according toThe Express UK.

I’ll give you just one guess as to who the primary enemy in that drill was.

And what Russian President Vladimir Putin recently told the press about a potential nuclear war was extremely chilling…

If any nation decides to attack Russia with nuclear weapons, it may end life on Earth; but unlike the aggressors, the Russians are sure to go to heaven, President Vladimir Putin has said.

“Any aggressor should know that retribution will be inevitable and he will be destroyed. And since we will be the victims of his aggression, we will be going to heaven as martyrs. They will simply drop dead, won’t even have time to repent,” Putin said during a session of the Valdai Club in Sochi.

Under normal circumstances, Putin would never talk like that.

But these are not normal times.

Meanwhile, Chinese President Xi Jinping is ordering his military to focus on “preparations for fighting a war”…

China’s President Xi Jinping ordered the military region responsible for monitoring the South China Sea and Taiwan to “assess the situation it is facing and boost its capabilities so it can handle any emergency” as tensions continue to mount over the future of the South China Sea and Taiwan, while diplomatic relations between Washington and Beijing hit rock bottom.

The Southern Theatre Command has had to bear a “heavy military responsibility” in recent years, state broadcaster CCTV quoted Xi as saying during an inspection tour made on Thursday as part of his visit to Guangdong province.

“It’s necessary to strengthen the mission … and concentrate preparations for fighting a war,” Xi said. “We need to take all complex situations into consideration and make emergency plans accordingly. “We have to step up combat readiness exercises, joint exercises and confrontational exercises to enhance servicemen’s capabilities and preparation for war” the president-for-life added.

So who are the Chinese concerned that they may be fighting against?

Needless to say, the United States is at the top of the list…

The president instructed the military to ramp-up opposition to ‘freedom of navigation’ exercises being undertaken by the US, Australia, France, the UK, Japan and others through the waterway through which arterial shipping lanes have grown since the end of World War II.

Tensions over the South China Sea have been increasing for several years, and starting a trade war with China in 2018 has certainly not helped things.

At this point, even many U.S. analysts can see the writing on the wall.  For instance, just consider what Harvard Professor Graham Allison recently told Steve LeVine…

He said, if history holds, the U.S. and China appeared headed toward war.

Over the weekend, I asked him for an update — specifically whether the danger of the two going to war seems to have risen.

“Yes,” he responded. The chance of war is still less than 50%, but “is real — and much more likely than is generally recognized.”

Of course we didn’t get to this point overnight.  Tensions with Russia and China have been simmering for quite a while, and both of those nations have been rapidly modernizing their military forces.  For much more on this, please see my recent article entitled “Russia And China Are Developing Impressive New Weapons Systems As They Prepare For War Against The United States”.

Sadly, the vast majority of the U.S. population is utterly clueless about these things.

But those that are serving in the military have a much better understanding, and one recent survey found that about half of them expect the U.S. to be “drawn into a new war within the next year”…

Nearly half of all current military troops believe the United States will be drawn into a major war soon, a jarring rise in anxiety among service members worried about global instability in general and Russia and China in particular, according to a new Military Times poll of active-duty troops.

About 46 percent of troops who responded to the anonymous survey of currently serving Military Times readers said they believe the U.S. will be drawn into a new war within the next year. That’s a jarring increase from only about 5 percent who said the same thing in a similar poll conducted in September 2017.

Those numbers are jarring.

Some major stuff must be going on behind the scenes in order to go from 5 percent to 46 percent in a single year.

We truly are living in apocalyptic times, and our world seems to be getting more unstable with each passing day.

We should hope for peace, but throughout human history peace has never lasted for long.  Major global powers continue to edge closer and closer to conflict, and that is a very dangerous game to be playing.

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A Pentagon official said Monday that Taiwan should increase its military spending to safeguard continued peace and security both across the Taiwan Strait and within the Indo-Pacific, reported Focus Taiwan.

David Helvey, U.S. principal deputy assistant secretary of defense for Asian and Pacific security affairs, made the suggestion that the self-ruled island “must have resources to modernize its military and provide the critical material, manning and training needed to deter, or if necessary defeat, a cross-strait invasion” at the U.S.-Taiwan Defense Industry Conference in Annapolis, Maryland.

According to the official transcript of the speech, Helvey said in a combination of strengthening its military, Taiwan is developing conventional capabilities to meet the peacetime requirements of active military in the South China Sea.

The defense official criticized China for attempting to “erode Taiwan’s diplomatic space in the international arena while increasing the frequency and scale of [People’s Liberation Army] activity within and beyond the First Island Chain.”

He warned that Taiwan could not “afford to overlook preparing for the one fight it cannot afford to lose.”

In the face of China’s increasing military threat, the U.S. has utilized the Taiwan Relations Act to sell arms to Taiwan to maintain the island’s self-defense capability as part of an overall effort to prevent China from taking it over by force.

Helvey’s comments come days after President Xi Jinping told the Chinese military that they should “prepare for war” in the South China Sea.

Helvey told the audience that the U.S. and Taiwan both needed to update their strategy on arms procurement, planning, and training to thwart a Chinese invasion.

“These changes are essential if we are to look dispassionately at the military balance in the region and devise a way ahead that ensures Taiwan has the ability to resist coercion and deter aggression,” the Pentagon official said.

President Trump approved two separate packages of weapon sales to Taiwan in the last 12 to 18 months. The first, valued at $1.4 billion, transacted in summer 2017, the second, worth $330 million, in September.

Taiwan has frequently expressed its need to acquire M1A2 Abrams battle tanks and F-35 fighter jets, saying it wants “new fighters capable of vertical or short take-off and landing and having stealth characteristics”.

Derek Grossman, a senior defense analyst with Rand Corp, said: “Taiwan is certainly interested in acquiring the F-35 for the vertical/short take-off and landing capability it would provide its air force”.

Grossman said Taiwan’s need for F-35s is driven by China’s short-range ballistic missiles, which could target the Taiwan air force’s runways in strikes to keep the island’s conventional aircraft grounded.

“If tensions continue to persist in the US-China relationship, it’s conceivable Washington might ramp up arms sales beyond just once or twice a year,” Grossman added.

The South China Sea: A geopolitical powder keg that is set to ignite in the coming years between China and Taiwan. 

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Authored by Philip Giraldi via The Unz Review,

Let the cover-up begin…

The angst over the Jamal Khashoggi murder in the Saudi Arabian Consulate General building in Istanbul is already somewhat fading as the media has moved on in search of fresh meat, recently focusing on the series of attempted mail bombings, and currently on the mass shooting in Pittsburgh. But the affaire Khashoggi is still important as it potentially brings with it possible political realignments in the Middle East as well as in Europe as countries feel emboldened to redefine their relationship with Saudi Arabia.

The Turks know exactly what occurred in the Consulate General building and are now putting the squeeze on the Saudis, requiring them to fess up and no doubt demanding compensation. Some sources in Turkey believe that President Recep Tayyip Erdogan will actually demand recreation of the Caliphate, which the Kemal Ataturk led Turkish Republic’s government abolished in 1924. That would diminish Saudi Arabia’s ability to regard itself as the pre-eminent Islamic state due to its guardianship over the holy sites in Mecca and Medina. It would be a major realignment of the Islamic umma and would be akin to a restoration of some semblance of Ottoman supremacy over the region.

To be sure, the brutally effective Turkish intelligence service, known by its acronym MIT, is very active when it comes to monitoring the activities of both friendly and unfriendly foreign embassies and their employees throughout Turkey. It uses electronic surveillance and, if the foreign mission has local Turks as employees, many of those individuals will be agents reporting to MIT. As a result, it should be presumed that MIT had the Consulate General building covered with both cameras and microphones, possibly inside the building as well as outside, meaning that the audio of the actual killing that has been reported in the media is no doubt authentic and might even be supplemented with video.

One recent report, on BBC, indicates that CIA Director Gina Haspel has traveled to Turkey and has been allowed to hear the recordings of Khashoggi being tortured and killed. It’s a good thing the Trump White House sent Haspel as she would know exactly what that sort of thing sounds like based on her own personal experience in Thailand. She will presumably be able to explain the operation of a bone saw to the president.

So the Saudis seem to be in a hopeless situation, but they have several cards to play. They have many lobbyists of their own in Washington that have bought their way into think tanks and onto editorial pages. They are also in bed with Israel in opposition to Iran, which means that the Israel Lobby and its many friends in the U.S. Congress will complain about killing Khashoggi but ultimately will not do anything about it. The White House will also discourage America’s close allies from adopting measures that would do serious damage to the Saudis. In regional terms, Saudi Arabia is also key to Trump’s anticipated Middle East peace plan. If it pulls out from the expected financial guarantees aspect, the plan will fall apart, so Washington will be pressing hard on Ankara in particular to not overdo its bid for compensation.

All of which leads to some consideration of the hypocrisy of the outrage over Khashoggi. Saudi Arabia murdered a citizen in a diplomatic facility located in Turkey, apparently because they believed that individual to be a dissident who was a threat to national security. They then seriously botched the cover-up. In spite of all that, it would seem that the issue involves only two parties directly, the Saudis and the Turks, though there have been calls from a number of countries to punish the Saudis for what was clearly a particularly gruesome murder carried out in contravention of all existing rules for behavior of diplomatic missions in foreign countries.

The Vienna Convention on Diplomatic and Consular missions grants to Diplomats a certain level of immunity in foreign posts, but that does not include murder. In consular posts, like Istanbul, consular immunity only extends to officials who are actually performing consular duties when an alleged infraction occurs. I know from personal experience how subjective that process can be as I was arrested by Turkish police when I was the U.S. Consulate duty officer in Istanbul while looking for a missing American who turned out to be a drug dealer. The Turks weren’t sure what to do with me as I was Consular so I spent 24 hours playing cards with the prison governor before I was released.

The hypocrisy comes in when the U.S. Congress and media become enraged and demand that there be “consequences,” in part because Khashoggi was a U.S. legal resident and therefore under law a “U.S. person.” Saudi Arabia is, to be sure, a country that most would consider to be an undesirable destination if one is seeking to eat, drink and be merry. Or just about anything else having to do with personal liberty. An absolute dictatorship run by one family, it has long both relied on and been the exporter of the most backward looking and unpleasant form of Islam, Wahabbism. But for the fact that the Saudis are the world’s leading exporter of oil, and, for Muslims, guardian of the religion’s holy sites, the country would long ago have been regarded as a pariah.

But that said, Congress and the White House might well consider how the rest of the world views the United States when it comes to killing indiscriminately without fear of consequences. President Barack Obama, who has practically been beatified by the U.S. mainstream media, was the first American head of state to openly target and kill American citizens overseas. He and his intelligence advisor John Brennan would sit down for a Tuesday morning meeting to revise the list of Americans living outside the U.S. who could be assassinated. To cite only one example, the executions of Yemeni dissident Anwar al-Awlaki and his son were carried out by drone after being ordered from the White House without any due process apart from claimed presidential authority. Obama and his Secretary of State Hillary Clinton also attacked Libya, a nation with which America was not at war, destroyed its government, and reduced the country to its current state of anarchy. When its former ruler Moammar Gaddafi was captured and killed by having a bayonet inserted up his anus, Hillary giggled and said “We came, we saw, he died.”

The United States is also supporting the ongoing war in Syria and also enables the Saudis to continue their brutal attacks on Yemen, which have produced cholera, starvation and the deaths of an estimated 60,000 Yemenis plus millions more threatened by disease and the deliberate cutting off of food supplies. And the White House looks the other way as its other best friend in the Middle East, Israel, shoots thousands of unarmed Palestinian demonstrators. Overall one might argue that if there is a smell in the room it is coming from Washington and one death in Istanbul, no matter how heinous, pales in comparison to what the U.S. itself, Israel and Saudi Arabia have been doing without any pushback whatsoever.

And then there is the small matter of actual American interests. If Washington persists in going after the Saudis, which it will not do, it will presumably jeopardize future weapons sales worth tens of billions of dollars. The Saudis also support the system of petrodollars, which basically requires nearly all international purchases of petroleum to be paid in dollars. Petrodollars in turn enable the United States to print money for which there is no backing knowing that there will always be international demand for dollars to buy oil. The Saudis, who also use their own petrodollars to buy U.S. treasury bonds, could pull the plug on that arrangement. Those are actual American interests. If one pulls them all together it means that the United States will be looking for an outcome to Khashoggi’s slaying that will not do too much damage to Saudi Arabia.

So, what do I think will happen as a result of the Khashoggi killing? Nothing that means anything. There are too many bilateral interests that bind the Saudis to Europe and America’s movers and shakers. Too much money is on the table. In two more weeks mentioning the name Khashoggi in Washington’s political circles will produce a tepid response and a shake of the head. “Khashoggi who?” one might ask.

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